Item 2. Properties
FIRST COMMUNITY BANK OF MERCER COUNTY, INC.
The offices of the Registrant are located within First Community Bank of Mercer County, Inc. at 1001 Mercer Street, Princeton, West Virginia. Principal properties owned by the subsidiary banks consist of modern single purpose facilities described as follows:
Princeton- Two-story, 30,000 square foot banking offices with detached drive-up/walk-in facility in Princeton, West Virginia, completed in 1976; Pine Plaza branch office with drive-up located in Princeton, West Virginia, constructed in 1986 on leased land with initial lease term plus renewal options totaling twenty years; moveable, modular branch office with drive-up/walk-in located in Matoaka, West Virginia, constructed in 1983 on leased land; two-story, 6,000 square foot banking office with drive-up located in Green Valley, West Virginia, constructed in 1978, 10 automated teller machines located throughout Mercer County.
Bluefield- Three-story, 37,000 square foot banking offices located on Federal Street with detached drive-up facility, completed in 1972 and walk-up automated teller machine located on premises; one off-site automated teller machine on leased land in Bluefield Plaza.
Bluewell- Two-story, 8,200 square foot banking offices with drive-up facility located in Bluewell, West Virginia completed in 1965; one drive-up automated teller machine located on premises.
Green Valley- Branch office leased in Mercer Mall; one walk- up automated teller machine located on premises.
FIRST COMMUNITY BANK, INC.
Wyoming County- Two-story banking offices located in Pineville, West Virginia, acquired in 1961; two-story banking offices with drive-up located in Oceana, West Virginia, constructed in 1984; branch office with drive- up located in Mullens, West Virginia, constructed in 1984; moveable, modular branch office with drive-up/walk-in located in Pineville, West Virginia, constructed in 1984; three automated teller machines.
Upshur County- Three-story banking offices with an off- premise drive-up/walk-in facility located in Buckhannon, West Virginia, acquired in 1937; branch office with drive-up located in Tennerton, West Virginia, constructed in 1980; two automated teller machines.
Taylor County- Two-story banking offices with an attached drive-up/walk-in facility located in Grafton, West Virginia, constructed in 1966; one automated teller machine; one-story, 1,200 square foot banking offices with an attached drive-up facility, located in the Blueville area of Grafton, West Virginia, constructed in 1968.
Nicholas County- Two story banking offices and office addition with drive-up located in Richwood, West Virginia; off-premises facility with drive-up located in Richwood, West Virginia, constructed in 1977 on leased land; one and one-half story branch office with drive-up located in Summersville, West Virginia, constructed in 1984; one and one-half story branch office with drive-up located in Craigsville, West Virginia, constructed in 1984; three automated teller machines.
Webster County- Branch office with drive-up located in Cowen, West Virginia, constructed in 1988.
Preston County- One-story, 4,000 square foot banking offices with an attached drive-up facility located in Rowlesburg, West Virginia, constructed in the early 1920's and remodeled in 1981.
Logan County- Two and one-half story banking facility with attached two-lane drive-up located in Man, West Virginia, constructed in 1976 with additional levels added in 1981; separate mini-bank facility with four drive-thru lanes; banking sales center located inside Wal-Mart Supercenter in Logan, West Virginia; one automated teller machine.
FIRST COMMUNITY BANK OF SOUTHWEST VIRGINIA, INC.
Tazewell County- Bi-level , 6,500 square foot banking offices with attached drive-up facility located in Tazewell, Virginia, constructed in 1978, remodeled in 1981 and 1995; one-story, 2,500 square foot banking offices with an attached drive-up facility, located in Richlands, Virginia, constructed in 1989 and remodeled in 1995.
Dickenson County- Two story bank building with attached drive-up constructed in 1973 located in Clintwood, Virginia.
Wythe County- One story bank building with attached two-lane drive-up located in Fort Chiswell, Virginia, constructed in 1962, additions in 1984 and completely remodeled in 1994; a leased one story banking facility with walk-up automated teller machine, two-lane drive-up remodeled in 1997, located in Wytheville, Virginia.
Wise County- One story bank building with attached two-lane drive-up located in Pound, Virginia.
BLUE RIDGE BANK
Alleghany County- One story 17,980 square foot bank building constructed in 1987 located in Sparta, North Carolina.
Alexander County- 4,000 square foot one story banking facility situated on approximately three acres in Taylorsville, North Carolina; with a walk-up automated teller machine.
Wilkes County- One story, 1,500 square foot banking facility purchased by the bank in 1995, located in Hays, North Carolina.
Surry County- One story, 4,000 square foot banking facility purchased by the bank in 1995, located in Elkin, North Carolina; with a walk-up automated teller machine.
Item 3.
Item 3. Legal Proceedings
The Registrant and its subsidiaries (the Company) are plaintiffs and defendants in lawsuits arising out of the normal course of business, in which claims for monetary damages are asserted. Management, after consulting with legal counsel handling the respective matters, is of the opinion that the ultimate outcome of such pending actions will not have a material effect upon the consolidated results of operations or financial condition of the Registrant. Following is a summary of significant proceedings along with recent developments, where applicable.
The Company's most significant matter of litigation styled Civil Action No. 92-CV-1696-K Four Winds Development, Inc., W. Stephen Melcher, and E. T. Boggess, Plaintiffs vs. First Community Bank - Princeton and Dave Shields Company, Inc., Defendants was settled in the first quarter of 1997 through a compromise which resulted in payments by the Company to various plaintiffs aggregating $733,000 and with a net cost to the Company of $468,000 after contribution by insurance providers and co-defendants. This settlement concluded three separate but related Civil Actions involving the above referenced commercial loan customers, a related bankruptcy and a mechanics' lien action. The first quarter settlement in 1997 resulted in a recovery of litigation reserves of approximately $700,000. Reserves had been established in previous years in anticipation of execution of a verdict judgment under the above referenced Civil Action. Settlement of the verdict was accomplished in 1997 at a lesser sum and with co-defendants and insurance carriers assuming a portion of the settlement amount as described above.
Included in the settlement described in the preceding paragraph was the settlement of a second Civil Action No. 89-C-1156-F styled Commercial Bank of Bluefield (Commercial), Plaintiff vs. Allied Refrigeration, Inc., Defendant and Third Party Plaintiff vs. Dan Shortridge, Four Winds Development, Inc., W. Stephen Melcher, E. T. Boggess, Robert W. Culler and First Community Bank, Third Party Defendants. This action was settled in connection with the above referenced joint settlement agreement in consideration of the forgiveness of a $200,000 loan by First Party Plaintiff, Commercial Bank of Bluefield, and the payment of $228,000 to Defendant Allied Refrigeration, Inc. The cash payment to Allied is included in the settlement total referenced in the preceding paragraph.
The third related action styled Allied Refrigeration vs. Westwood Associates, et al, Adversary Proceeding No. 7-93-00037, which was settled as part of the above referenced joint settlement agreement, was the assertion of a mechanics' lien in relation to the development of a long- term care facility in Bluefield, Virginia. The mechanics' lien action, brought by Allied Refrigeration, Inc., was also dismissed as part of the joint settlement agreement.
In August 1997, the Company was named as a defendant in a suit styled Ann Tierney Smith, as Executrix of the Estate of Katharine B. Tierney, Ann Barclay Smith and Laurence E. Tierney Smith, Plaintiffs vs. FCFT, Inc., First Community Bank, Inc., Gentry, Locke, Rakes & Moore, and W. William Gust, Defendants, Civil Action No. 97-CV-408-K, seeking to overturn the establishment of a private foundation for which the Company's Trust and Financial Services Division serves as Trustee. The suit filed by heirs of the Foundation donor, seeks a total of $6 million in compensatory and punitive damages as well as the termination of the Foundation. The Company and Trustee believe the creation and the operation of the Foundation represent the intent and will of the donor and intend to defend the suit and the continuation of the Foundation's purpose. Both management and the Company's legal counsel are of the opinion that this suit is without merit and will be successfully defended with no material adverse impact on the Company's financial condition or results of operations.
Civil Action No. 82-C-610, styled Rhondal L. Toler, et al, vs. Castle Rock Bank of Pineville, filed on December 2, 1982 in the Circuit Court of Wyoming County, West Virginia, was reported in the 1996 Annual Report on Form 10-K. In this action, which Rhondal L. and Annette Toler and Vern and Henrietta Ellison, Plaintiffs, claimed that former representatives of a subsidiary of the Registrant misrepresented the condition of a company at the time the Plaintiffs borrowed money to purchase the company. The Company filed an answer denying all pertinent allegations made by the Plaintiffs and additionally filed a counterclaim seeking $322,000 plus costs. This case was dismissed in 1996 due to its prolonged existence on the Court docket and the Plaintiff's failure to prosecute. The Plaintiff has filed a motion to reinstate this matter and the Company has filed a counter motion objecting to the reinstatement. Ruling on these issues has not been made as of the date of this report.
Additionally, the Company is also subject to certain asserted and unasserted potential claims encountered in the normal course of business. In the opinion of management, the resolution to these claims and unasserted potential claims will not have a material adverse affect on the Company's financial position or results of operations and, due to the relative amount of claims where damage is sought and based upon the Company's evaluation, these matters have not been included in this report.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of 1997
Part II.
Item 5.
Item 5. Market for Registrant's Common Equity and Related Matters
Market Price of Common Stock
The common stock of First Community Bancshares, Inc. is traded over-the-counter and is quoted on the NASDAQ (Level III) Electronic Billboard. The following table shows the approximate high and low bids as known to the Company or reported by local brokers for each quarter in 1996 and 1997. Management has been advised that such quotations primarily represent actual transactions. Also, presented below is the book value and cash dividends paid per share as of and for each quarter of 1996 and 1997. The number of common stockholders of record on December 31, 1997 was 2,142 and outstanding shares totaled 5,650,932.
The holders of shares of common stock of the Company are entitled to such dividends as the Board of Directors, in its discretion, may declare out of funds legally available thereof.
The Company has historically paid dividends on a quarterly basis and currently intends to continue to pay such dividends in the foreseeable future. However, there can be no assurance that dividends will be paid in the future. The declaration and payment of future dividends will depend upon, among other things, the Company's earnings and financial condition, the general economic and regulatory climate.
The Company's ability to pay dividends to its shareholders depends to a large extent upon the dividends the Company receives from its subsidiaries. Dividends paid by its banking subsidiaries are subject to restrictions under various Federal banking laws. In addition, the banking subsidiaries must maintain certain capital levels which may restrict their ability to pay dividends to the Company. As of December 31, 1997, the net profits available for distribution to the shareholders as dividends without regulatory approval were approximately $1.8 million; however the regulators of the banking subsidiaries could administratively impose stricter limits on the ability of the banking subsidiaries to distribute net profits to the Company.
Item 6.
Item 6. Selected Financial Data
The required information is incorporated by reference to page 15 of the 1997 Annual Report.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The required information is incorporated by reference to pages 13 through 24 of the 1997 Annual Report.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk (IRR) and Asset/Liability Management
The Bank's profitability is dependent to a large extent upon its net interest income (NII), which is the difference between its interest income on interest-earning assets, such as loans and securities, and its interest expense on interest-bearing liabilities, such as deposits and borrowings. 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 of NII using financial models which project NII 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 attained in those future rate environments and rates which will be paid on various deposit instruments and borrowings.
The following table summarizes the impact on tax equivalent NII and the Market Value of Equity (MVE) of immediate and sustained rate shocks in the interest rate environment of plus and minus 100, 200, 300 and 400 basis points from the flat rate simulation.
The preceding table which illustrates the prospective effects of hypothetical interest rate changes is based upon numerous assumptions, including relative and estimated levels of key interest rate factors. Management feels that this type of modeling technique, although useful, does not take into account strategies which management would undertake in response to a sudden and sustained rate shock as depicted. Additionally, management does not believe that a rate shock of the magnitude described is likely in the forecast period presented.
Item 8.
Item 8. Financial Statements and Supplementary Data
The required information is incorporated by reference to pages 26 through 51 of the 1997 Annual Report and as follows:
First Community Bancshares, Inc. Quarterly Earnings Summary (Unaudited) Quarterly earnings for the years ended December 31, 1997 and 1996 are as follows (in thousands):
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Part III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The required information concerning directors has been omitted in accordance with General Instruction G. Such information regarding directors appears on pages 3, 4, 5, and 6 of the Proxy Statement relating to the 1998 Annual Meeting of Stockholders and is incorporated herein by reference.
A portion of the information relating to executive officers has been omitted in accordance with General Instruction G. Such information regarding executive officers appears on pages 6, 7, and 8 of the Proxy Statement relating to the 1998 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation
The required information concerning management remuneration has been omitted in accordance with General Instruction G. Such information appearing on pages 7, 8, 9, and 10 of the Proxy Statement relating to the 1998 Annual Meeting of Stockholders is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The required information concerning security ownership of certain beneficial owners and management has been omitted in accordance with General Instruction G. Such information appearing on page 6 of the Proxy Statement relating to the 1998 Annual Meeting of Stockholders is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
The required information concerning certain relationships and related transactions have been omitted in accordance with General Instruction G. Such information appearing on pages 5 and 6 of the Proxy Statement relating to the 1998 Annual Meeting of Stockholders is incorporated herein by reference.
Part IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements
The Consolidated Financial Statements of First Community Bancshares, Inc. and subsidiaries together with the independent Auditors' Report dated January 30, 1998 are incorporated by reference to pages 26 through 50 of the 1997 Annual Report which is included herein as Exhibit 13.
(2) Financial Statement Schedules
All applicable financial statement schedules required by Regulation S-X are included in the Notes to Consolidated Financial Statements.
(b) A report on Form 8-K regarding the Company's merger with the new Nevada corporation to change its state of domicile and its corporate name was filed on November 3, 1997 and incorporated by reference to Form 10-Q for the period ending September 30, 1997.
(c) Exhibits:
(3) Articles of Incorporation and Bylaws
The Registrant's Articles of Incorporation and By-laws are included as exhibits (3)(i) and (3)(ii), respectively.
(11) Statement Regarding Computation of Per Share Earnings
The statement regarding computation of per share earnings is included as Note 10 of the Notes to Consolidated Financial Statements in the 1997 Annual Report to Stockholders and is incorporated herein by reference.
(13) Annual Report to Security Holders
(21) Subsidiaries of Registrant:
First Community Bank, Inc. ( a West Virginia Corporation) First Community Bank of Mercer County, Inc. ( a West Virginia Corporation) First Community Bank of Southwest Virginia, Inc. ( a Virginia Corporation) Blue Ridge Bank, Inc. (a North Carolina Corporation)
(23) Independent Auditors' Consent
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BY: /s/ President and Chief Executive 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.
BY: /s/ Principal Accounting Officer