FIRST COMMUNITY BANCSHARES INC /NV/ - 10-Q Quarterly Report

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934


(Mark One)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: September 30, 2004


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: to

Commission File Number: 0-19297

First Community Bancshares, Inc.

(Exact name of registrant as specified in its charter)


Nevada (State or other jurisdiction of incorporation or organization)		55-0694814 (I.R.S. Employer Identification No.)

One Community Place, Bluefield, Virginia 24605

(Address of principal executive offices) (Zip Code)

(276) 326-9000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class	Outstanding at October 31, 2004
Common Stock, $1 Par Value		11,243,991

PART I. ITEM 1. Financial Statements

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Share Data)


	September 30,			December 31,
	2004			2003
	(Unaudited)			(Note 1)
Assets
Cash and due from banks	$	37,400		$	37,173
Interest-bearing balances with banks		17,678			22,136

Total cash and cash equivalents		55,078			59,309
Securities available for sale (amortized cost of $386,024 at September 30, 2004; $435,912 at December 31, 2003)		391,623			444,194
Securities held to maturity (fair value of $36,334 at September 30, 2004; $40,060 at December 31, 2003)		34,719			38,020
Loans held for sale		1,163			424
Loans held for investment, net of unearned income		1,229,270			1,026,191
Less allowance for loan losses		16,233			14,624

Net loans held for investment		1,213,037			1,011,567
Premises and equipment		36,499			29,816
Other real estate owned		1,636			2,091
Interest receivable		8,770			8,327
Other assets		22,302			17,266
Goodwill		59,121			37,978
Other intangible assets		2,594			1,363
Assets related to discontinued operations		—			22,372

Total Assets	$	1,826,542		$	1,672,727

Liabilities
Deposits:
Noninterest-bearing	$	218,818		$	194,046
Interest-bearing		1,143,735			1,031,490

Total Deposits		1,362,553			1,225,536
Interest, taxes and other liabilities		14,616			11,897
Securities sold under agreements to repurchase		111,481			97,651
FHLB borrowings and other indebtedness		142,060			129,616
Junior subordinated debt related to issuance of trust preferred securities		15,000			15,000
Liabilities related to discontinued operations		—			17,992

Total Liabilities		1,645,710			1,497,692

Stockholders’ Equity
Preferred stock, par value undesignated; 1,000,000 shares authorized; no shares issued and outstanding in 2004 and 2003		—			—
Common stock, $1 par value; 15,000,000 shares authorized ; 11,470,142 and 11,442,348 issued in 2004 and 2003, and 11,243,991 and 11,242,443 outstanding in 2004 and 2003		11,470			11,442
Additional paid-in capital		108,280			108,128
Retained earnings		64,752			56,894
Treasury stock, at cost		(7,029	)		(6,407	)
Accumulated other comprehensive income		3,359			4,978

Total Stockholders’ Equity		180,832			175,035

Total Liabilities and Stockholders’ Equity	$	1,826,542		$	1,672,727

See Notes to Consolidated Financial Statements.

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands Except Share and Per Share Data) (Unaudited)


	Nine Months Ended						Three Months Ended
	September 30			September 30			September 30			September 30
	2004			2003			2004			2003
Interest Income:
Interest and fees on loans held for investment	$	56,195		$	52,465		$	19,953		$	18,591
Interest on securities-taxable		9,659			9,589			2,960			3,070
Interest on securities-nontaxable		4,985			4,851			1,642			1,552
Interest on federal funds sold and deposits in banks		395			482			94			124

Total interest income		71,234			67,387			24,649			23,337

Interest Expense:
Interest on deposits		13,830			15,393			4,702			4,934
Interest on short-term borrowings		5,449			4,203			2,020			1,485
Interest on other debt		643			447			226			150

Total interest expense		19,922			20,043			6,948			6,569

Net interest income		51,312			47,344			17,701			16,768
Provision for loan losses		2,407			2,679			1,152			782

Net interest income after provision for loan losses		48,905			44,665			16,549			15,986

Noninterest Income:
Fiduciary income		1,429			1,275			499			462
Service charges on deposit accounts		6,722			5,905			2,461			2,098
Other service charges, commissions and fees		2,000			1,877			728			640
Other operating income		1,435			881			530			340
Gain on sale of securities		1,509			1,191			60			1,038

Total noninterest income		13,095			11,129			4,278			4,578

Noninterest Expense:
Salaries and employee benefits		19,582			15,097			6,807			5,631
Occupancy expense of bank premises		2,659			2,208			913			752
Furniture and equipment expense		2,108			1,427			735			532
Core deposit amortization		287			178			112			64
Other operating expense		10,737			8,769			3,670			3,203

Total noninterest expense		35,373			27,679			12,237			10,182

Income from continuing operations before income taxes		26,627			28,115			8,590			10,382
Income tax expense		6,817			8,133			1,968			3,164

Income from continuing operations		19,810			19,982			6,622			7,218
Loss from discontinued operations before income tax		(5,531	)		(64	)		(1,266	)		(1,621	)
Income tax benefit		(2,006	)		(26	)		(1,054	)		(632	)

Loss from discontinued operations	$	(3,525	)	$	(38	)	$	(212	)	$	(989	)

Net income	$	16,285		$	19,944		$	6,410		$	6,229

Basic earnings per common share	$	1.45		$	1.81		$	0.57		$	0.55

Diluted earnings per common share	$	1.44		$	1.79		$	0.57		$	0.55

Basic earnings per common share from continuing operations	$	1.76		$	1.81		$	0.59		$	0.64

Diluted earnings per common share from continuing operations	$	1.75		$	1.79		$	0.58		$	0.64

Weighted average basic shares outstanding		11,235,462			11,047,199			11,231,973			11,262,180

Weighted average diluted shares outstanding		11,331,718			11,143,175			11,326,999			11,383,941

See Notes to Consolidated Financial Statements.

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands) (Unaudited)


	Nine Months Ended
	September 30
	2004			2003
Cash flows from operating activities:
Net income from continuing operations	$	19,810		$	19,982
Adjustments to reconcile net income from continuing operations to net cash (used in) provided by operating activities:
Provision for loan losses		2,407			2,679
Depreciation of premises and equipment		2,008			1,352
Core deposit amortization		287			178
Purchase price accounting accretion		(149	)		(157	)
Net investment amortization and accretion		1,880			2,179
Net gain on the sale of assets		(1,763	)		(1,203	)
Mortgage loans originated for sale		(18,994	)		(26,296	)
Proceeds from sale of mortgage loans		18,255			26,955
Decrease (increase) in interest receivable		489			(238	)
Increase in other assets		(1,082	)		(2,727	)
Increase (decrease) in other liabilities		1,418			(3,014	)

Net cash provided by operating activities from continuing operations		24,566			19,690

Cash flows from investing activities:
Proceeds from sales of securities available for sale		49,951			9,375
Proceeds from maturities and calls of securities available for sale		105,065			113,224
Proceeds from maturities and calls of securities held to maturity		3,834			1,653
Purchase of securities held to maturity		—			(75	)
Purchase of securities available for sale		(78,012	)		(220,859	)
Net (increase) decrease in loans made to customers		(59,880	)		67,846
Purchase of premises and equipment		(5,077	)		(5,315	)
Sale of equipment		359			59
Net cash (used in) provided by acquisitions		(26,325	)		1,562

Net cash used in investing activities from continuing operations		(10,085	)		(32,530	)

Cash flows from financing activities:
Net increase (decrease) in demand and savings deposits		10,619			(1,269	)
Net decrease in time deposits		(22,325	)		(11,154	)
Net increase in FHLB and other indebtedness		2,629			16,263
Issuance of trust preferred securities		—			14,560
Repayment of other borrowings		(13	)		(8,013	)
Acquisition of treasury stock		(1,195	)		(4,319	)
Dividends paid		(8,427	)		(8,038	)

Net cash used in financing activities from continuing operations		(18,712	)		(1,970	)

Net cash used in discontinued operations		—			(577	)

Cash and Cash Equivalents:
Net decrease in cash and cash equivalents		(4,231	)		(15,387	)
Cash and cash equivalents at beginning of period		59,309			124,585

Cash and cash equivalents at end of period	$	55,078		$	109,198

Cash and cash equivalents consist of the following:
Cash and cash equivalents from continuing operations	$	55,078		$	107,224
Cash and cash equivalents from discontinued operations		—			1,974

	$	55,078		$	109,198

See Notes to Consolidated Financial Statements.

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in Thousands, Except Share and Per Share Information) (Unaudited)


											Accumulated
			Additional								Other
	Common		Paid-in		Retained			Treasury			Comprehensive
	Stock		Capital		Earnings			Stock			(Loss) Income			Total
Balance January 1, 2003	$	9,957	$	58,642	$	79,084		$	(1,982	)	$	6,761		$	152,462
Comprehensive income:
Net income		—		—		19,944			—			—			19,944
Other comprehensive income, net of tax:
Net unrealized loss on securities available for sale		—		—		—			—			(2,433	)		(2,433	)
Common dividends declared ($.73 per share)		—		—		(8,038	)		—			—			(8,038	)
Purchase 135,000 treasury shares at $31.99 per share		—		—		—			(4,319	)		—			(4,319	)
Acquisition of Stone Capital 8,409 shares issued		8		236											244
Acquisition of CommonWealth Bank 389,609 shares issued		390		12,904											13,294
Effect of 10% Stock Dividend		1,035		35,392		(36,427	)								-
Option exercises 40,291 shares		40		259					335						634
10% Stock Dividend & Fractional Adjustment		1,038		35,994		(36,583	)		(476	)					(27	)
Issuance of treasury shares to ESOP				43					680						723

Balance June 30, 2003	$	11,430	$	107,476	$	54,563		$	(5,286	)	$	4,328		$	172,484

Balance January 1, 2004	$	11,442	$	108,128	$	56,894		$	(6,407	)	$	4,978		$	175,035
Comprehensive income:
Net income		—		—		16,285			—						16,285
Other comprehensive income, net of tax:
Net unrealized losses on securities available for sale		—		—		—			—			(1,619	)		(1,619	)
Common dividends declared ($.75 per share)		—		—		(8,427	)		—			—			(8,427	)
Purchase 44,400 treasury shares at $26.87 per share		—		—		—			(1,195	)		—			(1,195	)
2,541 shares issued on Stone Capital acquisition		3		85											88
Option exercises 47,950 shares		25		67					573						665

Balance September 30, 2004	$	11,470	$	108,280	$	64,752		$	(7,029	)	$	3,359		$	180,832

See Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Unaudited Financial Statements

The unaudited consolidated balance sheet as of September 30, 2004, the unaudited consolidated statements of income for the nine and three months ended September 30, 2004 and 2003 and the consolidated statements of cash flows and changes in stockholders’ equity for the nine months ended September 30, 2004 and 2003 have been prepared by the management of First Community Bancshares, Inc. (“FCBI” or the “Company”). In the opinion of management, all adjustments (including normal recurring accruals) necessary to present fairly the financial position of FCBI and subsidiary at September 30, 2004 and its results of operations, cash flows, and changes in stockholders’ equity for the nine months ended September 30, 2004 and 2003 have been made. These results are not necessarily indicative of the results of consolidated operations that might be expected for the full calendar year.

The consolidated balance sheet as of December 31, 2003 has been extracted from the audited financial statements included in the Company’s 2003 Annual Report to Stockholders on Form 10-K and has been revised to reflect the discontinued operations of the Company’s mortgage subsidiary, United First Mortgage, which was sold during the third quarter 2004. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted in accordance with standards for the preparation of interim financial statements. These financial statements should be read in conjunction with the financial statements and notes thereto included in the 2003 Annual Report of FCBI on Form 10-K.

A more complete and detailed description of FCBI’s significant accounting policies is included within Footnote 1 to the Company’s Annual Report on Form 10-K for December 31, 2003. In addition, the Company’s required disclosure of the application of critical accounting policies is included within the “Application of Critical Accounting Policies” section of Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein.

The following is an update of certain required disclosures pursuant to the requirements of Financial Accounting Standards Board (“FASB”) Statement 148.

Summary of Significant Accounting Policy Update for Certain Required Disclosures: Stock Options

The Company has a stock option plan for certain executives and directors accounted for under the intrinsic value method. Because the exercise price of the Company’s employee/director stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. 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 (“in the money”) there is an economic incentive for the shares to be exercised and an increase in the dilutive effect on earnings per share results.

A new Omnibus Stock Option Plan (“Stock Option Plan”) was approved by shareholders at the annual 2004 meeting of shareholders to be used in conjunction with retention, recruitment and hiring of employees. Options to acquire 42,000 shares of the Company’s common stock and an additional 5,000 stock awards were granted and reserved for future issuance in May 2004 subject to acceptance of agreements by the optionees. The maximum number of grants and awards under this Stock Option Plan is limited to 200,000 shares.


		REFERENCE
PART I.	FINANCIAL INFORMATION
	Item 1. Financial Statements
	Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003		3
	Consolidated Statements of Income for the Three and Nine Month Periods Ended September 30, 2004 and 2003		4
	Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 2004 and 2003		5
	Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2004 and 2003		6
	Notes to Consolidated Financial Statements		7-16
	Report of Independent Registered Public Accounting Firm		17
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18-30
	Item 3. Quantitative and Qualitative Disclosures about Market Risk		31
	Item 4. Controls and Procedures		31
PART II.	OTHER INFORMATION
	Item 1. Legal Proceedings		32
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		32
	Item 3. Defaults Upon Senior Securities		32
	Item 4. Submission of Matters to a Vote of Security Holders		32
	Item 5. Other Information		32
	Item 6. Exhibits		33
SIGNATURES			35
Exhibit 15
Exhibit 31.1
Exhibit 31.2
Exhibit 32

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