First Community Bancshares, Inc. 10-K
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2007
Commission file number
000-19297
FIRST COMMUNITY BANCSHARES,
INC.
(Exact name of registrant as
specified in its charter)
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Nevada
(State or other jurisdiction
of incorporation)
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55-0694814
(IRS Employer Identification
No.)
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P.O. Box 989
Bluefield, Virginia
(Address of principal
executive offices)
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24605-0989
(Zip Code)
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(276) 326-9000
Registrants telephone
number, including area code:
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of exchange on which registered
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Common Stock, $1.00 par value
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NASDAQ Global Select
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. o Yes þ No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act o Yes þ No
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. þ Yes o No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). o Yes þ No
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to
the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the
last business day of the registrants most recently
completed second fiscal quarter.
Approximately $293,778,610 based on the closing sales price at
June 29, 2007.
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
Class Common Stock, $1.00 Par Value;
11,003,346 shares outstanding as of March 11, 2008
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the annual meeting of
shareholders to be held April 29, 2008, are incorporated by
reference in Part III of this
Form 10-K.
TABLE OF
CONTENTS
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Page
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PART I
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Item 1
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Business
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3
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Item 1A.
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Risk Factors
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9
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Item 1B.
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Unresolved Staff Comments
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12
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Item 2.
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Properties
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12
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Item 3.
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Legal Proceedings
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12
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Item 4.
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Submission of Matters to a Vote of Security Holders
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13
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PART II
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Item 5.
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Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
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13
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Item 6.
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Selected Financial Data
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15
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Item 7.
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Managements Discussion and Analysis of Financial Condition
and Results of Operation
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16
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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38
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Item 8.
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Financial Statements and Supplementary Data
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40
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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83
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Item 9A.
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Controls and Procedures
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83
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Item 9B.
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Other Information
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83
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PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance
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83
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Item 11.
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Executive Compensation
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85
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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85
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Item 13
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Certain Relationships and Related Transactions, and Director
Independence
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86
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Item 14.
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Principal Accounting Fees and Services
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86
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PART IV
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Item 15.
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Exhibits, Financial Statement Schedules
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86
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Signatures
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89
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2
PART I
General
First Community Bancshares, Inc. (the Company) is a
bank holding company incorporated in the State of Nevada and
serves as the holding company for First Community Bank, N. A.
(the Bank), a national banking association that
conducts commercial banking operations within the states of
Virginia, West Virginia, North Carolina, South Carolina,
and Tennessee. The Company also owns GreenPoint Insurance Group,
Inc. (GreenPoint), a full-service insurance agency
acquired in September 2007, and Investment Planning Consultants
(IPC), an investment advisory firm acquired in
November 2006. The Company had total consolidated assets of
approximately $2.15 billion at December 31, 2007, and
conducts its banking operations through fifty-seven locations
and four wealth management offices.
The Company is a bank holding company, and its banking
operations are expected to remain the principal business and
major source of revenue for the Company. The Company provides a
mechanism for ownership of the subsidiary banking operations,
provides capital funds as required, and serves as a conduit for
distribution of dividends to stockholders. The Company also
considers and evaluates options for growth and expansion of the
existing subsidiary banking operations. The Company currently
derives substantially all of its revenues from dividends paid by
its subsidiary bank. Dividend payments by the Bank are
determined in relation to earnings, asset growth and capital
position and are subject to certain restrictions by regulatory
agencies as described more fully under Regulation and
Supervision of this item.
Employees
The Company and its subsidiaries employed 615 full-time
equivalent employees at December 31, 2007. Management
considers employee relations to be excellent.
Regulation
and Supervision
General
The supervision and regulation of the Company and its
subsidiaries by the banking agencies is intended primarily for
the protection of depositors, the deposit insurance fund of the
FDIC, and the banking system as a whole, and not for the
protection of stockholders or creditors. The banking agencies
have broad enforcement power over bank holding companies and
banks, including the power to impose substantial fines and other
penalties for violations of laws and regulations.
The following description summarizes some of the laws to which
the Company and the Bank are subject. References in the
following description to applicable statutes and regulations are
brief summaries of these statutes and regulations, do not
purport to be complete, and are qualified in their entirety by
reference to such statutes and regulations.
The
Company
The Company is a financial holding company pursuant to the
Gramm-Leach-Bliley Act (GLB Act) and a bank holding
company registered under the Bank Holding Company Act of 1956,
as amended (BHCA). Accordingly, the Company is
subject to supervision, regulation and examination by the Board
of Governors of the Federal Reserve System (Federal
Reserve Board). The BHCA, the GLB Act, and other federal
laws subject financial and bank holding companies to particular
restrictions on the types of activities in which they may
engage, and to a range of supervisory requirements and
activities, including regulatory enforcement actions for
violations of laws and regulations.
Regulatory Restrictions on Dividends; Source of
Strength. It is the policy of the Federal Reserve
Board that bank holding companies should pay cash dividends on
common stock only out of income available over the past year and
only if prospective earnings retention is consistent with the
organizations expected future needs and
3
financial condition. The policy provides that bank holding
companies should not maintain a level of cash dividends that
undermines the bank holding companys ability to serve as a
source of strength to its banking subsidiaries.
Under Federal Reserve Board policy, a bank holding company is
expected to act as a source of financial strength to each of its
banking subsidiaries and commit resources to their support. Such
support may be required at times when, absent this Federal
Reserve Board policy, a holding company may not be inclined to
provide it. As discussed below, a bank holding company in
certain circumstances could be required to guarantee the capital
plan of an undercapitalized banking subsidiary.
Scope of Permissible Activities. Under the
BHCA, bank holding companies generally may not acquire a direct
or indirect interest in or control of more than 5% of the voting
shares of any company that is not a bank or bank holding company
or from engaging in activities other than those of banking,
managing or controlling banks or furnishing services to or
performing services for its subsidiaries, except that it may
engage in, directly or indirectly, certain activities that the
Federal Reserve Board determined to be closely related to
banking or managing and controlling banks as to be a proper
incident thereto.
Notwithstanding the foregoing, the GLB Act, effective
March 11, 2000, eliminated the barriers to affiliations
among banks, securities firms, insurance companies and other
financial service providers and permits bank holding companies
to become financial holding companies and thereby affiliate with
securities firms and insurance companies and engage in other
activities that are financial in nature. The GLB Act defines
financial in nature to include securities
underwriting, dealing and market making; sponsoring mutual funds
and investment companies; insurance underwriting and agency;
merchant banking activities and activities that the Federal
Reserve Board has determined to be closely related to banking.
No regulatory approval is generally required for a financial
holding company to acquire a company, other than a bank or
savings association, engaged in activities that are financial in
nature or incidental to activities that are financial in nature,
as determined by the Federal Reserve Board.
Under the GLB Act, a bank holding company may become a financial
holding company by filing a declaration with the Federal Reserve
Board if each of its subsidiary banks is well-capitalized under
the Federal Deposit Insurance Corporation Improvement Act of
1991 (FDICIA) prompt corrective action provisions,
is well managed and has at least a satisfactory rating under the
Community Reinvestment Act of 1977 (CRA). The
Company elected financial holding company status in December
2006.
Safe and Sound Banking Practices. Bank holding
companies are not permitted to engage in unsafe and unsound
banking practices. The Federal Reserve Board has broad authority
to prohibit activities of bank holding companies and their
nonbanking subsidiaries which represent unsafe and unsound
banking practices or which constitute violations of laws or
regulations, and can assess civil money penalties for certain
activities conducted on a knowing and reckless basis, if those
activities caused a substantial loss to a depository institution.
Anti-Tying Restrictions. Bank holding
companies and their affiliates are prohibited from tying the
provision of certain services, such as extensions of credit, to
other services offered by a holding company or its affiliates.
Stock Repurchases. A bank holding company is
required to give the Federal Reserve Board prior notice of any
redemption or repurchase of its own equity securities, if the
consideration to be paid, together with the consideration paid
for any repurchases or redemptions in the preceding year, is
equal to 10% or more of the companys consolidated net
worth. The Federal Reserve Board may oppose the transaction if
it believes that the transaction would constitute an unsafe or
unsound practice or would violate any law or regulation.
Capital Adequacy Requirements. The Federal
Reserve Board has promulgated capital adequacy guidelines for
use in its examination and supervision of bank holding
companies. If a bank holding companys capital falls below
minimum required levels, then the bank holding company must
implement a plan to increase its capital, and its ability to pay
dividends, make acquisitions of new banks or engage in certain
other activities such as issuing brokered deposits may be
restricted or prohibited.
The Federal Reserve Board currently uses two types of capital
adequacy guidelines for holding companies, a two-tiered
risk-based capital guideline and a leverage capital ratio
guideline. The two-tiered risk-based capital guideline assigns
risk weightings to all assets and certain off-balance sheet
items of the holding companys operations, and then
establishes a minimum ratio of the holding companys
Tier 1 capital to the aggregate dollar
4
amount of risk-weighted assets (which amount is usually less
than the aggregate dollar amount of such assets without risk
weighting) and a minimum ratio of the holding companys
total capital (Tier 1 capital plus Tier 2 capital, as
adjusted) to the aggregate dollar amount of such risk-weighted
assets. The leverage ratio guideline establishes a minimum ratio
of the holding companys Tier 1 capital to its total
tangible assets (total assets less goodwill and certain
identifiable intangibles), without risk-weighting.
Under both guidelines, Tier 1 capital (sometimes referred
to as core capital) is defined to include: common
shareholders equity (including retained earnings),
qualifying non-cumulative perpetual preferred stock and related
surplus, qualifying cumulative perpetual preferred stock and
related surplus, trust preferred securities, and minority
interests in the equity accounts of consolidated subsidiaries
(limited to a maximum of 25% of Tier 1 capital). Goodwill
and most intangible assets are deducted from Tier 1
capital. For purposes of the total risk-based capital
guidelines, Tier 2 capital (sometimes referred to as
supplementary capital) is defined to include:
allowances for loan and lease losses (limited to 1.25% of
risk-weighted assets), perpetual preferred stock not included in
Tier 1 capital, intermediate-term preferred stock and any
related surplus, certain hybrid capital instruments, perpetual
debt and mandatory convertible debt securities, and
intermediate-term subordinated debt instruments (subject to
limitations). The maximum amount of qualifying Tier 2
capital is 100% of qualifying Tier 1 capital. For purposes
of the total capital guideline, total capital equals Tier 1
capital, plus qualifying Tier 2 capital, minus
investments in unconsolidated subsidiaries, reciprocal
holdings of bank holding company capital securities, and
deferred tax assets and other deductions. The Federal Reserve
Boards current capital adequacy guidelines require that a
bank holding company maintain a Tier 1 risk-based capital
ratio of at least 4% and a total risk-based capital ratio of at
least 8%. At December 31, 2007, the Companys ratio of
Tier 1 capital to total risk-weighted assets was 11.45% and
its ratio of total capital to risk-weighted assets was 12.34%.
In addition to the risk-based capital guidelines, the Federal
Reserve Board uses a leverage ratio as an additional tool to
evaluate the capital adequacy of bank holding companies. The
leverage ratio is a companys Tier 1 capital divided
by its average total consolidated assets. Certain highly rated
bank holding companies may maintain a minimum leverage ratio of
3.0%, but other bank holding companies are required to maintain
a leverage ratio of 4.0% or more, depending on their overall
condition. At December 31, 2007, the Companys
leverage ratio was 8.09%.
The federal banking agencies risk-based and leverage
ratios are minimum supervisory ratios generally applicable to
banking organizations that meet certain specified criteria,
assuming that they have the highest regulatory rating. Banking
organizations not meeting these criteria are expected to operate
with capital positions well above the minimum ratios. The
federal bank regulatory agencies may set capital requirements
for a particular banking organization that are higher than the
minimum ratios when circumstances warrant. Federal Reserve Board
guidelines also provide that banking organizations experiencing
internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the
minimum supervisory levels, without significant reliance on
intangible assets.
Acquisitions by Bank Holding Companies. The
BHCA requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before it may acquire all
or substantially all of the assets of any bank, or ownership or
control of any voting shares of any bank, if after such
acquisition it would own or control, directly or indirectly,
more than 5% of the voting shares of such bank. In approving
bank acquisitions by bank holding companies, the Federal Reserve
Board is required to consider the financial and managerial
resources and future prospects of the bank holding company and
the banks concerned, the convenience and needs of the
communities to be served, and various competitive factors.
The
Bank
The Bank is a national association and is subject to supervision
and regulation by the Office of the Comptroller of Currency
(OCC). Since the deposits of the Bank are insured by
the Federal Deposit Insurance Corporation (FDIC),
the Bank is also subject to supervision and regulation by the
FDIC. Because the Federal Reserve Board regulates the Company,
and because the Bank is a member of the Federal Reserve System,
the Federal Reserve Board also has regulatory authority which
directly affects the Bank.
5
Restrictions on Transactions with Affiliates and
Insiders. Transactions between the Bank and its
nonbanking subsidiaries
and/or
affiliates, including the Company, are subject to
Section 23A of the Federal Reserve Act. In general,
Section 23A imposes limits on the amount of such
transactions, and also requires certain levels of collateral for
loans to affiliated parties. It also limits the amount of
advances to third parties which are collateralized by the
securities or obligations of the Company or its subsidiaries.
Affiliate transactions are also subject to Section 23B of
the Federal Reserve Act which generally requires that certain
transactions between the Bank and its affiliates be on terms
substantially the same, or at least as favorable to the Bank, as
those prevailing at the time for comparable transactions with or
involving other nonaffiliated persons. The Federal Reserve Board
has issued Regulation W which codifies prior regulations
under Sections 23A and 23B of the Federal Reserve Act and
interpretive guidance with respect to affiliate transactions.
The restrictions on loans to directors, executive officers,
principal shareholders and their related interests contained in
the Federal Reserve Act and Regulation O apply to all
insured institutions and their subsidiaries and holding
companies. These restrictions include limits on loans to one
borrower and conditions that must be met before such a loan can
be made. There is also an aggregate limitation on all loans to
such persons. These loans cannot exceed the institutions
total unimpaired capital and surplus, and the FDIC may determine
that a lesser amount is appropriate.
Restrictions on Distribution of Subsidiary Bank Dividends and
Assets. Dividends paid by the Bank have provided
the Companys operating funds and for the foreseeable
future it is anticipated that dividends paid by the Bank to the
Company will continue to be the Companys primary source of
operating funds.
Capital adequacy requirements of the OCC limit the amount of
dividends that may be paid by the Bank. The Bank cannot pay a
dividend if, after paying the dividend, it would be classified
as undercapitalized. In addition, without the
OCCs approval, dividends may not be paid by the Bank in an
amount in any calendar year which exceeds its total net profits
for that year, plus its retained profits for the preceding two
years, less any required transfers to capital surplus. National
banks also may not pay dividends in excess of total retained
profits, including current years earnings after deducting
bad debts in excess of reserves for loan losses. In some cases,
the OCC may find a dividend payment that meets these statutory
requirements to be an unsafe or unsound practice.
Because the Company is a legal entity separate and distinct from
its subsidiaries, its right to participate in the distribution
of assets of any subsidiary upon the subsidiarys
liquidation or reorganization will be subject to the prior
claims of the subsidiarys creditors. In the event of a
liquidation or other resolution of an insured depository
institution, the claims of depositors and other general or
subordinated creditors are entitled to a priority of payment
over the claims of holders of any obligation of the institution
to its shareholders, including any depository institution
holding company or any shareholder or creditor thereof.
Examinations. Under the FDICIA, all insured
institutions must undergo regular
on-site
examination by their appropriate banking agency and such agency
may assess the institution for its costs of conducting the
examination. The OCC periodically examines and evaluates
national banks, such as the Bank. These examinations review
areas such as capital adequacy, reserves, loan portfolio quality
and management, consumer and other compliance issues,
investments, information systems, disaster recovery and
contingency planning and management practices. Based upon such
an evaluation, the OCC may revalue the assets of a bank and
require that it establish specific reserves to compensate for
the difference between the OCC-determined value and the book
value of such assets.
Capital Adequacy Requirements. The OCC has
adopted regulations establishing minimum requirements for the
capital adequacy of insured national banks. The OCC may
establish higher minimum requirements if, for example, a bank
has previously received special attention or has a high
susceptibility to interest rate risk.
The OCCs risk-based capital guidelines generally require
national banks to have a minimum ratio of Tier 1 capital to
total risk-weighted assets of 4.0% and a ratio of total capital
to total risk-weighted assets of 8.0%. The capital categories
have the same definitions for the Bank as for the Company. At
December 31, 2007, the Banks ratio of Tier 1
capital to total risk-weighted assets was 10.55% and its ratio
of total capital to total risk-weighted assets was 11.44%.
6
The OCCs leverage guidelines require national banks to
maintain Tier 1 capital of no less than 4.0% of average
total assets, except in the case of certain highly rated banks
for which the requirement is 3.0% of average total assets. At
December 31, 2007, the Banks leverage ratio was 7.44%.
Corrective Measures for Capital
Deficiencies. The federal banking regulators are
required to take prompt corrective action with
respect to capital-deficient institutions. Agency regulations
define, for each capital category, the levels at which
institutions are well-capitalized, adequately
capitalized, undercapitalized,
significantly undercapitalized and critically
undercapitalized. A well-capitalized bank has
a total risk-based capital ratio of 10.0% or higher; a
Tier 1 risk-based capital ratio of 6.0% or higher; a
leverage ratio of 5.0% or higher; and is not subject to any
written agreement, order or directive requiring it to maintain a
specific capital level for any capital measure. An
adequately capitalized bank has a total risk-based
capital ratio of 8.0% or higher; a Tier 1 risk-based
capital ratio of 4.0% or higher; a leverage ratio of 4.0% or
higher (3.0% or higher if the bank was rated a composite 1 in
its most recent examination report and is not experiencing
significant growth); and does not meet the criteria for a
well-capitalized bank. A bank is undercapitalized if
it fails to meet any one of the ratios required to be adequately
capitalized. The Bank is classified as
well-capitalized for purposes of the FDICs
prompt corrective action regulations.
In addition to requiring undercapitalized institutions to submit
a capital restoration plan, agency regulations contain broad
restrictions on certain activities of undercapitalized
institutions including asset growth, acquisitions, branch
establishment and expansion into new lines of business. With
certain exceptions, an insured depository institution is
prohibited from making capital distributions, including
dividends, and is prohibited from paying management fees to
control persons if the institution would be undercapitalized
after any such distribution or payment.
As an institutions capital decreases, the federal
regulators enforcement powers become more severe. A
significantly undercapitalized institution is subject to
mandated capital raising activities, restrictions on interest
rates paid and transactions with affiliates, removal of
management and other restrictions. The FDIC has limited
discretion in dealing with a critically undercapitalized
institution and is generally required to appoint a receiver or
conservator. Similarly, within 90 days of a national bank
becoming critically undercapitalized, the OCC must appoint a
receiver or conservator unless certain findings are made with
respect to the institutions continued viability.
Banks with risk-based capital and leverage ratios below the
required minimums may also be subject to certain administrative
actions, including the termination of deposit insurance upon
notice and hearing, or a temporary suspension of insurance
without a hearing in the event the institution has no tangible
capital.
Deposit Insurance Assessments. The Banks
deposits are insured up to applicable limits by the Deposit
Insurance Fund (DIF) of the FDIC and are subject to
deposit insurance assessments to maintain the DIF. The DIF was
created by the merger of the Bank Insurance Fund and Savings
Association Insurance Fund provided for in the Federal Deposit
Insurance Reform Act of 2005 (FDIRA), as enacted in
February 2006. Under the new risk-based assessment system, which
became effective January 1, 2007, the FDIC evaluates the
risk of each financial institution based on three primary
sources of information: (1) its supervisory rating,
(2) its financial ratios, and (3) its long-term debt
issuer rating, if the institution has one. The FDIC also adopted
a new base schedule of rates that it can adjust up or down,
depending on the needs of the DIF, and set initial premiums for
2007 that range from 5 cents per $100 of domestic deposits
in the lowest risk category to 43 cents per $100 of domestic
deposits for banks in the highest risk category. The designated
reserve ratio is currently set at 1.25% of estimated insured
deposits.
The FDIRA also provides for a one-time assessment credit for
eligible insured depository institutions (those institutions
that were in existence on December 31, 1996 and paid a
deposit insurance assessment prior to that date, or are a
successor to any such institution). The credit is determined
based on the assessment base of the institution as of
December 31, 1996 as compared with the combined aggregate
assessment base of all eligible institutions as of that date.
The credit may be used to offset up to 100% of the 2007 DIF
assessment, and if not completely used in 2007, may be applied
to not more than 90% of each of the aggregate 2008, 2009 and
2010 DIF assessments.
Enforcement Powers. The FDIC and the other
federal banking agencies have broad enforcement powers,
including the power to terminate deposit insurance, impose
substantial fines and other civil and criminal penalties
7
and appoint a conservator or receiver. Failure to comply with
applicable laws, regulations and supervisory agreements could
subject the Company or the Bank, as well as officers, directors
and other institution-affiliated parties of these organizations,
to administrative sanctions and potentially substantial civil
money penalties. The appropriate federal banking agency may
appoint the FDIC as conservator or receiver for a banking
institution (or the FDIC may appoint itself, under certain
circumstances) if any one or more of a number of circumstances
exist, including, without limitation, the fact that the banking
institution is undercapitalized and has no reasonable prospect
of becoming adequately capitalized; fails to become adequately
capitalized when required to do so; fails to submit a timely and
acceptable capital restoration plan; or materially fails to
implement an accepted capital restoration plan.
Consumer Laws and Regulations. In addition to
the laws and regulations discussed herein, the Bank is also
subject to certain consumer laws and regulations that are
designed to protect consumers in transactions with banks. While
the list set forth herein is not exhaustive, these laws and
regulations include the Truth in Lending Act, the Truth in
Savings Act, the Electronic Funds Transfer Act, the Expedited
Funds Availability Act, the Equal Credit Opportunity Act, and
the Fair Housing Act, and various state counterparts. These laws
and regulations mandate certain disclosure requirements and
regulate the manner in which financial institutions must deal
with customers when taking deposits or making loans to such
customers. The Bank must comply with the applicable provisions
of these consumer protection laws and regulations as part of
their ongoing customer relations.
In addition, federal law currently contains extensive customer
privacy protection provisions. Under these provisions, a
financial institution must provide to its customers, at the
inception of the customer relationship and annually thereafter,
the institutions policies and procedures regarding the
handling of customers nonpublic personal financial
information. These provisions also provide that, except for
certain limited exceptions, a financial institution may not
provide such personal information to unaffiliated third parties
unless the institution discloses to the customer that such
information may be so provided and the customer is given the
opportunity to opt out of such disclosure.
USA PATRIOT Act of 2001. The Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (Patriot
Act) was enacted in October 2001. The Patriot Act has
broadened existing anti-money laundering legislation while
imposing new compliance and due diligence obligations on banks
and other financial institutions, with a particular focus on
detecting and reporting moneylaundering transactions involving
domestic or international customers. The U.S. Treasury
Department has issued and will continue to issue regulations
clarifying the Patriot Acts requirements. The Patriot Act
requires all financial institutions, as defined, to
establish certain anti-money laundering compliance and due
diligence programs. Recently, the regulatory agencies have
intensified their examination procedures in light of the Patriot
Acts anti-money laundering and bank secrecy act
requirements. The Company believes that its controls and
procedures are in compliance with the Patriot Act.
Website
Access to Company Reports
The Company makes available free of charge on its website at
www.fcbinc.com its Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
and all amendments thereto, as soon as reasonably practicable
after the Company files such reports with, or furnishes them to,
the Securities and Exchange Commission (SEC).
Investors are encouraged to access these reports and the other
information about the Companys business on its website.
Information found on the Companys website is not part of
this Annual Report on
Form 10-K.
The Company will also provide copies of its Annual Report on
Form 10-K,
free of charge, upon written request of its Investor Relations
department at the Companys main address,
P.O. Box 989, Bluefield, VA 24605.
Forward-Looking
Statements
This Annual Report on
Form 10-K
may include forward-looking statements, which are
made in good faith by the Company 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 Companys
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
Companys
8
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
Companys 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 Company conducts operations; the
effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Federal
Reserve Board; inflation, interest rate, market and monetary
fluctuations; the timely development of competitive new products
and services of the Company 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 Companys 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 Companys 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 Company at managing the risks involved in the
foregoing.
The Company cautions that the foregoing list of important
factors is not all-inclusive. If one or more of the factors
affecting these forward-looking statements proves incorrect,
then the Companys actual results, performance, or
achievements could differ materially from those expressed in, or
implied by, forward-looking statements contained in this Annual
Report on
Form 10-K.
Therefore, the Company cautions you not to place undue reliance
on these forward-looking statements.
The Company does not intend to update these forward-looking
statements, whether written or oral, to reflect change. All
forward-looking statements attributable to the Company are
expressly qualified by these cautionary statements.
The
Company and its subsidiary business are subject to interest rate
risk and variations in interest rates may negatively affect its
financial performance.
The Companys earnings and cash flows are largely dependent
upon its net interest income. Net interest income is the
difference between interest income earned on interest-earning
assets, such as loans and securities, and interest expense paid
on interest-bearing liabilities, such as deposits and borrowed
funds. Interest rates are highly sensitive to many factors that
are beyond our control, including general economic conditions
and policies of various governmental and regulatory agencies
and, in particular, the Federal Reserve Board. Changes in
monetary policy, including changes in interest rates, could
influence not only the interest the Company receives on loans
and securities and the amount of interest it pays on deposits
and borrowings, but such changes could also affect (i) the
Companys ability to originate loans and obtain deposits,
and (ii) the fair value of the Companys financial
assets and liabilities. If the interest rates paid on deposits
and other borrowings increase at a faster rate than the interest
rates received on loans and other investments, the
Companys net interest income, and therefore earnings,
could be adversely affected. Earnings could also be adversely
affected if the interest rates received on loans and other
investments fall more quickly than the interest rates paid on
deposits and other borrowings.
The
Banks ability to pay dividends is subject to regulatory
limitations which, to the extent the Company requires such
dividends in the future, may affect the Companys ability
to pay its obligations and pay dividends.
The Company is a separate legal entity from the Bank and its
subsidiaries and does not have significant operations of its
own. The Company currently depends on the Banks cash and
liquidity as well as dividends to pay the Companys
operating expenses and dividends to shareholders. No assurance
can be made that in the future that the Bank will have the
capacity to pay the necessary dividends and that the Company
will not require dividends from the Bank to satisfy the
Companys obligations. The availability of dividends from
the Bank is limited by various statutes and regulations. It is
possible, depending upon the financial condition of the Bank and
other factors, that the OCC, the Banks primary regulator,
could assert that payment of dividends or other payments by the
Bank
9
are an unsafe or unsound practice. In the event the Bank is
unable to pay dividends sufficient to satisfy the Companys
obligations or is otherwise unable to pay dividends to the
Company, the Company may not be able to service its obligations
as they become due, including payments required to be made to
the FCBI Capital Trust, a business trust subsidiary of the
Company, or pay dividends on the Companys common stock.
Consequently, the inability to receive dividends from the Bank
could adversely affect the Companys financial condition,
results of operations, cash flows and prospects.
The
Banks allowance for loan losses may not be adequate to
cover actual losses.
Like all financial institutions, the Bank maintains an allowance
for loan losses to provide for probable losses. The Banks
allowance for loan losses may not be adequate to cover actual
loan losses, and future provisions for loan losses could
materially and adversely affect the Banks operating
results. The Banks allowance for loan losses is determined
by analyzing historical loan losses, current trends in
delinquencies and charge-offs, plans for problem loan
resolution, changes in the size and composition of the loan
portfolio, and industry information. Also included in
managements estimates for loan losses are considerations
with respect to the impact of economic events, the outcome of
which are uncertain. The amount of future losses is susceptible
to changes in economic, operating and other conditions,
including changes in interest rates, that may be beyond the
Banks control, and these losses may exceed current
estimates. Federal regulatory agencies, as an integral part of
their examination process, review the Banks loans and
allowance for loan losses. Although we believe that the
Banks allowance for loan losses is adequate to provide for
probable losses, we cannot assure you that we will not need to
increase the Banks allowance for loan losses or that
regulators will not require us to increase this allowance.
Either of these occurrences could materially and adversely
affect the Companys earnings and profitability.
The
Companys business is subject to various lending and other
economic risks that could adversely impact the Companys
results of operations and financial condition.
Changes in economic conditions, particularly an economic
slowdown, could hurt the Companys business. The
Companys business is directly affected by political and
market conditions, broad trends in industry and finance,
legislative and regulatory changes, and changes in governmental
monetary and fiscal policies and inflation, all of which are
beyond the Companys control. A deterioration in economic
conditions, in particular an economic slowdown within the
Companys geographic region, could result in the following
consequences, any of which could have a material adverse effect
on the Companys business:
|
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loan delinquencies may increase;
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|
problem assets and foreclosures may increase;
|
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|
demand for the Companys products and services may
decline; and
|
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|
collateral for loans made by the Company may decline in value,
in turn reducing a clients borrowing power, and reducing
the value of assets and collateral associated with the
Companys loans held for investment.
|
The
declining real estate market could impact the Companys
business.
The Companys business activities and credit exposure are
concentrated in Virginia, West Virginia, North Carolina,
Tennessee and the surrounding region. A continued downturn in
this regional real estate market could hurt the Companys
business because of the geographic concentration within this
regional area. If there is a significant decline in real estate
values, the collateral for the Companys loans will provide
less security. As a result, the Companys ability to
recover on defaulted loans by selling the underlying real estate
would be diminished, and we would be more likely to suffer
losses on defaulted loans.
The
Companys level of credit risk is increasing due to its
focus on commercial lending, and the concentration on small
businesses and middle market customers with heightened
vulnerability to economic conditions.
Commercial business and commercial real estate loans generally
are considered riskier than single-family residential loans
because they have larger balances to a single borrower or group
of related borrowers. Commercial
10
business and commercial real estate loans involve risks because
the borrowers ability to repay the loans typically depends
primarily on the successful operation of the businesses or the
properties securing the loans. Most of the Banks
commercial business loans are made to small business or middle
market customers who may have a heightened vulnerability to
economic conditions. Moreover, a portion of these loans have
been made or acquired by the Company in recent years and the
borrowers may not have experienced a complete business or
economic cycle.
The
Bank may suffer losses in its loan portfolio despite its
underwriting practices.
The Bank seeks to mitigate the risks inherent in the Banks
loan portfolio by adhering to specific underwriting practices.
These practices include analysis of a borrowers prior
credit history, financial statements, tax returns and cash flow
projections, valuation of collateral based on reports of
independent appraisers and verification of liquid assets.
Although the Bank believes that its underwriting criteria are
appropriate for the various kinds of loans it makes, the Bank
may incur losses on loans that meet its underwriting criteria,
and these losses may exceed the amounts set aside as reserves in
the Banks allowance for loan losses.
The
Company and its subsidiaries are subject to extensive regulation
which could adversely affect them.
The Company and its subsidiaries operations are subject to
extensive regulation and supervision by federal and state
governmental authorities and are subject to various laws and
judicial and administrative decisions imposing requirements and
restrictions on part or all of the Companys operations.
Banking regulations governing the Companys operations are
primarily intended to protect depositors funds, federal
deposit insurance funds and the banking system as a whole, not
security holders. Congress and federal regulatory agencies
continually review banking laws, regulations and policies for
possible changes. Changes to statutes, regulations or regulatory
policies, including changes in interpretation or implementation
of statutes, regulations or policies, could affect the Company
in substantial and unpredictable ways. Such changes could
subject the Company to additional costs, limit the types of
financial services and products the Company may offer
and/or
increase the ability of non-banks to offer competing financial
services and products, among other things. Failure to comply
with laws, regulations or policies could result in sanctions by
regulatory agencies, civil money penalties
and/or
reputation damage, which could have a material adverse effect on
the Companys business, financial condition and results of
operations. While the Company has policies and procedures
designed to prevent any such violations, there can be no
assurance that such violations will not occur. These laws, rules
and regulations, or any other laws, rules or regulations, that
may be adopted in the future, could make compliance more
difficult or expensive, restrict the Companys ability to
originate, broker or sell loans, further limit or restrict the
amount of commissions, interest or other charges earned on loans
originated or sold by the Bank and otherwise adversely affect
the Companys business, financial condition or prospects.
The
Company faces strong competition from other financial
institutions, financial service companies and other
organizations offering services similar to those offered by the
Company and its subsidiaries, which could hurt the
Companys business.
The Companys business operations are centered primarily in
Virginia, West Virginia, North Carolina, Tennessee and the
surrounding region. Increased competition within this region may
result in reduced loan originations and deposits. Ultimately, we
may not be able to compete successfully against current and
future competitors. Many competitors offer the types of loans
and banking services that we offer. These competitors include
other savings associations, national banks, regional banks and
other community banks. The Company also faces competition from
many other types of financial institutions, including finance
companies, brokerage firms, insurance companies, credit unions,
mortgage banks and other financial intermediaries. In
particular, the Banks competitors include other state and
national banks and major financial companies whose greater
resources may afford them a marketplace advantage by enabling
them to maintain numerous banking locations and mount extensive
promotional and advertising campaigns.
Additionally, banks and other financial institutions with larger
capitalization and financial intermediaries not subject to bank
regulatory restrictions have larger lending limits and are
thereby able to serve the credit needs of larger clients. These
institutions, particularly to the extent they are more
diversified than the Company, may be able
11
to offer the same loan products and services that the Company
offers at more competitive rates and prices. If the Company is
unable to attract and retain banking clients, the Company may be
unable to continue the Banks loan and deposit growth and
the Companys business, financial condition and prospects
may be negatively affected.
Potential
Acquisitions May Disrupt the Companys Business and Dilute
Stockholder Value
The Company may seek merger or acquisition partners that are
culturally similar and have experienced management and possess
either significant market presence or have potential for
improved profitability through financial management, economies
of scale or expanded services. Acquiring other banks,
businesses, or branches involves various risks commonly
associated with acquisitions, including, among other things:
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Potential exposure to unknown or contingent liabilities of the
target company.
|
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|
Exposure to potential asset quality issues of the target company.
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Difficulty and expense of integrating the operations and
personnel of the target company.
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Potential disruption to the Companys business.
|
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Potential diversion of the Companys managements time
and attention.
|
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The possible loss of key employees and customers of the target
company.
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Difficulty in estimating the value of the target company.
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Potential changes in banking or tax laws or regulations that may
affect the target company.
|
The Company regularly evaluates merger and acquisition
opportunities and conducts due diligence activities related to
possible transactions with other financial institutions and
financial services companies. As a result, merger or acquisition
discussions and, in some cases, negotiations may take place and
future mergers or acquisitions involving cash, debt or equity
securities may occur at any time. Acquisitions typically involve
the payment of a premium over book and market values, and,
therefore, some dilution of the Companys tangible book
value and net income per common share may occur in connection
with any future transaction. Furthermore, failure to realize the
expected revenue increases, cost savings, increases in
geographic or product presence,
and/or other
projected benefits from an acquisition could have a material
adverse effect on the Companys financial condition and
results of operations.
During 2007, the Company acquired GreenPoint, a full-service
insurance agency located in High Point, North Carolina.
Details of this transaction are presented in Note 2 in the
Notes to the Consolidated Financial Statements included in
Item 8 hereof.
|
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ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS.
|
The Company has no unresolved staff comments as of the filing
date of this 2007 Annual Report on
Form 10-K.
The Company generally owns its offices, related facilities, and
unimproved real property. The principal offices of the Company
are located at One Community Place, Bluefield, Virginia, where
the Company owns and occupies approximately 36,000 square
feet of office space. The Company operates 60 locations, with 17
offices in Virginia, 26 in West Virginia, 11 in North Carolina,
one in South Carolina, and five in Tennessee. The Company owns
44 of its banking offices while others are leased or are located
on leased land. There are no mortgages or liens against any
property of the Bank or the Company. A complete listing of all
branches and ATM sites can be found on the Internet at
www.fcbresource.com. Information on such website is not part of
this Annual Report on
Form 10-K.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS.
|
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. Although 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 or the results
of operations of the Company.
12
|
|
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 2007.
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
|
The number of common stockholders of record on December 31,
2007, was 2,431 and outstanding shares totaled 11,069,646. The
number of common stockholders is measured by the number of
recordholders.
The Companys common stock trades on the NASDAQ Global
Select market under the symbol, FCBC. On December 31, 2007,
the Companys year-end common stock price was $31.89, a
19.39% decrease from the $39.56 closing price on
December 31, 2006.
Book value per common share was $19.61 at December 31,
2007, compared with $18.92 at December 31, 2006, and $17.29
at the close of 2005. The year-end market price for the
Companys common stock of $31.89 represents 162.62% of the
Companys book value as of the close of the year and
reflects total market capitalization of $353.01 million.
Utilizing the year-end market price and 2007 diluted earnings
per share, the Companys common stock closed the year
trading at a price/earnings multiple of 12.2 times diluted
earnings per share.
Cash dividends for 2007 totaled $1.08 per share, up $0.04 or
3.85% from the $1.04 paid in 2006. The 2007 dividends resulted
in a cash yield on the year-end market value of 3.39%. Total
dividends paid for the current and prior years totaled
$12.08 million and $11.66 million, respectively.
The following table sets forth the high and low stock prices,
book value per share, and dividends paid per share on the
Companys common stock during the periods indicated.
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First
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Second
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Third
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Fourth
|
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Quarter
|
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Quarter
|
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|
Quarter
|
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|
Quarter
|
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|
2007
|
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|
|
|
|
|
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|
Dividends Paid
|
|
$
|
0.27
|
|
|
$
|
0.27
|
|
|
$
|
0.27
|
|
|
$
|
0.27
|
|
High
|
|
|
42.30
|
|
|
|
39.21
|
|
|
|
37.45
|
|
|
|
38.85
|
|
Low
|
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|
35.19
|
|
|
|
28.89
|
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|
|
25.40
|
|
|
|
30.07
|
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2006
|
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|
|
|
|
|
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|
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Dividends Paid
|
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$
|
0.26
|
|
|
$
|
0.26
|
|
|
$
|
0.26
|
|
|
$
|
0.26
|
|
High
|
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|
35.27
|
|
|
|
33.00
|
|
|
|
34.44
|
|
|
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41.17
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Low
|
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30.16
|
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29.50
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|
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30.04
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31.67
|
|
The Companys stock repurchase plan, as amended, allows the
purchase and retention of up to 550,000 shares. The plan
has no expiration date, remains open and no plans have expired
during the reporting period. No determination has been made to
terminate the plan or to stop making purchases. The following
table sets forth open market purchases by the Company of its
equity securities during the fourth quarter of 2007.
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|
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Maximum
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Total Number
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Number of
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Total
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of Shares
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Shares That
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Number of
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Average
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Purchased as
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May Yet Be
|
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Shares
|
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Price Paid
|
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Part of Publicly
|
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Purchased
|
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Purchased
|
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per Share
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Announced Plan
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Under the Plan
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October 1-31, 2007
|
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9,000
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|
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33.46
|
|
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9,000
|
|
|
|
218,032
|
|
November 1-30, 2007
|
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81,200
|
|
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33.41
|
|
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|
81,200
|
|
|
|
141,027
|
|
December 1-31, 2007
|
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33,800
|
|
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33.15
|
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33,800
|
|
|
|
120,634
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|
|
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|
|
|
|
|
|
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Total
|
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124,000
|
|
|
$
|
33.35
|
|
|
|
124,000
|
|
|
|
|
|
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|
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|
|
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On September 28, 2007, the Company completed the
acquisition of GreenPoint Insurance Group, Inc.
(GreenPoint), an insurance agency located in High
Point, North Carolina,. In connection with the initial payment
of approximately $1.66 million, the Company issued
49,088 shares of its common stock.
13
Total
Return Analysis
The following chart was compiled by SNL Securities LC, and
compares cumulative total shareholder return of the
Companys common stock for the five-year period ended
December 31, 2007, with the cumulative total return of the
NASDAQ Composite index and the Asset Size & Regional
Peer Group. The Asset Size & Regional Peer Group
consists of 49 bank holding companies that are traded on the
NASDAQ, OTC Bulletin Board, and pink sheets with total
assets between $1 billion and $5 billion and are
located in the Southeast region of the United States. The
cumulative returns include payment of dividends by the Company.
Total
Return Performance
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|
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Period Ending
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Index
|
|
12/31/02
|
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|
12/31/03
|
|
|
12/31/04
|
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12/31/05
|
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12/31/06
|
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12/31/07
|
|
First Community Bancshares, Inc.
|
|
|
100.00
|
|
|
|
122.13
|
|
|
|
137.10
|
|
|
|
122.41
|
|
|
|
160.36
|
|
|
|
133.59
|
|
|
|
|
|
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|
S&P 500
|
|
|
100.00
|
|
|
|
128.68
|
|
|
|
142.69
|
|
|
|
149.70
|
|
|
|
173.34
|
|
|
|
182.86
|
|
|
|
|
|
|
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|
|
|
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|
|
|
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|
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|
|
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|
|
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|
NASDAQ Composite
|
|
|
100.00
|
|
|
|
150.01
|
|
|
|
162.89
|
|
|
|
165.13
|
|
|
|
180.85
|
|
|
|
198.60
|
|
|
|
|
|
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|
|
|
|
|
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|
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|
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Asset Size & Regional Peer Group
|
|
|
100.00
|
|
|
|
134.94
|
|
|
|
159.26
|
|
|
|
164.27
|
|
|
|
182.54
|
|
|
|
131.50
|
|
|
|
|
|
|
|
|
|
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|
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14
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA.
|
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|
At or for the Year Ended December 31,
|
|
Five-Year Selected Financial Data
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Balance Sheet Summary
(at end of period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities(a)
|
|
$
|
676,195
|
|
|
$
|
528,389
|
|
|
$
|
428,554
|
|
|
$
|
410,218
|
|
|
$
|
473,177
|
|
Loans held for sale
|
|
|
811
|
|
|
|
781
|
|
|
|
1,274
|
|
|
|
1,194
|
|
|
|
424
|
|
Loans, net of unearned income
|
|
|
1,225,502
|
|
|
|
1,284,863
|
|
|
|
1,331,039
|
|
|
|
1,238,756
|
|
|
|
1,026,191
|
|
Allowance for loan losses
|
|
|
12,833
|
|
|
|
14,549
|
|
|
|
14,736
|
|
|
|
16,339
|
|
|
|
14,624
|
|
Assets related to discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,372
|
|
Total assets
|
|
|
2,149,838
|
|
|
|
2,033,698
|
|
|
|
1,952,483
|
|
|
|
1,830,822
|
|
|
|
1,672,727
|
|
Deposits
|
|
|
1,393,443
|
|
|
|
1,394,771
|
|
|
|
1,403,220
|
|
|
|
1,356,719
|
|
|
|
1,223,376
|
|
Borrowings
|
|
|
517,843
|
|
|
|
406,556
|
|
|
|
335,885
|
|
|
|
274,212
|
|
|
|
242,267
|
|
Liabilities related to discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,992
|
|
Total liabilities
|
|
|
1,932,740
|
|
|
|
1,820,968
|
|
|
|
1,757,982
|
|
|
|
1,647,589
|
|
|
|
1,497,692
|
|
Stockholders equity
|
|
|
217,098
|
|
|
|
212,730
|
|
|
|
194,501
|
|
|
|
183,233
|
|
|
|
175,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
127,591
|
|
|
$
|
120,026
|
|
|
$
|
109,508
|
|
|
$
|
96,136
|
|
|
$
|
90,641
|
|
Total interest expense
|
|
|
59,276
|
|
|
|
48,381
|
|
|
|
35,880
|
|
|
|
26,953
|
|
|
|
26,397
|
|
Provision for loan losses
|
|
|
717
|
|
|
|
2,706
|
|
|
|
3,706
|
|
|
|
2,671
|
|
|
|
3,419
|
|
Non-interest income
|
|
|
24,831
|
|
|
|
21,323
|
|
|
|
22,305
|
|
|
|
17,329
|
|
|
|
14,542
|
|
Non-interest expense
|
|
|
50,463
|
|
|
|
49,837
|
|
|
|
55,591
|
|
|
|
48,035
|
|
|
|
37,590
|
|
Income from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income taxes
|
|
|
41,966
|
|
|
|
40,425
|
|
|
|
36,636
|
|
|
|
35,806
|
|
|
|
37,777
|
|
Income tax expense
|
|
|
12,334
|
|
|
|
11,477
|
|
|
|
10,191
|
|
|
|
9,786
|
|
|
|
11,058
|
|
Income from continuing operations
|
|
|
29,632
|
|
|
|
28,948
|
|
|
|
26,445
|
|
|
|
26,020
|
|
|
|
26,719
|
|
(Loss) income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before income taxes
|
|
|
|
|
|
|
|
|
|
|
(233
|
)
|
|
|
(5,746
|
)
|
|
|
(2,174
|
)
|
Income tax (benefit) expense
|
|
|
|
|
|
|
|
|
|
|
(91
|
)
|
|
|
(2,090
|
)
|
|
|
(693
|
)
|
(Loss) income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(142
|
)
|
|
|
(3,656
|
)
|
|
|
(1,481
|
)
|
Net income
|
|
|
29,632
|
|
|
|
28,948
|
|
|
|
26,303
|
|
|
|
22,364
|
|
|
|
25,238
|
|
|
|
|
(a) |
|
Reflects the reclassification during
2003-2004
periods of Federal Reserve Bank and Federal Home Loan Bank stock
from Securities Available for Sale to Other Assets, consistent
with the
2005-2007
presentation. |
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended December 31,
|
|
Five-Year Selected Financial Data-continued
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.64
|
|
|
$
|
2.58
|
|
|
$
|
2.33
|
|
|
$
|
1.99
|
|
|
$
|
2.27
|
|
Basic earnings per common share-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
continuing operations
|
|
|
2.64
|
|
|
|
2.58
|
|
|
|
2.35
|
|
|
|
2.32
|
|
|
|
2.41
|
|
Basic (loss) earnings per common share-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
(0.33
|
)
|
|
|
(0.14
|
)
|
Diluted earnings per common share
|
|
$
|
2.62
|
|
|
$
|
2.57
|
|
|
$
|
2.32
|
|
|
$
|
1.97
|
|
|
$
|
2.25
|
|
Diluted earnings per common share-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
continuing operations
|
|
|
2.62
|
|
|
|
2.57
|
|
|
|
2.33
|
|
|
|
2.29
|
|
|
|
2.39
|
|
Diluted (loss) earnings per common share-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.32
|
)
|
|
|
(0.14
|
)
|
Cash dividends
|
|
$
|
1.08
|
|
|
$
|
1.04
|
|
|
$
|
1.02
|
|
|
$
|
1.00
|
|
|
$
|
0.98
|
|
Book value at year-end
|
|
$
|
19.61
|
|
|
$
|
18.92
|
|
|
$
|
17.29
|
|
|
$
|
16.29
|
|
|
$
|
15.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
1.39
|
%
|
|
|
1.46
|
%
|
|
|
1.37
|
%
|
|
|
1.24
|
%
|
|
|
1.56
|
%
|
Return on average assets-continuing
|
|
|
1.39
|
%
|
|
|
1.46
|
%
|
|
|
1.38
|
%
|
|
|
1.45
|
%
|
|
|
1.70
|
%
|
Return on average equity
|
|
|
13.54
|
%
|
|
|
14.32
|
%
|
|
|
13.79
|
%
|
|
|
12.53
|
%
|
|
|
15.13
|
%
|
Return on average equity-continuing
|
|
|
13.54
|
%
|
|
|
14.32
|
%
|
|
|
13.87
|
%
|
|
|
14.58
|
%
|
|
|
16.02
|
%
|
Average equity to average assets
|
|
|
10.30
|
%
|
|
|
10.21
|
%
|
|
|
9.91
|
%
|
|
|
9.88
|
%
|
|
|
10.32
|
%
|
Average equity to average assets-continuing
|
|
|
10.30
|
%
|
|
|
10.21
|
%
|
|
|
9.91
|
%
|
|
|
9.96
|
%
|
|
|
10.64
|
%
|
Dividend payout
|
|
|
40.91
|
%
|
|
|
40.31
|
%
|
|
|
43.78
|
%
|
|
|
50.25
|
%
|
|
|
43.17
|
%
|
Risk based capital to risk adjusted assets
|
|
|
12.34
|
%
|
|
|
12.69
|
%
|
|
|
11.65
|
%
|
|
|
12.09
|
%
|
|
|
14.55
|
%
|
Leverage ratio
|
|
|
8.09
|
%
|
|
|
8.50
|
%
|
|
|
7.77
|
%
|
|
|
7.62
|
%
|
|
|
8.83
|
%
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
This discussion should be read in conjunction with the
consolidated financial statements, notes and tables included
throughout this report. All statements other than statements of
historical fact included in this report, including statements in
this Managements Discussion and Analysis of Financial
Condition and Results of Operations are, or may be deemed to be,
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. As
discussed below, the financial statements, footnotes, schedules
and discussion within this report have been reformatted to
conform to the presentation required for discontinued
operations pursuant to the Companys sale of its
mortgage banking subsidiary in August 2004.
Executive
Overview
First Community Bancshares, Inc. is a bank holding company that,
through its bank subsidiary, provides commercial banking
services and has positioned itself as a regional community bank
and a financial services alternative to larger banks which often
provide less emphasis on personal relationships, and smaller
community banks which lack the capital and resources to
efficiently serve customer needs. The Company has focused its
growth efforts on building financial partnerships and more
enduring and complete relationships with businesses and
individuals through a very personal approach to banking and
financial services. The Company and its operations are guided by
a strategic plan which includes growth through acquisitions and
through office expansion in new market areas including
strategically identified metro markets in Virginia, West
Virginia, North Carolina, South Carolina, and Tennessee. While
the Companys mission remains that of a community bank,
management believes that entry
16
into new markets will accelerate the Companys growth rate
by diversifying the demographics of its customer base and
customer prospects and by generally increasing its sales and
service network.
Economy
The local economies in which the Company operates are diverse
and span a five-state region. West Virginia and Southwest
Virginia continue to benefit from increasing coal and natural
gas prices. These economies have significant exposure to
extractive industries, such as coal and natural gas, which
become more active and lucrative when oil prices rise. The local
economies in the central portion of North Carolina have suffered
in recent years due to foreign competition in both furniture and
textiles, as well as consolidation in the financial services
industry. Despite these detractions, the economies in this
region continue to benefit from national companies relocating
and expanding in the Triad and Central Piedmont areas. The
Eastern Virginia local economies are benefiting from a wide
array of corporate and government activities and relocations.
The capital markets have experienced significant illiquidity in
the last half of 2007, which has had an adverse effect on the
valuation of debt securities.
Competitive
Focus
As the Company competes for increased market share and growth in
both loans and deposits it continues to encounter strong
competition from many sources. Bank expansion through de novo
branches and loan production offices has grown in popularity as
a means of reaching out to new markets. Many of the markets
targeted by the Company are also being entered by other banks in
nearby markets and, in some cases, from more distant markets.
Despite strong competition from other banks, credit unions and
mortgage companies, the Company has seen success in newly
established offices in Winston-Salem as well as other markets in
both Virginia and North Carolina. The Company attributes this
measure of success to its recruitment of local, established
bankers and loan personnel in those targeted markets.
Competitive forces impact the Company through pressure on
interest yields, product fees and loan structure and terms;
however, the Company has countered these pressures with its
relationship style of banking, competitive pricing and a
disciplined approach to loan underwriting.
Application
of Critical Accounting Policies
The Companys consolidated financial statements are
prepared in accordance with U.S. generally accepted
accounting principles (GAAP) and conform to general
practices within the banking industry. The Companys
financial position and results of operations are affected by
managements application of accounting policies, including
judgments made to arrive at the carrying value of assets and
liabilities and amounts reported for revenues, expenses and
related disclosures. Different assumptions in the application of
these policies could result in material changes in the
Companys consolidated financial position and consolidated
results of operations.
Estimates, assumptions, and judgments are necessary principally
when assets and liabilities are required to be recorded at
estimated fair value, when a decline in the value of an asset
carried on the financial statements at fair value warrants an
impairment write-down or valuation reserve to be established, or
when an asset or liability needs to be recorded based upon the
probability of occurrence of a future event. Carrying assets and
liabilities at fair value inherently results in more financial
statement volatility. The fair values and the information used
to record valuation adjustments for certain assets and
liabilities are based either on quoted market prices or are
provided by third party sources, when available. When third
party information is not available, valuation adjustments are
estimated by management primarily through the use of financial
modeling techniques and appraisal estimates.
The Companys accounting policies are fundamental to
understanding Managements Discussion and Analysis of
Financial Condition and Results of Operation. The following is a
summary of the Companys more subjective and complex
critical accounting policies. In addition, the
disclosures presented in the Notes to the Consolidated Financial
Statements and in Managements Discussion and Analysis
provide information on how significant assets and liabilities
are valued in the financial statements and how those values are
determined. Based on the valuation techniques used and the
sensitivity of financial statement amounts to the methods,
assumptions, and estimates underlying those amounts, management
has identified the determination of the allowance for loan
losses,
17
accounting for acquisitions and intangible assets, and
accounting for income taxes as the accounting areas that require
the most subjective or complex judgments.
Allowance
for Loan Losses
The allowance for loan losses is maintained at levels management
deems adequate to absorb probable losses inherent in the
portfolio, and is based on managements evaluation of the
risks in the loan portfolio and changes in the nature and volume
of loan activity. The Company consistently applies a review
process to periodically evaluate loans for changes in credit
risk. This process serves as the primary means by which the
Company evaluates the adequacy of the allowance for loan losses.
The Company determines the allowance for loan losses by making
specific allocations to impaired loans that exhibit inherent
weaknesses and various credit risk factors, and general
allocations to commercial, residential real estate, and consumer
loans are developed giving weight to risk ratings, historical
loss trends and managements judgment concerning those
trends and other relevant factors. These factors may include,
among others, actual versus estimated losses, regional and
national economic conditions, business segment and portfolio
concentrations, industry competition and consolidation, and the
impact of government regulations. The foregoing analysis is
performed by management to evaluate the portfolio and calculate
an estimated valuation allowance through a quantitative and
qualitative analysis that applies risk factors to those
identified risk areas.
This risk management evaluation is applied at both the portfolio
level and the individual loan level for commercial loans and
credit relationships while the level of consumer and residential
mortgage loan allowance is determined primarily on a total
portfolio level based on a review of historical loss percentages
and other qualitative factors including concentrations, industry
specific factors and economic conditions. The commercial
portfolio requires more specific analysis of individually
significant loans and the borrowers underlying cash flow,
business conditions, capacity for debt repayment and the
valuation of secondary sources of payment, such as collateral.
This analysis may result in specifically identified weaknesses
and corresponding specific impairment allowances. While
allocations are made to specific loans and classifications
within the various categories of loans, the allowance for loan
losses is available for all loan losses.
The use of various estimates and judgments in the Companys
ongoing evaluation of the required level of allowance can
significantly impact the Companys results of operations
and financial condition and may result in either greater
provisions against earnings to increase the allowance or reduced
provisions based upon managements current view of
portfolio and economic conditions and the application of revised
estimates and assumptions. Differences between actual loan loss
experience and estimates are reflected through adjustments
either increasing or decreasing the loan loss provision based
upon current measurement criteria.
Acquisitions
and Intangible Assets
The Company may, from time to time, engage in business
combinations with other companies. The acquisition of a business
is generally accounted for under purchase accounting rules
promulgated by the Financial Accounting Standards Board
(FASB). Purchase accounting requires the recording
of underlying assets and liabilities of the entity acquired at
their fair market value. Any excess of the purchase price of the
business over the net assets acquired and any identified
intangibles is recorded as goodwill. Fair values are assigned
based on quoted prices for similar assets, if readily available,
or appraisal by qualified independent parties for relevant asset
and liability categories. Financial assets and liabilities are
typically valued using discount models which apply current
discount rates to streams of cash flow. All of these valuation
methods require the use of assumptions which can result in
alternate valuations and varying levels of goodwill and, in some
cases, amortization expense or accretion income.
Management must also make estimates of useful or economic lives
of certain acquired assets and liabilities. These lives are used
in establishing amortization and accretion of some intangible
assets and liabilities, such as the intangible associated with
core deposits acquired in the acquisition of a commercial bank.
Goodwill is recorded as the excess of the purchase price, if
any, over the fair value of the revalued net assets. Goodwill is
tested annually in the month of November for possible impairment
by comparing the fair value of the unit with its book value,
including goodwill. If the fair value of the Company is greater
than its book value, no
18
goodwill impairment exists. However, if the book value of the
Company 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.
Further testing would use a discounted cash flow model applied
to the anticipated stream of cash flows from operations of the
business or segment being tested. Impairment testing necessarily
uses estimates in the form of growth and attrition rates,
anticipated rates of return, and discount rates. These estimates
have a direct bearing on the results of the impairment testing
and serve as the basis for managements conclusions as to
impairment.
Income
Taxes
The establishment of provisions for federal and state income
taxes is a complex area of accounting which also involves the
use of judgments and estimates in applying relevant tax
statutes. The Company operates in multiple state tax
jurisdictions and this requires the appropriate allocation of
income and expense to each state based on a variety of
apportionment or allocation bases. Management strives to keep
abreast of changes in tax law and the issuance of regulations
which may impact tax reporting and provisions for income tax
expense. The Company is also subject to audit by federal and
state tax authorities. Results of these audits may produce
indicated liabilities which differ from Company estimates and
provisions. The Company continually evaluates its exposure to
possible tax assessments arising from audits and records its
estimate of possible exposure based on current facts and
circumstances.
Recent
Acquisitions and Branching Activity
In September 2007, the Company acquired GreenPoint Insurance
Group (GreenPoint), an insurance agency located in
High Point, North Carolina. As of September 30, 2007,
GreenPoint had annualized commission revenues of approximately
$4.60 million. In connection with the initial payment of
approximately $1.66 million, the Company issued
49,088 shares of common stock. Under the terms of the stock
purchase agreement, former shareholders of GreenPoint are
entitled to additional consideration aggregating up to
$1.45 million in the form of cash or the Companys
common stock, valued at the time of issuance, if certain future
operating performance targets are met. If those operating
targets are met, portions of the value of the consideration
ultimately paid will be added to the cost of the acquisition,
which will increase the amount of goodwill related to the
acquisition. The acquisition of GreenPoint added
$7.19 million of goodwill and intangibles to the
Companys balance sheet. The Company also assumed
$5.57 million debt in connection with the acquisition, of
which approximately $5.00 million was retired at closing.
In December 2006, the Company completed the sale of its
Rowlesburg, West Virginia, branch location. At the time of the
sale, the branch had deposits and repurchase agreements totaling
approximately $10.6 million and loans of approximately
$2.2 million. The transaction resulted in a pre-tax gain of
approximately $333 thousand.
In November 2006, the Company completed the acquisition of
Investment Planning Consultants, Inc. (IPC), a
registered investment advisory firm located in Bluefield, West
Virginia. In connection with the initial payment of
approximately $1.47 million, the Company issued
39,874 shares of common stock. Under the terms of the stock
purchase agreement, former shareholders of IPC are entitled to
additional consideration of $1.43 million in the form of
the Companys common stock if certain future operating
performance targets are met. If those operating targets are met,
portions of the value of the consideration ultimately paid will
be added to the cost of the acquisition, which will increase the
amount of goodwill related to the acquisition. In December 2007,
the Company issued 13,401 shares in connection with the
acquisition of IPC.
In June 2006, the Company completed the sale of its Drakes
Branch, Virginia, branch location. At the time of the sale, the
branch had deposits and repurchase agreements totaling
approximately $16.4 million and loans of approximately
$1.9 million. The transaction resulted in a pre-tax gain of
approximately $702 thousand.
In December 2005, the Company completed the sale of its Clifton
Forge, Virginia, branch location. The sale included deposits and
repurchase agreements totaling approximately $45.3 million
and loans of approximately $7.1 million. The transaction
resulted in an approximate $4.4 million pre-tax gain on
sale.
19
The Company opened six branches during 2007 and has plans to
open one new branch during the second quarter of 2008. New
branches included two offices in Winston-Salem, North Carolina,
two offices in Richmond, Virginia, and new offices in Daniels
and Princeton, West Virginia. The remaining office to be opened
is in Summersville, West Virginia.
RESULTS
OF OPERATIONS
2007
COMPARED TO 2006
Net income for 2007 was $29.63 million, up $684 thousand
from $28.95 million in 2006. Basic and diluted earnings per
share for 2007 were $2.64 and $2.62, respectively, compared with
basic and diluted earnings per share of $2.58 and $2.57,
respectively, in 2006.
The Companys key profitability ratios are return on
average assets and return on average equity. Returns on average
assets for 2007 and 2006 were 1.39% and 1.46%, respectively. The
returns on average equity for 2007 and 2006 were 13.54% and
14.32%, respectively. The Companys returns compare favorably to
national peer return on average assets and return on average
equity of 0.98% and 11.23%, respectively, based on the September
2007 Bank Holding Company Performance Report prepared by the
Federal Reserve Board.
Net
Interest Income
The primary source of the Companys earnings is net
interest income, the difference between income on earning assets
and the cost of funds supporting those assets. Significant
categories of earning assets are loans and securities while
deposits and borrowings represent the major portion of
interest-bearing liabilities. For purposes of the following
discussion, comparison of net interest income is performed on a
tax equivalent basis, which provides a common basis for
comparing yields on earning assets exempt from federal income
taxes to those assets which are fully taxable (see the table
titled Average Balance Sheets and Net Interest Income Analysis).
Net interest income was $68.32 million for 2007, compared
with $71.65 million for 2006. Tax-equivalent net interest
income totaled $72.79 million for 2007, a decrease of
$2.87 million from the $75.66 million reported for
2006. The decrease is attributable to a $759 thousand decrease
due to volume and a $2.11 million decrease due to rate
changes on the underlying assets and liabilities.
During 2007, average earning assets increased
$122.68 million while average interest-bearing liabilities
increased $136.71 million, in each case over the comparable
period. The yield on average earning assets decreased three
basis points to 6.89% for 2007 from 6.92% for 2006. Short-term
market interest rates were very stable from August 2006 through
July 2007. That stability positively impacted the rate earned on
loans and securities, as new loan production and new securities
purchased through September 2007 were being added at rates
generally higher than those added in 2006. During, the last four
months of 2007, the Federal Reserves target federal funds
rate was decreased 100 basis points, and the average bank
prime loan rate decreased in concert. Those decreases were the
largest driver in the overall decrease in the Companys
yield on average earning assets.
Total cost of average interest-bearing liabilities increased
39 basis points to 3.57% during 2007. The Companys
time deposit portfolio experienced significant upward repricing
during 2007, as many of the certificates written in a lower
market rate environment matured and then repriced at a higher
interest rate. The net result was a decrease of 42 basis
points to net interest rate spread, or the difference between
interest income on earning assets and expense on
interest-bearing liabilities. Spread for 2007 was 3.32% compared
with 3.74% for 2006. The Companys tax-equivalent net
interest margin of 3.80% for 2007 represents a decrease of
42 basis points from 4.22% in 2006.
Loan interest income decreased $3.94 million during 2007 as
compared with 2006 as volume declined, while the yield on loans
increased seven basis points. During 2007, the tax-equivalent
yield on
available-for-sale
securities increased 27 basis points to 5.77% while the
average balance increased by $196.83 million as compared
with 2006. The average tax-equivalent yield increased due to the
addition of higher-rate securities and the sales, maturities,
and calls of lower-rate securities.
20
Average interest-bearing balances with banks declined
$2.63 million during 2007 to $24.66 million, while the
yield increased 20 basis points to 4.76%. These balances
include overnight liquidity and a small portfolio of time
deposits purchased in 2002. The yield on these balances is
largely affected by changes in the target federal funds rate.
The Company attempts to control the cost of deposited funds in
relation to the prevailing economic climate and competitive
forces. The Company determines its overall balance sheet
management goals through its Asset/Liability Management
Committee. The average total cost of interest-bearing deposits
rose 39 basis points in 2007 compared with 2006. The
average rate paid on interest-bearing demand deposits decreased
one basis point, while the average rate paid on savings, which
includes money market and savings accounts, increased
22 basis points. The Company was successful in keeping
rates paid on interest-bearing checking accounts relatively
stable and increased money market account rates to remain
competitive and retain deposit funding. In 2007, average time
deposits decreased $17.62 million while the average rate
paid increased 54 basis points to 4.44% as compared with
2006. The level of average non interest-bearing demand deposits
decreased $9.13 million to $228.58 million in 2007
compared with the prior year.
Average federal funds purchased and repurchase agreements
increased $72.29 million in 2007, due mostly to increases
in the balances of repurchase agreements. The average rate paid
on those funds also increased, as they are closely tied to the
target federal funds rate and
3-month
LIBOR. Average Federal Home Loan Bank (FHLB)
advances increased $57.98 million while the rate paid on
those borrowings increased one basis point in 2007. Other
borrowings remained steady in 2007, but the rate paid increased
111 basis points because the majority of such borrowings
consist of the Companys trust preferred borrowing, which
is indexed to
3-month
LIBOR.
21
Average
Balance Sheets and Net Interest Income Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Interest(1)
|
|
|
Rate(1)
|
|
|
Balance
|
|
|
Interest(1)
|
|
|
Rate(1)
|
|
|
Balance
|
|
|
Interest(1)
|
|
|
Rate(1)
|
|
|
|
(Dollars in thousands)
|
|
|
Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Held for Investment:(2)
|
|
|
1,251,028
|
|
|
|
93,561
|
|
|
|
7.48
|
%
|
|
|
1,316,475
|
|
|
|
97,500
|
|
|
|
7.41
|
%
|
|
|
1,302,020
|
|
|
|
89,965
|
|
|
|
6.91
|
%
|
Available-for-Sale
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
444,413
|
|
|
|
24,702
|
|
|
|
5.56
|
%
|
|
|
276,142
|
|
|
|
13,929
|
|
|
|
5.04
|
%
|
|
|
262,715
|
|
|
|
11,062
|
|
|
|
4.21
|
%
|
Tax-exempt
|
|
|
181,000
|
|
|
|
11,411
|
|
|
|
6.30
|
%
|
|
|
152,437
|
|
|
|
9,655
|
|
|
|
6.33
|
%
|
|
|
144,242
|
|
|
|
9,193
|
|
|
|
6.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
625,413
|
|
|
|
36,113
|
|
|
|
5.77
|
%
|
|
|
428,579
|
|
|
|
23,584
|
|
|
|
5.50
|
%
|
|
|
406,957
|
|
|
|
20,255
|
|
|
|
4.98
|
%
|
Held-to-Maturity
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
378
|
|
|
|
23
|
|
|
|
6.08
|
%
|
|
|
386
|
|
|
|
22
|
|
|
|
5.70
|
%
|
|
|
399
|
|
|
|
15
|
|
|
|
3.76
|
%
|
Tax-exempt
|
|
|
14,842
|
|
|
|
1,189
|
|
|
|
8.01
|
%
|
|
|
20,912
|
|
|
|
1,686
|
|
|
|
8.06
|
%
|
|
|
28,336
|
|
|
|
2,269
|
|
|
|
8.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,220
|
|
|
|
1,212
|
|
|
|
7.96
|
%
|
|
|
21,298
|
|
|
|
1,708
|
|
|
|
8.02
|
%
|
|
|
28,735
|
|
|
|
2,284
|
|
|
|
7.95
|
%
|
Interest-bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deposits with banks
|
|
|
24,662
|
|
|
|
1,175
|
|
|
|
4.76
|
%
|
|
|
27,289
|
|
|
|
1,244
|
|
|
|
4.56
|
%
|
|
|
32,100
|
|
|
|
1,077
|
|
|
|
3.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
1,916,323
|
|
|
$
|
132,061
|
|
|
|
6.89
|
%
|
|
|
1,793,641
|
|
|
$
|
124,036
|
|
|
|
6.92
|
%
|
|
|
1,769,812
|
|
|
$
|
113,581
|
|
|
|
6.42
|
%
|
Other assets
|
|
|
208,916
|
|
|
|
|
|
|
|
|
|
|
|
186,639
|
|
|
|
|
|
|
|
|
|
|
|
153,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,125,239
|
|
|
|
|
|
|
|
|
|
|
$
|
1,980,280
|
|
|
|
|
|
|
|
|
|
|
$
|
1,923,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
147,856
|
|
|
$
|
456
|
|
|
|
0.31
|
%
|
|
$
|
146,248
|
|
|
$
|
462
|
|
|
|
0.32
|
%
|
|
$
|
152,774
|
|
|
$
|
401
|
|
|
|
0.26
|
%
|
Savings deposits
|
|
|
330,969
|
|
|
|
7,327
|
|
|
|
2.21
|
%
|
|
|
343,854
|
|
|
|
6,857
|
|
|
|
1.99
|
%
|
|
|
368,339
|
|
|
|
4,309
|
|
|
|
1.17
|
%
|
Time deposits
|
|
|
697,996
|
|
|
|
30,974
|
|
|
|
4.44
|
%
|
|
|
680,380
|
|
|
|
26,549
|
|
|
|
3.90
|
%
|
|
|
658,915
|
|
|
|
19,321
|
|
|
|
2.93
|
%
|
Federal funds purchased and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
repurchase agreements
|
|
|
223,132
|
|
|
|
8,302
|
|
|
|
3.72
|
%
|
|
|
150,839
|
|
|
|
5,079
|
|
|
|
3.37
|
%
|
|
|
128,551
|
|
|
|
2,782
|
|
|
|
2.16
|
%
|
FHLB borrowings and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other long-term debt
|
|
|
258,644
|
|
|
|
12,217
|
|
|
|
4.72
|
%
|
|
|
200,570
|
|
|
|
9,434
|
|
|
|
4.70
|
%
|
|
|
177,832
|
|
|
|
9,068
|
|
|
|
5.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
1,658,597
|
|
|
|
59,276
|
|
|
|
3.57
|
%
|
|
|
1,521,891
|
|
|
|
48,381
|
|
|
|
3.18
|
%
|
|
|
1,486,411
|
|
|
|
35,881
|
|
|
|
2.41
|
%
|
Demand deposits
|
|
|
228,583
|
|
|
|
|
|
|
|
|
|
|
|
237,714
|
|
|
|
|
|
|
|
|
|
|
|
228,781
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
19,210
|
|
|
|
|
|
|
|
|
|
|
|
18,551
|
|
|
|
|
|
|
|
|
|
|
|
17,355
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
218,849
|
|
|
|
|
|
|
|
|
|
|
|
202,124
|
|
|
|
|
|
|
|
|
|
|
|
190,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,125,239
|
|
|
|
|
|
|
|
|
|
|
$
|
1,980,280
|
|
|
|
|
|
|
|
|
|
|
$
|
1,923,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
|
|
|
$
|
72,785
|
|
|
|
|
|
|
|
|
|
|
$
|
75,655
|
|
|
|
|
|
|
|
|
|
|
$
|
77,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Rate Spread(3)
|
|
|
|
|
|
|
|
|
|
|
3.32
|
%
|
|
|
|
|
|
|
|
|
|
|
3.74
|
%
|
|
|
|
|
|
|
|
|
|
|
4.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin(4)
|
|
|
|
|
|
|
|
|
|
|
3.80
|
%
|
|
|
|
|
|
|
|
|
|
|
4.22
|
%
|
|
|
|
|
|
|
|
|
|
|
4.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Fully taxable equivalent at the rate of 35%. |
|
(2) |
|
Non-accrual loans are included in average balances outstanding
but with no related interest income during the period of
non-accrual. |
|
(3) |
|
Represents the difference between the tax equivalent yield on
earning assets and cost of funds. |
|
(4) |
|
Represents tax equivalent net interest income divided by average
interest-earning assets. |
22
Rate and
Volume Analysis of Interest
The following table summarizes the changes in interest earned
and paid resulting from changes in volume of earning assets and
paying liabilities and changes in their interest rates. In this
analysis, the changes in interest due to both rate and volume
have been allocated to the volume and rate columns in proportion
to dollar amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Compared to 2006
|
|
|
2006 Compared to 2005
|
|
|
|
$ Increase/(Decrease) due to
|
|
|
$ Increase/(Decrease) due to
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Interest Earned On(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
(4,845
|
)
|
|
$
|
906
|
|
|
$
|
(3,939
|
)
|
|
$
|
1,003
|
|
|
$
|
6,532
|
|
|
$
|
7,535
|
|
Securities available for sale
|
|
|
10,297
|
|
|
|
2,232
|
|
|
|
12,529
|
|
|
|
1,088
|
|
|
|
2,241
|
|
|
|
3,329
|
|
Securities held to maturity
|
|
|
(490
|
)
|
|
|
(6
|
)
|
|
|
(496
|
)
|
|
|
(595
|
)
|
|
|
19
|
|
|
|
(576
|
)
|
Interest-bearing deposits with other banks
|
|
|
(120
|
)
|
|
|
51
|
|
|
|
(69
|
)
|
|
|
(161
|
)
|
|
|
328
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
4,842
|
|
|
|
3,183
|
|
|
|
8,025
|
|
|
|
1,335
|
|
|
|
9,120
|
|
|
|
10,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Paid On:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
5
|
|
|
|
(11
|
)
|
|
|
(6
|
)
|
|
|
(18
|
)
|
|
|
79
|
|
|
|
61
|
|
Savings deposits
|
|
|
(257
|
)
|
|
|
727
|
|
|
|
470
|
|
|
|
(286
|
)
|
|
|
2,834
|
|
|
|
2,548
|
|
Time deposits
|
|
|
687
|
|
|
|
3,738
|
|
|
|
4,425
|
|
|
|
629
|
|
|
|
6,599
|
|
|
|
7,228
|
|
Federal funds purchased and repurchase agreements
|
|
|
2,434
|
|
|
|
789
|
|
|
|
3,223
|
|
|
|
482
|
|
|
|
1,815
|
|
|
|
2,297
|
|
FHLB borrowings and other long-term debt
|
|
|
2,732
|
|
|
|
51
|
|
|
|
2,783
|
|
|
|
1,159
|
|
|
|
(793
|
)
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
5,601
|
|
|
|
5,294
|
|
|
|
10,895
|
|
|
|
1,966
|
|
|
|
10,534
|
|
|
|
12,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income
|
|
$
|
(759
|
)
|
|
$
|
(2,111
|
)
|
|
$
|
(2,870
|
)
|
|
$
|
(631
|
)
|
|
$
|
(1,414
|
)
|
|
$
|
(2,045
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Fully taxable equivalent using a rate of 35%. |
Provision
for Loan Losses
The provision for loan losses for 2007 was $717 thousand, a
decrease of $1.99 million when compared with 2006. The
decrease in loan loss provision between the periods is primarily
attributable to changes in specific allocations, decreases in
commercial and consumer installment loan volume, reductions in
net charge-offs, overall improved asset quality, and changes in
various qualitative risk factors. Net charge-offs for 2007 and
2006 were $2.43 million and $2.89 million,
respectively. Expressed as a percentage of average loans, net
charge-offs decreased to 0.19% for 2007 from 0.22% in 2006.
Noninterest
Income
Noninterest income consists of all revenues which are not
included in interest and fee income related to earning assets.
Noninterest income for 2007 was $24.83 million compared
with $21.32 million in 2006. Wealth management income,
which includes fees for trust services and commission and fee
income generated by IPC, increased $1.07 million in 2007
compared with 2006, largely a result of the November 2006
acquisition of IPC.
Service charges on deposit accounts increased $1.15 million
as a result of increased overdraft fees and a larger number of
fee-based deposit accounts. Other service charges, commissions
and fees reflected an increase of $608 thousand in 2007 compared
with 2006, due mainly to increased debit card interchange income
and ATM service fees.
23
The Company acquired its insurance subsidiary, GreenPoint
Insurance Group, Inc., in September 2007. Essentially all income
for the insurance subsidiary is derived from commissions earned
on the sale of policies. Since acquisition, commissions earned
on the sale of policies by GreenPoint in 2007 were
$1.14 million.
Other operating income for 2007 includes a gain of $298 thousand
resulting from the Companys departure from a state banking
association insurance operation. The Company was contractually
required to exit the operation upon acquisition of GreenPoint.
Other operating income for 2006 includes $1.04 million in
gains from the sale of branch locations, as well as a $676
thousand recovery relating to a 1997 payment system fraud loss.
The remaining components of other operating income increased
$621 thousand compared with 2006. During 2007, the Company also
recognized securities gains of $411 thousand, an increase of
$336 thousand over gains recognized in 2006.
Noninterest
Expense
Total noninterest expense was $50.46 million for 2007, an
increase of $626 thousand over 2006. Salaries and benefits
decreased approximately $1.02 million due to the
Companys efforts on expense control and efficiency and the
implementation of a branch staffing model. During 2007, total
full-time equivalent employees decreased to 615 from 624 at
December 31, 2006. Full-time equivalent employees are
calculated using the number of hours worked. Greenpoint
accounted for approximately 51 full-time equivalent
employees at year-end. Total full-time equivalent employees at
the Bank and IPC decreased by 60 compared with 2006.
Occupancy expenses increased $112 thousand compared with 2006,
as the Company opened new branches and acquired GreenPoint.
Furniture and equipment expenses decreased $96 thousand, due
mainly to a $90 thousand decrease in depreciation and
amortization expense from 2006 to 2007.
All other operating expense accounts increased
$1.57 million in 2007 compared with 2006. Contributing to
the increase is in operating expenses were increased new account
promotions of $245 thousand and consulting expense of $728
thousand. In 2007, service fees related to clearing costs for
IPC also increased $339 thousand compared with 2006 and
reflecting the full year impact in 2007. Professional fees also
increased $207 thousand in 2007 compared with 2006 as the
Company outsourced its internal audit function near mid-year
2007.
The Company uses an efficiency ratio that is a non-GAAP
financial measure of operating expense control and efficiency of
operations. Management believes this ratio better focuses
attention on the core operating performance of the Company over
time than does a GAAP-based ratio, and is highly useful in
comparing
period-to-period
operating performance of the Companys core business
operations. It is used by management as part of its assessment
of its performance in managing noninterest expenses. However,
this measure is supplemental and is not a substitute for an
analysis of performance based on GAAP measures. The reader is
cautioned that the efficiency ratio used by the Company may not
be comparable to efficiency ratios reported by other financial
institutions.
In general, the efficiency ratio used by the Company is
noninterest expenses as a percentage of net interest income plus
noninterest income. Noninterest expenses used in the calculation
exclude amortization of intangibles and non-recurring expenses.
Income for the ratio is increased for the favorable effect of
tax-exempt income (see Average Balance Sheets and Net Interest
Income Analysis), and excludes securities gains and losses,
which vary widely from period to period without appreciably
affecting operating expenses, and non-recurring gains. The
measure is different from the GAAP-based efficiency ratio, which
also is presented in this report, which is calculated using
noninterest expense and income amounts as shown on the face of
the Consolidated Statements of Income. Both types of efficiency
ratio calculations are set forth and are reconciled in the table
below.
24
Our (non-GAAP) efficiency ratios for continuing operations for
2007, 2006, and 2005 were 51.20%, 51.05%, and 53.83%,
respectively. The following table details the components used in
calculation of the efficiency ratios.
GAAP-based
and Our Efficiency Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
GAAP-based efficiency ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses
|
|
$
|
50,463
|
|
|
$
|
49,837
|
|
|
$
|
55,591
|
|
Net interest income plus noninterest income
|
|
|
93,146
|
|
|
|
92,968
|
|
|
|
95,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP-based efficiency ratio
|
|
|
54.18
|
%
|
|
|
53.61
|
%
|
|
|
57.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our efficiency ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses GAAP-based
|
|
$
|
50,463
|
|
|
$
|
49,837
|
|
|
$
|
55,591
|
|
Less non-GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed property expense
|
|
|
(185
|
)
|
|
|
(248
|
)
|
|
|
(288
|
)
|
Amortization of intangibles
|
|
|
(467
|
)
|
|
|
(410
|
)
|
|
|
(435
|
)
|
Prepayment penalties on FHLB advances
|
|
|
|
|
|
|
|
|
|
|
(3,794
|
)
|
Other non-core, non-recurring expense items
|
|
|
(100
|
)
|
|
|
(581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted non-interest expenses
|
|
|
49,711
|
|
|
|
48,598
|
|
|
|
51,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income plus noninterest income
GAAP-based
|
|
|
93,146
|
|
|
|
92,968
|
|
|
|
95,933
|
|
Plus non-GAAP adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-equivalency
|
|
|
4,470
|
|
|
|
4,010
|
|
|
|
4,072
|
|
Less non-GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Security gains
|
|
|
(411
|
)
|
|
|
(75
|
)
|
|
|
(753
|
)
|
Branch sale gains
|
|
|
|
|
|
|
(1,035
|
)
|
|
|
(4,366
|
)
|
Other non-core, non-recurring income items
|
|
|
(104
|
)
|
|
|
(676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net interest income plus noninterest income
|
|
|
97,101
|
|
|
|
95,192
|
|
|
|
94,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our efficiency ratio
|
|
|
51.20
|
%
|
|
|
51.05
|
%
|
|
|
53.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-Based
Compensation
On January 1, 2006, the Company adopted the equity-based
compensation accounting provisions of Statement of Financial
Accounting Standards (SFAS) 123R. Through
December 31, 2005, the Company accounted for equity-based
compensation under APB Opinion No. 25, using the intrinsic
value model. Under Opinion No. 25, the Company recognized
no compensation expense related to stock options granted, and
provided pro-forma disclosures of the effects of accounting for
stock options under the fair value model. The Company selected
the modified prospective method of transition. The adoption of
the new equity-based compensation accounting standard resulted
in increased compensation expense. The total after-tax
compensation cost related to stock option awards vesting in 2007
and 2006 was approximately $148 thousand and $208 thousand,
respectively.
Income
Tax Expense
Income tax expense is comprised of federal and state current and
deferred income taxes on pre-tax earnings of the Company. Income
taxes as a percentage of pre-tax income may vary significantly
from statutory rates due to items of income and expense which
are excluded, by law, from the calculation of taxable income.
These items are commonly referred to as permanent differences.
The most significant permanent differences for the Company
include income on state and municipal securities which are
exempt from federal income tax, certain dividend payments which
are deductible by the Company, and tax credits generated by
investments in low income housing and historical building
rehabilitation.
25
Consolidated income taxes for 2007 were $12.33 million, a
29.39% effective tax rate, compared with $11.48 million, a
28.39% effective tax rate for 2006. The effective tax rate was
higher during 2007 due mostly to lower levels of available tax
credits than in 2006.
2006
COMPARED TO 2005
Net income for 2006 was $28.95 million, up
$2.65 million from $26.30 million in 2005. Basic and
diluted earnings per share for 2006 were $2.58 and $2.57,
respectively, compared with basic and diluted earnings per share
of $2.33 and $2.32, respectively, in 2005. Returns on average
assets for 2006 and 2005 were 1.46% and 1.37%, respectively. The
returns on average equity for 2006 and 2005 were 14.32% and
13.79%, respectively.
Net
Interest Income
The primary source of the Companys earnings is net
interest income, the difference between income on earning assets
and the cost of funds supporting those assets. Significant
categories of earning assets are loans and securities while
deposits and borrowings represent the major portion of
interest-bearing liabilities. For purposes of the following
discussion, comparison of net interest income is performed on a
tax equivalent basis, which provides a common basis for
comparing yields on earning assets exempt from federal income
taxes to those assets which are fully taxable (see the table
titled Average Balance Sheets and Net Interest Income Analysis).
Net interest income was $71.65 million for 2006, compared
with $73.63 million for 2005. Tax-equivalent net interest
income totaled $75.66 million for 2006, a decrease of
$2.05 million from the $77.70 million reported for
2005. The decrease is primarily attributable to a $631 thousand
decrease due to volume and a $1.41 million decrease due to
rate changes on the underlying assets and liabilities.
During 2006, average earning assets increased
$23.83 million while average interest-bearing liabilities
increased $35.48 million, in each case over the comparable
period. The yield on average earning assets increased
50 basis points to 6.92% from 6.42% for 2005. The rate
earned on assets was positively impacted by the continued
increases in short-term market interest rates throughout 2006.
Total cost of average interest-bearing liabilities increased
77 basis points to 3.18% during 2006, as liabilities were
also affected by increases in short-term market interest rates.
The net result was a decrease of 27 basis points to net
interest rate spread, or the difference between interest income
on earning assets and expense on interest-bearing liabilities.
Spread for 2006 was 3.74% compared with 4.01% for 2005. The
Companys tax-equivalent net interest margin of 4.22% for
2006 was a decrease of 17 basis points from 4.39% in 2005.
The largest contributor to the increase in the yield on average
earning assets in 2006, on a volume-weighted basis, was a
50 basis point increase in the rate earned on loans held
for investment. The increase in rate contributed approximately
$6.53 million to the $7.54 million change in interest
income from the portfolio. The yield on variable-rate loans tied
to Prime and other indices increased in response to the recent
increases in short-term interest rates leading the overall
portfolio yield to the higher level.
During 2006, the tax-equivalent yield on
available-for-sale
securities increased 52 basis points to 5.50% while the
average balance increased by $21.62 million. The average
tax-equivalent yield increased due to the addition of
higher-rate securities and the sales, maturities, and calls of
lower-rate securities.
Average interest-bearing balances with banks declined
$4.81 million during 2006 to $27.29 million, while the
yield increased 120 basis points to 4.56%. The yield on
those balances is directly correlated to the increases in the
target federal funds rate which occurred throughout the year.
Throughout 2006, the pressures of increasing short-term interest
rates resulted in an increase of 86 basis points in the
average cost of interest-bearing deposits. The average rate paid
on interest-bearing demand deposits increased 6 basis
points, while the average rate paid on savings, which includes
money market and passbook accounts, increased 82 basis
points. The Company was successful in keeping rates paid on
interest-bearing checking accounts relatively stable and
increased money market account rates to remain competitive and
retain deposit funding. Average time deposits increased
$21.47 million while the average rate paid increased
97 basis points to 3.90%. The
26
level of average non interest-bearing demand deposits increased
$8.93 million to $237.71 million compared with the
prior year.
Average federal funds purchased and repurchase agreements
increased $22.29 million, due mostly to increases in the
balances of repurchase agreements. The average rate paid on
those funds also increased, as they are closely tied to the
target federal funds rate and
3-month
LIBOR. Average FHLB advances increased $22.74 million while
interest paid on those borrowings decreased 56 basis points
as the Company repositioned its FHLB borrowings, and took
advantage of lower interest rate borrowing products. In January
of 2006, the Company borrowed $75.00 million from the FHLB.
At the same time, the Company entered into a $50.00 million
pay fixed, receive variable interest rate swap, effectively
fixing the borrowing rate at approximately 4.34%. Other
borrowings remained steady, but the rate paid increased
176 basis points because the majority of such borrowings
consist of debentures associated with the Companys trust
preferred issue, which is indexed to
3-month
LIBOR.
Noninterest
Income
Noninterest income for 2006 was $21.32 million compared
with $22.31 million in 2005. Wealth management income,
which includes fees for trust services and commission and fee
income generated by IPC (post-acquisition) and the
Companys prior investment advisory subsidiary, whose
customer base migrated to IPC in 2006, decreased $145 thousand
in 2006, or 4.91%, compared with 2005.
Service charges on deposit accounts increased $147 thousand, or
1.46%, while other service charges, commissions and fees
reflected gains of $207 thousand, or 7.43%.
Other operating income includes $1.04 million and
$4.37 million in gains from the sale of branch locations in
2006 and 2005, respectively. The remaining components of other
operating income increased $2.8 million compared with 2005.
The largest single item in that increase is the $976 thousand
earned on the Companys $25.00 million investment in
life insurance made in April 2006. Also included in other income
for 2006 is a $676 thousand recovery relating to a 1997 payment
system fraud loss. During 2006, the Company also recognized
securities gains of $75 thousand, which were $678 thousand less
than those recognized in 2005.
Noninterest
Expense
Total noninterest expense was $49.84 million for 2006, a
decrease of $5.75 million over 2005. Salaries and benefits
decreased approximately $2.61 million due to the
Companys refocused efforts on expense control and
efficiency. During 2006, total full-time equivalent employees
decreased to 624 from 684 at December 31, 2005. Also
contributing to the decrease from year to year was the
$3.79 million prepayment penalty incurred in connection
with the early termination of $77.00 million of FHLB
advances in 2005.
Occupancy and furniture and equipment expenses increased $165
thousand and $147 thousand, respectively, compared with 2005.
The general level of occupancy and furniture and equipment costs
in 2006 grew largely as a result of increases in depreciation
associated with continued investment in facilities, operating
equipment, and technology infrastructure.
All other operating expense accounts increased $367 thousand, or
less than 3%, in 2006 compared with 2005.
Income
Tax Expense
Income tax expense is comprised of federal and state current and
deferred income taxes on pre-tax earnings of the Company. Income
taxes as a percentage of pre-tax income may vary significantly
from statutory rates due to items of income and expense which
are excluded, by law, from the calculation of taxable income.
These items are commonly referred to as permanent differences.
The most significant permanent differences for the Company
include income on state and municipal securities which are
exempt from federal income tax, certain dividend payments which
are deductible by the Company, and tax credits generated by
investments in low income housing and historical building
rehabilitation.
Consolidated income taxes for 2006 were $11.48 million, a
28.39% effective tax rate, compared with $10.10 million, an
effective tax rate of 27.74%, for 2005. The effective tax rate
for 2006 was greater than 2005 due
27
to a lower proportion of tax-free municipal interest income and
results of a state tax audit. An audit of state income,
franchise, and sales tax in one of the Companys tax
jurisdictions was concluded during the fourth quarter of 2005.
The outcome of this audit was favorable to the Company and
resulted in total state income and franchise tax refunds of
approximately $473 thousand, which was reflected in the 2005
provision for income tax expense.
FINANCIAL
POSITION
Available-for-Sale
Securities
Available-for-sale
securities were $664.12 million at December 31, 2007,
compared with $508.37 million at December 31, 2006, an
increase of $155.75 million. The Company purchased
securities throughout the year with liquidity provided by net
loan portfolio payoffs and borrowings.
The Company attempts to maintain an acceptable level of interest
rate risk within its securities portfolio. At December 31,
2007, the average life and duration of the portfolio were
6.9 years and 4.7, respectively. Average life and duration
improved slightly from December 31, 2006, at 7.1 years
and 5.4, respectively.
Available-for-sale
and
held-to-maturity
securities are reviewed quarterly for possible
other-than-temporary
impairment. This review includes an analysis of the facts and
circumstances of each individual investment such as the length
of time the fair value has been below cost, the expectation for
that securitys performance, the creditworthiness of the
issuer and the Companys intent and ability to hold the
security to recovery or maturity. A decline in value that is
considered to be
other-than-temporary
would be recorded as a loss within noninterest income in the
Consolidated Statements of Income. The Company does not believe
any unrealized loss, individually or in the aggregate, as of
December 31, 2007, represents
other-than-temporary
impairment. The Company has the intent and ability to hold these
securities until such time as the value recovers or the
securities mature. Furthermore, the Company believes the
recorded declines in the value of these securities at
December 31, 2007 and 2006, are attributable to changes in
market interest rates and not the credit quality of the issuers.
At December 31, 2007, there was one security of a single
issuer, other than U.S. federal agency debentures and other
U.S. government-sponsored agency securities, which exceeded
10% of stockholders equity. The Company held a AAA-rated,
non-agency mortgage-backed security which had a book value and a
market value at December 31, 2007, of $25.26 million
and $23.58 million, respectively.
The following table details amortized cost and fair value of
available-for-sale
securities as of December 31, 2007, 2006, and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(Amounts in thousands)
|
|
|
U.S. Government agency securities
|
|
$
|
136,791
|
|
|
$
|
139,237
|
|
|
$
|
117,777
|
|
|
$
|
116,061
|
|
|
$
|
92,739
|
|
|
$
|
91,424
|
|
States and political subdivisions
|
|
|
186,834
|
|
|
|
188,536
|
|
|
|
152,189
|
|
|
|
154,047
|
|
|
|
151,118
|
|
|
|
152,168
|
|
Corporate Notes
|
|
|
164,731
|
|
|
|
150,625
|
|
|
|
85,080
|
|
|
|
85,033
|
|
|
|
61,466
|
|
|
|
61,274
|
|
Mortgage-backed securities
|
|
|
177,984
|
|
|
|
176,727
|
|
|
|
146,444
|
|
|
|
144,754
|
|
|
|
94,954
|
|
|
|
92,994
|
|
Equities
|
|
|
8,597
|
|
|
|
8,995
|
|
|
|
6,933
|
|
|
|
8,475
|
|
|
|
5,390
|
|
|
|
6,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
674,937
|
|
|
$
|
664,120
|
|
|
$
|
508,423
|
|
|
$
|
508,370
|
|
|
$
|
405,667
|
|
|
$
|
404,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
Securities
Investment securities classified as
held-to-maturity
are comprised primarily of high-grade state and municipal bonds.
These securities generally carry AAA bond ratings, most of which
also carry credit enhancement insurance by major insurers of
debt instruments. The portfolio totaled $12.08 million at
December 31, 2007, compared with
28
$20.02 million at December 31, 2006. This decrease is
reflective of continuing paydowns, maturities and calls within
the portfolio. The market value of
held-to-maturity
investment securities was 101.85% and 101.65% of book value at
December 31, 2007 and 2006, respectively. Recent trends in
interest rates have had little effect on the portfolio market
value since December 31, 2006, due to its larger percentage
of municipal securities which display less price sensitivity to
rate changes.
The average final maturity of the
held-to-maturity
investment portfolio decreased to 5.5 years at
December 31, 2007, from 6.1 years at December 31,
2006, with the tax-equivalent yield decreasing to 7.96% at
December 31, 2007, from 8.02% at year-end 2006. The
weighted-average expected maturity, based on market assumptions
for prepayment, was six months and ten months at December 2007
and 2006, respectively. The average maturity data differs from
final maturity data because of the use of assumptions as to
anticipated prepayments, and is generally a more accurate
indicator of true average life of the investment.
The following table details amortized cost and fair value of
held-to-maturity
securities for the three years ended December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(Amounts in thousands)
|
|
|
States and political subdivisions
|
|
$
|
11,699
|
|
|
$
|
11,922
|
|
|
$
|
19,638
|
|
|
$
|
19,970
|
|
|
$
|
23,781
|
|
|
$
|
24,486
|
|
Corporate Notes
|
|
|
375
|
|
|
|
375
|
|
|
|
375
|
|
|
|
374
|
|
|
|
375
|
|
|
|
374
|
|
Mortgage-backed securities
|
|
|
1
|
|
|
|
1
|
|
|
|
6
|
|
|
|
6
|
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,075
|
|
|
$
|
12,298
|
|
|
$
|
20,019
|
|
|
$
|
20,350
|
|
|
$
|
24,173
|
|
|
$
|
24,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
Held for Sale
To mitigate interest rate risk, the Company sells most of the
long-term, fixed-rate mortgage loans it originates in the
secondary market. At December 31, 2007, the Company held
$811 thousand of loans for sale to the secondary market, up from
$781 thousand at December 31, 2006. The gross notional
amount of outstanding commitments to originate mortgage loans
for customers at December 31, 2007, was $10.94 million
on 75 loans. The Company sells these mortgages on a best-efforts
basis and generates non-interest income through origination fees
and yield spread gains.
Loans
Held for Investment
Total loans held for investment decreased $59.36 million to
$1.23 billion at December 31, 2007, from
$1.28 billion at December 31, 2006, as a result of
decreased loan production and large payoffs occurring throughout
2007. The average loan to deposit ratio decreased to 89.02% for
2007, compared with 93.49% for 2006. Average loans held for
investment for 2007 of $1.25 billion decreased
$65.45 million when compared with the average for 2006 of
$1.32 billion.
29
The held for investment loan portfolio continues to be
diversified among loan types and industry segments. The
following table presents the various loan categories and changes
in composition at year-end 2003 through 2007.
Loan
Portfolio Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Amounts in thousands)
|
|
|
Commercial, financial and agricultural
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
96,261
|
|
|
$
|
106,645
|
|
|
$
|
110,211
|
|
|
$
|
99,302
|
|
|
$
|
69,395
|
|
Real estate commercial
|
|
|
386,112
|
|
|
|
421,067
|
|
|
|
464,510
|
|
|
|
453,899
|
|
|
|
317,421
|
|
Real estate construction
|
|
|
163,310
|
|
|
|
158,566
|
|
|
|
143,976
|
|
|
|
112,705
|
|
|
|
98,510
|
|
Real estate residential
|
|
|
498,345
|
|
|
|
506,370
|
|
|
|
504,387
|
|
|
|
457,417
|
|
|
|
421,299
|
|
Consumer
|
|
|
75,450
|
|
|
|
88,679
|
|
|
|
106,206
|
|
|
|
113,639
|
|
|
|
119,195
|
|
Other
|
|
|
6,027
|
|
|
|
3,549
|
|
|
|
1,808
|
|
|
|
2,012
|
|
|
|
992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,225,505
|
|
|
|
1,284,876
|
|
|
|
1,331,098
|
|
|
|
1,238,974
|
|
|
|
1,026,812
|
|
Less unearned income
|
|
|
3
|
|
|
|
13
|
|
|
|
59
|
|
|
|
218
|
|
|
|
621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,225,502
|
|
|
|
1,284,863
|
|
|
|
1,331,039
|
|
|
|
1,238,756
|
|
|
|
1,026,191
|
|
Less allowance for loan losses
|
|
|
12,833
|
|
|
|
14,549
|
|
|
|
14,736
|
|
|
|
16,339
|
|
|
|
14,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
1,212,669
|
|
|
$
|
1,270,314
|
|
|
$
|
1,316,303
|
|
|
$
|
1,222,417
|
|
|
$
|
1,011,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company maintained no foreign loans in the periods
presented. Although the Companys loans are made primarily
in the five-state region in which it operates, the Company had
no concentrations of loans to one borrower or industry
representing 10% or more of outstanding loans at
December 31, 2007.
The following table details the maturities and rate sensitivity
of the Companys loan portfolio at December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Maturities
|
|
|
|
|
|
|
Over
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year
|
|
|
One to
|
|
|
Over
|
|
|
|
|
|
|
|
|
|
and Less
|
|
|
Five Years
|
|
|
Five Years
|
|
|
Total
|
|
|
Percent
|
|
|
|
(Amounts in thousands)
|
|
|
Commercial, financial and agricultural
|
|
$
|
44,647
|
|
|
$
|
42,473
|
|
|
$
|
9,141
|
|
|
$
|
96,261
|
|
|
|
7.85
|
%
|
Real estate commercial
|
|
|
67,303
|
|
|
|
241,549
|
|
|
|
77,260
|
|
|
|
386,112
|
|
|
|
31.51
|
%
|
Real estate construction
|
|
|
100,515
|
|
|
|
60,234
|
|
|
|
2,561
|
|
|
|
163,310
|
|
|
|
13.33
|
%
|
Real estate mortgage
|
|
|
48,588
|
|
|
|
147,901
|
|
|
|
301,856
|
|
|
|
498,345
|
|
|
|
40.66
|
%
|
Consumer
|
|
|
16,248
|
|
|
|
54,891
|
|
|
|
4,308
|
|
|
|
75,447
|
|
|
|
6.16
|
%
|
Other
|
|
|
3,398
|
|
|
|
2,005
|
|
|
|
624
|
|
|
|
6,027
|
|
|
|
0.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
280,699
|
|
|
$
|
549,053
|
|
|
$
|
395,750
|
|
|
$
|
1,225,502
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate Sensitivity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-determined rate
|
|
$
|
138,417
|
|
|
$
|
426,221
|
|
|
$
|
107,322
|
|
|
$
|
671,960
|
|
|
|
54.83
|
%
|
Floating- or adjustable-rate
|
|
|
142,282
|
|
|
|
122,832
|
|
|
|
288,428
|
|
|
|
553,542
|
|
|
|
45.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
280,699
|
|
|
$
|
549,053
|
|
|
$
|
395,750
|
|
|
$
|
1,225,502
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Loan Losses
The allowance is increased by charges to earnings in the form of
provisions charged to current earnings and by recoveries of
prior loan charge-offs, and decreased by loan charge-offs. The
provisions are calculated to bring the allowance to a level,
which, according to a systematic process of measurement, is
reflective of the amount that
30
management deems adequate to absorb probable losses. Additional
information regarding the determination of the allowance for
loan losses can be found in Note 1 of the Notes to
Consolidated Financial Statements, included in Item 8
hereof.
The allowance for loan losses was $12.83 million at
December 31, 2007, compared with $14.55 million at
December 31, 2006. Management considers the allowance
adequate based upon its analysis of the portfolio as of
December 31, 2007, however, no assurance can be made that
additions to the allowance for loan losses will not be required
in future periods.
The following table details loan charge-offs and recoveries by
loan type for the five years ended December 31, 2003
through 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Amounts in thousands)
|
|
|
Allowance for loan losses at beginning of period
|
|
$
|
14,549
|
|
|
$
|
14,736
|
|
|
$
|
16,339
|
|
|
$
|
14,624
|
|
|
$
|
14,410
|
|
Acquisition balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,786
|
|
|
|
1,583
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, agricultural and commercial real estate
|
|
|
2,245
|
|
|
|
1,953
|
|
|
|
5,017
|
|
|
|
1,925
|
|
|
|
3,302
|
|
Real estate-residential
|
|
|
824
|
|
|
|
1,234
|
|
|
|
385
|
|
|
|
723
|
|
|
|
686
|
|
Installment
|
|
|
1,226
|
|
|
|
1,356
|
|
|
|
1,534
|
|
|
|
1,526
|
|
|
|
2,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
4,295
|
|
|
|
4,543
|
|
|
|
6,936
|
|
|
|
4,174
|
|
|
|
6,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
|
879
|
|
|
|
1,032
|
|
|
|
1,413
|
|
|
|
727
|
|
|
|
711
|
|
Real estate-residential
|
|
|
535
|
|
|
|
125
|
|
|
|
188
|
|
|
|
90
|
|
|
|
58
|
|
Installment
|
|
|
448
|
|
|
|
493
|
|
|
|
418
|
|
|
|
615
|
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
1,862
|
|
|
|
1,650
|
|
|
|
2,019
|
|
|
|
1,432
|
|
|
|
1,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
2,433
|
|
|
|
2,893
|
|
|
|
4,917
|
|
|
|
2,742
|
|
|
|
4,788
|
|
Provision charged to operations
|
|
|
717
|
|
|
|
2,706
|
|
|
|
3,706
|
|
|
|
2,671
|
|
|
|
3,419
|
|
Reclassification of allowance for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
lending-related commitments(1)
|
|
|
|
|
|
|
|
|
|
|
(392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end of period
|
|
$
|
12,833
|
|
|
$
|
14,549
|
|
|
$
|
14,736
|
|
|
$
|
16,339
|
|
|
$
|
14,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs to average loans outstanding
|
|
|
0.19
|
%
|
|
|
0.22
|
%
|
|
|
0.38
|
%
|
|
|
0.24
|
%
|
|
|
0.49
|
%
|
Ratio of allowance for loan losses to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total loans outstanding
|
|
|
1.05
|
%
|
|
|
1.13
|
%
|
|
|
1.11
|
%
|
|
|
1.32
|
%
|
|
|
1.43
|
%
|
|
|
|
(1) |
|
At June 30, 2005, the Company reclassified $392 thousand of
its allowance for loan losses to a separate allowance for
lending-related liabilities. Net income and prior period
balances were not affected by this reclassification. The
allowance for lending-related liabilities is included in other
liabilities. |
31
The following table details the allocation of the allowance for
loan losses and the percent of loans in each category to total
loans for the five years ended December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial, financial and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agricultural
|
|
$
|
7,441
|
|
|
|
53
|
%
|
|
$
|
8,418
|
|
|
|
53
|
%
|
|
$
|
9,993
|
|
|
|
58
|
%
|
|
$
|
11,700
|
|
|
|
57
|
%
|
|
$
|
9,414
|
|
|
|
47
|
%
|
Real estate mortgage
|
|
|
3,699
|
|
|
|
41
|
%
|
|
|
3,858
|
|
|
|
39
|
%
|
|
|
2,462
|
|
|
|
34
|
%
|
|
|
2,084
|
|
|
|
34
|
%
|
|
|
2,207
|
|
|
|
41
|
%
|
Consumer
|
|
|
1,693
|
|
|
|
6
|
%
|
|
|
2,273
|
|
|
|
8
|
%
|
|
|
2,281
|
|
|
|
8
|
%
|
|
|
2,555
|
|
|
|
9
|
%
|
|
|
3,003
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,833
|
|
|
|
100
|
%
|
|
$
|
14,549
|
|
|
|
100
|
%
|
|
$
|
14,736
|
|
|
|
100
|
%
|
|
$
|
16,339
|
|
|
|
100
|
%
|
|
$
|
14,624
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk
Elements
Non-performing assets include loans on non-accrual status, loans
contractually past due 90 days or more and still accruing
interest, and other real estate owned. The levels of
non-performing assets for the last five years ending
December 31, 2007, are presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Non-accrual loans
|
|
$
|
2,923
|
|
|
$
|
3,813
|
|
|
$
|
3,383
|
|
|
$
|
5,168
|
|
|
$
|
2,993
|
|
Loans 90 days or more past due and still accruing interest
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
|
2,923
|
|
|
|
3,813
|
|
|
|
3,394
|
|
|
|
5,168
|
|
|
|
2,993
|
|
Other real estate owned
|
|
|
545
|
|
|
|
258
|
|
|
|
1,400
|
|
|
|
1,419
|
|
|
|
2,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
3,468
|
|
|
$
|
4,071
|
|
|
$
|
4,794
|
|
|
$
|
6,587
|
|
|
$
|
5,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans as a percentage of total loans
|
|
|
0.24
|
%
|
|
|
0.30
|
%
|
|
|
0.25
|
%
|
|
|
0.42
|
%
|
|
|
0.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing assets as a percentage of total loans and other
real estate owned
|
|
|
0.28
|
%
|
|
|
0.32
|
%
|
|
|
0.36
|
%
|
|
|
0.53
|
%
|
|
|
0.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percentage of non-performing loans
|
|
|
439.0
|
%
|
|
|
381.6
|
%
|
|
|
434.2
|
%
|
|
|
316.2
|
%
|
|
|
488.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percentage of non-performing
assets
|
|
|
370.0
|
%
|
|
|
357.4
|
%
|
|
|
307.4
|
%
|
|
|
248.0
|
%
|
|
|
287.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets were $3.47 million at
December 31, 2007, compared with $4.07 million at
December 31, 2006, a decrease of $603 thousand. Non-accrual
loans decreased by $890 thousand to $2.92 million at
December 31, 2007, compared with 2006. Ongoing activity
within the classification and categories of non-performing loans
continues to include collections on delinquent loans,
foreclosures, and movements into or out of the non-performing
classification as a result of changing customer business
conditions. There were no loans 90 days past due and still
accruing at December 31, 2007 and 2006. Other real estate
owned increased $287 thousand to $545 thousand in 2007 and is
carried at the lesser of estimated net realizable value or cost.
Certain loans included in the non-accrual category have been
written down to the estimated realizable value or have been
assigned specific reserves within the allowance for loan losses
based upon managements estimate of loss upon ultimate
resolution.
The Company has considered all impaired loans in the evaluation
of the adequacy of the allowance for loan losses at
December 31, 2007. The following table presents additional
detail of non-performing and restructured
32
loans for the five years ended December 31, 2007.
Additional information regarding nonperforming loans can be
found in Note 5 of the Notes to Consolidated Financial
Statements, included in Item 8 hereof.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
Non-accruing loans
|
|
$
|
2,923
|
|
|
$
|
3,813
|
|
|
$
|
3,383
|
|
|
$
|
5,168
|
|
|
$
|
2,993
|
|
|
|
|
|
Loans past due over 90 days and still accruing interest
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans performing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in accordance with modified terms
|
|
|
245
|
|
|
|
272
|
|
|
|
302
|
|
|
|
354
|
|
|
|
356
|
|
|
|
|
|
Gross interest income which would have
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
been recorded under original terms of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
non-accruing and restructured loans
|
|
|
301
|
|
|
|
397
|
|
|
|
380
|
|
|
|
439
|
|
|
|
282
|
|
|
|
|
|
Actual interest income during the period
|
|
|
179
|
|
|
|
286
|
|
|
|
161
|
|
|
|
293
|
|
|
|
194
|
|
|
|
|
|
There are no outstanding commitments to lend additional funds to
borrowers related to restructured loans.
Deposits
Total deposits decreased by $1.33 million during 2007.
Noninterest-bearing demand deposits decreased during 2007 by
$20.68 million while interest-bearing demand deposits
increased $12.99 million. Savings deposits, which consist
of money market accounts and savings accounts, increased
$10.01 million during 2007 while time deposits decreased
$3.65 million.
Average total deposits decreased slightly to $1.41 billion
for 2007. Average interest-bearing demand deposits and time
deposits increased $1.61 million and $17.62 million
during 2007, respectively. Average noninterest-bearing demand
deposits and savings deposits decreased $9.13 million and
$12.89 million during 2007, respectively. In 2007, the
average rate paid on interest bearing deposits was 3.29%, up
40 basis points from 2.89% in 2006. The attrition from
interest-bearing demand and savings deposits and the continued
increase in time deposits reflects the migration of new and
current customer funds in response to the upward movement in
time deposit interest rates during most of 2007.
Average
Deposits and Average Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
147,856
|
|
|
$
|
456
|
|
|
|
0.31
|
%
|
|
$
|
146,248
|
|
|
$
|
462
|
|
|
|
0.32
|
%
|
|
$
|
152,774
|
|
|
$
|
401
|
|
|
|
0.26
|
%
|
Savings deposits
|
|
|
330,969
|
|
|
|
7,327
|
|
|
|
2.21
|
%
|
|
|
343,854
|
|
|
|
6,857
|
|
|
|
1.99
|
%
|
|
|
368,339
|
|
|
|
4,309
|
|
|
|
1.17
|
%
|
Time deposits
|
|
|
697,996
|
|
|
|
30,974
|
|
|
|
4.44
|
%
|
|
|
680,380
|
|
|
|
26,549
|
|
|
|
3.90
|
%
|
|
|
658,915
|
|
|
|
19,321
|
|
|
|
2.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
$
|
1,176,821
|
|
|
$
|
38,757
|
|
|
|
3.29
|
%
|
|
$
|
1,170,482
|
|
|
$
|
33,868
|
|
|
|
2.89
|
%
|
|
$
|
1,180,028
|
|
|
$
|
24,031
|
|
|
|
2.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing demand deposits
|
|
$
|
228,583
|
|
|
|
|
|
|
|
|
|
|
$
|
237,714
|
|
|
|
|
|
|
|
|
|
|
$
|
228,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
The Companys borrowings consist primarily of overnight
federal funds purchased from the FHLB and other sources,
securities sold under agreements to repurchase, and term FHLB
borrowings. This category of liabilities represents wholesale
sources of funding and liquidity for the Company.
Short-term borrowings increased on average approximately
$72.29 million for 2007 compared with the prior year as a
result of continued increases in portfolio assets. Funding cost
is managed by the Companys Asset/
33
Liability Management Committee, which monitors, among other
things, product and pricing, overall cost of funds, and
maintenance of an acceptable net interest margin.
Federal funds purchased were $18.50 million and
$7.70 million, at December 31, 2007 and 2006,
respectively. Repurchase agreements were $207.43 million
and $201.19 million at December 31, 2007 and 2006,
respectively. Retail repurchase agreements are sold to customers
as an alternative to available deposit products and commercial
treasury accounts. At December 31, 2007 and 2006, total
repurchase agreements included $50.00 million of wholesale
instruments, which were added during 2006. The weighted-average
rate of those wholesale repurchase agreements was 3.85% and
4.30% at December 31, 2007 and 2006, respectively. The
underlying securities included in repurchase agreements remain
under the Companys control during the effective period of
the agreements.
Short-term borrowings include overnight federal funds and
repurchase agreements. Balances and rates paid on short-term
borrowings for continuing operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
|
At year-end
|
|
$
|
225,927
|
|
|
|
4.32
|
%
|
|
$
|
208,885
|
|
|
|
3.70
|
%
|
|
$
|
206,654
|
|
|
|
2.79
|
%
|
Average during the year
|
|
|
223,132
|
|
|
|
3.72
|
%
|
|
|
150,839
|
|
|
|
3.37
|
%
|
|
|
128,551
|
|
|
|
2.16
|
%
|
Maximum month-end balance
|
|
|
273,920
|
|
|
|
|
|
|
|
208,885
|
|
|
|
|
|
|
|
206,654
|
|
|
|
|
|
At December 31, 2007, FHLB borrowings included
$275.00 million in convertible and callable advances and
$888 thousand of noncallable advances for a total of
$275.89 million. The weighted-average interest rate of all
advances was 4.38% and 4.64% at December 31, 2007 and 2006,
respectively. $50.00 million of the advances are hedged by
an interest rate swap to approximate a fixed rate of 4.34%.
After considering the effect of the interest rate swap, the
weighted-average interest rate of all advances was 4.30% at
December 31, 2007. At December 31, 2007, the FHLB
advances had maturities between two and thirteen years.
Also included in other indebtedness is $15.46 million of
junior subordinated debentures issued by the Company in October
2003 through FCBI Capital Trust, an unconsolidated trust
subsidiary, with an interest rate of three-month LIBOR plus
2.95%. The debentures mature in October 2033 and are callable in
October 2008.
Liquidity
and Capital Resources
Liquidity represents the Companys ability to respond to
demands for funds and is primarily derived from maturing
investment securities, overnight investments, periodic repayment
of loan principal, and the Companys ability to generate
new deposits. The Company also has the ability to attract
short-term sources of funds and draw on credit lines that have
been established at financial institutions to meet cash needs.
Total liquidity of $493.72 million at December 31,
2007, is comprised of the following: cash on hand and deposits
with other financial institutions of $52.75 million;
unpledged
available-for-sale
securities of $305.01 million;
held-to-maturity
securities due within one year of $375 thousand; and FHLB credit
availability of $135.58 million.
Liquidity management is both a daily and long-term function of
business management. Excess liquidity is generally used to pay
down short-term borrowings. On a longer-term basis, the Company
maintains a strategy of investing in securities, mortgage-backed
obligations and loans with varying maturities. The Company uses
these sources of funds to meet ongoing commitments, to pay
maturing savings certificates and savings withdrawals, fund loan
commitments and maintain a portfolio of securities.
At December 31, 2007, approved loan commitments outstanding
amounted to $225.42 million. Certificates of deposit
scheduled to mature in one year or less totaled
$529.70 million. Management believes that the Company has
adequate resources to fund outstanding commitments and could
either adjust rates on certificates of deposit in order to
retain or attract deposits in changing interest rate
environments or replace such deposits with advances from the
FHLB or other funds providers if it proved to be cost effective
to do so.
34
The following table presents contractual cash obligations as of
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
Two to
|
|
|
Four to
|
|
|
After
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
5 Years
|
|
|
|
(Amounts in thousands)
|
|
|
Deposits without a stated maturity(1)
|
|
$
|
705,348
|
|
|
$
|
705,348
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Federal funds borrowed and overnight security repurchase
agreements
|
|
|
126,591
|
|
|
|
126,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of Deposit(2)(3)
|
|
|
711,598
|
|
|
|
543,829
|
|
|
|
115,331
|
|
|
|
38,980
|
|
|
|
13,458
|
|
Term security repurchase agreements
|
|
|
119,526
|
|
|
|
50,737
|
|
|
|
5,296
|
|
|
|
5,121
|
|
|
|
58,372
|
|
FHLB advances(2)(3)
|
|
|
343,527
|
|
|
|
11,855
|
|
|
|
47,026
|
|
|
|
70,228
|
|
|
|
214,418
|
|
Trust preferred indebtedness
|
|
|
49,932
|
|
|
|
1,266
|
|
|
|
2,533
|
|
|
|
3,097
|
|
|
|
43,036
|
|
Leases
|
|
|
3,998
|
|
|
|
879
|
|
|
|
1,140
|
|
|
|
1,014
|
|
|
|
965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,060,520
|
|
|
$
|
1,440,505
|
|
|
$
|
171,326
|
|
|
$
|
118,440
|
|
|
$
|
330,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes interest. |
|
(2) |
|
Includes interest on both fixed and variable-rate obligations.
The interest associated with variable-rate obligations is based
upon interest rates in effect at December 31, 2007. The
interest to be paid on variable-rate obligations is affected by
changes in market interest rates, which materially affect the
contractual obligation amounts to be paid. |
|
(3) |
|
Excludes carrying value adjustments such as unamortized premiums
or discounts. |
The following table presents detailed information regarding the
Companys off-balance sheet arrangements at
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration Per Period
|
|
|
|
|
|
|
Less Than
|
|
|
Two to
|
|
|
Four to
|
|
|
After
|
|
|
|
Total
|
|
|
One Year(1)
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Five Years
|
|
|
|
(Amounts in thousands)
|
|
|
Commitments to extend credit Commercial, financial and
agricultural
|
|
$
|
33,902
|
|
|
$
|
31,958
|
|
|
$
|
1,787
|
|
|
$
|
136
|
|
|
$
|
21
|
|
Real estate commercial
|
|
|
23,575
|
|
|
|
17,691
|
|
|
|
3,357
|
|
|
|
1,400
|
|
|
|
1,127
|
|
Real estate residential
|
|
|
66,696
|
|
|
|
6,615
|
|
|
|
3,255
|
|
|
|
5,318
|
|
|
|
51,508
|
|
Real estate construction
|
|
|
58,087
|
|
|
|
39,307
|
|
|
|
4,416
|
|
|
|
8,086
|
|
|
|
6,278
|
|
Consumer lines of credit
|
|
|
43,157
|
|
|
|
41,825
|
|
|
|
155
|
|
|
|
28
|
|
|
|
1,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unused commitments
|
|
$
|
225,417
|
|
|
$
|
137,396
|
|
|
$
|
12,970
|
|
|
$
|
14,968
|
|
|
$
|
60,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial letters of credit
|
|
$
|
1,763
|
|
|
$
|
1,746
|
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
10
|
|
Performance letters of credit
|
|
|
1,832
|
|
|
|
1,531
|
|
|
|
229
|
|
|
|
8
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total letters of credit
|
|
$
|
3,595
|
|
|
$
|
3,277
|
|
|
$
|
229
|
|
|
$
|
15
|
|
|
$
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Lines of credit with no stated maturity date are included in
commitments for less than one year. |
The Company has a pay fixed and receive variable interest rate
swap that effectively fixes $50 million of FHLB borrowings
at 4.34% for a period of five years. Management does not
anticipate this derivative transaction will have a significant
impact on reported earnings or cash flows.
35
Stockholders
Equity
Total stockholders equity increased $4.37 million to
$217.10 million at December 31, 2007, as the Company
balances capital adequacy and returns to stockholders through
earnings retention, management of dividend payments to
stockholders, and management of leverage and asset growth rates.
The increase in equity in 2007 was due mainly to comprehensive
net earnings of $22.12 million less dividends paid to
stockholders of $12.08 million and net additions of
treasury stock at a cost of $5.66 million.
Risk-based capital guidelines and the leverage ratio measure
capital adequacy of banking institutions. At December 31,
2007, the Companys Tier I capital ratio was 11.45%
compared with 11.60% in 2006. The Companys total
risk-based
capital-to-asset
ratio was 12.34% at December 31, 2007, compared with 12.69%
at December 31, 2006. Both of these ratios are well above
the current minimum level of 8% prescribed for bank holding
companies by the Federal Reserve Board. The leverage ratio is
the measurement of total tangible equity to total assets. The
Companys leverage ratio at December 31, 2007, was
8.09% versus 8.50% at December 31, 2006, both of which are
well above the minimum levels prescribed by the Federal Reserve
Board. See Note 14 of the Notes to Consolidated Financial
Statements in Item 8 hereof.
Wealth
Management Services
As part of its community banking services, the Company offers
trust management and estate administration services through its
Trust and Financial Services Division (Trust Division). The
Trust Division reported market value of assets under
management of $480 million and $507 million at
December 31, 2007 and 2006, respectively. The
Trust Division manages inter vivos trusts and trusts under
will, develops and administers employee benefit plans and
individual retirement plans and manages and settles estates.
Fiduciary fees for these services are charged on a schedule
related to the size, nature and complexity of the account.
The Trust Division employs a staff of trust professionals
and support staff with a wide variety of estate and financial
planning, investing and plan administration skills. The
Trust Division is located within the Companys banking
offices in Bluefield, West Virginia. Services and trust
development activities are offered to other branch locations and
primary markets through the Bluefield-based division.
The Company also offers investment advisory services through the
Banks wholly-owned subsidiary, IPC, which reported assets
under management of $360 million and $354 million at
December 31, 2007 and 2006, respectively. IPC utilizes the
Raymond James investment platform, which provides all settlement
and clearing services.
36
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
The Companys profitability is dependent to a large extent
upon its net interest income, 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 Company, 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 Company
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 while
maintaining an acceptable level of net interest income given the
current interest rate environment.
The Companys primary component of operational revenue, net
interest income, is subject to variation as a result of changes
in interest rate environments in conjunction with unbalanced
repricing opportunities on earning assets and interest-bearing
liabilities. Interest rate risk has four primary components
including repricing risk, basis risk, yield curve risk and
option risk. Repricing risk occurs when earning assets and
paying liabilities reprice at differing times as interest rates
change. Basis risk occurs when the underlying rates on the
assets and liabilities the institution holds change at different
levels or in varying degrees. Yield curve risk is the risk of
adverse consequences as a result of unequal changes in the
spread between two or more rates for different maturities for
the same instrument. Lastly, option risk is the result of
embedded options, often called put or call options,
given or sold to holders of financial instruments.
In order to mitigate the effect of changes in the general level
of interest rates, the Company manages repricing opportunities
and thus, its interest rate sensitivity. The Company seeks to
control its interest rate risk (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, quarterly simulations of net interest income are
performed using financial models that 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, assumptions as to
changes in the volume and mix of interest-earning assets and
interest-paying liabilities, managements estimate of
yields to be attained in those future rate environments, and
rates that will be paid on various deposit instruments and
borrowings. Specific strategies for management of IRR have
included shortening the amortized maturity of new fixed-rate
loans, increasing the volume of adjustable-rate loans to reduce
the repricing term of the Banks interest-earning assets,
and monitoring the term structure of liabilities to maintain a
balanced mix of maturity and repricing to mitigate the potential
exposure. The simulation model used by the Company captures all
earning assets, interest-bearing liabilities and all off-balance
sheet financial instruments and combines the various factors
affecting rate sensitivity into an earnings outlook. Based upon
the latest simulation, the Company believes that it is in a
neutral sensitivity position.
The Company has established policy limits for tolerance of
interest rate risk that allow for no more than a 10% reduction
in the next twelve months projected net interest income
based on the income simulation compared with forecasted results.
In addition, the policy addresses exposure limits to changes in
the economic value of equity according to predefined policy
guidelines. The most recent simulation indicates that current
exposure to interest rate risk is within the Companys
defined policy limits.
37
The following table summarizes the impact of immediate and
sustained rate shocks in the interest rate environment on net
interest income and the economic value of equity as of
December 31, 2007 and 2006. The model simulates plus and
minus 200 basis point changes from the base case rate
simulation. This table, which illustrates the prospective
effects of hypothetical interest rate changes, is based upon
numerous assumptions including relative and estimated levels of
key interest rates over a twelve-month time period. This
modeling technique, although useful, does not take into account
all strategies that management might undertake in response to a
sudden and sustained rate shock as depicted. Also, as market
conditions vary from those assumed in the sensitivity analysis,
actual results will also differ due to prepayment and
refinancing levels likely deviating from those assumed, the
varying impact of interest rate change caps or floors on
adjustable rate assets, the potential effect of changing debt
service levels on customers with adjustable rate loans,
depositor early withdrawals and product preference changes, and
other internal and external variables.
Rate
Sensitivity Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
Increase (Decrease)
|
|
Change in
|
|
|
|
|
|
Change in
|
|
|
|
|
in Interest Rates
|
|
Net Interest
|
|
|
%
|
|
|
Market Value
|
|
|
%
|
|
(Basis
Points)
|
|
Income
|
|
|
Change
|
|
|
of Equity
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
200
|
|
$
|
(3,124
|
)
|
|
|
(4.2
|
)
|
|
$
|
(30,894
|
)
|
|
|
(10.7
|
)
|
100
|
|
|
(327
|
)
|
|
|
(0.4
|
)
|
|
|
(5,315
|
)
|
|
|
(1.8
|
)
|
(100)
|
|
|
(449
|
)
|
|
|
(0.6
|
)
|
|
|
(11,128
|
)
|
|
|
(3.9
|
)
|
(200)
|
|
|
(1,657
|
)
|
|
|
(2.2
|
)
|
|
|
(32,008
|
)
|
|
|
(11.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
Increase (Decrease)
|
|
Change in
|
|
|
|
|
|
Change in
|
|
|
|
|
in Interest Rates
|
|
Net Interest
|
|
|
%
|
|
|
Market Value
|
|
|
%
|
|
(Basis
Points)
|
|
Income
|
|
|
Change
|
|
|
of Equity
|
|
|
Change
|
|
|
200
|
|
$
|
(2,006
|
)
|
|
|
(2.8
|
)
|
|
$
|
(16,229
|
)
|
|
|
(5.4
|
)
|
100
|
|
|
(958
|
)
|
|
|
(1.3
|
)
|
|
|
(7,453
|
)
|
|
|
(2.5
|
)
|
(100)
|
|
|
(1,024
|
)
|
|
|
(1.4
|
)
|
|
|
(4,301
|
)
|
|
|
(1.4
|
)
|
(200)
|
|
|
(1,614
|
)
|
|
|
(2.3
|
)
|
|
|
(18,278
|
)
|
|
|
(6.1
|
)
|
38
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
|
|
|
|
|
Consolidated Financial Statements
|
|
|
|
|
Consolidated Balance Sheets
|
|
|
40
|
|
Consolidated Statements of Income
|
|
|
41
|
|
Consolidated Statements of Cash Flows
|
|
|
42
|
|
Consolidated Statements of Changes in Stockholders Equity
|
|
|
43
|
|
Notes to Consolidated Financial Statements
|
|
|
44
|
|
Reports of Independent Registered Public Accounting Firms on
Consolidated Financial Statements
|
|
|
78
|
|
Managements Assessment of Internal Control Over Financial
Reporting
|
|
|
80
|
|
Report of Independent Registered Public Accounting Firm on
Managements Assessment of Internal Control Over Financial
Reporting
|
|
|
81
|
|
39
FIRST
COMMUNITY BANCSHARES, INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands, except share and per share data)
|
|
|
ASSETS
|
Cash and due from banks
|
|
$
|
50,051
|
|
|
$
|
47,909
|
|
Interest-bearing balances with banks
|
|
|
2,695
|
|
|
|
9,850
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
52,746
|
|
|
|
57,759
|
|
Securities available for sale (amortized cost of $674,937, 2007;
$508,423, 2006)
|
|
|
664,120
|
|
|
|
508,370
|
|
Securities held to maturity (fair value of $12,298, 2007;
$20,350, 2006)
|
|
|
12,075
|
|
|
|
20,019
|
|
Loans held for sale
|
|
|
811
|
|
|
|
781
|
|
Loans held for investment, net of unearned income
|
|
|
1,225,502
|
|
|
|
1,284,863
|
|
Less allowance for loan losses
|
|
|
12,833
|
|
|
|
14,549
|
|
|
|
|
|
|
|
|
|
|
Net loans held for investment
|
|
|
1,212,669
|
|
|
|
1,270,314
|
|
Premises and equipment, net
|
|
|
48,383
|
|
|
|
36,889
|
|
Other real estate owned
|
|
|
545
|
|
|
|
258
|
|
Interest receivable
|
|
|
12,465
|
|
|
|
12,141
|
|
Goodwill
|
|
|
66,310
|
|
|
|
60,135
|
|
Other intangible assets
|
|
|
3,746
|
|
|
|
2,061
|
|
Other assets
|
|
|
75,968
|
|
|
|
64,971
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,149,838
|
|
|
$
|
2,033,698
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
224,087
|
|
|
$
|
244,771
|
|
Interest-bearing
|
|
|
1,169,356
|
|
|
|
1,150,000
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
|
1,393,443
|
|
|
|
1,394,771
|
|
Interest, taxes and other liabilities
|
|
|
21,454
|
|
|
|
19,641
|
|
Federal funds purchased
|
|
|
18,500
|
|
|
|
7,700
|
|
Securities sold under agreements to repurchase
|
|
|
207,427
|
|
|
|
201,185
|
|
FHLB borrowings and other indebtedness
|
|
|
291,916
|
|
|
|
197,671
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,932,740
|
|
|
|
1,820,968
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock, par value undesignated; 1,000,000 shares
authorized; no shares issued and outstanding in 2007 and 2006
|
|
|
|
|
|
|
|
|
Common stock, $1 par value; shares authorized: 25,000,000;
shares issued: 11,499,018 in 2007 and 2006; shares outstanding:
11,069,646 in 2007 and 11,245,742 in 2006
|
|
|
11,499
|
|
|
|
11,499
|
|
Additional paid-in capital
|
|
|
108,825
|
|
|
|
108,806
|
|
Retained earnings
|
|
|
117,670
|
|
|
|
100,117
|
|
Treasury stock, at cost
|
|
|
(13,613
|
)
|
|
|
(7,924
|
)
|
Accumulated other comprehensive (loss) income
|
|
|
(7,283
|
)
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
217,098
|
|
|
|
212,730
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
2,149,838
|
|
|
$
|
2,033,698
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
40
FIRST
COMMUNITY BANCSHARES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands,
|
|
|
|
except share and per share data)
|
|
|
Interest Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
93,501
|
|
|
$
|
97,460
|
|
|
$
|
89,903
|
|
Interest on securities-taxable
|
|
|
24,725
|
|
|
|
13,951
|
|
|
|
11,077
|
|
Interest on securities-nontaxable
|
|
|
8,190
|
|
|
|
7,371
|
|
|
|
7,451
|
|
Interest on federal funds sold and deposits in banks
|
|
|
1,175
|
|
|
|
1,244
|
|
|
|
1,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
127,591
|
|
|
|
120,026
|
|
|
|
109,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
38,757
|
|
|
|
33,868
|
|
|
|
24,030
|
|
Interest on short-term borrowings
|
|
|
9,760
|
|
|
|
6,977
|
|
|
|
9,721
|
|
Interest on long-term debt
|
|
|
10,759
|
|
|
|
7,536
|
|
|
|
2,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
59,276
|
|
|
|
48,381
|
|
|
|
35,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
68,315
|
|
|
|
71,645
|
|
|
|
73,628
|
|
Provision for loan losses
|
|
|
717
|
|
|
|
2,706
|
|
|
|
3,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
67,598
|
|
|
|
68,939
|
|
|
|
69,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth management income
|
|
|
3,880
|
|
|
|
2,811
|
|
|
|
2,956
|
|
Service charges on deposit accounts
|
|
|
11,387
|
|
|
|
10,242
|
|
|
|
10,095
|
|
Other service charges, commissions and fees
|
|
|
3,600
|
|
|
|
2,992
|
|
|
|
2,785
|
|
Insurance commissions
|
|
|
1,142
|
|
|
|
|
|
|
|
|
|
Net gains on sale of securities
|
|
|
411
|
|
|
|
75
|
|
|
|
753
|
|
Other operating income
|
|
|
4,411
|
|
|
|
5,203
|
|
|
|
5,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
24,831
|
|
|
|
21,323
|
|
|
|
22,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
25,848
|
|
|
|
26,867
|
|
|
|
29,481
|
|
Occupancy expense of bank premises
|
|
|
4,180
|
|
|
|
4,068
|
|
|
|
3,903
|
|
Furniture and equipment expense
|
|
|
3,370
|
|
|
|
3,466
|
|
|
|
3,319
|
|
Amortization of intangible assets
|
|
|
467
|
|
|
|
410
|
|
|
|
435
|
|
Prepayment penalties on FHLB advances
|
|
|
|
|
|
|
|
|
|
|
3,794
|
|
Other operating expense
|
|
|
16,598
|
|
|
|
15,026
|
|
|
|
14,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
50,463
|
|
|
|
49,837
|
|
|
|
55,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
41,966
|
|
|
|
40,425
|
|
|
|
36,636
|
|
Income tax expense
|
|
|
12,334
|
|
|
|
11,477
|
|
|
|
10,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
29,632
|
|
|
|
28,948
|
|
|
|
26,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income tax
|
|
|
|
|
|
|
|
|
|
|
(233
|
)
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
29,632
|
|
|
$
|
28,948
|
|
|
$
|
26,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
2.64
|
|
|
$
|
2.58
|
|
|
$
|
2.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
2.62
|
|
|
$
|
2.57
|
|
|
$
|
2.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share from continuing operations
|
|
$
|
2.64
|
|
|
$
|
2.58
|
|
|
$
|
2.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share from continuing operations
|
|
$
|
2.62
|
|
|
$
|
2.57
|
|
|
$
|
2.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
1.08
|
|
|
$
|
1.04
|
|
|
$
|
1.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
|
|
11,204,676
|
|
|
|
11,204,875
|
|
|
|
11,269,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
11,292,871
|
|
|
|
11,279,480
|
|
|
|
11,341,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
41
FIRST
COMMUNITY BANCSHARES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flows from operating activities continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
29,632
|
|
|
$
|
28,948
|
|
|
$
|
26,445
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
717
|
|
|
|
2,706
|
|
|
|
3,706
|
|
Depreciation and amortization of premises and equipment
|
|
|
3,276
|
|
|
|
3,366
|
|
|
|
3,339
|
|
Intangible amortization
|
|
|
467
|
|
|
|
410
|
|
|
|
436
|
|
Net investment amortization and accretion
|
|
|
534
|
|
|
|
699
|
|
|
|
1,049
|
|
Gains on the sale of assets
|
|
|
(357
|
)
|
|
|
(1,329
|
)
|
|
|
(4,845
|
)
|
Mortgage loans originated for sale
|
|
|
(42,598
|
)
|
|
|
(33,565
|
)
|
|
|
(37,593
|
)
|
Proceeds from sale of mortgage loans
|
|
|
42,568
|
|
|
|
34,058
|
|
|
|
37,513
|
|
Equity-based compensation expense
|
|
|
271
|
|
|
|
427
|
|
|
|
|
|
Deferred income tax expense
|
|
|
216
|
|
|
|
465
|
|
|
|
1,864
|
|
Increase in interest receivable
|
|
|
(324
|
)
|
|
|
(1,928
|
)
|
|
|
(1,707
|
)
|
Excess tax benefit from stock-based compensation
|
|
|
(327
|
)
|
|
|
(201
|
)
|
|
|
|
|
(Increase) decrease in other assets
|
|
|
(3,407
|
)
|
|
|
215
|
|
|
|
(6,549
|
)
|
Increase in other liabilities
|
|
|
1,781
|
|
|
|
769
|
|
|
|
1,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities continuing
operations
|
|
|
32,449
|
|
|
|
35,040
|
|
|
|
25,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of securities available for sale
|
|
|
12,010
|
|
|
|
14,185
|
|
|
|
33,159
|
|
Proceeds from maturities and calls of securities available for
sale
|
|
|
28,635
|
|
|
|
23,515
|
|
|
|
44,115
|
|
Proceeds from maturities and calls of held to maturity securities
|
|
|
7,907
|
|
|
|
4,221
|
|
|
|
10,097
|
|
Purchase of securities available for sale
|
|
|
(211,321
|
)
|
|
|
(139,624
|
)
|
|
|
(111,223
|
)
|
Purchase of bank-owned life insurance
|
|
|
|
|
|
|
(25,000
|
)
|
|
|
|
|
Net decrease (increase) in loans made to customers
|
|
|
56,623
|
|
|
|
40,610
|
|
|
|
(104,307
|
)
|
Cash used in divestitures and acquisitions, net
|
|
|
(5,364
|
)
|
|
|
(22,046
|
)
|
|
|
(32,630
|
)
|
Purchase of premises and equipment
|
|
|
(15,160
|
)
|
|
|
(5,709
|
)
|
|
|
(3,215
|
)
|
Proceeds from sale of equipment
|
|
|
526
|
|
|
|
402
|
|
|
|
1,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities continuing
operations
|
|
|
(126,144
|
)
|
|
|
(109,446
|
)
|
|
|
(162,986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in demand and savings deposits
|
|
|
2,158
|
|
|
|
(17,215
|
)
|
|
|
(6,362
|
)
|
Net increase (decrease) in time deposits
|
|
|
(3,649
|
)
|
|
|
35,551
|
|
|
|
95,751
|
|
Net increase (decrease) in FHLB and other borrowings
|
|
|
93,272
|
|
|
|
68,440
|
|
|
|
(3,088
|
)
|
Net increase (decrease) in federal funds purchased
|
|
|
10,800
|
|
|
|
(74,800
|
)
|
|
|
50,000
|
|
Net increase in securities sold under agreement to repurchase
|
|
|
6,242
|
|
|
|
77,369
|
|
|
|
16,721
|
|
Proceeds from the exercise of stock options
|
|
|
781
|
|
|
|
1,305
|
|
|
|
522
|
|
Excess tax benefit from stock-based compensation
|
|
|
327
|
|
|
|
201
|
|
|
|
|
|
Acquisition of treasury stock
|
|
|
(9,170
|
)
|
|
|
(4,566
|
)
|
|
|
(1,303
|
)
|
Dividends paid
|
|
|
(12,079
|
)
|
|
|
(11,659
|
)
|
|
|
(11,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities continuing
operations
|
|
|
88,682
|
|
|
|
74,626
|
|
|
|
140,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
continuing operations
|
|
$
|
(5,013
|
)
|
|
$
|
220
|
|
|
$
|
2,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(142
|
)
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
continuing operations
|
|
$
|
57,759
|
|
|
$
|
57,539
|
|
|
$
|
54,746
|
|
Cash and cash equivalents at beginning of year
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
$
|
57,759
|
|
|
$
|
57,539
|
|
|
$
|
54,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year continuing
operations
|
|
$
|
52,746
|
|
|
$
|
57,759
|
|
|
$
|
57,539
|
|
Cash and cash equivalents at end of year
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
52,746
|
|
|
$
|
57,759
|
|
|
$
|
57,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information Noncash
items Transfers of loans to other real estate
|
|
$
|
1,342
|
|
|
$
|
1,281
|
|
|
$
|
1,263
|
|
(See Note 1 for detail of income taxes and interest paid
and Note 2 for supplemental information regarding detail of
cash paid in acquisitions.)
See Notes to Consolidated Financial Statements
42
FIRST
COMMUNITY BANCSHARES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
(Loss) Income
|
|
|
Total
|
|
|
|
(Amounts in thousands, except share and per share
information)
|
|
|
Balance December 31, 2004
|
|
$
|
11,472
|
|
|
$
|
108,263
|
|
|
$
|
68,019
|
|
|
$
|
(6,881
|
)
|
|
$
|
2,360
|
|
|
$
|
183,233
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
26,303
|
|
|
|
|
|
|
|
|
|
|
|
26,303
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities available for sale of $5,647, net
of $2,259 tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,388
|
)
|
|
|
(3,388
|
)
|
Less reclassification adjustment for gains realized in net
income of $428, net of $171 tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
257
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
26,303
|
|
|
|
|
|
|
|
(3,131
|
)
|
|
|
23,172
|
|
Common dividends declared ($1.02 per share)
|
|
|
|
|
|
|
|
|
|
|
(11,494
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,494
|
)
|
Purchase of 41,534 treasury shares at $31.38 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,303
|
)
|
|
|
|
|
|
|
(1,303
|
)
|
Acquisition of Stone Capital Management
2,541 shares issued
|
|
|
2
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
Tax benefit from exercise of non-qualified stock options
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
|
|
Equity-based compensation
|
|
|
2
|
|
|
|
17
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
27
|
|
Exercise of 38,146 options under stock option plans
|
|
|
20
|
|
|
|
106
|
|
|
|
|
|
|
|
551
|
|
|
|
|
|
|
|
677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005
|
|
|
11,496
|
|
|
|
108,573
|
|
|
|
82,828
|
|
|
|
(7,625
|
)
|
|
|
(771
|
)
|
|
|
194,501
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
28,948
|
|
|
|
|
|
|
|
|
|
|
|
28,948
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities available for sale of $1,242, net
of $497 tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
745
|
|
|
|
745
|
|
Less reclassification adjustment for losses realized in net
income of $10, net of $4 tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Unrealized gain on derivative securities of $441, net of $177
tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
264
|
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
28,948
|
|
|
|
|
|
|
|
1,003
|
|
|
|
29,951
|
|
Common dividends declared ($1.04 per share)
|
|
|
|
|
|
|
|
|
|
|
(11,659
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,659
|
)
|
Purchase of 145,161 treasury shares at $31.46 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,566
|
)
|
|
|
|
|
|
|
(4,566
|
)
|
Acquisition of Stone Capital Management
2,706 shares issued
|
|
|
3
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
Acquisition of Investment Planning Consultants
39,874 shares issued
|
|
|
|
|
|
|
217
|
|
|
|
|
|
|
|
1,248
|
|
|
|
|
|
|
|
1,465
|
|
ESOP allocation 27,733 shares
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
867
|
|
|
|
|
|
|
|
883
|
|
Equity-based compensation
|
|
|
|
|
|
|
267
|
|
|
|
|
|
|
|
160
|
|
|
|
|
|
|
|
427
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
335
|
|
Exercise of 63,655 options under stock option plans
|
|
|
|
|
|
|
(687
|
)
|
|
|
|
|
|
|
1,992
|
|
|
|
|
|
|
|
1,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006
|
|
|
11,499
|
|
|
|
108,806
|
|
|
|
100,117
|
|
|
|
(7,924
|
)
|
|
|
232
|
|
|
|
212,730
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
29,632
|
|
|
|
|
|
|
|
|
|
|
|
29,632
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities available for sale of $11,028, net
of $4,411 tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,617
|
)
|
|
|
(6,617
|
)
|
Less reclassification adjustment for gains realized in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net income of $263, net of $105 tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158
|
|
|
|
158
|
|
Unrealized loss on derivative securities of $1,760, net of $704
tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,056
|
)
|
|
|
(1,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
29,632
|
|
|
|
|
|
|
|
(7,515
|
)
|
|
|
22,117
|
|
Common dividends declared ($1.08 per share)
|
|
|
|
|
|
|
|
|
|
|
(12,079
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,079
|
)
|
Purchase of 287,500 treasury shares at $31.89 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,170
|
)
|
|
|
|
|
|
|
(9,170
|
)
|
Acquisition of GreenPoint Insurance Group
49,088 shares issued
|
|
|
|
|
|
|
133
|
|
|
|
|
|
|
|
1,524
|
|
|
|
|
|
|
|
1,657
|
|
Acquisition of Investment Planning Consultants
13,401 shares issued
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
425
|
|
|
|
|
|
|
|
455
|
|
Equity-based compensation
|
|
|
|
|
|
|
169
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
271
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
336
|
|
Exercise of 45,665 options under stock option plans
|
|
|
|
|
|
|
(649
|
)
|
|
|
|
|
|
|
1,430
|
|
|
|
|
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
$
|
11,499
|
|
|
$
|
108,825
|
|
|
$
|
117,670
|
|
|
$
|
(13,613
|
)
|
|
$
|
(7,283
|
)
|
|
$
|
217,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
43
FIRST
COMMUNITY BANCSHARES, INC.
|
|
Note 1.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The accounting and reporting policies of First Community
Bancshares, Inc. and subsidiaries (First Community
or the Company) conform to accounting principles
generally accepted in the United States and to predominant
practices within the banking industry. In preparing financial
statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ from those
estimates. Assets held in an agency or fiduciary capacity are
not assets of the Company and are not included in the
accompanying consolidated balance sheets.
Principles
of Consolidation
The consolidated financial statements of First Community include
the accounts of all wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation. First Community operates in the community banking
segment through its subsidiary bank, First Community Bank, N. A.
(the Bank).
The financial statements and footnotes within this report have
been reformatted to conform to the presentation required in
Statement of Financial Accounting Standards (SFAS)
144 for discontinued operations pursuant to the
Companys sale of its former mortgage banking subsidiary in
August 2004. Income statement items for the discontinued
subsidiary, including contractual obligations, are presented in
discontinued operations without elimination. Interest expense
accrued and paid by the discontinued operation is based upon the
contractual terms of the obligations entered into by the former
mortgage subsidiary including lines of credit extended by its
parent company.
Use of
Estimates
In preparing consolidated financial statements in conformity
with generally accepted accounting principles, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the
balance sheet and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Cash
and Cash Equivalents
Cash and cash equivalents include cash and due from banks, time
deposits with other banks, federal funds sold, and
interest-bearing balances on deposit with the Federal Home Loan
Bank (FHLB) that are available for immediate
withdrawal. Interest and income taxes paid were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
(Amounts in thousands)
|
|
Interest
|
|
$
|
58,797
|
|
|
$
|
46,241
|
|
|
$
|
35,880
|
|
Income Taxes
|
|
|
12,097
|
|
|
|
9,717
|
|
|
|
8,962
|
|
Pursuant to agreements with the Federal Reserve Bank, the
Company maintains a cash balance of approximately
$1.0 million in lieu of charges for check clearing and
other services.
Trading
Securities
At December 31, 2007 and 2006, no securities were held for
trading purposes and no trading account was maintained.
44
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Available-for-Sale
Securities
Securities to be held for indefinite periods of time, including
securities that management intends to use as part of its
asset/liability management strategy and that may be sold in
response to changes in interest rates, changes in prepayment
risk, or other similar factors, are classified as
available-for-sale and are recorded at estimated fair value.
Unrealized appreciation or depreciation in fair value above or
below amortized cost is included in stockholders equity,
net of income taxes, and is entitled Other Comprehensive
Income. Premiums and discounts are amortized to expense or
accreted to income over the life of the security. Gain or loss
on sale is based on the specific identification method. Other
than temporary impairment, if any, on available-for-sale
securities are included in net securities losses and gains. All
securities, including held-to-maturity securities, are evaluated
for indications of other-than-temporary impairment. For
available-for-sale debt securities with unrealized losses,
management has the intent and ability to hold these securities
until such time as the value recovers or the securities mature.
Held-to-Maturity
Securities
Investments in debt securities that management has the ability
and intent to hold to maturity are carried at amortized cost.
Premiums and discounts are amortized to expense and accreted to
income over the lives of the securities. Gain or loss on the
call or maturity of investment securities, if any, is recorded
based on the specific identification method.
Loans
Held for Sale
Loans held for sale primarily consist of one-to-four family
residential loans originated for sale in the secondary market
and are carried at the lower of cost or estimated fair value
determined on an aggregate basis. The long-term, fixed-rate
loans are sold to investors on a best efforts basis such that
the Company does not absorb the interest rate risk involved in
the loan. The fair value of loans held for sale is determined by
reference to quoted prices for loans with similar coupon rates
and terms.
The Company enters into rate-lock commitments it makes to
customers with the intention to sell the loan in the secondary
market. The derivatives arising from the rate-lock commitments
are recorded at fair value in other assets and liabilities and
changes in that fair value are included in other income. The
fair value of the rate-lock commitment derivatives are
determined by reference to quoted prices for loans with similar
coupon rates and terms. The Company also enters into forward
sales commitments with institutional investors for the sale of
those loans, which have been determined not to qualify as
derivatives. Gains and losses on the sale of those loans are
included in other income.
Loans
Held for Investment
Loans held for investment are carried at the principal amount
outstanding less any write-downs which may be necessary to
reduce individual loans to net realizable value. Individually
significant commercial loans are evaluated for impairment when
evidence of impairment exists. Impairment allowances are
recorded through specific additions to the allowance for loan
losses. Loans are considered past due when principal or interest
becomes delinquent by 30 days or more. Consumer loans are
charged off when the loan becomes 120 days past due
(180 days if secured by residential real estate). Other
loans are charged off against the allowance for loan losses
after collection attempts have been exhausted, which generally
is within 120 days. Recoveries of loans charged off are
credited to the allowance for loan losses in the period received.
Allowance
for Loan Losses
The allowance for loan losses is maintained at levels management
deems adequate to absorb probable losses inherent in the
portfolio, and is based on managements evaluation of the
risks in the loan portfolio and changes in the nature and volume
of loan activity. The Company consistently applies a review
process to periodically evaluate
45
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
loans and commitments for changes in credit risk. This process
serves as the primary means by which the Company evaluates the
adequacy of the allowance for loan losses.
The Company determines the allowance for loan losses by making
specific allocations to impaired loans that exhibit inherent
weaknesses and various credit risk factors. General allocations
to commercial, residential real estate, and consumer loan pools
are developed giving weight to risk ratings, historical loss
trends and managements judgment concerning those trends
and other relevant factors. These factors may include, among
others, actual versus estimated losses, regional and national
economic conditions, business segment and portfolio
concentrations, industry competition and consolidation, and the
impact of government regulations. The foregoing analysis is
performed by management to evaluate the portfolio and calculate
an estimated valuation allowance through a quantitative and
qualitative analysis that applies risk factors to those
identified risk areas.
This risk management evaluation is applied at both the portfolio
level and the individual loan level for commercial loans and
credit relationships while the level of consumer and residential
mortgage loan allowance is determined primarily on a total
portfolio level based on a review of historical loss percentages
and other qualitative factors including concentrations, industry
specific factors and economic conditions. The commercial
portfolio requires more specific analysis of individually
significant loans and the borrowers underlying cash flow,
business conditions, capacity for debt repayment and the
valuation of secondary sources of payment, such as collateral.
This analysis may result in specifically identified weaknesses
and corresponding specific impairment allowances. While
allocations are made to specific loans and classifications
within the various categories of loans, the allowance for loan
losses is available for all loan losses.
The use of various estimates and judgments in the Companys
ongoing evaluation of the required level of allowance can
significantly impact the Companys results of operations
and financial condition and may result in either greater
provisions against earnings to increase the allowance or reduced
provisions based upon managements current view of
portfolio and economic conditions and the application of revised
estimates and assumptions. Differences between actual loan loss
experience and estimates are reflected through adjustments
either increasing or decreasing the loan loss provision based
upon current measurement criteria.
Long-term
Investments
Certain long-term equity investments representing less than 20%
ownership are accounted for under the cost method, are carried
at cost, and are included in other assets. These investments in
operating companies represent required long-term investments in
insurance, investment and service company affiliates or
consortiums which serve as vehicles for the delivery of various
support services. In accordance with the cost method, dividends
received are recorded as current period revenues and there is no
recognition of the Companys proportionate share of net
operating income or loss. The Company has determined that fair
value measurement is not practical, and further, nothing has
come to the attention of the Company that would indicate
impairment of any of these investments.
Premises
and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation and amortization are computed on the
straight-line method over estimated useful lives. Useful lives
range from 5 to 10 years for furniture, fixtures, and
equipment; three to five years for software, hardware, and data
handling equipment; and 10 to 40 years for buildings and
building improvements. Land improvements are amortized over a
period of 20 years, and leasehold improvements are
amortized over the lesser of the useful life or the term of the
lease plus the first optional renewal period, when renewal is
reasonably assured. Maintenance and repairs are charged to
current operations while improvements that extend the economic
useful life of the underlying asset are capitalized. Disposition
gains and losses are reflected in current operations.
46
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company leases various properties within its branch network.
Leases generally have initial terms of up to 20 years and
most contain options to renew with reasonable increases in rent.
All leases are accounted for as operating leases.
Other
Real Estate Owned
Other real estate owned and acquired through foreclosure is
stated at the lower of cost or fair value less estimated costs
to sell. Loan losses arising from the acquisition of such
properties are charged against the allowance for loan losses.
Expenses incurred in connection with operating the properties,
subsequent write-downs and gains or losses upon sale are
included in other noninterest expense.
Goodwill
and Other Intangible Assets
The excess of the cost of an acquired company over the fair
value of the net assets and identified intangibles acquired is
recorded as goodwill. The net carrying amount of goodwill was
$66.31 million and $60.14 million at December 31,
2007 and 2006, respectively. A portion of the purchase price in
certain transactions has been allocated to values associated
with the future earnings potential of acquired deposits and is
being amortized over the estimated lives of the deposits,
ranging from seven to ten years while the weighted average
remaining life of these core deposits is approximately
4.0 years. As of December 31, 2007 and 2006, the
balance of core deposit intangibles was $4.59 million and
$4.42 million, respectively, while the corresponding
accumulated amortization was $3.41 million and
$2.89 million, respectively. The net unamortized balance of
identified intangibles associated with acquired deposits was
$1.18 million and $1.53 million at December 31,
2007 and 2006, respectively. The acquisition of Greenpoint added
$5.69 million of goodwill and $2.15 million in other
identified intangible assets. The acquisition of Investment
Planning Consultants, Inc. has added a total of
$1.44 million of goodwill and $534 thousand in other
intangible assets. Annual amortization expense of all
intangibles for 2008 and the following four years is
approximately $615 thousand, $577 thousand, $484 thousand, $479
thousand, and $290 thousand, respectively.
The Company reviews and tests goodwill for potential impairment
on an annual basis. Goodwill is tested for impairment by
comparing the fair value of the unit with its book value,
including goodwill. If the fair value of the Company is greater
than its book value, no goodwill impairment exists. However, if
the book value of the Company 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.
47
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The progression of the Companys goodwill and intangible
assets for continuing operations for the three years ended
December 31, 2007, is detailed in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
Goodwill
|
|
|
Intangibles
|
|
|
|
(Amounts in thousands)
|
|
|
Balance at December 31, 2004
|
|
$
|
58,828
|
|
|
$
|
2,482
|
|
Dispositions
|
|
|
|
|
|
|
(109
|
)
|
Tax Benefits, Exercise of Stock Options and Other Adjustments
|
|
|
354
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
(436
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
59,182
|
|
|
|
1,937
|
|
Acquisitions and dispositions, net
|
|
|
953
|
|
|
|
472
|
|
Tax Benefits, Exercise of Stock Options and Other Adjustments
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
(348
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
60,135
|
|
|
|
2,061
|
|
Acquisitions
|
|
|
6,175
|
|
|
|
2,152
|
|
Tax Benefits, Exercise of Stock Options and Other Adjustments
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
66,310
|
|
|
$
|
3,746
|
|
|
|
|
|
|
|
|
|
|
Securities
Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are generally
accounted for as collateralized financing transactions.
Securities, generally U.S. government and Federal agency
securities, pledged as collateral under these arrangements
cannot be sold or repledged by the secured party. The fair value
of the collateral provided to a third party is continually
monitored, and additional collateral is provided as appropriate.
Loan
Interest Income Recognition
Accrual of interest on loans is based generally on the daily
amount of principal outstanding. Loans are considered past due
when either principal or interest payments are delinquent by 30
or more days. It is the Companys policy to discontinue the
accrual of interest on loans based on the payment status and
evaluation of the related collateral and the financial strength
of the borrower. The accrual of interest income is normally
discontinued when a loan becomes 90 days past due as to
principal or interest. Management may elect to continue the
accrual of interest when the loan is well secured and in process
of collection. When interest accruals are discontinued, interest
accrued and not collected in the current year is reversed from
income and interest accrued and not collected from prior years
is charged to the allowance for loan losses. Interest income
realized on impaired loans is recognized upon receipt if the
impaired loan is on a non-accrual basis. Accrual of interest on
non-accrual loans may be resumed if the loan is brought current
and follows a period of substantial performance, including six
months of regular principal and interest payments. Accrual of
interest on impaired loans is generally continued unless the
loan becomes delinquent 90 days or more. Cash receipts are
credited first to interest unless the loan has been converted to
non-accrual, in which case the receipts are applied to principal.
Loan
Fee Income
Loan origination and underwriting fees are reduced by direct and
indirect costs associated with loan processing, including
salaries, review of legal documents and obtainment of
appraisals. Net origination fees and costs are deferred and
amortized over the life of the related loan. Loan commitment
fees are deferred and
48
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amortized over the related commitment period. Net deferred loan
costs were $574 thousand and $57 thousand at December 31,
2007 and 2006, respectively.
Advertising
Expenses
Advertising costs are generally expensed as incurred. Amounts
recognized for the three years ended December 31, 2007, are
detailed in Note 15 Other Operating Expenses.
Equity-Based
Compensation
The Company has stock option plans for certain executives and
directors. The Financial Accounting Standards Board
(FASB) issued SFAS 123R, Share-Based
Payment, which is an amendment of SFAS 123. For
public companies, the cost of employee services received in
exchange for equity instruments including options and restricted
stock awards generally will be measured at fair value at the
grant date. The Company adopted the standards fair-value
method of accounting for share-based payments to employees on
January 1, 2006, using the modified prospective
method. Under the modified prospective method the Company
recognized compensation cost beginning January 1, 2006, for
all share-based payments granted after December 31, 2005,
and for all unvested awards granted prior to January 1,
2006.
The effect of option shares on earnings per share relates to the
dilutive effect of the underlying options outstanding. To the
extent the granted exercise share price is less than the current
market price, or in the money, there is an economic
incentive for the options to be exercised and an increase in the
dilutive effect on earnings per share.
Income
Taxes
Income tax expense is comprised of federal and state current and
deferred income taxes on pre-tax earnings of the Company. Income
taxes as a percentage of pre-tax income may vary significantly
from statutory rates due to items of income and expense which
are excluded, by law, from the calculation of taxable income.
These items are commonly referred to as permanent differences.
The most significant permanent differences for the Company
include income on state and municipal securities which are
exempt from federal income tax, income on bank-owned life
insurance, certain dividend payments which are deductible by the
Company, and tax credits generated by investments in low income
housing and rehabilitation of historic structures.
The Company adopted FIN 48 on January 1, 2007, which
had no significant impact. The Company includes interest and
penalties related to income tax liabilities in income tax
expense. The Company and its subsidiaries tax filings for
the years ended December 31, 2003 through 2006 are
currently open to audit under statutes of limitation by the
Internal Revenue Service and various state tax departments.
During 2005 and 2006, the Company invested in limited
partnerships formed to perform the rehabilitation of properties
certified as historic structures by the National Park Service.
The Companys investment in these partnerships generates
federal and state historic tax credits. The associated credits
are realized and the balance of the investment is written off at
the time the buildings are placed in service. As of
December 31, 2007, all buildings associated with the
partnership investments were in service.
Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences
between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes. Deferred tax
assets and liabilities are measured using enacted tax rates in
effect for the year in which the temporary differences are
expected to be recovered or settled. Deferred tax assets are
reduced by a valuation allowance if it is more likely than not
that the tax benefits will not be realized.
49
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Earnings
Per Share
Basic earnings per share is determined by dividing net income by
the weighted average number of shares outstanding. Diluted
earnings per share is determined by dividing net income by the
weighted average shares outstanding increased by the dilutive
effect of stock options. Basic and diluted net income per common
share calculations follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands, except share
|
|
|
|
and per share data)
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
29,632
|
|
|
$
|
28,948
|
|
|
$
|
26,445
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
29,632
|
|
|
$
|
28,948
|
|
|
$
|
26,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
11,204,676
|
|
|
|
11,204,875
|
|
|
|
11,269,258
|
|
Dilutive shares for stock options
|
|
|
65,320
|
|
|
|
74,605
|
|
|
|
72,546
|
|
Contingently issuable shares
|
|
|
22,875
|
|
|
|
|
|
|
|
|
|
Weighted average dilutive shares outstanding
|
|
|
11,292,871
|
|
|
|
11,279,480
|
|
|
|
11,341,804
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share continuing operations
|
|
$
|
2.64
|
|
|
$
|
2.58
|
|
|
$
|
2.35
|
|
Loss per share discontined operations
|
|
|
|
|
|
|
|
|
|
|
(0.02
|
)
|
Earnings per share
|
|
|
2.64
|
|
|
|
2.58
|
|
|
|
2.33
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share continuing operations
|
|
$
|
2.62
|
|
|
$
|
2.57
|
|
|
$
|
2.33
|
|
Diluted loss per share discontined operations
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
Diluted earnings per share
|
|
|
2.62
|
|
|
|
2.57
|
|
|
|
2.32
|
|
Variable
Interest Entities
The Company maintains ownership positions in various entities
which it deems variable interest entities
(VIEs) as defined in FIN 46R. These
VIEs include certain tax credit limited partnerships and
other limited liability companies which provide aviation
services, insurance brokerage, investment brokerage, title
insurance and other financial and related services. Based on the
Companys analysis, it is a non-primary beneficiary;
accordingly, these entities do not meet the criteria for
consolidation under FIN 46R. The carrying value of
VIEs was $1.89 million and $3.20 million at
December 31, 2007 and 2006, respectively. The
Companys maximum possible loss exposure was
$1.93 million and $3.24 million at December 31,
2007 and 2006, respectively. Management does not believe losses
resulting from its involvement with the entities discussed above
will be material.
Derivative
Instruments
The Company enters into derivative transactions principally to
protect against the risk of adverse price or interest rate
movements on the value of certain assets and liabilities and on
future cash flows. In addition, certain contracts and
commitments are defined as derivatives under generally accepted
accounting principles.
Under the requirements of SFAS 133, Accounting for
Derivative Instruments and Hedging Activities, as amended,
all derivative instruments are carried at fair value on the
balance sheet. SFAS 133 provides special hedge accounting
provisions, which permit the change in the fair value of the
hedged item related to the risk being hedged to be recognized in
earnings in the same period and in the same income statement
line as the change in the fair value of the derivative.
Derivative instruments designated in a hedge relationship to
mitigate exposure to changes in the fair value of an asset,
liability, or firm commitment attributable to a particular risk,
such as interest rate risk, are considered fair value hedges
under SFAS 133. Derivative instruments designated in a
hedge relationship to mitigate exposure to variability in
expected future cash flows, or other types of forecasted
transactions, are considered cash flow hedges.
50
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk management
objective and strategy for undertaking each hedge transaction.
Reclassifications
The Company has made certain reclassifications of amounts
necessary to conform with the current year presentation. These
reclassifications had no effect on the Companys financial
position, stockholders equity, or results of operations.
Other
Recent Accounting Developments
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations. SFAS 141(R) will
significantly change how entities apply the acquisition method
to business combinations. The most significant changes affecting
how the Company will account for business combinations under
this Statement include: the acquisition date will be the date
the acquirer obtains control; all (and only) identifiable assets
acquired, liabilities assumed, and noncontrolling interests in
the acquiree will be stated at fair value on the acquisition
date; assets or liabilities arising from noncontractual
contingencies will be measured at their acquisition date fair
value only if it is more likely than not that they meet the
definition of an asset or liability on the acquisition date;
adjustments subsequently made to the provisional amounts
recorded on the acquisition date will be made retroactively
during a measurement period not to exceed one year;
acquisition-related restructuring costs that do not meet the
criteria in SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, will be
expensed as incurred; transaction costs will be expensed as
incurred; reversals of deferred income tax valuation allowances
and income tax contingencies will be recognized in earnings
subsequent to the measurement period; and the allowance for loan
losses of an acquiree will not be permitted to be recognized by
the acquirer. Additionally, SFAS 141(R) will require new
and modified disclosures surrounding subsequent changes to
acquisition-related contingencies, contingent consideration,
noncontrolling interests, acquisition-related transaction costs,
fair values and cash flows not expected to be collected for
acquired loans, and an enhanced goodwill rollforward.
The Company will be required to prospectively apply
SFAS 141(R) to all business combinations completed on or
after January 1, 2009. Early adoption is not permitted. For
business combinations in which the acquisition date was before
the effective date, the provisions of SFAS 141(R) will
apply to the subsequent accounting for deferred income tax
valuation allowances and income tax contingencies and will
require any changes in those amounts to be recorded in earnings.
Management is currently evaluating the effects that
SFAS 141(R) will have on the financial condition, results
of operations, liquidity, and the disclosures that will be
presented in the consolidated financial statements.
In November 2007, the Securities and Exchange Commission
(SEC) issued Staff Accounting
Bulletin No. 109 (SAB 109), which
addresses the valuation of written loan commitments accounted
for at fair value through earnings. The guidance in SAB 109
expresses the staffs view that the measurement of fair
value for a written loan commitment accounted for at fair value
through earnings should incorporate the expected net future cash
flows related to the associated servicing of the loan.
Previously under SAB 105, Application of Accounting
Principles to Loan Commitments, this component of value
was not incorporated into the fair value of the loan commitment.
The Company adopted the provisions of SAB 109 for written
loan commitments entered into or modified after
December 31, 2007, related to residential and commercial
real estate loans held for sale that are accounted for as
derivatives under SFAS 133. The Company does not account
for any other written loan commitments at fair value through
earnings. The impact of SAB 109 will be to accelerate the
recognition of the estimated fair value of the servicing
inherent in the loan to the commitment date. The Company does
not expect the adoption of this standard to have a significant
impact on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R). SFAS 158
requires an employer to: (a) recognize in its statement of
financial position an asset for a plans overfunded status
or a
51
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
liability for a plans underfunded status; (b) measure
a plans assets and its obligations that determine its
funded status as of the end of the employers fiscal year
(with limited exceptions); and (c) recognize changes in the
funded status of a defined benefit postretirement plan in the
year in which the changes occur. Those changes will be reported
in comprehensive income. The requirement to recognize the funded
status of a benefit plan and the disclosure requirements are
effective as of the end of the fiscal year ending after
December 15, 2006. The requirement to measure plan assets
and benefit obligations as of the date of the employers
fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. The Company
does not expect the adoption of this standard to have a
significant impact on its consolidated financial statements.
In September 2006, the FASB issued SFAS 157, Fair
Value Measurements, which defines fair value, establishes
a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements. SFAS 157 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods
within those fiscal years, with early adoption permitted, except
for the impact of FASB Staff Position (FSP)
157-2.
FSP 157-2
deferred adoption of SFAS 157 for nonfinancial assets and
liabilities until years ended after November 15, 2008. The
Company must adopt these new requirements no later than the
first quarter of 2008. The Company has not yet determined the
effect of adopting SFAS 157 on its consolidated financial
statements.
In September 2006, the Emerging Issues Task Force reached a
consensus regarding
EITF 06-4
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements. The scope of
EITF 06-4
is limited to the recognition of a liability and related
compensation costs for endorsement split-dollar life insurance
policies that provide a benefit to an employee that extends to
postretirement periods. Therefore, this EITF would not apply to
a split-dollar life insurance arrangement that provides a
specified benefit to an employee that is limited to the
employees active service period with an employer. EITF is
effective for fiscal years beginning after December 15,
2007, with earlier application permitted. The Company adopted
EITF 06-4
on January 1, 2008, and made a cumulative effect adjustment
to equity of $523 thousand upon adoption.
Note 2. Merger,
Acquisitions and Branching Activity
In September 2007, the Company completed the acquisition of
GreenPoint Insurance Group, Inc. (GreenPoint), an
insurance agency located in High Point, North Carolina,. In
connection with the initial payment of approximately
$1.66 million, the Company issued 49,088 shares of its
common stock. Under the terms of the stock purchase agreement,
former shareholders of GreenPoint are entitled to additional
consideration aggregating up to $1.45 million in the form
of cash or the Companys common stock, valued at the time
of issuance, if certain future operating performance targets are
met. If those operating targets are met, portions of the value
of the consideration ultimately paid will be added to the cost
of the acquisition, which will increase the amount of goodwill
related to the acquisition. The Company also assumed
$5.57 million debt in connection with the acquisition, of
which approximately $5.00 million was paid off at closing.
In December 2006, the Company completed the sale of its
Rowlesburg, West Virginia, branch location. At the time of the
sale, the branch had deposits and repurchase agreements totaling
approximately $10.6 million and loans of approximately
$2.2 million. The transaction resulted in a pre-tax gain of
approximately $333 thousand.
In November 2006, the Company completed the acquisition of
Investment Planning Consultants, Inc. (IPC), a
registered investment advisory firm. In connection with the
initial payment of approximately $1.47 million, the Company
issued 39,874 shares of common stock. Under the terms of
the stock purchase agreement, former shareholders of IPC are
entitled to additional consideration of up to $1.43 million
in the form of the Companys common stock if certain future
operating performance targets are met. If those operating
targets are met, portions of the value of the consideration
ultimately paid will be added to the cost of the acquisition,
which will increase the amount of goodwill arising in the
acquisition.
52
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In June 2006, the Company completed the sale of its Drakes
Branch, Virginia, branch location. At the time of the sale, the
branch had deposits and repurchase agreements totaling
approximately $16.4 million and loans of approximately
$1.9 million. The transaction resulted in a pre-tax gain of
approximately $702 thousand.
In December 2005, the Company completed the sale of its Clifton
Forge, Virginia, branch location. At the time of the sale, the
branch had deposits and repurchase agreements of approximately
$45.3 million and loans of approximately $7.1 million.
The transaction resulted in an approximate $4.4 million
pre-tax gain on sale.
The following table summarizes the net cash provided by or used
in acquisitions and divestitures during the three years ended
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Fair value of assets acquired
|
|
$
|
382
|
|
|
$
|
232
|
|
|
$
|
|
|
Fair value of liabilities assumed
|
|
|
(1,167
|
)
|
|
|
(17
|
)
|
|
|
|
|
Purchase price in excess of net assets acquired
|
|
|
7,838
|
|
|
|
1,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
|
7,053
|
|
|
|
1,703
|
|
|
|
|
|
Less non-cash purchase price
|
|
|
1,658
|
|
|
|
1,465
|
|
|
|
|
|
Less cash acquired
|
|
|
32
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for acquisition
|
|
$
|
5,363
|
|
|
$
|
220
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value of assets sold
|
|
$
|
|
|
|
$
|
(4,678
|
)
|
|
$
|
(7,803
|
)
|
Book value of liabilities sold
|
|
|
|
|
|
|
27,164
|
|
|
|
45,363
|
|
Sales price in excess of net liabilities assumed
|
|
|
|
|
|
|
(1,035
|
)
|
|
|
(4,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales price
|
|
|
|
|
|
|
21,451
|
|
|
|
32,990
|
|
Add cash on hand sold
|
|
|
|
|
|
|
395
|
|
|
|
166
|
|
Less amount due remaining on books
|
|
|
|
|
|
|
20
|
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for divestiture
|
|
$
|
|
|
|
$
|
21,826
|
|
|
$
|
32,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 3.
|
Investment
Securities
|
The amortized cost and estimated fair value of securities, with
gross unrealized gains and losses, classified as
available-for-sale are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Amounts in thousands)
|
|
|
U.S. Government agency securities
|
|
$
|
136,791
|
|
|
$
|
2,446
|
|
|
$
|
|
|
|
$
|
139,237
|
|
States and political subdivisions
|
|
|
186,834
|
|
|
|
2,667
|
|
|
|
(965
|
)
|
|
|
188,536
|
|
Corporate Notes
|
|
|
164,731
|
|
|
|
|
|
|
|
(14,106
|
)
|
|
|
150,625
|
|
Mortgage-backed securities
|
|
|
177,984
|
|
|
|
816
|
|
|
|
(2,073
|
)
|
|
|
176,727
|
|
Equities
|
|
|
8,597
|
|
|
|
814
|
|
|
|
(416
|
)
|
|
|
8,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
674,937
|
|
|
$
|
6,743
|
|
|
$
|
(17,560
|
)
|
|
$
|
664,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Amounts in thousands)
|
|
|
U.S. Government agency securities
|
|
$
|
117,777
|
|
|
$
|
|
|
|
$
|
(1,716
|
)
|
|
$
|
116,061
|
|
States and political subdivisions
|
|
|
152,189
|
|
|
|
2,379
|
|
|
|
(521
|
)
|
|
|
154,047
|
|
Corporate Notes
|
|
|
85,080
|
|
|
|
350
|
|
|
|
(397
|
)
|
|
|
85,033
|
|
Mortgage-backed securities
|
|
|
146,444
|
|
|
|
206
|
|
|
|
(1,896
|
)
|
|
|
144,754
|
|
Equities
|
|
|
6,933
|
|
|
|
1,615
|
|
|
|
(73
|
)
|
|
|
8,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
508,423
|
|
|
$
|
4,550
|
|
|
$
|
(4,603
|
)
|
|
$
|
508,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value of
available-for-sale securities by contractual maturity, at
December 31, 2007, are shown below. Expected maturities may
differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or
prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
States
|
|
|
|
|
|
|
|
|
Tax
|
|
|
|
Government
|
|
|
and
|
|
|
|
|
|
|
|
|
Equivalent
|
|
|
|
Agencies &
|
|
|
Political
|
|
|
Corporate
|
|
|
|
|
|
Purchase
|
|
Available For Sale
|
|
Corporations
|
|
|
Subdivisions
|
|
|
Notes
|
|
|
Total
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
Amortized Cost Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
|
|
|
$
|
1,285
|
|
|
$
|
|
|
|
$
|
1,285
|
|
|
|
7.28
|
%
|
After one year through five years
|
|
|
25,000
|
|
|
|
5,353
|
|
|
|
|
|
|
|
30,353
|
|
|
|
5.19
|
%
|
After five years through ten years
|
|
|
41,370
|
|
|
|
82,166
|
|
|
|
70,909
|
|
|
|
194,445
|
|
|
|
5.73
|
%
|
After ten years
|
|
|
70,421
|
|
|
|
98,030
|
|
|
|
93,822
|
|
|
|
262,273
|
|
|
|
6.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost
|
|
$
|
136,791
|
|
|
$
|
186,834
|
|
|
$
|
164,731
|
|
|
|
488,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,984
|
|
|
|
5.32
|
%
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,597
|
|
|
|
2.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Amortized cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
674,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent purchase yield
|
|
|
5.46
|
%
|
|
|
6.36
|
%
|
|
|
5.83
|
%
|
|
|
5.93
|
%
|
|
|
|
|
Average contractual maturity (in years)
|
|
|
9.35
|
|
|
|
11.21
|
|
|
|
17.34
|
|
|
|
12.75
|
|
|
|
|
|
Fair Value Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
|
|
|
$
|
1,288
|
|
|
$
|
|
|
|
$
|
1,288
|
|
|
|
|
|
After one year through five years
|
|
|
25,009
|
|
|
|
5,412
|
|
|
|
|
|
|
|
30,421
|
|
|
|
|
|
After five years through ten years
|
|
|
42,409
|
|
|
|
82,985
|
|
|
|
64,964
|
|
|
|
190,358
|
|
|
|
|
|
After ten years
|
|
|
71,819
|
|
|
|
98,851
|
|
|
|
85,661
|
|
|
|
256,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
$
|
139,237
|
|
|
$
|
188,536
|
|
|
$
|
150,625
|
|
|
|
478,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,727
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
664,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As a condition to membership in the FHLB system, the Bank is
required to subscribe to a minimum level of stock in the FHLB.
At December 31, 2007 and 2006, the Bank owned approximately
$16.89 million and $12.68 million in FHLB stock,
respectively, which is classified as other assets. Because of
the redemption provisions of the FHLB stock, the Company
estimates that fair value approximates cost resulting in no
impairment at December 31, 2007 or 2006.
The amortized cost and estimated fair value of securities, with
gross unrealized gains and losses, classified as
held-to-maturity are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Amounts in thousands)
|
|
|
States and political subdivisions
|
|
$
|
11,699
|
|
|
$
|
223
|
|
|
$
|
|
|
|
$
|
11,922
|
|
Other securities
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
|
375
|
|
Mortgage-backed securities
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,075
|
|
|
$
|
223
|
|
|
$
|
|
|
|
$
|
12,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Amounts in thousands)
|
|
|
States and political subdivisions
|
|
$
|
19,638
|
|
|
$
|
334
|
|
|
$
|
(2
|
)
|
|
$
|
19,970
|
|
Other securities
|
|
|
375
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
374
|
|
Mortgage-backed securities
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,019
|
|
|
$
|
334
|
|
|
$
|
(3
|
)
|
|
$
|
20,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value of securities by
contractual maturity, at December 31, 2007, are shown
below. Expected maturities may differ from contractual
maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
55
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States
|
|
|
|
|
|
|
|
|
Tax
|
|
|
|
and
|
|
|
|
|
|
|
|
|
Equivalent
|
|
|
|
Political
|
|
|
Other
|
|
|
|
|
|
Purchase
|
|
Held-to-Maturity
|
|
Subdivisions
|
|
|
Securities
|
|
|
Total
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
Amortized Cost Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
|
|
|
$
|
375
|
|
|
$
|
375
|
|
|
|
6.08
|
%
|
After one year through five years
|
|
|
5,847
|
|
|
|
|
|
|
|
5,847
|
|
|
|
7.87
|
%
|
After five years through ten years
|
|
|
5,852
|
|
|
|
|
|
|
|
5,852
|
|
|
|
8.12
|
%
|
After ten years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost
|
|
$
|
11,699
|
|
|
$
|
375
|
|
|
|
12,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
6.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Amortized cost
|
|
|
|
|
|
|
|
|
|
$
|
12,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent purchase yield
|
|
|
8.00
|
%
|
|
|
6.08
|
%
|
|
|
7.94
|
%
|
|
|
|
|
Average contractual maturity (in years)
|
|
|
5.62
|
|
|
|
0.75
|
|
|
|
5.47
|
|
|
|
|
|
Fair Value Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
|
|
|
$
|
375
|
|
|
$
|
375
|
|
|
|
|
|
After one year through five years
|
|
|
5,928
|
|
|
|
|
|
|
|
5,928
|
|
|
|
|
|
After five years through ten years
|
|
|
5,994
|
|
|
|
|
|
|
|
5,994
|
|
|
|
|
|
After ten years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
$
|
11,922
|
|
|
$
|
375
|
|
|
|
12,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
|
|
|
|
|
|
|
|
|
$
|
12,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying value of securities pledged to secure public
deposits and for other purposes required by law were
$426.41 million and $341.76 million at
December 31, 2007 and 2006, respectively.
At December 31, 2007, there was one security of a single
issuer, other than U.S. federal agency debentures and other
U.S. government-sponsored agency securities, which exceeded
10% of stockholders equity. The Company held a AAA-rated,
non-agency mortgage-backed security which had a book value and a
market value at December 31, 2007, of $25.26 million
and $23.58 million, respectively.
In 2007, net gains on the sale of securities were $411 thousand.
Gross gains were $540 thousand while gross losses were $128
thousand. In 2006, net gains on the sale of securities were $75
thousand. Gross gains were $240 thousand while gross losses were
$165 thousand.
The following tables reflect those investments, both
available-for-sale and held-to-maturity, in a continuous
unrealized loss position for less than 12 months and for
12 months or longer for the years ended December 31,
2007
56
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and 2006. There were no securities for either period in a
continuous unrealized loss position for 12 or more months for
which the Company does not have the ability to hold until the
security matures or recovers in value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
Description of Securities
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(Amounts in thousands)
|
|
|
U. S. Government agency securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,999
|
|
|
$
|
|
|
|
$
|
1,999
|
|
|
$
|
|
|
States and political subdivisions
|
|
|
40,461
|
|
|
|
(900
|
)
|
|
|
12,287
|
|
|
|
(65
|
)
|
|
|
52,748
|
|
|
|
(965
|
)
|
Corporate Notes
|
|
|
129,006
|
|
|
|
(12,431
|
)
|
|
|
21,994
|
|
|
|
(1,675
|
)
|
|
|
151,000
|
|
|
|
(14,106
|
)
|
Mortgage-backed securities
|
|
|
7,991
|
|
|
|
(108
|
)
|
|
|
63,393
|
|
|
|
(1,965
|
)
|
|
|
71,384
|
|
|
|
(2,073
|
)
|
Equity securities
|
|
|
2,269
|
|
|
|
(345
|
)
|
|
|
1,759
|
|
|
|
(71
|
)
|
|
|
4,028
|
|
|
|
(416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
179,727
|
|
|
$
|
(13,784
|
)
|
|
$
|
101,432
|
|
|
$
|
(3,776
|
)
|
|
$
|
281,159
|
|
|
$
|
(17,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
Description of Securities
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(Amounts in thousands)
|
|
|
U. S. Government agency securities
|
|
$
|
60,416
|
|
|
$
|
(517
|
)
|
|
$
|
55,645
|
|
|
$
|
(1,199
|
)
|
|
$
|
116,061
|
|
|
$
|
(1,716
|
)
|
States and political subdivisions
|
|
|
10,732
|
|
|
|
(34
|
)
|
|
|
36,797
|
|
|
|
(489
|
)
|
|
|
47,529
|
|
|
|
(523
|
)
|
Corporate Notes
|
|
|
28,339
|
|
|
|
(213
|
)
|
|
|
27,698
|
|
|
|
(185
|
)
|
|
|
56,037
|
|
|
|
(398
|
)
|
Mortgage-backed securities
|
|
|
50,093
|
|
|
|
(223
|
)
|
|
|
66,620
|
|
|
|
(1,673
|
)
|
|
|
116,713
|
|
|
|
(1,896
|
)
|
Equity securities
|
|
|
2,186
|
|
|
|
(70
|
)
|
|
|
32
|
|
|
|
(3
|
)
|
|
|
2,218
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
151,766
|
|
|
$
|
(1,057
|
)
|
|
$
|
186,792
|
|
|
$
|
(3,549
|
)
|
|
$
|
338,558
|
|
|
$
|
(4,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, the combined depreciation in value of
the 159 individual securities in an unrealized loss position was
approximately 2.69% of the combined reported value of the
aggregate securities portfolio. At December 31, 2006, the
combined depreciation in value of the 191 individual securities
in an unrealized loss position was less than 1.00% of the
combined reported value of the aggregate securities portfolio.
Management does not believe any individual unrealized loss as of
December 31, 2007, represents an other-than-temporary
impairment. The Company has the intent and ability to hold these
securities until such time as the value recovers or the
securities mature. Furthermore, the Company believes the change
in value is attributable to changes in market interest rates and
not the credit quality of the issuer. However, the Company
acknowledges that any impaired securities may be sold in future
periods in response to significant, unanticipated changes in
asset/liability management decisions, unanticipated future
market movements or business plan changes.
57
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Loans held for investment, net of unearned income, consist of
the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Real estate-commercial
|
|
$
|
386,112
|
|
|
$
|
421,067
|
|
Real estate-construction
|
|
|
163,310
|
|
|
|
158,566
|
|
Real estate-residential
|
|
|
498,345
|
|
|
|
506,370
|
|
Commercial, financial and agricultural
|
|
|
96,261
|
|
|
|
106,645
|
|
Loans to individuals for household and other consumer
expenditures
|
|
|
75,447
|
|
|
|
88,666
|
|
All other loans
|
|
|
6,027
|
|
|
|
3,549
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
1,225,502
|
|
|
$
|
1,284,863
|
|
|
|
|
|
|
|
|
|
|
In the normal course of business, the Companys subsidiary
bank has made loans to directors and executive officers of the
Company and its subsidiaries. All loans and commitments made to
such officers and directors and to companies in which they are
officers, or have significant ownership interest, have been made
on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other persons. The aggregate dollar amount of
such loans was $5.05 million and $5.01 million at
December 31, 2007 and 2006, respectively. During 2007,
approximately $1.67 million in new loans and increases were
made, repayments totaled $936 thousand, and other decreases due
to the change in composition of the Banks board members
and executive officers approximated $693 thousand.
At December 31, 2007 and 2006, customer overdrafts totaling
$3.23 million and $1.15 million, respectively, were
reclassified as loans.
|
|
Note 5.
|
Allowance
for Loan Losses
|
Activity in the allowance for loan losses was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Balance at January 1
|
|
$
|
14,549
|
|
|
$
|
14,736
|
|
|
$
|
16,339
|
|
Provision for loan losses
|
|
|
717
|
|
|
|
2,706
|
|
|
|
3,706
|
|
Loans charged off
|
|
|
(4,295
|
)
|
|
|
(4,543
|
)
|
|
|
(6,936
|
)
|
Recoveries credited to allowance
|
|
|
1,862
|
|
|
|
1,650
|
|
|
|
2,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(2,433
|
)
|
|
|
(2,893
|
)
|
|
|
(4,917
|
)
|
Reclassification of allowance for lending-related commitments(1)
|
|
|
|
|
|
|
|
|
|
|
(392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
12,833
|
|
|
$
|
14,549
|
|
|
$
|
14,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At June 30, 2005, the Company reclassified $392 thousand of
its allowance for loan losses to a separate allowance for
lending-related liabilities. Net income and prior period
balances were not affected by this reclassification. The
allowance for lending-related liabilities is included in other
liabilities. |
Management analyzes the loan portfolio regularly for
concentrations of credit risk, including concentrations in
specific industries and geographic location. At
December 31, 2007, commercial real estate loans comprised
31.51% of the total loan portfolio. Commercial loans include
loans to small to mid-size industrial, commercial and service
companies that include but are not limited to coal mining
companies, manufacturers, automobile dealers, and retail and
wholesale merchants. Commercial real estate projects represent
several different sectors of the commercial real estate market,
including residential land development, single family and
apartment building operators, commercial
58
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
real estate lessors, and hotel/motel developers. Underwriting
standards require that comprehensive reviews and independent
evaluations be performed on credits exceeding predefined market
limits on commercial loans. Updates to these loan reviews are
done periodically or on an annual basis depending on the size of
the loan relationship.
The majority of the loans in the current portfolio were made and
collateralized in Virginia, West Virginia, North Carolina,
Tennessee and the surrounding region. Although sections of the
West Virginia and Southwestern Virginia economies are closely
related to natural resources, they are supplemented by service
industries. The Companys presence in five states,
Virginia, West Virginia, North Carolina, South Carolina, and
Tennessee, provides additional diversification against
geographic concentrations of credit risk.
The following table presents the Companys investment in
loans considered to be impaired and related information on those
impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Recorded investment in loans considered to be impaired
|
|
$
|
4,325
|
|
|
$
|
5,786
|
|
|
$
|
4,645
|
|
Loans considered to be impaired that were on a non-accrual basis
|
|
|
2,923
|
|
|
|
3,813
|
|
|
|
3,383
|
|
Recorded investment in impaired loans with related allowance
|
|
|
3,129
|
|
|
|
4,070
|
|
|
|
3,555
|
|
Allowance for loan losses related to loans considered to be
impaired
|
|
|
880
|
|
|
|
1,531
|
|
|
|
1,528
|
|
Average recorded investment in impaired loans
|
|
|
4,762
|
|
|
|
6,410
|
|
|
|
5,687
|
|
Total interest income recognized on impaired loans
|
|
|
237
|
|
|
|
390
|
|
|
|
338
|
|
Recorded investment in impaired loans with no related allowance
|
|
|
1,196
|
|
|
|
1,716
|
|
|
|
1,090
|
|
Note 6. Premises
and Equipment
Premises and equipment are comprised of the following as of
December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Land
|
|
$
|
14,841
|
|
|
$
|
13,131
|
|
Bank premises
|
|
|
42,608
|
|
|
|
33,022
|
|
Equipment
|
|
|
28,087
|
|
|
|
24,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,536
|
|
|
|
71,109
|
|
Less: accumulated depreciation and amortization
|
|
|
37,153
|
|
|
|
34,220
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
48,383
|
|
|
$
|
36,889
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense for years ended
December 31, 2007, 2006, and 2005, was $3.28 million,
$3.37 million, and $3.34 million, respectively.
The Company began construction on eight branches over the last
four years. The primary contractor for construction of two of
those branches is a firm which has a preferred shareholder who
is an immediate family member of two directors of the Company.
All branch construction contracts involving the related party
were let pursuant to a competitive bidding process. Total
payments to the related party were $703 thousand and $247
thousand for 2007 and 2005, respectively. There were no payments
to the related party in 2006.
The Company also enters into land and building leases for the
operation of banking and loan production offices, operations
centers and for the operation of automated teller machines. All
such leases qualify as operating
59
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
leases. Following is a schedule by year of future minimum lease
payments required under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year as of
December 31, 2007:
|
|
|
|
|
Year Ended December 31:
|
|
|
|
|
|
(Amounts in
|
|
|
|
thousands)
|
|
|
2008
|
|
$
|
879
|
|
2009
|
|
|
627
|
|
2010
|
|
|
513
|
|
2011
|
|
|
440
|
|
2012
|
|
|
573
|
|
Later years
|
|
|
965
|
|
|
|
|
|
|
Total
|
|
$
|
3,997
|
|
|
|
|
|
|
Total lease expense for the years ended December 31, 2007,
2006, and 2005, was $981 thousand, $1.02 million, and $777
thousand, respectively. Certain portions of the above listed
leases have been sublet to third parties for properties not
currently being used by the Company. The impact of the future
lease payments to be received and the non-cancelable subleases
are as follows:
|
|
|
|
|
|
|
(Amounts in
|
|
Year Ended December 31:
|
|
thousands)
|
|
|
2008
|
|
$
|
19
|
|
2009
|
|
|
19
|
|
2010
|
|
|
19
|
|
2011
|
|
|
20
|
|
2012
|
|
|
21
|
|
Later years
|
|
|
294
|
|
|
|
|
|
|
Total
|
|
$
|
392
|
|
|
|
|
|
|
The following is a summary of interest-bearing deposits by type
as of December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Interest-bearing demand deposits
|
|
$
|
153,570
|
|
|
$
|
140,578
|
|
Money market accounts
|
|
|
167,296
|
|
|
|
146,052
|
|
Savings deposits
|
|
|
160,395
|
|
|
|
171,626
|
|
Certificates of deposit
|
|
|
608,470
|
|
|
|
614,126
|
|
Individual Retirement Accounts
|
|
|
79,625
|
|
|
|
77,618
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,169,356
|
|
|
$
|
1,150,000
|
|
|
|
|
|
|
|
|
|
|
60
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2007, the scheduled maturities of
certificates of deposit are as follows:
|
|
|
|
|
|
|
(Amounts in
|
|
|
|
thousands)
|
|
|
2008
|
|
$
|
529,699
|
|
2009
|
|
|
61,697
|
|
2010
|
|
|
45,978
|
|
2011
|
|
|
21,582
|
|
2012 and thereafter
|
|
|
29,139
|
|
|
|
|
|
|
|
|
$
|
688,095
|
|
|
|
|
|
|
Time deposits of $100 thousand or more were $246.63 million
and $262.32 million at December 31, 2007 and 2006,
respectively.
At December 31, 2007, the scheduled maturities of
certificates of deposit of $100 thousand or more are as follows:
|
|
|
|
|
|
|
(Amounts in
|
|
|
|
thousands)
|
|
|
Three months or less
|
|
$
|
75,423
|
|
Over three to six months
|
|
|
76,014
|
|
Over six to twelve months
|
|
|
42,917
|
|
Over twelve months
|
|
|
52,273
|
|
|
|
|
|
|
Total
|
|
$
|
246,627
|
|
|
|
|
|
|
Included in total deposits are deposits by related parties in
the total amount of $30.70 million and $27.79 million
at December 31, 2007 and 2006, respectively.
The following table details borrowings as of December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Federal funds purchased
|
|
$
|
18,500
|
|
|
$
|
7,700
|
|
Securities sold under agreements to repurchase
|
|
|
207,427
|
|
|
|
201,185
|
|
FHLB borrowings
|
|
|
275,888
|
|
|
|
182,207
|
|
Subordinated debt
|
|
|
15,464
|
|
|
|
15,464
|
|
Other debt
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
517,843
|
|
|
$
|
406,556
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase include
$157.43 million and $151.19 million of retail
overnight and term repurchase agreements and $50.00 million
of wholesale repurchase agreements at December 31, 2007 and
2006, respectively.
The Bank is a member of the FHLB which provides credit in the
form of short-term and long-term advances collateralized by
various mortgage assets. At December 31, 2007, credit
availability with the FHLB totaled approximately
$275.89 million. Advances from the FHLB are secured by
stock in the FHLB of Atlanta, qualifying first mortgage loans of
$397.55 million, mortgage-backed securities, and certain
other investment securities. The FHLB advances are subject to
restrictions or penalties in the event of prepayment.
61
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
FHLB borrowings include $275.00 million and
$175.00 million in convertible and callable advances at
December 31, 2007 and 2006, respectively. The callable
advances may be called, or redeemed at quarterly intervals 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. At
December 31, 2007 and 2006, the Company also held
non-callable term advances of $888 thousand and
$7.21 million, respectively. The weighted-average
contractual rate of the FHLB advances was 4.38% at
December 31, 2007.
At December 31, 2007, the FHLB advances have approximate
contractual final maturities between two and thirteen years. The
scheduled maturities of the advances are as follows:
|
|
|
|
|
|
|
(Amounts in
|
|
|
|
thousands)
|
|
|
2008
|
|
$
|
|
|
2009
|
|
|
|
|
2010
|
|
|
25,000
|
|
2011
|
|
|
|
|
2012
|
|
|
50,000
|
|
2013 and thereafter
|
|
|
200,888
|
|
|
|
|
|
|
|
|
$
|
275,888
|
|
|
|
|
|
|
In January 2006, the Company entered into a derivative swap
instrument where it receives LIBOR-based variable interest
payments and pays fixed interest payments. The notional amount
of the derivative swap is $50 million and effectively fixes
a portion of the FHLB borrowings at approximately 4.34%. After
considering the effect of the interest rate swap, the effective
weighted average interest rate of the FHLB borrowings was 4.30%
and 4.47% at December 31, 2007 and 2006, respectively. The
fair value of the interest rate swap was a liability of
$1.32 million and an asset of $441 thousand at
December 31, 2007 and 2006, respectively.
Also included in borrowings is $15.46 million of junior
subordinated debentures (the Debentures) issued by
the Company in October 2003 to an unconsolidated trust
subsidiary, FCBI Capital Trust (the Trust), with an
interest rate of three-month LIBOR plus 2.95%. The Trust was
able to purchase the Debentures through the issuance of trust
preferred securities which had substantially identical terms as
the Debentures. The Debentures mature on October 8, 2033,
and are callable beginning October 8, 2008. The net
proceeds from the offering were contributed as capital to the
Companys subsidiary bank to support further growth.
The Company has committed to irrevocably and unconditionally
guarantee the following payments or distributions with respect
to the trust preferred securities to the holders thereof to the
extent that the Trust has not made such payments or
distributions: (i) accrued and unpaid distributions,
(ii) the redemption price, and (iii) upon a
dissolution or termination of the Trust, the lesser of the
liquidation amount and all accrued and unpaid distributions and
the amount of assets of the Trust remaining available for
distribution, in each case to the extent the Trust has funds
available.
62
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 9.
|
Income
Taxes, Continuing Operations
|
The components of income tax expense from continuing operations
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Current tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
11,776
|
|
|
$
|
9,883
|
|
|
$
|
7,673
|
|
State
|
|
|
342
|
|
|
|
1,129
|
|
|
|
654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,118
|
|
|
|
11,012
|
|
|
|
8,327
|
|
Deferred tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
194
|
|
|
|
418
|
|
|
|
1,673
|
|
State
|
|
|
22
|
|
|
|
47
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
465
|
|
|
|
1,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
12,334
|
|
|
$
|
11,477
|
|
|
$
|
10,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes related to continuing operations reflect
the net effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting versus
tax purposes. The tax effects of significant items comprising
the Companys net deferred tax assets as of
December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
5,311
|
|
|
$
|
5,940
|
|
Unrealized losses on AFS securities
|
|
|
4,327
|
|
|
|
21
|
|
Unrealized losses on assets
|
|
|
500
|
|
|
|
465
|
|
Unrealized loss on derivative security
|
|
|
528
|
|
|
|
|
|
Deferred compensation
|
|
|
2,741
|
|
|
|
2,554
|
|
Other
|
|
|
688
|
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
14,095
|
|
|
$
|
9,830
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
3,263
|
|
|
$
|
3,214
|
|
Odd days interest deferral
|
|
|
2,023
|
|
|
|
2,548
|
|
Fixed assets
|
|
|
1,196
|
|
|
|
1,336
|
|
Accrued discounts
|
|
|
845
|
|
|
|
755
|
|
Other
|
|
|
913
|
|
|
|
1,088
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
8,240
|
|
|
|
8,941
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
5,855
|
|
|
$
|
889
|
|
|
|
|
|
|
|
|
|
|
Income taxes as a percentage of pre-tax income may vary
significantly from statutory rates due to items of income and
expense which are excluded, by law, from the calculation of
taxable income, as well as the utilization of available tax
credits. State and municipal bond income represent the most
significant permanent tax difference. These permanent
differences resulted in a consolidated effective tax rate of
29.39% in 2007, compared with 28.39% in 2006, and 27.74% in 2005.
63
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reconciliation of the statutory federal tax rate and the
effective tax rates from continuing operations for the years
ended December 31, 2007, 2006, and 2005 is as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Tax at statutory rate
|
|
|
35.00
|
%
|
|
|
35.00
|
%
|
|
|
35.00
|
%
|
(Reduction) increase resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt interest, net of nondeductible expense
|
|
|
(5.95
|
)
|
|
|
(5.79
|
)
|
|
|
(6.70
|
)
|
State income taxes, net of federal benefit
|
|
|
2.12
|
|
|
|
1.89
|
|
|
|
2.19
|
|
Other, net
|
|
|
(1.78
|
)
|
|
|
(2.71
|
)
|
|
|
(2.67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
29.39
|
%
|
|
|
28.39
|
%
|
|
|
27.82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10.
|
Employee
Benefits
|
Employee
Stock Ownership and Savings Plan
The Company maintains an Employee Stock Ownership and Savings
Plan (KSOP). Coverage under the plan is provided to
all employees meeting minimum eligibility requirements.
Employer Stock Fund: Annual contributions to
the stock portion of the plan were made through 2006 at the
discretion of the Board of Directors, and allocated to plan
participants on the basis of relative compensation. The plan was
frozen to future contributions for periods after 2006.
Substantially all plan assets are invested in common stock of
the Company. The Company reports the contributions to the plan
as a component of salaries and benefits. The Company made a
modification to the KSOP in 2007 that transferred all future
contributions to the 401(k) feature of the plan. Accordingly,
there were no contributions to the Employer Stock Fund in 2007.
Total expense recognized by the Company related to the Employer
Stock Fund within the KSOP was $254 thousand and $891 thousand
in 2006 and 2005, respectively. The 2006 contribution rate was
3.0% of eligible employee compensation, but the total expense
was offset by the availability of forfeited shares. The Employer
Stock Fund held 423,941 and 495,725 shares of the
Companys stock at December 31, 2007 and 2006,
respectively.
Employee Savings Plan: The Company provides a
401(k) savings feature within the KSOP that is available to
substantially all employees meeting minimum eligibility
requirements. The cost of Company contributions under the 401(k)
savings component of the KSOP was $942 thousand, $902 thousand,
and $967 thousand in 2007, 2006 and 2005, respectively. The
Companys matching contributions are at the discretion of
the Board up to 100% of elective deferrals of compensation of no
more than 8% in 2007 and 6% in 2006 and 2005, as designated by
the Board. The Company matching rate was 100% for 2007, 2006,
and 2005. The employee participants have various investment
alternatives available in the 401(k) savings feature, but
Company securities are not permitted as an investment
alternative.
Employee
Welfare Plan
The Company provides various medical, dental, vision, life,
accidental death and dismemberment and long-term disability
insurance benefits to all full-time employees who elect coverage
under this program (basic life, accidental death and
dismemberment, and long-term disability coverage are automatic).
The health plan is managed by a third party administrator.
Monthly employer and employee contributions are made to a
tax-exempt employer benefits trust against which the third party
administrator processes and pays claims. Stop loss insurance
coverage limits the Companys risk of loss to $85 thousand
and $3.28 million for individual and aggregate claims,
respectively. Total Company expenses under the plan were
$1.66 million, $1.62 million, and $2.66 million
in 2007, 2006 and 2005, respectively.
64
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred
Compensation Plan
The Company has deferred compensation agreements with certain
current and former officers providing for benefit payments over
various periods commencing at retirement or death. The liability
at December 31, 2007 and 2006, was approximately $494
thousand and $504 thousand, respectively. The annual expenses
associated with these agreements were $60 thousand, $64 thousand
and $41 thousand for 2007, 2006 and 2005, respectively. The
obligation is based upon the present value of the expected
payments and estimated life expectancies of the individuals.
The Company maintains a life insurance contract on the life of
one of the participants covered under these agreements. Proceeds
derived from death benefits are intended to provide
reimbursement of plan benefits paid over the post employment
lives of the participants. Premiums on the insurance contract
are currently paid through policy dividends on the cash
surrender values of $1.03 million and $946 thousand at
December 31, 2007 and 2006, respectively.
Executive
Retention Plan
The Company maintains an Executive Retention Plan for key
members of senior management. The Executive Retention Plan
provides for a benefit at normal retirement
(age 62) targeted at 35% of final compensation
projected at an assumed 3% salary progression rate. Benefits
under the Executive Retention Plan become payable at
age 62. Actual benefits payable under the Executive
Retention Plan are dependent on an indexed retirement benefit
formula which accrues benefits equal to the aggregate after-tax
income of associated life insurance contracts less the
Companys tax-effected cost of funds for that plan year.
Benefits under the Executive Retention Plan are dependent on the
performance of the insurance contracts and are not guaranteed by
the Company.
In connection with the contracts, the Company purchased
bank-owned life insurance (BOLI), which is
anticipated to fully fund the projected benefit payout after
retirement. The cash surrender value of the BOLI for the
Executive Retention Plan at December 31, 2007 and 2006, was
$3.77 million and $3.65 million, respectively. The
associated benefit accrued as of year-end 2007 and 2006 was
$1.58 million and $1.33 million, respectively, while
the associated expense incurred in connection with the Executive
Retention Plan was $110 thousand, $131 thousand, and $247
thousand for 2007, 2006, and 2005, respectively. The income
derived from policy appreciation was $147 thousand, $134
thousand, and $117 thousand in 2007, 2006, and 2005,
respectively.
In connection with the Executive Retention Plan, the Company has
also entered into Life Insurance Endorsement Method Split Dollar
Agreements with the individuals covered under the Executive
Retention Plan. Under Split Dollar Agreements, the Company
shares 80% of death benefits (after recovery of cash surrender
value) with the designated beneficiaries of the plan
participants under life insurance contracts referenced in the
Plan. The Company as owner of the policies retains a 20%
interest in life proceeds and a 100% interest in the cash
surrender value of the policies.
The Executive Retention Plan also contains provisions for change
of control, as defined, which allow the participants to retain
benefits and accelerate vesting, subject to certain conditions,
in the event of a change in control. Benefits under the
Executive Retention Plan, which begin to accrue with respect to
years of service, vest 25% after five years, 50% after ten
years, 75% after 15 years and 5% per year thereafter, with
vesting accelerated to 100% upon attainment of age 62.
Directors
Supplemental Retirement Plan
The Company maintains a Directors Supplemental Retirement Plan
(the Directors Plan) for its non-employee directors.
The Directors Plan provides for a benefit upon retirement from
service on the Board at specified ages depending upon length of
service or death. Benefits under the Directors Plan become
payable at age 70, 75, and 78 depending upon the individual
directors age and original date of election to the Board.
Actual benefits payable under the Directors Plan are dependent
on an indexed retirement benefit formula that accrues benefits
equal to the
65
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
aggregate after-tax income of associated life insurance
contracts less the Companys tax-effected cost of funds for
that plan year. Benefits under the Directors Plan are dependent
on the performance of the insurance contracts and are not
guaranteed by the Company. Participants in the Directors Plan
vest in the indexed benefit balance as it accrues.
In connection with the Directors Plan, the Company purchased
BOLI, which is anticipated to fully fund the projected benefit
payout after retirement. The cash surrender value of the BOLI
for the Directors Plan at December 31, 2007 and 2006, was
$3.57 million and $3.44 million, respectively. The
associated benefit accrued as of year-end 2007 and 2006 was
$1.41 million and $1.44 million, respectively, while
the associated expense incurred in connection with the Directors
Plan was $195 thousand, $366 thousand and $322 thousand for
2007, 2006 and 2005, respectively. The income derived from
policy appreciation was $134 thousand, $121 thousand, and $113
thousand in 2007, 2006 and 2005, respectively.
In connection with the Directors Plan, the Company has also
entered into Life Insurance Endorsement Method Split Dollar
Agreements (the Agreements) with certain directors
covered under the Directors Plan. Under the Agreements, the
Company shares 80% of death benefits, after recovery of cash
surrender value, with the designated beneficiaries of the
executives under life insurance contracts referenced in the
Retention Plan. The Company, as owner of the policies, retains a
20% interest in life proceeds and a 100% interest in the cash
surrender value of the policies.
The Directors Plan also contains provisions for change of
control, as defined, which allow the directors to retain
benefits under the Directors Plan in the event of a termination
of service, other than for cause, during the 12 months
prior to a change in control or anytime thereafter, unless the
director voluntarily terminates his service within 90 days
following the change in control.
|
|
Note 11.
|
Equity-Based
Compensation
|
Stock
Options
The Company maintains share-based compensation plans to promote
the long-term success of the Company by encouraging officers,
employees, directors and individuals performing services for the
Company to focus on critical long-range objectives.
At the 2004 Annual Meeting, the Companys shareholders
ratified approval of the 2004 Omnibus Stock Option Plan
(2004 Plan) which made available up to
200,000 shares for potential grants of incentive stock
options, non-qualified stock options, restricted stock awards or
performance awards.. Non-qualified and incentive stock options,
as well as restricted and unrestricted stock may continue to be
awarded under the 2004 Plan. Vesting under the 2004 Plan is
generally over a three-year period.
In 2003, with the acquisition of CommonWealth, the Company
acquired additional stock options on 120,155 shares
(adjusted by the merger conversion factor of .9015 and the 10%
stock dividend in 2003). These options were issued by
CommonWealth in 12 grants beginning in 1994 and ending in 2002
and, following the merger, reflect adjusted exercise prices
ranging from $4.75 to $17.40. These options were fully vested at
the point of grant and are exercisable for up to ten years
following the original grant date.
In 2001, the Company also instituted a plan to grant stock
options to non-employee directors (the Directors Option
Plan). The options granted pursuant to the Plan expire at
the earlier of ten years from the date of grant or two years
after the optionee ceases to serve as a director of the Company.
Options not exercised within the appropriate time shall expire
and be deemed cancelled. Options under the Directors Option Plan
were granted in the form of non-statutory stock options with the
aggregate number of shares of common stock available for grant
under the Directors Option Plan set at 108,900 shares
(adjusted for the 10% stock dividends paid in 2002 and 2003).
In 1999, the Company instituted the 1999 Stock Option Plan (the
1999 Plan). Options under the 1999 Plan were granted
in the form of non-statutory stock options with the aggregate
number of shares of common stock
66
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
available for grant under the Plan set at 332,750 (adjusted for
10% stock dividends paid in 2002 and 2003). The options granted
under the 1999 Plan represent the rights to acquire the option
shares with deemed grant dates of January 1st for each
year beginning with the initial year granted and the following
four anniversaries. All stock options granted pursuant to the
1999 Plan vest ratably on the first through the seventh
anniversary dates of the deemed grant date. The option price of
each stock option is equal to the fair market value (as defined
by the 1999 Plan) of the Companys common stock on the date
of each deemed grant during the five-year grant period. Vested
stock options granted pursuant to the 1999 Plan are exercisable
during employment and for a period of five years after the date
of the grantees retirement, provided retirement occurs at
or after age 62. If employment is terminated other than by
early retirement, disability, or death, vested options must be
exercised within 90 days after the effective date of
termination. Any option not exercised within such period will be
deemed cancelled.
The Company adopted FASB Statement No. 123R,
Share-Based Payment (SFAS 123R), on
January 1, 2006, using the modified prospective
method. Under this method, awards that are granted, modified, or
settled after December 31, 2005, are measured and accounted
for in accordance with SFAS 123R. Also under this method,
expense is recognized for unvested awards that were granted
prior to January 1, 2006, based upon the fair value
determined at the grant date under FASB Statement No. 123,
Accounting for Stock-Based Compensation
(SFAS 123). Prior to the adoption of SFAS 123R, the
Company accounted for stock compensation under the intrinsic
value method permitted by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees and related interpretations. Accordingly, the
Company previously recognized no compensation cost for employee
stock options that were granted with an exercise price equal to
the market value of the underlying common stock on the date of
grant.
The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value
recognition provisions of SFAS 123 in 2005.
|
|
|
|
|
|
|
2005
|
|
|
|
(Dollars in thousands,
|
|
|
|
except per share data)
|
|
|
Net income as reported
|
|
$
|
26,303
|
|
Less: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax
effects
|
|
|
(258
|
)
|
|
|
|
|
|
Pro forma net income
|
|
$
|
26,045
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
Basic as reported
|
|
$
|
2.33
|
|
Basic pro forma
|
|
$
|
2.31
|
|
Diluted as reported
|
|
$
|
2.32
|
|
Diluted pro forma
|
|
$
|
2.30
|
|
Prior to the adoption of SFAS 123R, the Company presented
all tax benefits of deductions resulting from the exercise of
stock options and the vesting of restricted stock as operating
cash flows in the consolidated statements of cash flows.
SFAS 123R requires the cash flows from the tax benefits
resulting from tax deductions in excess of the compensation
expense recognized for those options and restricted stock
(excess tax benefits) to be classified as financing
cash flows. Excess tax benefits totaling $327 thousand and $201
thousand are classified as a financing cash inflows for 2007 and
2006, respectively.
As a result of adopting SFAS 123R, pre-tax income and net
income for 2007 are approximately $242 thousand and $179
thousand lower, respectively, than accounting for stock options
under the intrinsic value method. Pre-tax income and net income
for 2006 are approximately $287 thousand and $208 thousand
lower, respectively, than accounting for stock options under the
intrinsic value method. The increased compensation expense
decreased basic and diluted earnings per share approximately two
cents for 2007 and 2006.
67
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the years ended December 31, 2007 and 2006, the
Company recognized pre-tax compensation expense related to total
equity-based compensation of approximately $271 thousand and
$427 thousand, respectively. The Company recognizes equity-based
compensation on a straight-line pro-rata basis, so that the
percentage of the total expense recognized for an award is never
less than the percentage of the award that has vested.
As of December 31, 2007, there was approximately $299
thousand unrecognized compensation cost related to unvested
stock options. That cost is expected to be recognized over a
weighted average period of 1.0 years. The actual
compensation cost recognized will differ from this estimate due
to a number of items, including new awards granted and changes
in estimated forfeitures.
A summary of the Companys stock option activity, and
related information for the year ended December 31, 2007,
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Option
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at January 1, 2007
|
|
|
326,640
|
|
|
$
|
22.72
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
9,500
|
|
|
|
33.05
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
45,665
|
|
|
|
16.47
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
18,361
|
|
|
|
27.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
272,114
|
|
|
$
|
23.81
|
|
|
|
11.1
|
|
|
$
|
2,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
228,812
|
|
|
$
|
22.66
|
|
|
|
11.0
|
|
|
$
|
2,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of options was estimated at the date of grant
using the Black-Scholes option pricing model and certain
assumptions. Expected volatility is based on the weekly
historical volatility of our stock price over the expected term
of the option. Expected dividend yield is based on the ratio of
the most recent dividend rate paid per share of the
Companys common stock to recent trading price of the
Companys common stock. The expected term is calculated
using the SECs shortcut method described in
Staff Accounting Bulletin 107 and reaffirmed in Staff
Accounting Bulletin 110. The risk-free interest rate is
based on the U.S. Treasury yield curve at the time of grant
for the period equal to the expected term of the option.
The fair values of grants made during the three years ended
December 31, 2007, were estimated using the following
weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Volatility
|
|
|
28.33
|
%
|
|
|
28.95
|
%
|
|
|
28.26
|
%
|
Expected dividend yield
|
|
|
3.28
|
%
|
|
|
3.00
|
%
|
|
|
3.54
|
%
|
Expected term (in years)
|
|
|
6.00
|
|
|
|
6.23
|
|
|
|
5.53
|
|
Risk-free rate
|
|
|
4.74
|
%
|
|
|
4.80
|
%
|
|
|
4.10
|
%
|
The weighted average grant-date fair value of options granted
during the three years ended December 31, 2007, was $8.14,
$9.16, and $6.53, respectively. The aggregate intrinsic value of
options exercised during the three years ended December 31,
2007, was approximately $913 thousand, $830 thousand, and $650
thousand, respectively.
Stock
Awards
The 2004 Plan permits the granting of restricted and
unrestricted stock grants either alone, in addition to, or in
tandem with other awards made by the Company. Stock grants are
generally measured at fair value on the date of grant based on
the number of shares granted and the quoted price of the
Companys stock. Such value is recognized
68
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
as expense over the corresponding service period. Compensation
costs related to these types of awards are consistently reported
for all periods presented.
The following table summarizes the changes in the Companys
nonvested shares for the year ended December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Nonvested at January 1
|
|
|
4,800
|
|
|
$
|
30.04
|
|
Granted
|
|
|
1,050
|
|
|
|
37.91
|
|
Vested
|
|
|
3,150
|
|
|
|
30.55
|
|
Forfeited
|
|
|
1,000
|
|
|
|
26.24
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31
|
|
|
1,700
|
|
|
$
|
36.20
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, there was approximately $60
thousand unrecognized compensation cost related to unvested
stock awards. That cost is expected to be recognized over a
weighted average period of 0.7 years. The actual
compensation cost recognized will differ from this estimate due
to a number of items, including new awards granted and changes
in estimated forfeitures.
|
|
Note 12.
|
Litigation,
Commitments and Contingencies
|
In the normal course of business, the Company is a defendant in
various legal actions and asserted claims, most of which involve
lending, collection and employment matters. 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, singly or in the
aggregate, should not have a material adverse affect on the
financial condition, results of operations or cash flows of the
Company.
The Bank is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit, standby letters of credit
and financial guarantees. These instruments involve, to varying
degrees, elements of credit and interest rate risk beyond the
amounts recognized on the balance sheet. The contractual amounts
of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments. The
Companys exposure to credit loss in the event of
non-performance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit
and financial guarantees written is represented by the
contractual amount of those instruments. The Company uses the
same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a
customer as long as there is not a violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company
evaluates each customers creditworthiness on a
case-by-case
basis. The amount of collateral obtained, if deemed necessary by
the Company, upon extension of credit is based on
managements credit evaluation of the counterparties.
Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, and income-producing
commercial properties.
Standby letters of credit and written financial guarantees are
conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. To the
extent deemed necessary,
69
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
collateral of varying types and amounts is held to secure
customer performance under certain of those letters of credit
outstanding.
Financial instruments whose contract amounts represent credit
risk at December 31, 2007 and 2006, are commitments to
extend credit (including availability of lines of credit) of
$225.41 million and $206.83 million, respectively, and
standby letters of credit and financial guarantees of
$3.60 million and $6.98 million, respectively.
The Company has issued, through FCBI Capital Trust (the
Trust), $15.00 million of trust preferred
securities in a private placement. In connection with the
issuance of the trust preferred securities, the Company has
committed to irrevocably and unconditionally guarantee the
following payments or distributions with respect to the trust
preferred securities to the holders thereof to the extent that
the Trust has not made such payments or distributions and has
the funds therefor: (i) accrued and unpaid distributions,
(ii) the redemption price, and (iii) upon a
dissolution or termination of the Trust, the lesser of the
liquidation amount and all accrued and unpaid distributions and
the amount of assets of the Trust remaining available for
distribution.
|
|
Note 13.
|
Derivative
Instruments and Hedging Activities
|
The Company uses derivative instruments primarily to protect
against the risk of adverse price or interest rate movements on
the value of certain assets and liabilities and on future cash
flows. These derivatives may consist of interest rate swaps,
floors, caps, collars, futures, forward contracts, and written
and purchased options. Derivative instruments represent
contracts between parties that usually require little or no
initial net investment and result in one party delivering cash
or another type of asset to the other party based on a notional
amount and an underlying as specified in the contract.
The Company entered into an interest rate swap derivative
accounted for as a cash flow hedge in January 2006. The
$50.00 million notional amount pay fixed, receive variable
interest rate swap was a liability with an estimated fair value
of $1.32 million at December 31, 2007, and an asset
with an estimated fair value of $441 thousand at
December 31, 2006. The Company pays a fixed rate of 4.34%
and receives a LIBOR-based floating rate from the counterparty.
The cash flow hedge is accounted for under the shortcut method
provided for in SFAS 133. Under the shortcut method, the
gains and losses associated with the market value fluctuations
of the interest rate swap are included in other comprehensive
income. Other comprehensive income included $1.06 million
of unrealized loss and $264 thousand of unrealized gain on the
interest rate swap, net of income taxes, for the years ended
December 31, 2007 and 2006, respectively. The Company held
no interest rate derivatives at December 31, 2005.
|
|
Note 14.
|
Regulatory
Capital Requirements and Restrictions
|
The primary source of funds for dividends paid by the Company is
dividends received from its subsidiary bank. Dividends paid by
the Bank are subject to restrictions by banking regulations. The
most restrictive provision of the regulations requires approval
by the Office of the Comptroller of the Currency if dividends
declared in any year exceed the years net income, as
defined, plus retained net profit of the two preceding years.
During 2008, subsidiary accumulated earnings available for
distribution as dividends to the Company without prior approval
are $31.56 million plus net income for the interim period
through the date of dividend declaration.
The Company and the Bank are subject to various regulatory
capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary
actions by regulators that, if undertaken, could have a direct
material effect on the Companys financial statements.
Under the capital adequacy guidelines and the regulatory
framework for prompt corrective action, which applies only to
the Bank, the Bank must meet specific capital guidelines that
involve quantitative measures of the entitys assets,
liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Banks capital
amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings,
and other factors. Quantitative measures established by
regulation to ensure capital adequacy require the Company and
the Bank to maintain minimum amounts
70
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and ratios for total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of
Tier 1 capital (as defined) to average assets (as defined).
As of December 31, 2007, the Company and the Bank met all
capital adequacy requirements to which they are subject. As of
December 31, 2007 and 2006, the most recent notifications
from regulators categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum
Total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios as set forth in the table below. There are no
conditions or events since those notifications that management
believes have changed the institutions category.
The Companys and the Banks capital ratios as of
December 31, 2007 and 2006, are presented in the following
table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
For Capital
|
|
|
Capitalized Under
|
|
|
|
|
|
|
Adequacy
|
|
|
Prompt Corrective
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
|
Total Capital to Risk-Weighted Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Community Bancshares, Inc.
|
|
$
|
182,476
|
|
|
|
12.34
|
%
|
|
$
|
118,276
|
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
First Community Bank, N. A.
|
|
|
167,865
|
|
|
|
11.44
|
%
|
|
|
117,398
|
|
|
|
8.00
|
%
|
|
$
|
146,748
|
|
|
|
10.00
|
%
|
Tier 1 Capital to Risk-Weighted Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Community Bancshares, Inc.
|
|
$
|
169,258
|
|
|
|
11.45
|
%
|
|
$
|
59,138
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
First Community Bank, N. A.
|
|
|
154,826
|
|
|
|
10.55
|
%
|
|
|
58,699
|
|
|
|
4.00
|
%
|
|
$
|
88,049
|
|
|
|
6.00
|
%
|
Tier 1 Capital to Average Assets (Leverage)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Community Bancshares, Inc.
|
|
$
|
169,258
|
|
|
|
8.09
|
%
|
|
$
|
83,639
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
First Community Bank, N. A.
|
|
|
154,826
|
|
|
|
7.44
|
%
|
|
|
83,233
|
|
|
|
4.00
|
%
|
|
$
|
104,041
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
For Capital
|
|
|
Capitalized Under
|
|
|
|
|
|
|
Adequacy
|
|
|
Prompt Corrective
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
|
Total Capital to Risk-Weighted Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Community Bancshares, Inc.
|
|
$
|
180,758
|
|
|
|
12.69
|
%
|
|
$
|
113,961
|
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
First Community Bank, N. A.
|
|
|
166,802
|
|
|
|
11.77
|
%
|
|
|
113,328
|
|
|
|
8.00
|
%
|
|
$
|
141,660
|
|
|
|
10.00
|
%
|
Tier 1 Capital to Risk-Weighted Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Community Bancshares, Inc.
|
|
$
|
165,302
|
|
|
|
11.60
|
%
|
|
$
|
56,981
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
First Community Bank, N. A.
|
|
|
152,040
|
|
|
|
10.73
|
%
|
|
|
56,664
|
|
|
|
4.00
|
%
|
|
$
|
84,996
|
|
|
|
6.00
|
%
|
Tier 1 Capital to Average Assets (Leverage)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Community Bancshares, Inc.
|
|
$
|
165,302
|
|
|
|
8.50
|
%
|
|
$
|
77,763
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
First Community Bank, N. A.
|
|
|
152,040
|
|
|
|
7.85
|
%
|
|
|
77,424
|
|
|
|
4.00
|
%
|
|
$
|
96,780
|
|
|
|
5.00
|
%
|
At December 31, 2007 and 2006, $15.46 million in
subordinated debt is treated as Tier 1 capital for bank
regulatory purposes for the Company.
71
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 15.
|
Other
Operating Expenses
|
Included in other operating expenses are certain costs, the
total of which exceeds one percent of combined interest income
and noninterest income. Following are such costs for the years
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Advertising and public relations
|
|
$
|
1,616
|
|
|
$
|
1,265
|
|
|
$
|
1,158
|
|
Service fees
|
|
|
1,716
|
|
|
|
1,096
|
|
|
|
829
|
|
Telephone and data communications
|
|
|
1,372
|
|
|
|
1,403
|
|
|
|
1,488
|
|
|
|
Note 16.
|
Fair
Value of Financial Instruments
|
Fair value information about financial instruments, whether or
not recognized in the balance sheet, for which it is practical
to estimate the value is based upon the characteristics of the
instruments and relevant market information. Financial
instruments include cash, evidence of ownership in an entity, or
contracts that convey or impose on an entity that contractual
right or obligation to either receive or deliver cash for
another financial instrument. Fair value is the amount at which
a financial instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale
or liquidation, and is best evidenced by a quoted market price
if one exists.
The following summary presents the methodologies and assumptions
used to estimate the fair value of the Companys financial
instruments presented below. The information used to determine
fair value is highly subjective and judgmental in nature and,
therefore, the results may not be precise. Subjective factors
include, among other things, estimates of cash flows, risk
characteristics, credit quality, and interest rates, all of
which are subject to change. Since the fair value is estimated
as of the balance sheet date, the amounts that will actually be
realized or paid upon settlement or maturity on these various
instruments could be significantly different.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
(Amounts in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
52,746
|
|
|
$
|
52,746
|
|
|
$
|
57,759
|
|
|
$
|
57,759
|
|
Investment Securities
|
|
|
676,195
|
|
|
|
676,418
|
|
|
|
528,389
|
|
|
|
528,720
|
|
Loans held for sale
|
|
|
811
|
|
|
|
813
|
|
|
|
781
|
|
|
|
787
|
|
Loans held for investment
|
|
|
1,212,669
|
|
|
|
1,202,396
|
|
|
|
1,270,314
|
|
|
|
1,248,960
|
|
Derivative financial assets
|
|
|
|
|
|
|
|
|
|
|
441
|
|
|
|
441
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
224,087
|
|
|
|
224,087
|
|
|
|
244,771
|
|
|
|
244,771
|
|
Interest-bearing demand deposits
|
|
|
153,570
|
|
|
|
153,570
|
|
|
|
140,578
|
|
|
|
140,578
|
|
Savings deposits
|
|
|
327,691
|
|
|
|
327,691
|
|
|
|
317,678
|
|
|
|
317,678
|
|
Time deposits
|
|
|
688,095
|
|
|
|
688,503
|
|
|
|
691,744
|
|
|
|
688,178
|
|
Federal funds purchased
|
|
|
18,500
|
|
|
|
18,500
|
|
|
|
7,700
|
|
|
|
7,700
|
|
Securities sold under agreements to repurchase
|
|
|
207,427
|
|
|
|
207,427
|
|
|
|
201,185
|
|
|
|
201,185
|
|
FHLB and other indebtedness
|
|
|
291,916
|
|
|
|
286,087
|
|
|
|
197,671
|
|
|
|
196,233
|
|
Derivative financial liabilities
|
|
|
1,320
|
|
|
|
1,320
|
|
|
|
|
|
|
|
|
|
72
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Financial
Instruments with Book Value Equal to Fair Value:
The book values of cash and due from banks and federal funds
sold and purchased are considered to be equal to fair value as a
result of the short-term nature of these items.
Investment
Securities:
Fair value is based on current market quotations, where
available. If quoted market prices are not available, fair value
has been based on the quoted price of similar instruments.
Loans:
The estimated fair value of loans held for investment is
measured based upon discounted future cash flows and using the
current rates for similar loans. Loans held for sale are
recorded at lower of cost or estimated fair value. The fair
value of loans held for sale is determined based upon the market
sales price of similar loans.
Derivative
Financial Instruments:
The estimated fair value of derivative financial instruments is
based upon the current market price for similar instruments.
Deposits
and Securities Sold Under Agreements to
Repurchase:
Deposits without a stated maturity, including demand,
interest-bearing demand, and savings accounts, are reported at
their carrying value in accordance with SFAS 107. No value
has been assigned to the franchise value of these deposits. For
other types of deposits with fixed maturities, fair value has
been estimated by discounting future cash flows based on
interest rates currently being offered on deposits with similar
characteristics and maturities. Securities sold under agreements
to repurchase are reported at their carrying value.
Other
Indebtedness:
Fair value has been estimated based on interest rates currently
available to the Company for borrowings with similar
characteristics and maturities.
Commitments
to Extend Credit, Standby Letters of Credit, and Financial
Guarantees:
The amount of off-balance sheet commitments to extend credit,
standby letters of credit, and financial guarantees is
considered equal to fair value. Because of the uncertainty
involved in attempting to assess the likelihood and timing of
commitments being drawn upon, coupled with the lack of an
established market and the wide diversity of fee structures, the
Company does not believe it is meaningful to provide an estimate
of fair value that differs from the given value of the
commitment.
|
|
Note 17.
|
Accumulated
Other Comprehensive Income
|
The components of the Companys accumulated other
comprehensive (loss) income, net of income taxes, as of
December 31, 2007 and 2006, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
|
Gain (Loss)
|
|
Accumulated
|
|
|
(Loss)
|
|
on Cash Flow
|
|
Comprehensive
|
|
|
on Securities
|
|
Hedge Derivative
|
|
Income (Loss)
|
|
|
(Amounts in thousands)
|
|
December 31, 2006
|
|
$
|
(32
|
)
|
|
$
|
264
|
|
|
$
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
$
|
(6,491
|
)
|
|
$
|
(792
|
)
|
|
$
|
(7,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 18.
|
Parent
Company Financial Information
|
Condensed financial information related to First Community as of
December 31, 2007 and 2006, and for each of the years ended
December 31, 2007, 2006, and 2005, is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Condensed Balance Sheets
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,880
|
|
|
$
|
4,511
|
|
Securities available for sale
|
|
|
6,877
|
|
|
|
9,066
|
|
Investment in subsidiary
|
|
|
217,307
|
|
|
|
214,030
|
|
Other assets
|
|
|
6,108
|
|
|
|
1,328
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
233,172
|
|
|
$
|
228,935
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
610
|
|
|
$
|
741
|
|
Long-term debt
|
|
|
15,464
|
|
|
|
15,464
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
16,074
|
|
|
|
16,205
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
11,499
|
|
|
|
11,499
|
|
Additional paid-in capital
|
|
|
108,795
|
|
|
|
108,806
|
|
Retained earnings
|
|
|
117,670
|
|
|
|
100,117
|
|
Treasury stock
|
|
|
(13,583
|
)
|
|
|
(7,924
|
)
|
Accumulated other comprehensive (loss) income
|
|
|
(7,283
|
)
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
217,098
|
|
|
|
212,730
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
233,172
|
|
|
$
|
228,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Condensed Statements of Income
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Cash dividends received from subsidiary bank
|
|
$
|
26,408
|
|
|
$
|
15,775
|
|
|
$
|
11,600
|
|
Other income
|
|
|
2,853
|
|
|
|
354
|
|
|
|
823
|
|
Operating expense
|
|
|
(2,106
|
)
|
|
|
(2,049
|
)
|
|
|
(1,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,155
|
|
|
|
14,080
|
|
|
|
10,615
|
|
Income tax (expense) benefit
|
|
|
(545
|
)
|
|
|
1,237
|
|
|
|
662
|
|
Equity in undistributed earnings of subsidiary
continuing operations
|
|
|
3,022
|
|
|
|
13,631
|
|
|
|
15,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
29,632
|
|
|
$
|
28,948
|
|
|
$
|
26,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Condensed Statements of Cash Flows
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
29,632
|
|
|
$
|
28,948
|
|
|
$
|
26,303
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed earnings of subsidiary
continuing operations
|
|
|
(3,022
|
)
|
|
|
(13,631
|
)
|
|
|
(15,026
|
)
|
Gain on sale of securities
|
|
|
(447
|
)
|
|
|
(62
|
)
|
|
|
(513
|
)
|
Decrease in other assets
|
|
|
(2,678
|
)
|
|
|
63
|
|
|
|
312
|
|
Increase (decrease) in other liabilities
|
|
|
996
|
|
|
|
455
|
|
|
|
(666
|
)
|
Other, net
|
|
|
|
|
|
|
(3
|
)
|
|
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
24,481
|
|
|
|
15,770
|
|
|
|
10,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of securities available for sale
|
|
|
(3,217
|
)
|
|
|
(1,881
|
)
|
|
|
(3,819
|
)
|
Proceeds from sale of securities available for sale
|
|
|
4,671
|
|
|
|
2,210
|
|
|
|
1,568
|
|
Investment in subsidiary
|
|
|
(5,397
|
)
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(2,390
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(6,333
|
)
|
|
|
332
|
|
|
|
(2,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
1,117
|
|
|
|
1,518
|
|
|
|
522
|
|
Acquisition of treasury stock
|
|
|
(9,170
|
)
|
|
|
(4,566
|
)
|
|
|
(1,303
|
)
|
Dividends paid
|
|
|
(12,079
|
)
|
|
|
(11,659
|
)
|
|
|
(11,494
|
)
|
Other, net
|
|
|
353
|
|
|
|
1,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(19,779
|
)
|
|
|
(12,935
|
)
|
|
|
(12,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,631
|
)
|
|
|
3,167
|
|
|
|
(3,737
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
4,511
|
|
|
|
1,344
|
|
|
|
5,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
2,880
|
|
|
$
|
4,511
|
|
|
$
|
1,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 19.
|
Discontinued
Operations
|
On August 18, 2004, the Company sold United First Mortgage,
Inc., its mortgage banking subsidiary headquartered in Richmond,
Virginia. The business related to the former mortgage banking
subsidiary is accounted for as discontinued operations in
accordance with SFAS 144 for all periods presented in this
report. The results of the former mortgage banking subsidiary
are presented as discontinued operations in a separate category
on the income statement following results from continuing
operations.
75
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The results of discontinued operations for the most recent three
years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Interest income
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
(233
|
)
|
Applicable income tax benefit
|
|
|
|
|
|
|
|
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no discontinued assets and liabilities from the
former mortgage banking subsidiary at December 31, 2007 and
2006.
|
|
Note 20.
|
Supplemental
Financial Data (Unaudited)
|
Quarterly earnings for the years ended December 31, 2007
and 2006, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
Quarter Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
Sept 30
|
|
|
Dec 31
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Interest income
|
|
$
|
30,686
|
|
|
$
|
31,979
|
|
|
$
|
32,732
|
|
|
$
|
32,194
|
|
Interest expense
|
|
|
13,671
|
|
|
|
14,965
|
|
|
|
15,589
|
|
|
|
15,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
17,015
|
|
|
|
17,014
|
|
|
|
17,143
|
|
|
|
17,143
|
|
Provision for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
17,015
|
|
|
|
17,014
|
|
|
|
17,143
|
|
|
|
16,426
|
|
Other income
|
|
|
5,086
|
|
|
|
5,517
|
|
|
|
5,970
|
|
|
|
7,847
|
|
Net securities gains
|
|
|
129
|
|
|
|
30
|
|
|
|
50
|
|
|
|
202
|
|
Other expenses
|
|
|
12,158
|
|
|
|
12,075
|
|
|
|
12,836
|
|
|
|
13,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
10,072
|
|
|
|
10,486
|
|
|
|
10,327
|
|
|
|
11,081
|
|
Income taxes
|
|
|
2,948
|
|
|
|
3,047
|
|
|
|
3,011
|
|
|
|
3,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7,124
|
|
|
$
|
7,439
|
|
|
$
|
7,316
|
|
|
$
|
7,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
|
|
$
|
0.63
|
|
|
$
|
0.66
|
|
|
$
|
0.65
|
|
|
$
|
0.70
|
|
Diluted earnings
|
|
$
|
0.63
|
|
|
$
|
0.66
|
|
|
$
|
0.65
|
|
|
$
|
0.69
|
|
Dividends
|
|
$
|
0.27
|
|
|
$
|
0.27
|
|
|
$
|
0.27
|
|
|
$
|
0.27
|
|
Weighted average basic shares outstanding
|
|
|
11,259
|
|
|
|
11,261
|
|
|
|
11,179
|
|
|
|
11,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
11,347
|
|
|
|
11,320
|
|
|
|
11,230
|
|
|
|
11,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
FIRST
COMMUNITY BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
Quarter Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
Sept 30
|
|
|
Dec 31
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Interest income
|
|
$
|
28,923
|
|
|
$
|
30,025
|
|
|
$
|
30,240
|
|
|
$
|
30,838
|
|
Interest expense
|
|
|
10,858
|
|
|
|
11,852
|
|
|
|
12,484
|
|
|
|
13,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
18,065
|
|
|
|
18,173
|
|
|
|
17,756
|
|
|
|
17,651
|
|
Provision for loan losses
|
|
|
408
|
|
|
|
811
|
|
|
|
579
|
|
|
|
908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
17,657
|
|
|
|
17,362
|
|
|
|
17,177
|
|
|
|
16,743
|
|
Other income
|
|
|
4,989
|
|
|
|
5,614
|
|
|
|
5,104
|
|
|
|
5,542
|
|
Net securities gains
|
|
|
159
|
|
|
|
(94
|
)
|
|
|
(6
|
)
|
|
|
15
|
|
Other expenses
|
|
|
13,333
|
|
|
|
12,588
|
|
|
|
12,213
|
|
|
|
11,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
9,472
|
|
|
|
10,294
|
|
|
|
10,062
|
|
|
|
10,597
|
|
Income taxes
|
|
|
2,628
|
|
|
|
3,002
|
|
|
|
2,877
|
|
|
|
2,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,844
|
|
|
$
|
7,292
|
|
|
$
|
7,185
|
|
|
$
|
7,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
|
|
$
|
0.61
|
|
|
$
|
0.65
|
|
|
$
|
0.64
|
|
|
$
|
0.68
|
|
Diluted earnings
|
|
$
|
0.61
|
|
|
$
|
0.65
|
|
|
$
|
0.64
|
|
|
$
|
0.68
|
|
Dividends
|
|
$
|
0.26
|
|
|
$
|
0.26
|
|
|
$
|
0.26
|
|
|
$
|
0.26
|
|
Weighted average basic shares outstanding
|
|
|
11,233
|
|
|
|
11,201
|
|
|
|
11,174
|
|
|
|
11,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
11,312
|
|
|
|
11,259
|
|
|
|
11,245
|
|
|
|
11,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
- REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -
To the Audit Committee of the Board of Directors and the
Stockholders
First Community Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of
First Community Bancshares, Inc. and its Subsidiaries (the
Company) as of December 31, 2007 and 2006, and
the related consolidated statements of income, changes in
stockholders equity and cash flows for the years then
ended. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of First Community Bancshares, Inc. and its
Subsidiaries as of December 31, 2007 and 2006, and the
results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated March 12, 2008 expressed an
unqualified opinion.
Asheville, North Carolina
March 12, 2008
78
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors and
Stockholders of First
Community Bancshares, Inc.
We have audited the accompanying consolidated statements of
income, stockholders equity, and cash flows of First
Community Bancshares, Inc. and subsidiaries for the year ended
December 31, 2005. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
results of their operations and cash flows of First Community
Bancshares, Inc. and subsidiaries for the year ended
December 31, 2005, in conformity with U.S. generally
accepted accounting principles.
Charleston, West Virginia
March 3, 2006
79
MANAGEMENTS
ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL
REPORTING
First Community Bancshares, Inc. (the Company) is
responsible for the preparation, integrity, and fair
presentation of the consolidated financial statements included
in this Annual Report on
Form 10-K.
The consolidated financial statements and notes included in this
Annual Report on
Form 10-K
have been prepared in conformity with U.S. generally
accepted accounting principles and necessarily include some
amounts that are based on managements best estimates and
judgments.
We, as management of the Company, are responsible for
establishing and maintaining effective internal control over
financial reporting that is designed to produce reliable
financial statements in conformity with U.S. generally
accepted accounting principles. The system of internal control
over financial reporting as it relates to the financial
statements is evaluated for effectiveness by management and
tested for reliability. Any system of internal control, no
matter how well designed, has inherent limitations, including
the possibility that a control can be circumvented or overridden
and misstatements due to error or fraud may occur and not be
detected. Also, because of changes in conditions, internal
control effectiveness may vary over time. Accordingly, even an
effective system of internal control will provide only
reasonable assurance with respect to financial statement
preparation.
Management conducted an assessment of the effectiveness of the
Companys internal control over financial reporting based
on the framework in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management
concluded that its system of internal control over financial
reporting was effective as of December 31, 2007. Dixon
Hughes PLLC, independent registered public accounting firm, has
issued an attestation report on the effectiveness of the
Companys internal control over financial reporting.
The Report of Independent Registered Accounting Firm on
Managements Report on Internal Control Over Financial
Reporting appears hereafter in Item 8 of this Annual Report
on
Form 10-K.
80
- REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -
To the Board of Directors and Stockholders
First Community Bancshares, Inc.
We have audited First Community Bancshares, Inc. and
Subsidiarys (the Company) internal control
over financial reporting as of December 31, 2007, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. The Companys management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying Managements Annual Report on Internal Control
over Financial Reporting. Our responsibility is to express an
opinion on the Companys internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included, performing such
other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, First Community Bancshares, Inc. maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2007, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements of First Community Bancshares,
Inc. as of and for the year ended December 31, 2007, and
our report dated March 12, 2008, expressed an unqualified
opinion on those consolidated financial statements.
Asheville, North Carolina
March 12, 2008
81
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES.
|
As of the end of the period covered by this report, the Company
carried out an evaluation, under the supervision and with the
participation of the Companys management, including the
Companys Chief Executive Officer along with the
Companys Chief Financial Officer, of the effectiveness of
the design and operation of the Companys disclosure
controls and procedures pursuant to the Exchange Act
Rule 13a-15(b).
Based upon that evaluation, the Companys Chief Executive
Officer along with the Companys Chief Financial Officer
concluded that the Companys disclosure controls and
procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated
subsidiaries) required to be included in the Companys
periodic SEC filings. There have not been any changes in the
Companys internal controls over financial reporting during
the most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect the Companys
internal controls over financial reporting.
Disclosure controls and procedures are Company controls and
other procedures that are designed to ensure that information
required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act
is accumulated and communicated to the Companys
management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
Our Managements Report on Internal Control Over Financial
Reporting and the Report of Independent Registered Public
Accounting Firm on Managements Assessment of Internal
Control Over Financial Reporting are each hereby incorporated by
reference from Item 8 of this Annual Report on
Form 10-K.
|
|
ITEM 9B.
|
OTHER
INFORMATION.
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
|
The required information concerning directors and executive
officers has been omitted in accordance with General
Instruction G. Such information regarding directors and
executive officers will be set forth under the headings of
Election of Directors, Continuing
Directors, and Executive Officers who are not
Directors of the Proxy Statement relating to the 2008
Annual Meeting of Stockholders and is incorporated herein by
reference.
A portion of the information relating to compliance with
Section 16(a) of the Exchange Act has been omitted in
accordance with General Instruction G. Such information
will be set forth under the heading of Section 16(a)
Beneficial Ownership Reporting Compliance of the Proxy
Statement relating to the 2008 Annual Meeting of Stockholders
and is incorporated herein by reference.
The Company has adopted a Code of Ethics that applies to its
principal executive officer, principal financial officer,
principal accounting officer or controller or persons performing
similar functions, as well as all employees and directors of the
Company. A copy of the Companys Code of Ethics is
available on the Companys website at www.fcbinc.com. Since
its adoption, there have been no waivers of the code of ethics
related to any of the above officers.
A portion of the information relating to the Audit Committee and
the Audit Committee Financial Expert has been omitted in
accordance with General Instruction G. Such information
regarding the Audit Committee and the
82
Audit Committee Financial Expert will be set forth under the
heading Report of the Audit Committee of the Proxy
Statement relating to the 2008 Annual Meeting of Stockholders
and is incorporated herein by reference.
The Company has not made any material changes to the procedures
by which stockholders may recommend nominees to the
Companys board of directors.
BOARD OF
DIRECTORS, FIRST COMMUNITY BANCSHARES, INC.
|
|
|
Franklin P. Hall
Businessman; Senior Partner, Hall & Family Law Firm
|
|
A. A. Modena
Past Executive Vice President and Secretary, First
Community Bancshares, Inc.; Past President and
Chief Executive Officer, The Flat Top National Bank of Bluefield
|
|
|
|
Allen T. Hamner, Ph.D.
Retired Professor of Chemistry, West Virginia Wesleyan
College
|
|
Robert E. Perkinson, Jr.
Past Vice President-Operations, MAPCO Coal, Inc.
Virginia Region
|
|
|
|
I. Norris Kantor
Of Counsel, Katz, Kantor & Perkins, Attorneys-at-Law
|
|
William P. Stafford
President, Princeton Machinery Service, Inc.
|
|
|
|
John M. Mendez
President and Chief Executive Officer, First Community
Bancshares, Inc.; Chief Executive Officer, First Community Bank,
N. A.
|
|
William P. Stafford, II
Attorney at Law, Brewster, Morhous, Cameron, Mullins,
Caruth, Moore, Kersey & Stafford, PLLC
|
EXECUTIVE
OFFICERS, FIRST COMMUNITY BANCSHARES, INC.
|
|
|
|
|
|
John M. Mendez
President and Chief Executive Officer
|
|
David D. Brown
Chief Financial Officer
|
|
|
|
E. Stephen Lilly
Chief Operating Officer
|
|
Robert L. Buzzo
Vice President and Secretary
|
83
BOARD OF
DIRECTORS, FIRST COMMUNITY BANK, N. A.
|
|
|
|
|
|
Gregory J. Beier
President and Chief Executive Officer, Novant
Health Triad Region
|
|
John M. Mendez
President and Chief Executive Officer, First Community
Bancshares, Inc.; Executive Vice President, First Community
Bank, N. A
|
|
|
|
W. C. Blankenship, Jr.
Agent, State Farm Insurance
|
|
A. A. Modena
Past Executive Vice President and Secretary, First Community
Bancshares, Inc.; Past President and Chief Executive Officer,
The Flat Top National Bank of Bluefield
|
|
|
|
D. L. Bowling, Jr.
President, True Energy, Inc.
|
|
Robert E. Perkinson, Jr.
Past Vice President-Operations, MAPCO Coal, Inc.
Virginia Region
|
|
|
|
Juanita G. Bryan
Homemaker
|
|
Clyde B. Ratliff
President, Gasco Drilling, Inc.
|
|
|
|
Robert L. Buzzo
Vice President and Secretary, First Community Bancshares, Inc.;
President, First Community Bank, N. A.
|
|
William P. Stafford
President, Princeton Machinery Service, Inc.
|
C. William Davis
Attorney-at-Law, Richardson & Davis
|
|
William P. Stafford, II
Attorney at Law, Brewster, Morhous, Cameron, Mullins,
Caruth, Moore, Kersey & Stafford, PLLC
|
|
|
|
Franklin P. Hall
Businessman; Senior Partner, Hall & Family Law Firm
|
|
Frank C. Tinder
President, Tinder Enterprises, Inc. and Tinco Leasing
Corporation
|
|
|
|
Allen T. Hamner, Ph.D.
Retired Professor of Chemistry, West Virginia Wesleyan College
|
|
Dale F. Woody
President, Woody Lumber Company
|
|
|
|
I. Norris Kantor
Of Counsel, Katz, Kantor & Perkins, Attorneys-at-Law
|
|
|
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION.
|
The information called for by Item 11 has been omitted in
accordance with General Instruction G. Such information
will be set forth in the Proxy Statement relating to the 2008
Annual Meeting of Stockholders and is incorporated herein by
reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
|
The required information concerning security ownership of
certain beneficial owners and management has been omitted in
accordance with General Instruction G. Such information
appears under the heading of Beneficial Ownership of
Common Stock by Certain Beneficial Owners and Management
of the Proxy Statement relating to the 2008 Annual Meeting of
Stockholders and is incorporated herein by reference.
84
The following table presents information for all equity
compensation plans with individual compensation arrangements,
whether with employees or non-employees such as directors, in
effect as of December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of Securities
|
|
|
|
Securities to be
|
|
|
|
|
|
Remaining Available
|
|
|
|
Issued Upon
|
|
|
Weighted-Average
|
|
|
for Future Issuance
|
|
|
|
Exercise of
|
|
|
Exercise price of
|
|
|
Under Equity
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Compensation Plans
|
|
|
|
Options, Warrants
|
|
|
Options, Warrants
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
and Rights
|
|
|
and Rights
|
|
|
Reflected in Column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders
|
|
|
49,250
|
|
|
$
|
29.93
|
|
|
|
92,993
|
|
Equity compensation plans not approved by security holders
|
|
|
222,864
|
|
|
|
22.45
|
|
|
|
42,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
272,114
|
|
|
|
|
|
|
|
135,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
|
The information called for by Item 13 has been omitted in
accordance with General Instruction G. Such information
shall be set forth in the Proxy Statement relating to the 2008
Annual Meeting of Stockholders and is incorporated herein by
reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES.
|
The information called for by Item 14 has been omitted in
accordance with General Instruction G. Such information
shall be set forth in the Proxy Statement relating to the 2008
Annual Meeting of Stockholders and is incorporated herein by
reference.
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES.
|
(a) Documents Filed as Part of this Report
(1) Financial Statements
The Consolidated Financial Statements of First Community
Bancshares, Inc. and subsidiaries together with the Independent
Registered Public Accounting Firms Report dated
March 10, 2008, are incorporated by reference to
Item 8 hereof.
(2) Financial Statement Schedules
No financial statement schedules are being filed since the
required information is inapplicable or is presented in the
consolidated financial statements or related notes.
(b) Exhibits
|
|
|
|
|
|
|
Exhibit No.
|
|
|
|
Exhibit
|
|
|
3
|
(i)
|
|
|
|
Articles of Incorporation of First Community Bancshares, Inc.,
as amended.(1)
|
|
3
|
(ii)
|
|
|
|
Bylaws of First Community Bancshares, Inc., as amended.(17)
|
|
4
|
.1
|
|
|
|
Specimen stock certificate of First Community Bancshares, Inc.(3)
|
|
4
|
.2
|
|
|
|
Indenture Agreement dated September 25, 2003.(11)
|
|
4
|
.3
|
|
|
|
Amended and Restated Declaration of Trust of FCBI Capital Trust
dated September 25, 2003.(11)
|
|
4
|
.4
|
|
|
|
Preferred Securities Guarantee Agreement dated
September 25, 2003.(11)
|
|
10
|
.1
|
|
|
|
First Community Bancshares, Inc. 1999 Stock Option
Contracts(2) and Plan.(4)
|
|
10
|
.1.1
|
|
|
|
Amendment to First Community Bancshares, Inc. 1999 Stock Option
Plan.(11)
|
85
|
|
|
|
|
|
|
Exhibit No.
|
|
|
|
Exhibit
|
|
|
10
|
.2
|
|
|
|
First Community Bancshares, Inc. 2001 Non-Qualified Directors
Stock Option Plan.(5)
|
|
10
|
.3
|
|
|
|
Employment Agreement dated January 1, 2000 and amended
October 17, 2000, between First Community Bancshares, Inc.
and John M. Mendez.(2)(6)
|
|
10
|
.4
|
|
|
|
First Community Bancshares, Inc. 2000 Executive Retention Plan,
as amended.(2)
|
|
10
|
.5
|
|
|
|
First Community Bancshares, Inc. Split Dollar Plan and
Agreement.(2)
|
|
10
|
.6
|
|
|
|
First Community Bancshares, Inc. 2001 Directors
Supplemental Retirement Plan.(2)
|
|
10
|
.6.1
|
|
|
|
First Community Bancshares, Inc. 2001 Directors
Supplemental Retirement Plan. Second Amendment (B.W. Harvey,
Sr. October 19, 2004).(14)
|
|
10
|
.7
|
|
|
|
First Community Bancshares, Inc. Wrap Plan.(7)
|
|
10
|
.8
|
|
|
|
Reserved.
|
|
10
|
.9
|
|
|
|
Form of Indemnification Agreement between First Community
Bancshares, its Directors and Certain Executive Officers.(9)
|
|
10
|
.10
|
|
|
|
Form of Indemnification Agreement between First Community Bank,
N. A, its Directors and Certain Executive Officers.(9)
|
|
10
|
.11
|
|
|
|
Reserved.
|
|
10
|
.12
|
|
|
|
First Community Bancshares, Inc. 2004 Omnibus Stock Option Plan
(10) and Award Agreement.(13)
|
|
10
|
.13
|
|
|
|
Reserved.
|
|
10
|
.14
|
|
|
|
First Community Bancshares, Inc. Directors Deferred Compensation
Plan.(7)
|
|
10
|
.15
|
|
|
|
First Community Bancshares, Inc. Deferred Compensation and
Supplemental Bonus Plan For Key Employees.(15)
|
|
10
|
.16
|
|
|
|
Employment Agreement dated November 30, 2006, between First
Community Bank, N. A. and Ronald L. Campbell(19)
|
|
10
|
.17*
|
|
|
|
Employment Agreement dated September 28, 2007, between
Green Point Insurance Group, Inc. and Shawn C. Cummings
|
|
11
|
|
|
|
|
Statement regarding computation of earnings per share.(16)
|
|
12
|
*
|
|
|
|
Computation of Ratios.
|
|
21
|
|
|
|
|
Subsidiaries of Registrant Reference is made to
Item 1. Business for the required information.
|
|
23
|
.1*
|
|
|
|
Consent of Dixon Hughes PLLC, Independent Registered Public
Accounting Firm for First Community Bancshares, Inc.
|
|
23
|
.2*
|
|
|
|
Consent of Ernst & Young, LLP, former Independent
Registered Public Accounting Firm for First Community
Bancshares, Inc.
|
|
31
|
.1*
|
|
|
|
Rule 13a-14(a)/a5d-14(a)
Certification of Chief Executive Officer
|
|
31
|
.2*
|
|
|
|
Rule 13a-14(a)/a5d-14(a)
Certification of Chief Financial Officer
|
|
32
|
*
|
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer Section 1350.
|
|
|
|
* |
|
Furnished herewith. |
|
(1) |
|
Incorporated by reference from the Quarterly Report on
Form 10-Q
for the period ended June 30, 2005, filed on August 5,
2005. |
|
(2) |
|
Incorporated by reference from the Quarterly Report on
Form 10-Q
for the period ended June 30, 2002, filed on
August 14, 2002. |
|
(3) |
|
Incorporated by reference from the Annual Report on
Form 10-K
for the period ended December 31, 2002, filed on
March 25, 2003, as amended on March 31, 2003. |
|
(4) |
|
Incorporated by reference from the Annual Report on
Form 10-K
for the period ended December 31, 1999, filed on
March 30, 2000, as amended April 13, 2000. |
|
(5) |
|
The option agreements entered into pursuant to the 1999 Stock
Option Plan and the 2001 Non-Qualified Directors Stock Option
Plan are incorporated by reference from the Quarterly Report on
Form 10-Q
for the period ended June 30, 2002, filed on
August 14, 2002. |
|
(6) |
|
First Community Bancshares, Inc. has entered into substantially
identical agreements with Robert L. Buzzo and E. Stephen Lilly,
with the only differences being with respect to title, salary
and the use of a vehicle. |
86
|
|
|
(7) |
|
Incorporated by reference from Item 1.01 of the Current
Report on Form
8-K dated
August 22, 2006, and filed August 23, 2006. |
|
(8) |
|
Reserved. |
|
(9) |
|
Form of indemnification agreement entered into by the
Corporation and by First Community Bank, N. A. with their
respective directors and certain officers of each including, for
the Registrant and Bank: John M. Mendez, Robert L. Schumacher,
Robert L. Buzzo, E. Stephen Lilly, David D. Brown, and Gary R.
Mills. Incorporated by reference from the Annual Report on
Form 10-K
for the period ended December 31, 2003, filed on
March 15, 2004, and amended on May 19, 2004. |
|
(10) |
|
Incorporated by reference from the 2004 First Community
Bancshares, Inc. Definitive Proxy filed on March 19, 2004. |
|
(11) |
|
Incorporated by reference from the Quarterly Report on
Form 10-Q
for the period ended September 30, 2003, filed on
November 10, 2003. |
|
(12) |
|
Incorporated by reference from the Quarterly Report on
Form 10-Q
for the period ended March 31, 2004, filed on May 7,
2004. |
|
(13) |
|
Incorporated by reference from the Quarterly Report on
Form 10-Q
for the period ended June 30, 2004, filed on August 6,
2004. |
|
(14) |
|
Incorporated by reference from the Annual Report on
Form 10-K
for the period ended December 31, 2004, and filed on
March 16, 2005. Amendments in substantially similar form
were executed for Directors Clark, Kantor, Hamner, Modena,
Perkinson, Stafford, and Stafford II. |
|
(15) |
|
Incorporated by reference from Item 1.01 of the Current
Report on Form
8-K dated
October 24, 2006, and filed October 25, 2006. |
|
(16) |
|
Incorporated by reference from Footnote 1 of the Notes to
Consolidated Financial Statements included herein. |
|
(17) |
|
Incorporated by reference from Item 5.03 of the Current
Report on Form
8-K dated
February 14, 2008, filed on February 20, 2008. |
|
(18) |
|
Reserved |
|
(19) |
|
Incorporated by reference from Exhibit 2.1 of the
Form S-3
registration statement filed May 2, 2007. |
87
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 on the 13th day of March, 2008.
First Community Bancshares, Inc.
(Registrant)
John M. Mendez
President and Chief Executive Officer
David D. Brown
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ John
M. Mendez
John
M. Mendez
|
|
Director, President and
Chief Executive Officer
|
|
March 13, 2008
|
|
|
|
|
|
/s/ David
D. Brown
David
D. Brown
|
|
Chief Financial Officer
|
|
March 13, 2008
|
|
|
|
|
|
/s/ Franklin
P. Hall
Franklin
P. Hall
|
|
Director
|
|
March 13, 2008
|
|
|
|
|
|
/s/ Allen
T. Hamner
Allen
T. Hamner
|
|
Director
|
|
March 13, 2008
|
|
|
|
|
|
/s/ I.
Norris Kantor
I.
Norris Kantor
|
|
Director
|
|
March 13, 2008
|
|
|
|
|
|
/s/ A.
A. Modena
A.
A. Modena
|
|
Director
|
|
March 13, 2008
|
|
|
|
|
|
/s/ Robert
E. Perkinson, Jr.
Robert
E. Perkinson, Jr.
|
|
Director
|
|
March 13, 2008
|
|
|
|
|
|
/s/ William
P. Stafford
William
P. Stafford
|
|
Chairman of the Board of Directors
|
|
March 13, 2008
|
|
|
|
|
|
/s/ William
P. Stafford, II
William
P. Stafford, II
|
|
Director
|
|
March 13, 2008
|
88