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FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 2002
-------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from:__________________ to __________________
Commission File Number: 0-19297
First Community Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Nevada 55-0694814
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Community Place, Bluefield, Virginia 24605
(Address of principal executive offices) (Zip Code)
(276) 326-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No__
-
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 2002
Common Stock, $1 Par Value 9,925,982
-----------------------
First Community Bancshares, Inc.
FORM 10-Q
For the quarter ended June 30, 2002
INDEX
PART I. FINANCIAL INFORMATION REFERENCE
---------
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2002 and
December 31, 2001 3
Consolidated Statements of Income for the Three and Six
Month Periods Ended June 30, 2002 and 2001 4
Consolidated Statements of Cash Flows for the
Six Month Periods Ended June 30, 2002 and 2001 5
Consolidated Statements of Changes in Stockholders'
Equity for the Six Months Ended June 30,
2002 and 2001 6
Notes to Consolidated Financial Statements 7-12
Independent Accountants' Review Report 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-22
Item 3. Quantitative and Qualitative Disclosures about 23
Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of 24
Security Holders
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
2
PART I. ITEM 1. FINANCIAL STATEMENTS
FIRST COMMUNITY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Data)
- -------------------------------------------------------------------------------------------------------------------------
June 30 December 31
2002 2001
Assets (Unaudited) (Note 1)
------------------ ------------------
Cash and due from banks $ 31,448 $ 47,566
Interest-bearing balances-FHLB 255 249
Securities available for sale (amortized cost of $330,567 at
June 30, 2002; $352,759 at December 31, 2001) 338,572 354,007
Securities held to maturity (fair value of $43,477 at
June 30, 2002; $43,393 at December 31, 2001) 41,327 41,884
Loans held for sale 52,095 65,532
Loans, net of unearned income 928,541 904,496
Less allowance for loan losses 14,194 13,952
------------------ ------------------
Net loans 914,347 890,544
Premises and equipment 22,314 21,713
Other real estate owned 2,452 3,029
Interest receivable 8,330 8,765
Other assets 18,348 18,468
Goodwill and other intangibles 25,846 26,478
------------------ ------------------
Total Assets $ 1,455,334 $ 1,478,235
================== ==================
Liabilities
Deposits:
Noninterest-bearing $ 156,820 $ 161,346
Interest-bearing 924,695 916,914
------------------ ------------------
Total Deposits 1,081,515 1,078,260
Interest, taxes and other liabilities 17,914 16,007
Fed funds purchased 8,950 26,500
Securities sold under agreements to repurchase 83,015 79,262
FHLB borrowings and other indebtedness 120,056 145,165
------------------ ------------------
Total Liabilities 1,311,450 1,345,194
------------------ ------------------
Stockholders' Equity
Common stock, $1 par value; 15,000,000 shares authorized ;
9,956,714 and 9,955,425 issued in 2002 and 2001; and
9,925,982 and 9,936,442 outstanding in 2002 and 2001, respectively 9,957 9,955
Additional paid-in capital 58,600 60,189
Retained earnings 71,394 62,566
Treasury stock, at cost (870) (424)
Accumulated other comprehensive income 4,803 755
------------------ ------------------
Total Stockholders' Equity 143,884 133,041
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 1,455,334 $ 1,478,235
================== ==================
See Notes to Consolidated Financial Statements.
3
FIRST COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Share and Per Share Data) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
Six Months Three Months
Ended Ended
June 30 June 30
2002 2001 2002 2001
--------------- ------------- ------------- ----------------
Interest Income:
Interest and fees on loans held for investment $ 36,049 $ 36,391 $ 18,013 $ 18,262
Interest on loans held for sale 1,670 1,347 826 736
Interest on securities-taxable 6,999 4,871 3,621 2,193
Interest on securities-nontaxable 3,422 2,850 1,680 1,465
Interest on federal funds sold and deposits in banks 82 577 39 479
--------------- ------------- ------------- ----------------
Total interest income 48,222 46,036 24,179 23,135
--------------- ------------- ------------- ----------------
Interest Expense:
Interest on deposits 13,397 16,707 6,404 8,296
Interest on borrowings 5,180 5,161 2,603 2,586
--------------- ------------- ------------- ----------------
Total interest expense 18,577 21,868 9,007 10,882
--------------- ------------- ------------- ----------------
Net interest income 29,645 24,168 15,172 12,253
Provision for loan losses 1,959 1,732 1,022 985
--------------- ------------- ------------- ----------------
Net interest income after provision for loan losses 27,686 22,436 14,150 11,268
--------------- ------------- ------------- ----------------
Noninterest Income:
Fiduciary income 844 910 501 501
Service charges on deposit accounts 3,269 2,808 1,806 1,503
Other service charges, commissions and fees 681 676 355 199
Mortgage banking income 5,356 4,289 2,107 2,544
Other operating income 482 494 186 263
Gain on sale of securities 186 44 9 (7)
--------------- ------------- ------------- ----------------
Total noninterest income 10,818 9,221 4,964 5,003
--------------- ------------- ------------- ----------------
Noninterest Expense:
Salaries and employee benefits 11,549 9,665 5,746 4,994
Occupancy expense of bank premises 1,422 1,337 679 675
Furniture and equipment expense 1,065 959 562 496
Goodwill and core deposit amortization 580 1,119 293 563
Other operating expense 6,900 5,501 3,399 2,900
--------------- ------------- ------------- ----------------
Total noninterest expense 21,516 18,581 10,679 9,628
--------------- ------------- ------------- ----------------
Income before income taxes 16,988 13,076 8,435 6,643
Income tax expense 4,914 4,011 2,539 2,034
--------------- ------------- ------------- ----------------
Net Income $ 12,074 $ 9,065 $ 5,896 $ 4,609
=============== ============= ============= ================
Basic and diluted earnings per common share $ 1.21 $ 0.91 $ 0.59 $ 0.46
=============== ============= ============= ================
Weighted average basic shares outstanding 9,939,223 9,946,916 9,945,158 9,948,374
=============== ============= ============= ================
Weighted average diluted shares outstanding 9,985,704 9,964,161 9,993,812 9,976,501
=============== ============= ============= ================
See Notes to Consolidated Financial Statements.
4
FIRST COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30
2002 2001
------------------ -------------------
Operating Activities
Cash flows from operating activities:
Net income $ 12,074 $ 9,065
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan losses 1,959 1,732
Depreciation of premises and equipment 785 743
Amortization of intangible assets 454 1,065
Net investment amortization and accretion 764 95
Net gain on the sale of assets (4,094) (2,486)
Mortgage loans originated for sale (301,189) (254,155)
Proceeds from sale of mortgage loans 319,274 233,933
Increase in interest receivable 435 797
Decrease in other assets (2,464) (482)
(Decrease) Increase in other liabilities 2,993 1,232
Other, net 428 (5)
--------------- ----------------
Net cash provided by (used in) operating activities 31,419 (8,466)
--------------- ----------------
Investing Activities
Cash flows from investing activities:
Proceeds from sales of securities available for sale 13,956 7,471
Proceeds from maturities and calls of securities available for sale 40,171 56,221
Proceeds from maturities and calls of investment securities 568 1,357
Purchase of securities available for sale (32,523) (74,645)
Net increase in loans made to customers (26,207) (35,652)
Purchase of premises and equipment (1,694) (1,478)
--------------- ----------------
Net cash used in investing activities (5,729) (46,726)
--------------- ----------------
Financing Activities
Cash flows from financing activities:
Net increase in demand and savings deposits 24,966 2,434
Net (decrease) increase in time deposits (21,512) 26,181
Net (decrease) increase in FHLB and other indebtedness (38,952) 23,627
Repayment of other borrowings (109) (8)
Acquisition of treasury stock (1,224) (377)
Dividends paid (4,971) (4,171)
--------------- ----------------
Net cash (used in) provided by financing activities (41,802) 47,686
--------------- ----------------
Cash and Cash Equivalents
Net decrease in cash and cash equivalents (16,112) (7,506)
Cash and cash equivalents at beginning of year 47,815 50,243
--------------- ----------------
Cash and cash equivalents at end of year $ 31,703 $ 42,737
=============== ================
See Notes to Consolidated Financial Statements.
5
FIRST COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
(Dollars in Thousands, Except Share and Per Share Information) (Unaudited)
Additional
Common Paid-in Retained
Stock Capital Earnings
Balance January 1, 2001 9,052 35,273 78,097
Comprehensive income:
Net income - - 9,065
Other comprehensive income, net of tax:
Net unrealized gains on
securities available for sale - - -
Comprehensive income - - 9,065
------------ -------------- --------------
Common dividends declared
($.46 per share) - - (4,171)
Purchase 17,780 treasury shares at
$21.19 per share - - -
Treasury share distribution to ESOP 29
------------ ------------ --------------
Balance June 30, 2001 9,052 35,302 82,991
============ ============ ==============
Balance January 1, 2002 9,955 60,189 62,566
Comprehensive income:
Net income - - 12,074
Other comprehensive income, net of tax:
Net unrealized gains on
securities available for sale - - -
Comprehensive income - - 12,074
--------------
Common dividends declared
($.50 per share) - - (4,971)
10% stock dividend and fractional share
adjustment 2 (1,729) 1,725
Purchase 42,844 treasury shares at
$28.52 per share - - -
Treasury share distribution to ESOP 140
------------ ------------ --------------
Balance June 30, 2002 9,957 58,600 71,394
============ ============ ==============
Accumulated
Other
Treasury Comprehensive
Stock (Loss) Income Total
Balance January 1, 2001 (202) (1,538) 120,682
----------------
Comprehensive income:
Net income - - 9,065
Other comprehensive income, net of tax:
Net unrealized gains on
securities available for sale - 2,185 2,185
----------------
Comprehensive income - 2,185 11,250
------------ ---------------- --------------
Common dividends declared
($.46 per share) - - (4,171)
Purchase 17,780 treasury shares at
$21.19 per share (377) - (377)
Treasury share distribution to ESOP 378 407
------------ ---------------- --------------
Balance June 30, 2001 (201) 647 127,791
============ ================ ==============
Balance January 1, 2002 (424) 755 133,041
----------------
Comprehensive income:
Net income - - 12,074
Other comprehensive income, net of tax:
Net unrealized gains on
securities available for sale - 4,048 4,048
----------------
Comprehensive income - 4,048 16,122
----------------
Common dividends declared
($.50 per share) - - (4,971)
10% stock dividend and fractional share
adjustment (14) (16)
Purchase 42,844 treasury shares at
$28.52 per share (1,224) - (1,224)
Treasury share distribution to ESOP 792 932
------------ ---------------- --------------
Balance June 30, 2002 (870) 4,803 143,884
============ ================ ==============
See Notes to Consolidated Financial Statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. UNAUDITED FINANCIAL STATEMENTS
The unaudited consolidated balance sheet as of June 30, 2002, the unaudited
consolidated statements of income for the three and six months ended June 30,
2002 and 2001 and the cash flows and changes in stockholders' equity for the six
months ended June 30, 2002 and 2001 have been prepared by the management of
First Community Bancshares, Inc. ("FCBI", the "Company", "Registrant" or the
"Corporation"). In the opinion of management, all adjustments (including normal
recurring accruals) necessary to present fairly the financial position of FCBI
and subsidiaries at June 30, 2002 and its results of operations, cash flows, and
changes in stockholders' equity for the three and six months ended June 30, 2002
and 2001 have been made. These results are not necessarily indicative of the
results of consolidated operations that might be expected for the full calendar
year.
The consolidated balance sheet as of December 31, 2001 has been extracted from
audited financial statements included in the Company's 2001 Annual Report to
Stockholders. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been omitted. These financial statements
should be read in conjunction with the financial statements and notes thereto
included in the 2001 Annual Report of FCBI.
NOTE 2. RECLASSIFICATIONS
Certain amounts reflected in the December 31, 2001 balance sheet have been
reclassified to conform to the balance sheet presentation used in preparation of
the June 30, 2002 financial statements that are included in this periodic report
on Form 10Q. The reclassification had no effect on net income or stockholders
equity.
NOTE 3. STOCK DIVIDEND
On February 19, 2002, the Company's Board of Directors declared a 10% stock
dividend to shareholders of record as of March 1, 2002, which was distributed
March 28, 2002. Average shares outstanding and per share amounts included in the
consolidated financial statements have been adjusted to give effect to the stock
dividend. Stockholders equity beginning balances as of December 31, 2001 have
been adjusted to reflect the effect of the 10% stock dividend. Fractional share
adjustments are reflected in the current period ended June 30, 2002.
NOTE 4. MERGERS AND ACQUISITIONS
On December 7, 2001, the Company completed the acquisition of four branches of
Branch Banking and Trust Company of Virginia ("BB&T") and F & M Bank - Southern
Virginia ("F&M") located in Clifton Forge, Emporia, and Drakes Branch, Virginia.
The total consideration paid of $3.6 million resulted in goodwill and identified
intangible assets of approximately $3.8 million. The consummation of this
transaction resulted in a $77 million cash payment to the Company (buyer) for
the assumption of $114 million in new deposits and the purchase of approximately
$31 million in loans.
NOTE 5. BORROWINGS
Federal Home Loan Bank ("FHLB") borrowings and other indebtedness are comprised
of $100 million in convertible and callable advances and $20 million of
noncallable term advances from the Federal Home Loan Bank of Atlanta.
The callable advances may be called (redeemed) in quarterly increments after
various lockout periods. These call options may substantially shorten the lives
of these instruments. If these advances are called, the debt may be paid in
full, converted to another FHLB credit product, or converted to an adjustable
rate advance. The contractual maturity of the callable advances is 2010 and
coupon rates are 5.47% to 6.02%.
The above referenced noncallable term borrowings with the FHLB of $20 million as
of June 30, 2002 carry terms as follows: $10 million due in December 2002 at
4.30%; $8 million due in September 2003 at 5.95%; and $2 million due in
September 2008 at 6.27%.
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company is currently a defendant in various legal actions and asserted
claims involving lending and collection activities and other matters arising in
the normal course of business. While the Company and legal counsel are unable to
assess the ultimate outcome of each of these matters with certainty, they are of
the belief that the resolution of these actions should not have a material
adverse effect on the financial position of the Company.
In October 2000, the Circuit Court of Mercer County, West Virginia entered a
directed verdict in favor of the Registrant in a case styled "Ann Tierney Smith,
as Executrix of the Estate of Katherine B. Tierney, Ann Barclay Smith and
Laurence E.
7
Tierney Smith vs. FCFT, Inc., et al, Civil Action No. 97-CV-408-K". On June 4,
2002, the West Virginia Supreme Court of Appeals, by a vote of 3 to 2, granted
Plaintiffs and a defendant, Gentry, Locke, Rakes and Moore, a hearing on an
appeal of the Circuit Court's decision. A hearing date for this appeal has not
been set. Legal Counsel and management are both confident that the Registrant
will prevail in this matter. A motion for one of the Supreme Court Justices to
recuse himself from hearing this matter has been filed, due to an alleged
conflict of interest stemming from the Justice's personal pending lawsuit
against the Registrant as a dissenting shareholder of a predecessor bank
acquired by the Registrant.
The Company conducts mortgage banking operations through United First Mortgage,
Inc., ("UFM") a wholly-owned subsidiary of First Community Bank, N. A. The
majority of loans originated by UFM are sold to larger national investors on a
Service Released basis. Loans are sold under a Loan Sales Agreement which
contains various repurchase provisions. These repurchase provisions give rise to
a contingent liability for loans which may subsequently be submitted to the
company for repurchase. The principal events which could result in a repurchase
obligation are i.) the discovery of fraud or material inaccuracies in a sold
loan file and ii.) a default on the first payment due after a loan is sold to
the investor, coupled with a ninety day delinquency in the first year of the
life of the loan. Other events and variations of these events could result in a
loan repurchase under terms of other Loan Sales Agreements. The volume of loan
repurchases is dependent on the quality of loan underwriting and systems
employed by UFM for quality control in the production of mortgage loans. To
date, only one such loan totaling $140,000 has been submitted for repurchase.
Accordingly, loan repurchases have not had a material adverse effect on the
financial position of UFM or the Company.
UFM also originates government guaranteed FHA and VA loans which are also sold
to third party investors. The department of Housing and Urban Development (HUD)
periodically audits loan files of government guaranteed loans and may require
UFM to execute indemnification agreements on loans which do not meet certain
predefined underwriting guidelines. To date, UFM has been required to execute
only three such indemnification agreements for defaults which may occur over the
five-year period following the indemnification. No losses have occurred under
such agreements; accordingly loan indemnifications have not had a material
adverse effect on the financial position of UFM or the Company.
NOTE 7. OTHER COMPREHENSIVE INCOME
The Company currently has one component of other comprehensive income, which
includes unrealized gains and losses on securities available for sale and is
detailed as follows:
Six Months Ended Three Months Ended
June 30 June 30 June 30 June 30
2002 2001 2002 2001
----------- --------- ----------- ----------
(Amounts in Thousands) (Amounts in Thousands)
Other Comprehensive Income:
Unrealized gains (losses) arising during the period $ 6,943 $ 3,686 $ 8,630 $ (589)
Tax (expense) benefit (2,783) (1,475) (3,452) 233
----------- --------- ----------- ----------
Unrealized gains (losses) arising during the period, net of tax 4,160 2,211 5,178 (356)
Reclassification adjustment for (gains) losses realized in net
income (186) (44) (9) 7
Tax (benefit) expense of reclassification 74 18 3 (2)
----------- --------- ----------- ----------
Other comprehensive income (loss) 4,048 2,185 5,172 (351)
Beginning accumulated other comprehensive gain (loss) 755 (1,538) (369) 998
----------- --------- ----------- ----------
Ending accumulated other comprehensive income $ 4,803 $ 647 $ 4,803 $ 647
=========== ========= =========== ==========
NOTE 8. SEGMENT INFORMATION
The Company operates two business segments: community banking and mortgage
banking. These segments are primarily identified by their products and services
and the channels through which they are offered. The Community Banking segment
consists of the Company's full-service bank that offers customers traditional
banking products and services through various delivery channels.
The Mortgage Banking segment consists of mortgage brokerage facilities that
originate, acquire, and sell residential mortgage products into the secondary
market. In connection with those mortgage activities, the Company enters into
forward commitments or derivatives to manage interest rate risk inherent in
interest rate lock commitments made to prospective borrowers. The inventory of
loans and loan commitments are hedged to protect the Company from fluctuations
in the cash flows derived upon settlement of the loans with secondary market
purchasers, and consequently, to achieve a desired margin upon delivery. The
hedge transactions are used for risk mitigation and are not for trading
purposes. The derivative
8
financial instruments derived from these hedging transactions are recorded at
fair value in the Consolidated Balance Sheets and the changes in fair value are
reflected in the Consolidated Statements of Income.
Information for each of the segments is presented below.
Six Months Ended June 30, 2002
(Amounts in Thousands)
Community Mortgage Parent Eliminations Total
Banking Banking
------------- ------------ ------------ ------------- --------------
Net interest income $ 28,980 $ 500 $ 125 $ 40 $ 29,645
Provision for loan losses 1,959 - - - 1,959
------------- ------------ ------------ ------------- --------------
Net interest income after provision
for loan losses 27,021 500 125 40 27,686
Other income 5,237 5,353 391 (163) 10,818
Other expenses 16,684 4,551 404 (123) 21,516
------------- ------------ ------------ ------------- --------------
Income before income taxes 15,574 1,302 112 - 16,988
Income tax expense 4,378 506 30 - 4,914
------------- ------------ ------------ ------------- --------------
Net income $ 11,196 $ 796 $ 82 $ - $ 12,074
============= ============ ============ ============= ==============
Average assets $ 1,456,184 $ 54,375 $ 138,003 $ (188,370) $ 1,460,192
============= ============ ============ ============= ==============
Six Months Ended June 30, 2001
(Amounts in Thousands)
Community Mortgage Parent Eliminations Total
Banking Banking
------------- ------------ ------------ ------------ --------------
Net interest income $ 23,852 $ 23 $ 154 $ 139 $ 24,168
Provision for loan losses 1,732 - - - 1,732
------------- ------------ ------------ ------------ --------------
Net interest income after provision
for loan losses 22,120 23 154 139 22,436
Other income 5,044 4,289 (6) (106) 9,221
Other expenses 14,647 3,584 317 33 18,581
------------- ------------ ------------ ------------ --------------
Income (loss) before income taxes 12,517 728 (169) - 13,076
Income tax expense (benefit) 3,836 225 (50) - 4,011
------------- ------------ ------------ ------------ --------------
Net income $ 8,681 $ 503 $ (119) $ - $ 9,065
============= ============ ============ ============ ==============
Average assets $ 1,245,665 $ 39,106 $ 125,103 $ (168,086) $ 1,241,788
============= ============ ============ ============ ==============
NOTE 9. RECENT ACCOUNTING DEVELOPMENTS
On June 29, 2001, the FASB approved Statements of Financial Accounting Standards
No. 141, Business Combinations (Statement 141) and No. 142, Goodwill and Other
Intangible Assets (Statement 142). These Statements significantly change the
accounting for business combinations, goodwill, and intangible assets.
9
Statement 141 eliminated the pooling-of-interests method of accounting for
business combinations except for qualifying business combinations that were
initiated prior to July 1, 2001. The requirements of Statement 141 were
effective for any business combination accounted for by the purchase method that
was completed after June 30, 2001.
Statement 142 superseded APB Opinion No. 17, Intangible Assets. Under Statement
142, certain goodwill and indefinite lived intangible assets are no longer
amortized but are reviewed annually for impairment, or more frequently if
indications of impairment arise. Goodwill is required to be tested for
impairment between the annual tests if an event occurs or circumstances change
that more-likely-than-not reduce the fair value of a reporting unit below its
carrying value. An indefinite lived intangible asset is required to be tested
for impairment between the annual tests if an event occurs or circumstances
change indicating that the asset might be impaired. Separable intangible assets
that have finite lives continue to be amortized over their useful lives, for
which Statement 142 does not impose a limit. Currently, goodwill within the
scope of Statement 72 continues to be amortized.
Effective January 1, 2002, FCBI ceased amortization of certain goodwill in
accordance with FASB Statement 142. The following table depicts the effect of
Statement 142 on earnings and earnings per share for the six and three-month
periods ended June 30, 2002 and 2001.
(Amounts in Thousands Except Earnings per Share Amounts)
Six Months Ended Three Months Ended
June 30, June 30,
2002 2001 2002 2001
----------- ------------ ----------- ----------
Reported net income $ 12,074 $ 9,065 $ 5,896 $ 4,609
Add back: goodwill amortization, net of tax - 714 - 359
----------- ------------ ----------- ----------
Adjusted net income $ 12,074 $ 9,779 $ 5,896 $ 4,968
=========== ============ =========== ==========
Basic and diluted earnings per share:
Reported net income per share $ 1.21 $ 0.91 $ 0.59 $ 0.46
Add back: goodwill amortization, net of tax - 0.07 - 0.03
----------- ------------ ----------- ----------
Adjusted net income per share $ 1.21 $ 0.98 $ 0.59 $ 0.49
=========== ============ =========== ==========
In accordance with the new disclosure requirements of FASB Statement 142, the
following information is presented regarding intangibles subject to amortization
and those not subject to amortization.
As of December 31, 2001
------------------------------------------------------
(Amounts in Thousands)
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
--------------- -------------- -------------
Goodwill subject to amortization $ 13,972 $ 2,761 $ 11,211
Goodwill not subject to amortization 23,259 9,120 14,139
--------------- -------------- -------------
Total goodwill 37,231 11,881 25,350
--------------- -------------- -------------
Core deposit intangibles subject to amortization 2,349 1,221 1,128
--------------- -------------- -------------
Total Goodwill and other intangible assets $ 39,580 $ 13,102 $ 26,478
=============== ============== =============
The net carrying amount of goodwill of $25,350 as of December 31, 2001 is
comprised of goodwill recorded in the community banking segment of $24,347 and
goodwill recorded in the mortgage banking segment of $1,003.
10
The amortization expense for goodwill subject to amortization and core deposit
intangibles for each of the next 5 years from December 31, 2001 is as follows:
(Amounts in Thousands)
2002 $ 1,165
2003 $ 1,105
2004 $ 1,086
2005 $ 1,078
2006 $ 1,038
FASB Statement 142 requires a transitional impairment test to be applied to all
goodwill and other indefinite-lived intangible assets within the first six
months after adoption. The impairment test involves identifying separate
reporting units based on the reporting structure of the Corporation, then
assigning all assets and liabilities, including goodwill, to these units.
Goodwill is assigned based on the reporting unit benefiting from the factors
that gave rise to the goodwill. Each reporting unit is then tested for goodwill
impairment by comparing the fair value of the unit with its book value,
including goodwill. If the fair value of the reporting unit is greater than its
book value, no goodwill impairment exists. However, if the book value of the
reporting unit is greater than its determined fair value, goodwill impairment
may exist and further testing is required to determine the amount, if any, of
the actual impairment loss. Any impairment loss determined with this
transitional test would be reported as a change in accounting principle. The
Corporation has completed its transitional impairment test of goodwill and based
on current information, does not expect to record an impairment loss as a result
of this test.
NOTE 10. EARNINGS PER SHARE
The Company's basic and diluted earnings per share were $0.59 and $1.21 for the
three and six months ended June 30, 2002, respectively. For the corresponding
periods of 2001, basic and diluted earnings per share were $0.46 and $0.91
(adjusted from $0.51 and $1.00, respectively, to reflect the 10% stock
dividend). For the periods ending June 30, 2002, dilutive shares of 48,654 and
46,481 for the three and six month periods, respectively, did not have an impact
on the Company's earnings per share.
NOTE 11. PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Company's lending strategy stresses quality growth diversified by product,
geography, and industry. All loans made by the Company are subject to a common
credit underwriting structure. Loans are also subject to an annual review
process based on the loan size and type. The Company also utilizes an ongoing
review process to evaluate loans for changes in credit risk. This process serves
as the primary means by which the Company evaluates the adequacy of loan loss
allowances. The total loan loss allowance is divided into three categories: i)
specifically identified loan relationships which are on non-accrual status,
ninety days past due or more and loans with elements of credit weakness, ii)
formula allowances, and iii) special allocations addressing other qualitative
factors including industry concentrations, economic conditions, staffing and
other conditions.
Specific allowances are established to cover loan relationships, which are
identified with significant cash flow weakness and for which a collateral
deficiency may be present. The allowances established under the specific
identification method are judged based upon the borrower's estimated cash flow
or projected liquidation value of related collateral.
Formula allowances, based on historical loss experience, are available to cover
homogeneous groups of loans not individually evaluated. The formula allowance is
developed and evaluated against loans in general by specific category
(commercial, mortgage, and consumer). To determine the amount of allowance
needed for each loan category, an estimated loss percentage is developed based
upon historical loss percentages. The calculated percentage is used to determine
the estimated allowance excluding any relationships specifically identified and
individually evaluated. While allocations are made to specific loans and
classifications within the various categories of loans, the allowance is
available for all loan losses. In developing the allowance for loan losses, the
Company also considers various inherent risk factors, such as current economic
conditions, the level of delinquencies and nonaccrual loans, trends in the
volume and term of loans, anticipated impact from changes in lending policies
and procedures, and any concentration of credits in certain industries or
geographic areas.
11
Management continually evaluates the adequacy of the allowance for loan losses
and makes specific adjustments to the reserve based on the results of risk
analysis in the credit review process, the recommendation of regulatory
agencies, and other factors, such as loan loss experience and prevailing
economic conditions. Management considers the level of allowance adequate based
on the current risk profile in the loan portfolio.
12
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Audit Committee of the Board of Directors
First Community Bancshares, Inc.
We have reviewed the accompanying consolidated balance sheet of First Community
Bancshares, Inc. (First Community) as of June 30, 2002 and the related
consolidated statements of income for the three and six month periods ended June
30, 2002 and 2001and the consolidated statements of cash flows and changes in
stockholders' equity for the six month periods ended June 30, 2002 and 2001.
These consolidated financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States,
which will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with accounting principles generally accepted in
the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of First Community
as of December 31, 2001, and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 8, 2002, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 2001, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
Charleston, West Virginia
July 16, 2002
13
FIRST COMMUNITY BANCSHARES, INC.
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis is provided to address information about
the Company's financial condition and results of operations, which is not
otherwise apparent from the consolidated financial statements included in this
report. This discussion and analysis should be read in conjunction with the 2001
Annual Report to Shareholders and the other financial information included in
this report.
First Community is a multi-state bank holding company headquartered in
Bluefield, Virginia with total assets of $1.46 billion at June 30, 2002. First
Community through its community banking subsidiary, First Community Bank, N. A.
("FCBNA"), provides financial, mortgage brokerage and origination and trust
services to individuals and commercial customers through 38 full-service banking
locations in West Virginia, Virginia and North Carolina as well as 11 mortgage
brokerage facilities operated by United First Mortgage, Inc. ("UFM") a wholly
owned subsidiary of FCBNA.
FORWARD LOOKING STATEMENTS
First Community Bancshares, Inc. ("FCBI", the "Company", "Registrant" or the
"Corporation") may from time to time make written or oral "forward-looking
statements", including statements contained in the Corporation's filings with
the Securities and Exchange Commission (including this Quarterly Report on Form
10-Q and the Exhibits hereto and thereto), in its reports to stockholders and in
other communications by the Corporation, which are made in good faith by the
Corporation pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995.
These forward-looking statements include, among others, statements with respect
to the Corporation's beliefs, plans, objectives, goals, guidelines,
expectations, anticipations, estimates and intentions that are subject to
significant risks and uncertainties and are subject to change based on various
factors (many of which are beyond the Corporation's control). The words "may",
"could", "should", "would", "believe", "anticipate", "estimate", "expect",
"intend", "plan" and similar expressions are intended to identify
forward-looking statements. The following factors, among others, could cause the
Corporation's financial performance to differ materially from that expressed in
such forward-looking statements: the strength of the United States economy in
general and the strength of the local economies in which the Corporation
conducts operations; the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the Board of Governors of
the Federal Reserve System; inflation, interest rate, market and monetary
fluctuations; the timely development of competitive new products and services of
the Corporation and the acceptance of these products and services by new and
existing customers; the willingness of customers to substitute competitors'
products and services for the Corporation's products and services and vice
versa; the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and insurance);
technological changes; the effect of acquisitions, including, without
limitation, the failure to achieve the expected revenue growth and/or expense
savings from such acquisitions; the growth and profitability of the
Corporation's noninterest or fee income being less than expected; unanticipated
regulatory or judicial proceedings; changes in consumer spending and saving
habits; and the success of the Corporation at managing the risks involved in the
foregoing.
The Corporation cautions that the foregoing list of important factors is not
exclusive. The Corporation does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Corporation.
RESULTS OF OPERATIONS
Year to date 2002 net income totaled $12.1 million, $3.0 million, or 33% higher
than net income of $9.1 million reported for the corresponding period in 2001.
Net income for the first six months of the current and prior year resulted in
basic and diluted earnings per share of $1.21 versus $0.91 (adjusted for the 10%
stock dividend), a 32.97% increase. The largest factors contributing to this
increase are a $5.5 million increase in net interest income (largely
attributable to a $2.7 million increase in investment security income and a $3.3
million decrease in interest expense), and a $1.1 million increase in mortgage
banking income. Partially offsetting these increases was an increase of
approximately $1.9 million in salaries and benefits and a $1.4 million increase
in other operating expenses.
Net income for the second quarter of 2002 of $5.9 million increased $1.3 million
over second quarter 2001 income. Reflected in this increase were a $1.6 million
increase in investment security income and a $1.9 million decrease in interest
expense, with net interest income increasing by $2.9 million. Total noninterest
income decreased slightly but remained relatively consistent with the second
quarter 2001 while total noninterest expense increased $1.1 million when
comparing the second quarter of 2002 to that of 2001. Basic and diluted earnings
per share were $0.59 for the quarter ended June 30, 2002 compared to $0.46 for
the same period of 2001.
14
NET INTEREST INCOME-SIX MONTH COMPARISON (SEE TABLE I)
Net interest income (NII), the largest contributor to earnings was $29.6 million
for the six months ended June 30, 2002 compared with $24.2 million for the
corresponding period in 2001. For purposes of this discussion, comparison of NII
is done on a tax equivalent basis which provides a common basis for comparing
yields on earning assets exempt from federal income taxes to those which are
fully taxable. Table I on page 16 displays taxable equivalent yields on earning
assets and taxable equivalent Net Interest Spread (NIS) and Net Interest Margin
(NIM). As indicated on Table I, tax equivalent net interest income totaled $31.6
million for the six months ended June 30, 2002 an increase of $5.8 million from
the $25.8 million reported in the first half of 2001. This increase in net
interest income stems from an increase in average earning assets of $213.2
million. The yield on earning assets decreased 97 basis points between 2001 and
2002 but was offset by a 127 basis point decline in the cost of funds. The
impact of these rate and volume changes was an increase in the net interest rate
spread from 3.91% to 4.21% as of June 30, 2002, a 30 basis point increase in the
spread between interest earning assets and interest bearing liabilities over
June 30, 2001. The Company's tax equivalent net interest margin of 4.70% for
June 30, 2002 reflects an increase of 13 basis points compared to the first half
of 2001 when the tax equivalent net interest margin for the six months ended was
4.57%.
As indicated in Table I, the overall tax equivalent yield on average earning
assets decreased 97 basis points from 8.44% to 7.47% for the six months ended
June 30, 2002, compared to June 30, 2001. Compared to the same period of 2001,
average loans held for investment for the six months ended June 30, 2002
increased $91.6 million while the overall tax equivalent loan yield decreased 98
basis points from the prior year to 7.96%. Likewise, the average loans held for
sale balance increased $12.5 million and the yield decreased by 57 basis points
to 6.88%. Decreases in key lending rates, (throughout 2001, there were 11
reductions in the Federal Funds rate with an associated 475 basis point
reduction in the prime loan rate) led the reduction in the Company's overall
loan yield. The increase in average outstanding loans was funded largely through
increases in the level of customer deposits and, to a lesser degree, through
wholesale borrowings from the Federal Home Loan Bank.
In addition, the taxable equivalent yields on securities available for sale
decreased 70 basis points to 6.06% while the tax equivalent yield on investment
securities held to maturity remained almost the same at 8.16%, a 3 basis point
decrease. The yield on interest-bearing balances with banks decreased
substantially to 1.65% in concert with the above referenced 11 cuts in the
Federal Funds rate. The $127.6 million increase in the average balance of
securities available for sale when comparing the six months ended June 30, 2002
to 2001, was largely the result of investment of funds received from new deposit
growth in existing markets and deposits obtained in the acquisition of the four
new BB&T and F&M branches in the last quarter of 2001.
The cost of interest-bearing liabilities decreased by 127 basis points from
4.53% for the first six months of 2001 to 3.26% for the same period of 2002
while the average volume increased $175.5 million. Average FHLB borrowings
increased by $8.3 million compared to the prior year while the rate paid
decreased 11 basis points to 5.96% from 6.07%. The rate paid on other borrowings
remained virtually the same compared to the rate paid in the same period last
year. The average balances of interest-bearing demand and savings deposits
increased $49.4 and $29.8 million, respectively, while the corresponding average
rate on these deposits declined 76 and 38 basis points. Average time deposits
increased $60.2 million while the average rate paid decreased 164 basis points
from 5.66% in 2001 to 4.02% in 2002. Average Fed Funds and repurchase agreements
increased $27.7 million when comparing the six months ended June 30, 2002 to
June 30, 2001 while the average rate decreased 176 basis points. Additionally,
average noninterest-bearing demand deposits increased $28.8 million in 2002
compared to the six months ended June 30, 2001.
NET INTEREST INCOME -QUARTERLY COMPARISON (SEE TABLE II)
NII for the quarter ended June 30, 2002 was $15.2 million, up $2.9 million from
the comparable quarter in 2001 as indicated in the Consolidated Statements of
Income. A comparison of the second quarter of 2002 to the second quarter of 2001
on a taxable equivalent basis (refer to Table II) reflects an increase in net
interest income of $3.0 million. A 128 basis point decrease in rate paid on
interest-bearing liabilities offset an 86 basis point decline in the average
rate earned on interest-earning assets, increasing the net interest margin 24
basis points to 4.77% for the quarter ended June 30, 2002. When comparing the
two quarters, average earning assets increased $195.3 million in the second
quarter of 2002 compared to the second quarter of 2001, which included increases
in average securities available for sale of $136.7 million and average loans
held for investment of $91.3 million. In the second quarter of 2002, average
interest-bearing deposits with banks decreased $34.7 million and average loans
held for sale increased $4.7 million when compared to the second quarter of the
prior year. Total interest-bearing liabilities increased $164.9 million with
average interest-bearing deposits increasing $128.9 million, while the average
rate paid on these deposits dropped 140 basis points. For the same periods,
average Fed Funds purchased and repurchase agreements increased $29.4 million as
the average rate paid decreased 159 basis points.
15
TABLE I
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
(Dollars in Thousands)
Six Months Ended Six Months Ended
June 30, 2002 June 30, 2001
Average Interest Yield/Rate Average Interest Yield/Rate
Balance (1) (2) (2) Balance (1) (2) (2)
--------------------------- ---------- ---------------------------- ----------
Earning Assets:
Loans (3)
Loans Held for Sale $ 48,941 $ 1,670 6.88% $ 36,464 $ 1,347 7.45%
Loans Held for Investment:
Taxable 909,227 35,875 7.96% 816,535 36,125 8.92%
Tax-Exempt 6,452 268 8.38% 7,509 410 11.01%
------------- ------------ ---------- -------------- ------------ ----------
Total 915,679 36,143 7.96% 824,044 36,535 8.94%
Allowance for Loan Losses (14,448) (12,513)
------------- ------------ -------------- ------------
Net Total 901,231 36,143 811,531 36,535
Securities Available For Sale:
Taxable 257,761 6,928 5.42% 152,765 4,768 6.29%
Tax-Exempt 94,219 3,654 7.82% 71,615 2,759 7.77%
------------- ------------ ---------- -------------- ------------ ----------
Total 351,980 10,582 6.06% 224,380 7,527 6.76%
Held to Maturity Securities:
Taxable 1,992 71 7.19% 2,786 103 7.46%
Tax-Exempt 39,563 1,611 8.21% 39,747 1,624 8.24%
------------- ------------ ---------- -------------- ------------ ----------
Total 41,555 1,682 8.16% 42,533 1,727 8.19%
Interest Bearing Deposits 10,025 82 1.65% 25,577 577 4.55%
Fed Funds Sold - - 0.00% - - 0.00%
------------- ------------ ---------- -------------- ------------ ----------
Total Earning Assets 1,353,732 50,159 7.47% 1,140,485 47,713 8.44%
------------- ------------ -------------- ------------
Other Assets 106,460 101,303
------------- --------------
Total $ 1,460,192 $ 1,241,788
============= ==============
Interest-Bearing Liabilities:
Demand Deposits $ 188,700 992 1.06% $ 139,302 1,256 1.82%
Savings Deposits 160,282 923 1.16% 130,472 999 1.54%
Time Deposits 575,339 11,482 4.02% 515,094 14,452 5.66%
Fed Funds Purchased & Repurchase
Agreements 81,939 929 2.29% 54,210 1,090 4.05%
FHLB Convertible, Callable Advances 133,619 3,949 5.96% 125,276 3,770 6.07%
Other Borrowings 10,108 300 5.99% 10,175 301 5.97%
------------- ------------ ---------- -------------- ------------ ----------
Total Interest-bearing Liabilities 1,149,987 18,575 3.26% 974,529 21,868 4.53%
Demand Deposits 155,810 127,053
Other Liabilities 15,592 14,649
Stockholders' Equity 138,803 125,557
------------- --------------
Total $ 1,460,192 $ 1,241,788
============= ==============
Net Interest Income $31,584 $25,845
============ ============
Net Interest Rate Spread (3) 4.21% 3.91%
========== ==========
Net Interest Margin 4.70% 4.57%
========== ==========
(1) Interest amounts represent taxable equivalent results for the first six
months of 2002 and 2001.
(2) Fully Taxable Equivalent-Using the Federal statutory rate of 35%.
(3) Nonaccrual loans are included in average balances outstanding with no
related interest income.
16
TABLE II
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
(Dollars in Thousands)
Three Months Ended Three Months Ended
June 30, 2002 June 30, 2001
Average Interest Yield/Rate Average Interest Yield/Rate
Balance (1) (2) (2) Balance (1) (2) (2)
------------------- ---------- --------- -------------- ---------- --------------
Earning Assets:
Loans (3)
Loans Held for Sale $ 49,222 826 6.73% $ 44,559 736 6.63%
Loans Held for Investment:
Taxable 910,759 17,925 7.89% 818,724 $ 18,132 8.88%
Tax-Exempt 6,560 136 8.32% 7,332 200 10.95%
------------------- ---------- -------------- ---------- --------------
Total 917,319 18,061 7.90% 826,056 18,332 8.90%
Reserve for Loan Losses (14,470) (12,617)
------------------- ---------- -------------- ----------
Net Total 902,849 18,061 813,439 18,332
Securities Available For Sale:
Taxable 260,109 3,588 5.53% 140,780 2,148 6.12%
Tax-Exempt 92,612 1,780 7.71% 75,249 1,442 7.69%
------------------- ---------- --------- -------------- ---------- --------------
Total 352,721 5,368 6.10% 216,029 3,590 6.67%
Investment Securities:
Taxable 1,930 33 6.86% 2,393 45 7.54%
Tax-Exempt 39,464 804 8.17% 39,763 812 8.19%
------------------- ---------- --------- -------------- ---------- --------------
Total 41,394 837 8.11% 42,156 857 8.16%
Interest Bearing Deposits 9,655 39 1.62% 44,367 479 4.33%
Fed Funds Sold - - - -
------------------- ---------- --------- -------------- ---------- --------------
Total Earning Assets 1,355,841 25,131 7.43% 1,160,550 23,994 8.29%
Other Assets 107,732 99,617
------------------- --------------
Total $ 1,463,573 $ 1,260,167
=================== ==============
Interest-Bearing Liabilities:
Demand Deposits $ 188,857 502 1.07% $ 140,792 558 1.59%
Savings Deposits 170,077 542 1.28% 130,463 442 1.36%
Time Deposits 567,715 5,361 3.79% 526,449 7,296 5.56%
------------------- ---------- --------- -------------- ---------- --------------
926,649 6,405 2.77% 797,704 8,296 4.17%
Fed Funds Purchased & Repurchase
Agreements 84,958 482 2.28% 55,573 536 3.87%
FHLB Convertible, Callable Advances 132,253 1,971 5.98% 125,549 1,899 6.07%
Other Borrowings 10,058 150 5.98% 10,173 151 5.95%
------------------- ---------- --------- -------------- ---------- --------------
Total Interest-bearing Liabilities 1,153,918 9,008 3.13% 988,999 10,882 4.41%
Demand Deposits 154,667 129,605
Other Liabilities 14,580 14,556
Stockholders' Equity 140,408 127,007
------------------- --------------
Total $ 1,463,573 $ 1,260,167
=================== ==============
Net Interest Income $ 16,123 $ 13,112
========== ==========
Net Interest Rate Spread (3) 4.30% 3.88%
========= ==============
Net Interest Margin 4.77% 4.53%
========= ==============
(1) Interest amounts represent taxable equivalent results for the three months
ended June 2002 and 2001.
(2) Fully Taxable Equivalent-Using the Federal statutory rate of 35%.
(3) Nonaccrual loans are included in average balances outstanding with no
related interest income.
17
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was $14.2 million on June 30, 2002, up from $14
million at December 31, 2001 and $12.7 million on June 30, 2001. The provision
and underlying allowance for loan losses are quantified through a series of
objective measures, review of economic indications, and the estimation of levels
of losses within various loans and loan types that portray inherent weaknesses.
To maintain a balance in the allowance for loan losses sufficient to absorb
probable loan losses, charges are made to the provision for loan losses. The
year to date and second quarter 2002 provisions of $2.0 million and $1.0
million, respectively, compare to the $1.7 million and $985,000 for the
corresponding periods in 2001. The respective provisions are a result of
management's formal analysis to establish the allowance for loan losses at a
level sufficient to cover loan growth, absorb current period net charge-offs and
to account for an increasing trend in national charge offs as supported by
statistically compiled industry data suggesting that current economic conditions
will continue to reflect an increase in national loss trends for the near term.
FCBI's allowance for loan loss activity for the three and six month periods
ended June 30, 2002 and June 30, 2001 is as follows:
For the Three Months Ended For the Six Months Ended
June 30 June 30
(Amounts in Thousands) (Amounts in Thousands)
2002 2001 2002 2001
------------- ------------ ------------- -------------
Beginning balance $ 14,271 $ 12,408 $ 13,952 $ 12,303
Provision 1,022 985 1,959 1,732
Charge-offs (1,243) (1,045) (2,061) (1,906)
Recoveries 144 340 344 559
------------- ------------ ------------- -------------
Ending Balance $ 14,194 $ 12,688 $ 14,194 $ 12,688
============= ============ ============= =============
Based on the allowance for loan losses of approximately $14.2 million and $12.7
million at June 30, 2002 and 2001, respectively, the allowance to loans held for
investment ratios were 1.53% and 1.50% at the respective dates.
Net charge-offs for the three and six months of 2002 were $1.1 million and $1.7
million compared with $705,000 and $1.3 million for the corresponding periods in
2001. Expressed as a percentage of average loans held for investment, net
charge-offs were .12% and .19% for the three and six month periods of 2002, and
..08% and .16% for the same periods of 2001. The $370,000 increase in net
charge-offs between the six month periods ended June 30, 2001 and 2002 was
largely due to a $273,000 commercial loan charge-off of a loan made to a single
borrower in the residential development business. Consumer loan charge offs
reflected little change for the comparable periods. As of June 30, 2002, the
allowance as a percentage of non-performing loans was 324% compared to 280% at
December 31, 2001. The increase in this coverage ratio reflects the $242,000
increase in the allowance for loan losses and a $600,000 decrease in
nonperforming loans since December 31, 2001.
Following the events of September 11, 2001 the Company reviewed credits with
particular exposure to new weaknesses in the economy. In particular, the Company
has reviewed loans to the hospitality industry. The Company currently has $51.2
million in loans to owners/operators of hotels and motels. One credit totaling
$5.1 million has displayed signs of weakness and vulnerability to prevailing
lower occupancy rates. Although this loan continues to perform, the Company has
considered the current inherent risk of this loan in its monthly allowance for
the loan loss analysis.
NONINTEREST INCOME
Non-interest income consists of all revenues, which are not included in interest
and fee income related to earning assets. Total non-interest income increased
approximately $1.6 million, or 17.32% from $9.2 million for the six months ended
June 30, 2001 to $10.8 million for the corresponding period in 2002. The largest
portion of this increase, $1.1 million, resulted from the mortgage brokerage
operations of UFM, which recognized approximately $5.4 million of other income
in 2002 versus $4.3 million for the comparable six-month period in 2001. This
increase is directly tied to the increased loan production of UFM in late 2001
and the first half of 2002 compared to production in the corresponding period of
2001. When comparing the first six months of 2002 to that of 2001 exclusive of
UFM, noninterest income increased $530,000, or 10.75%. This increase is largely
attributable to a $461,000, or a 16.42% increase in service charges on deposit
accounts (primarily the result of a new customer-sensitive overdraft program
that allows well-managed customer deposit accounts greater flexibility in
managing overdrafts and that, in turn, produced higher levels of overdraft
charges
18
with minimal charge-offs of overdrawn accounts), and a $142,000 increase in
security gains both of which were partially offset by a $66,000 decrease in
fiduciary income. Fiduciary earnings correspond to the asset management fees
recorded and have declined from the prior year as a direct result of a reduction
in estate and trust management activity and lower market values and yields on
assets under management. Second quarter trust revenues did, however, return to a
level comparable to the second quarter of 2001.
Total noninterest income for the second quarter of 2002 compared to the second
quarter of 2001 remained relatively the same, decreasing by only $39,000 (less
than 1%), even though certain individual income statement items reflected larger
fluctuations. Mortgage banking income and other operating income decreased
$437,000 and $77,000, respectively, while service charges on deposit accounts
and other service charges, commissions and fees increased $303,000 and $156,000,
respectively.
NONINTEREST EXPENSE
Non-interest expense totaled $21.5 million in the first six months of 2002,
increasing $2.9 million over the corresponding period in 2001. This increase is
primarily attributable to a $1.9 million increase in salaries and benefits,
$510,000 of which was due to the acquisition of the four BB&T & F&M branches in
the fourth quarter of 2001, along with a $614,000 increase in salaries and
commissions in the mortgage operations of UFM (mostly due to increased loan
production) and a general increase in salaries as staffing needs at several
locations were satisfied in order to support new infrastructure and continued
growth.
Also impacting the increase in noninterest expense for the six months ended June
30, 2002 compared to 2001 were increased other operating costs associated with
UFM of $347,000 (again, largely tied to increased loan production), increases in
other operating expenses of $163,000 and an increase of $92,000 in OREO
expenses. Increased costs such as data communications, supplies, advertising and
other service fees account for a large portion of the remaining increase.
In the first half of 2002, occupancy expense increased by $85,000 when compared
to the first half of 2001, $69,000 of which was due to the new branches while
additional occupancy expenses of UFM were largely responsible for the remainder.
Furniture, fixtures and equipment expense increased $106,000, $48,000 of which
was attributable to the new branches and UFM, with the majority of the remaining
increase due to additional depreciation on new software and hardware utilized in
the Information Technology department and throughout the Company.
With the adoption of FASB Statement No. 142, the Company ceased amortization of
certain goodwill beginning January 1, 2002, as required by the Statement.
Cessation of such amortization decreased goodwill expense by $714,000; however,
additional amortization associated with the new branches was recorded and
resulted in a net decrease of $539,000 during the first six months of 2002
compared to the same period last year. On a quarterly basis, the net effect of
the adoption of FASB Statement 142 along with the additional of goodwill
associated with the new branches was a decrease in amortization expense of
$270,000 in the second quarter of 2002 compared to the same period of 2001.
Noninterest expense for the three months ended June 30, 2002 totaled $10.7
million, a $1.1 million dollar increase over the $9.6 million for the quarter
ended June 30, 2001. As in the year to date discussion, the majority of this
increase was a $752,000 increase in salaries and employee benefits which is
largely attributed to the branches acquired in December 2001 ($278,000),
increases due to higher loan origination activity ($91,000) of UFM in 2002 and a
general increase in salaries along with the addition of personnel Company-wide
accounting for the difference. Other operating expenses increased $499,000
largely due to increased data communication costs and equipment installation at
the new branches and increased advertising costs associated with a series of
campaigns targeted at increasing deposits and the Company's rollout of its
internet banking product.
Furniture and equipment expense increased $66,000 for the quarter ended June 30,
2002 compared to June 30, 2001. As discussed earlier, this additional expense
was associated with the new branches and increased costs associated with data
processing and communication equipment.
The effective income tax rate has been impacted by the Company's continued
emphasis on the utilization of tax-exempt municipal securities and the
discontinuance of amortization of goodwill that was not deductible for income
tax purposes. Municipal securities have offered an attractive tax equivalent
yield, helped counter the effect of the declining interest rate environment and
have lowered the Company's effective tax rate.
FINANCIAL POSITION
SECURITIES
Investment securities, which are purchased with the intent to hold until
maturity, totaled $41.3 million at June 30, 2002, a decrease of $557,000 from
December 31, 2001. This 1.3% decrease is largely the result of maturities and
calls within the portfolio during the first half of 2002. The market value of
investment securities held to maturity was 105.2% and 103.6% of book value at
June 30, 2002 and December 31, 2001, respectively. The market value of fixed
rate debt securities reacts
19
inversely to rising interest rates; consequently, recent trends in interest
rates have had a positive effect on the underlying market value since December
31, 2001, due to a general shift in market offering rates for similar
securities, and as a result of the securities markets current bias toward the
interest rate environment. However, the target Federal Funds rate and the prime
loan rates have remained unchanged since year-end 2001.
Securities available for sale were $338.6 million at June 30, 2002 compared to
$354.0 million at December 31, 2001, a decrease of $15.4 million. This change
reflects the purchase of $32.5 million in securities, $20.5 million in
maturities and calls, the sale of $13.9 million in securities as well as the
continuation of larger pay-downs on mortgage-backed securities and CMO's
triggered by the rate environment. Securities available for sale are recorded at
their estimated fair market value. The unrealized gain or loss, which is the
difference between amortized cost and market value, net of related deferred
taxes, is recognized in the Stockholders' Equity section of the balance sheet as
either accumulated other comprehensive income or loss. The unrealized gains
after taxes of $4.8 million at June 30, 2002, represents an increase from the
$755,000 gain at December 31, 2001 due to market value increases in the first
six months of 2002.
LOAN PORTFOLIO
LOANS HELD FOR SALE
The relative size of the portfolio of loans originated by the Company's mortgage
brokerage division, UFM, and held for sale was impacted greatly by the
refinancing activity that occurred during 2001. Average loans held for sale (see
Table I) increased $12.5 million during the first half of 2002 compared to the
first half of 2001 due to a substantial increase in mortgage purchase and
refinance activity prompted by the lower interest rate environment.
Due to the increased volume of loans delivered to investors in the first six
months of 2002, the actual loans funded and in the process of delivery declined
from year-end 2001 by $13.4 million to $52.1 million at June 30, 2002 despite
the year to date average increase of $12.5 million.
The loan to deposit ratio (including loans held for sale) increased slightly
from the year-end 2001 ratio of 89.96% to 90.67% on June 30, 2002, however, both
of these ratios remain well below the June 30, 2001 94.75%. The lower levels of
loans to deposits are due, in part, to the lower loan to deposit ratios of the
branches acquired in the fourth quarter of 2001.
LOANS HELD FOR INVESTMENT
Total loans held for investment increased $24.0 million from $904.5 million at
December 31, 2001 to $928.5 million at June 30, 2002. However, the substantial
increase in deposits during the latter half of 2001 and the first half of 2002
has lowered the loan to deposit ratio from its June 30, 2001 level. The loan to
deposit ratio, using only loans held for investment (excluding loans held for
sale), was 85.86% on June 30, 2002, 83.88% on December 31, 2001 and 91.05% on
June 30, 2001.
Average loans held for investment (see Table I) increased $91.6 million when
comparing the first six months of 2002 to the same period of 2001, the result of
sales and marketing efforts, a concentration on relationship management and
development, and the acquisition of approximately $31 million of loans in
December 2001 as part of the BB&T and F&M branches.
The held for investment loan portfolio continues to be diversified among loan
types and industry segments. Commercial and commercial real estate loans
represent the largest segment of the portfolio, comprising $406.8 million or
43.82% of total loans at June 30, 2002 compared to $421.9 million or 46.65% of
total loans at December 31, 2001. Residential real estate loans increased to
$308.0 million or 33.17% of total loans at June 30, 2002 compared to $267.1
million or 29.53% of the total loan portfolio at December 31, 2001. Loans to
individuals also decreased slightly to $131.9 million or 14.20% of total loans
at June 30, 2002 from $137.1 million or 15.16% of total loans at December 31,
2001. Construction loans were $80.7 million at June 30, 2002 or 8.69% of total
loans compared to $77.4 million at December 31, 2001 or 8.56% of total loans.
The construction loan segment includes multifamily residential properties and
commercial real estate development properties. A portion of these loans will
move into the commercial real estate portfolio as the projects are completed.
Other loans were $1.2 million at June 30, 2002 compared to $961,000 at December
31, 2001.
20
Loan Portfolio Overview
(Dollars in Thousands)
June 30, 2002 December 31, 2001 June 30, 2001
---------------------------- ---------------------------- -----------------------------
Amount Percent Amount Percent Amount Percent
-------------- --------- --------------- --------- ---------------- ---------
Loans Held for Investment:
Commercial and Agricultural $ 131,672 14.18% $ 162,173 17.93% $ 93,101 11.01%
Commercial Real Estate 275,155 29.64% 259,717 28.72% 237,775 28.14%
Residential Real Estate 307,990 33.17% 267,139 29.53% 305,358 36.12%
Construction 80,661 8.69% 77,402 8.56% 73,716 8.72%
Consumer 131,879 14.20% 137,104 15.16% 134,780 15.94%
Other 1,184 0.13% 961 0.11% 660 0.08%
---------- --------- ----------- --------- ------------ ---------
Total $ 928,541 100.00% $ 904,496 100.00% $ 845,390 100.00%
========== ========= =========== ========= ============ =========
Loans Held for Sale $ 52,095 $ 65,532 $ 34,303
========== =========== ============
NON-PERFORMING ASSETS
Non-performing assets are comprised of loans on non-accrual status, loans
contractually past due 90 days or more and still accruing interest and other
real estate owned ("OREO"). Non-performing assets were $6.8 million at June 30,
2002, $7.4 at March 31, 2002 and $8.0 million at December 31, 2001, or 0.73%,
0.81% and 0.88% of total loans and OREO, respectively. The following schedule
details non-performing assets by category at the close of each of the last five
quarters:
(In Thousands of Dollars) June 30 March 31 December 31 September 30 June 30 March 31
2002 2002 2001 2001 2001 2001
------------- ------------- -------------- -------------- ------------ ------------
Nonaccrual $ 4,131 $ 4,644 $ 3,633 $ 5,361 $ 5,167 $ 5,192
Ninety Days Past Due 254 192 1,351 1,418 1,442 1,393
Other Real Estate Owned 2,452 2,538 3,029 2,595 2,614 2,591
------------- ------------- -------------- -------------- ------------ ------------
$ 6,837 $ 7,374 $ 8,013 $ 9,374 $ 9,223 $ 9,176
============= ============= ============== ============== ============ ============
Restructured loans
performing in accordance
with modified terms $ 440 $ 523 $ 449 $ 443 $ 445 $ 446
============= ============= ============== ============== ============ ============
At June 30, 2002, nonaccrual loans decreased $513,000 from March 31, 2002, while
ninety day past due loans increased only $62,000. Ongoing activity within the
classification and categories of non-performing loans continues to include
collections on delinquencies, foreclosures and movements into or out of the
non-performing classification as a result of changing customer business
conditions. The $513,000 decrease in nonaccrual loans in the second quarter is
largely attributable to a single charge off for $227,000. OREO decreased $86,000
during the second quarter of 2002 from March 31, 2002. The decrease in OREO is
due to the foreclosure and disposition of several properties with no large
additions in the second quarter of 2002. The parcels of other real estate owned
are generally carried at the lesser of their estimated realizable fair market
value or cost.
STOCKHOLDERS' EQUITY
Total stockholders' equity reached $143.9 million at June 30, 2002 increasing
$10.9 million through earnings and comprehensive income (net of dividends of
$5.0 million) over the $133.0 million, reported at December 31, 2001. The
Federal Reserve's risk based capital guidelines and leverage ratio measure
capital adequacy of banking institutions. Risk-based capital guidelines weight
balance sheet assets and off-balance sheet commitments based on inherent risks
associated with the respective asset types. At June 30, 2002, the Company's
total risk adjusted capital-to-asset ratio was 12.91% versus 12.10% in December
31, 2001. The Company's leverage ratio at June 30, 2002 was 7.89% compared with
7.93% at December 31, 2001. Both the risk adjusted capital-to-asset ratio and
the leverage ratio exceed the current well-capitalized levels prescribed for
banks of 10% and 5%, respectively.
21
LIQUIDITY
The Company maintains a significant level of liquidity in the form of cash and
cash equivalent balances ($31.7 million), investment securities available for
sale ($338.6 million) and Federal Home Loan Bank credit availability of
approximately $305.9 million. Cash and cash equivalents as well as advances from
the Federal Home Loan Bank are immediately available for satisfaction of deposit
withdrawals, customer credit needs and operations of the Company. Investment
securities available for sale represent a secondary level of liquidity available
for conversion to liquid funds in the event of extraordinary needs. The Company
also maintains approved lines of credit with correspondent banks as backup
liquidity sources.
The Company has adopted a Liquidity Contingency Plan as a means to further
manage liquidity risk. The Plan is designed as a tool for the Company to detect
liquidity issues promptly in order to protect depositors, creditors and
shareholders. The Plan includes monitoring various internal and external
indicators such as changes in core deposits and changes in market conditions. It
provides for timely responses to a wide variety of funding scenarios ranging
from changes in loan demand to a decline in the Company's quarterly earnings to
a decline in the market price of the Company's stock. The Plan calls for
specific responses designed to meet a wide range of liquidity needs based upon
assessments on a recurring basis by management and the Board of Directors.
RECENT LEGISLATIVE DEVELOPMENTS
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002
("Act"). The stated goals of the Act are to increase corporate responsibility,
to provide for enhanced penalties for accounting and auditing improprieties at
publicly traded companies and to protect investors by improving the accuracy and
reliability of corporate disclosures pursuant to the securities laws.
The Act generally applies to all companies, both U.S. and non-U.S., that file or
are required to file periodic reports with the Securities and Exchange
Commission ("SEC") under the Securities Exchange Act of 1934 ("Exchange Act").
Given the extensive SEC role in implementing rules relating to many of the Act's
new requirements, the final scope of these requirements remains to be
determined.
The Act includes very specific additional disclosure requirements and new
corporate governance rules, requires the SEC and securities exchanges to adopt
extensive additional disclosure, corporate governance and other related rules
and mandates further studies of certain issues by the SEC and the Comptroller
General. The Act represents significant federal involvement in matters
traditionally left to state regulatory systems, such as the regulation of the
accounting profession, and to state corporate law, such as the relationship
between a board of directors and management and between a board of directors and
its committees.
This Act addresses, among other matters: audit committees; certification of
financial statements by the chief executive officer and the chief financial
officer; the forfeiture of bonuses and profits made by directors and senior
officers in the twelve month period covered by restated financial statements; a
prohibition on insider trading during pension plan black out periods; disclosure
of off-balance sheet transactions; a prohibition on personal loans to directors
and officers (excluding Federally insured financial institutions); expedited
filing requirements for stock transaction reports by officers and directors;
disclosure of a code of ethics and filing a Form 8-K for a change or waiver of
such code; "real time" filing of periodic reports; the formation of a public
accounting oversight board; auditor independence; and various increased criminal
penalties for violations of securities laws.
The Act contains provisions which became effective upon enactment on July 30,
2002 and provisions which will become effective from within 30 days to one year
from enactment. Effective July 30, 2002, the chief executive officer and chief
financial officer of a company must certify in a written statement that its
periodic report filed with the SEC, containing financial statements, fully
comply with the rules promulgated under the Exchange Act and that the
information contained in the report fairly presents, in all material respects,
the financial condition and results of operations of the company.
22
PART I. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk (IRR) and Asset/Liability Management
While the Company continues to strive to decrease its dependence on net interest
income, the Bank's profitability is dependent to a large extent upon its ability
to manage its net interest margin. The Bank, like other financial institutions,
is subject to interest rate risk to the degree that its interest-earning assets
reprice differently than its interest-bearing liabilities. The Bank manages its
mix of assets and liabilities with the goals of limiting its exposure to
interest rate risk, ensuring adequate liquidity, and coordinating its sources
and uses of funds. Specific strategies for management of IRR have included
shortening the amortized maturity of fixed-rate loans and increasing the volume
of adjustable rate loans to reduce the average maturity of the Bank's
interest-earning assets.
The Bank seeks to control its IRR exposure to insulate net interest income and
net earnings from fluctuations in the general level of interest rates. To
measure its exposure to IRR, the Bank performs quarterly simulations using
financial models which project net interest income through a range of possible
interest rate environments including rising, declining, most likely, and flat
rate scenarios. The results of these simulations indicate the existence and
severity of IRR in each of those rate environments based upon the current
balance sheet position and assumptions as to changes in the volume and mix of
interest-earning assets and interest-paying liabilities and management's
estimate of yields attainable in those future rate environments and rates which
will be paid on various deposit instruments and borrowings.
The Company's risk profile continues to reflect a slightly asset sensitive
position. The substantial level of prepayments and calls consistent with the
declining rate environment that occurred in the prior year, as well as the
success of deposit funding campaigns instituted in the prior year have lead to
an increase in the banks overall liquidity position as reflected in the level of
cash reserves, due from balances and Fed Funds Sold of approximately $31.7
million. The Company continues to reinvest the funds generated from asset
paydowns and prepayments within a framework that attempts to maintain an
acceptable net interest margin in the current interest rate environment. In
addition, the mortgage operations of UFM use investments commonly referred to as
"forward" transactions or derivatives to balance the risk inherent in interest
rate lock commitments (also deemed to be derivatives) made to prospective
borrowers. The pipeline of loans is hedged to mitigate unusual fluctuations in
the cash flows derived upon settlement of the loans with secondary market
purchasers and, consequently, to achieve a desired margin upon delivery. The
hedge transactions are used for risk mitigation and are not for trading
purposes. The derivative financial instruments derived from these hedging
transactions are recorded at fair value in the Consolidated Balance Sheets and
the changes in fair value are reflected in the Consolidated Statements of
Income.
As of June 30, 2002, UFM held an investment in the underlying notional value of
investments in securities ("forward commitments") of $82.0 million and had
option adjusted interest rate lock commitments and closed loan inventory being
hedged of $84.0 million. As of June 30, 2002 the change in the market value of
investments in hedge securities reflected a decline in value of $511,000 while
the interest rate lock commitments reflect an appreciation in value of
$1,382,000. The combined net change in market values of the commitments on
forwards and loan commitments being hedged as of June 30, 2002 and December 31,
2001 are $871,000 and $480,000, respectively. The increase in the fair value is
due to an increase in the volume and the change in pricing of the forward
commitments from December 31, 2001 to June 30, 2002. This hedging strategy is
managed through a series of mathematical tools that are used to quantify the
exposure to changes in interest rates and UFM simultaneously enters into forward
transactions to minimize the potential volatility to earnings as rates change.
The Company's earnings sensitivity measurements completed on a quarterly basis
indicate that the performance criteria, against which sensitivity is measured,
are currently within the Company's defined policy limits. A more complete
discussion of the overall interest rate risk is included in the Company's annual
report for December 31, 2001.
23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(a) The Company is currently a defendant in various legal actions and
asserted claims involving lending and collection activities and
other matters in the normal course of business. While the Company
and legal counsel are unable to assess the ultimate outcome of
each of these matters with certainty, they are of the belief that
the resolution of these actions should not have a material adverse
affect on the financial position of the Company.
In October 2000, the Circuit Court of Mercer County, West Virginia
entered a directed verdict in favor of the Registrant in a case
styled "Ann Tierney Smith, as Executrix of the Estate of Katherine
B. Tierney, Ann Barclay Smith and Laurence E. Tierney Smith vs.
FCFT, Inc., et al, Civil Action No. 97-CV-408-K". On June 4, 2002,
the West Virginia Supreme Court of Appeals, by a vote of 3 to 2,
granted Plaintiffs and a defendant, Gentry, Locke, Rakes and
Moore, a hearing on an appeal of the Circuit Court's decision. A
hearing date for this appeal has not been set. Legal Counsel and
management are both confident that the Registrant will prevail in
this matter. A motion for one of the Supreme Court Justices to
recuse himself from hearing this matter has been filed, due to an
alleged conflict of interest stemming from the Justice's personal
pending lawsuit against the Registrant as a dissenting shareholder
of a predecessor bank acquired by the Registrant.
Item 2. Changes in Securities and Use of Proceeds
(a) N/A
(b) N/A
(c) On July 10, 2002, the Registrant sold 5,500 shares of common stock
then held in Treasury to its Director Emeritus, Sam Clark, pursuant to its
Directors' Stock Option Plan (the "Plan") at the stated Plan option price of
$23.91 per share. The shares under the Directors' Stock Option Plan had been
previously registered under a Form S-8 filed by the Registrant on December 14,
2001. The proceeds of this sale totaled one hundred thirty-one thousand, five
hundred five dollars ($131,505). The proceeds were not earmarked for any
specific use and remain available for general business needs of the Registrant.
(d) N/A
Item 3. Defaults Upon Senior Securities
(a) N/A
(b) N/A
Item 4. Submission of Matters to a Vote of Security Holders
(a) N/A
(b) N/A
(c) N/A
(d) N/A
Item 5. Other Information
(a) N/A
24
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Articles of Incorporation and Amendments
3(ii) Bylaws and Amendments
10.1 John M. Mendez Employment Contract
10.2 Supplementary Retirement Contract-Director
10.3 Supplementary Executive Retention Contract-Officer
10.4 Stock Option Contract-Director
10.5 Stock Option Contract-Officer
12 Statement regarding computation of ratios-Incorporated by
reference to Note 9 of the Consolidated Financial Statements
within this report.
15 Letter regarding unaudited interim financial information
99.1 CEO Certification of June 30, 2002 10-Q
99.2 CFO Certification of June 30, 2002 10-Q
(b) Reports on Form 8-K
A report on Form 8-K was filed on July 16, 2002 announcing the Company's
second quarter 2002 earnings and depicting certain financial information
as of June 30, 2002 and comparative income statements for the three and
six month periods ending June 30, 2002 and 2001, respectively.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Community Bancshares, Inc.
DATE: August 14, 2002
/s/ John M. Mendez
- ------------------------------
John M. Mendez
President & Chief Executive Officer
(Duly Authorized Officer)
DATE: August 14, 2002
/s/ Robert L. Schumacher
- ------------------------------
Robert L. Schumacher
Chief Financial Officer
(Principal Accounting Officer)
26
Index to Exhibits
Exhibit No.
3(i) Articles of Incorporation and Amendments
3(ii) Bylaws and Amendments
10.1 John M. Mendez Employment Contract
10.2 Supplementary Retirement Contract-Director
10.3 Supplementary Executive Retention Contract-Officer
10.4 Stock Option Contract-Director
10.5 Stock Option Contract-Officer
12 Statement regarding computation of ratios-Incorporated by
reference to Note 9 of the Consolidated Financial Statements
within this report.
15 Letter regarding unaudited interim financial information
99.1 CEO Certification of June 30, 2002 10-Q
99.2 CFO Certification of June 30, 2002 10-Q
27