Item 2. Properties
FIRST COMMUNITY BANK OF MERCER COUNTY, INC.
The offices of the Registrant are located within First Community Bank of Mercer County, Inc. at 1001 Mercer Street, Princeton, West Virginia. Principal properties owned by the subsidiary banks consist of modern single purpose facilities described as follows:
Princeton- Two-story, 30,000 square foot banking offices with detached drive-up/walk-in facility in Princeton, West Virginia, completed in 1976; Pine Plaza branch office with drive-up located in Princeton, West Virginia, constructed in 1986 on leased land with initial lease term plus renewal options totaling twenty years; moveable, modular branch office with drive-up/walk-in located in Matoaka, West Virginia, constructed in 1983 on leased land; two-story, 6,000 square foot banking office with drive-up located in Green Valley, West Virginia, constructed in 1978, 10 automated teller machines located throughout Mercer County.
Bluefield- Three-story, 37,000 square foot banking offices located on Federal Street with detached drive-up facility, completed in 1972 and walk-up automated teller machine located on premises; one off-site automated teller machine on leased land in Bluefield Plaza.
Bluewell- Two-story, 8,200 square foot banking offices with drive-up facility located in Bluewell, West Virginia completed in 1965; one drive-up automated teller machine located on premises.
Green Valley- Branch office leased in Mercer Mall; one walk-up automated teller machine located on premises.
FIRST COMMUNITY BANK, INC.
Wyoming County- Two-story banking offices located in Pineville, West Virginia, acquired in 1961; two-story banking offices with drive-up located in Oceana, West Virginia, constructed in 1984; branch office with drive-up located in Mullens, West Virginia, constructed in 1984; moveable, modular branch office with drive-up/walk-in located in Pineville, West Virginia, constructed in 1984; three automated teller machines.
Upshur County- Three-story banking offices with an off-premise drive-up/walk-in facility located in Buckhannon, West Virginia, acquired in 1937; branch office with drive-up located in Tennerton, West Virginia, constructed in 1980; two automated teller machines.
Taylor County- Two-story banking offices with an attached drive-up/walk-in facility located in Grafton, West Virginia, constructed in 1966; one automated teller machine; one-story, 1,200 square foot banking offices with an attached drive-up facility, located in the Blueville area of Grafton, West Virginia, constructed in 1968.
Nicholas County- Two story banking offices and office addition with drive-up located in Richwood, West Virginia; off-premises facility with drive-up located in Richwood, West Virginia, constructed in 1977 on leased land; one and one-half story branch office with drive-up located in Summersville, West Virginia, constructed in 1984; one and one-half story branch office with drive-up located in Craigsville, West Virginia, constructed in 1984; two automated teller machines.
Webster County- Branch office with drive-up located in Cowen, West Virginia, constructed in 1988.
Preston County- One-story, 4,000 square foot banking offices with an attached drive-up facility located in Rowlesburg, West Virginia, constructed in the early 1920's and remodeled in 1981.
CITIZENS BANK OF TAZEWELL, INC.
Tazewell County- Bi-level , 6,500 square foot banking offices with attached drive-up facility located in Tazewell, Virginia, constructed in 1978, remodeled in 1981 and 1995; one-story, 2,500 square foot banking offices with an attached drive-up facility, located in Richlands, Virginia, constructed in 1989 and remodeled in 1995.
Item 3.

Item 3. Legal Proceedings
The Registrant and its subsidiaries (Company) are plaintiffs and defendants in lawsuits arising out of the normal course of business, in which claims for monetary damages are asserted. Management, after consulting with legal counsel handling the respective matters, is of the opinion that the ultimate outcome of such pending actions will not have a material effect upon the consolidated results of operations or financial condition of the Registrant. Following is a summary of significant proceedings along with recent developments, where applicable.
On December 31, 1992, the Company was named as a defendant in Civil Action No. 92-CV-1696-K, styled Four Winds Development, Inc., W. Stephen Melcher, and E.T. Boggess, plaintiffs, vs. First Community Bank of Princeton and Dave Shields Company, Inc., defendants. The lawsuit was filed against the Company by loan customers who claimed breach of implied duty of good faith and fair dealing, breach of fiduciary duty and breach of implied contract in connection with allegations that the Company failed to lend plaintiffs appropriate sums to complete construction and development of a condominium project. This action which sought $30 million in compensatory damages for plaintiffs was concluded in a civil trial in May 1995 with the plaintiffs being awarded a verdict of approximately $513,000. The Company filed motions seeking abatement of portions of the verdict and received a reduction of $128,000. The remaining verdict of $385,000 was ordered with prejudgment interest totaling $248,000. Amounts due plaintiffs under the verdict along with an estimate of prejudgment interest was provided for in the Company's results of operations in the second and fourth quarters of 1995. All of the plaintiffs have now filed bankruptcy. The Company has asserted its right to set off the judgment against the other judgments which are due to the Company by the plaintiffs as a result of defaulted loans earlier made by the Company to plaintiffs. In September, the Company and the plaintiff, with court approval, agreed to stay proceedings against the Company to permit negotiation and/or litigation in the plaintiffs' bankruptcy cases of these offset issues. Settlement negotiations commenced in the fourth quarter of 1996 and have yielded an agreement in principal providing for the settlement of all outstanding issues relating to the judgment, including the offset claims, and in two related pending litigations (one, a civil matter in state court and the other, a mechanics' lien assertion in Federal Bankruptcy Court). The significant provisions of the proposed compromise, which is expected to be finalized in the First Quarter of 1997, are as follows: In the settlement of the judgment against the Company, and the two related litigations, the Company and third parties, including its insurance carrier, have agreed to pay sums aggregating $733,000 to the judgment plaintiffs and to the plaintiffs in the related civil matters and to pay the sum of $228,000 to plaintiffs' counsel. Payment of the settlement by the Company will result in full settlement of the judgment and the two related civil matters. A third party bank and co-defendant in one of the related civil matters has agreed to forgive indebtedness under a $200,000 note made by the third party plaintiff in that matter. The Company will also forgive indebtedness of plaintiffs totaling $62,500 and refinance secured notes of $573,610 owed by one of the judgment plaintiffs, on current market terms. The net settlement cost to the Company of settlement of all the litigations discussed above is expected to be $468,000 and has been fully provided for in the Company's statement of condition. In March of 1997, the proposed settlement and compromise was agreed to by all parties to the litigation, signed and submitted to the respective courts of jurisdiction where they now await final order and approval.
On February 2, 1990, the Company and an officer were named defendants in Civil Action No. 89-C-1156-F styled Commercial Bank of Bluefield ("Commercial"), plaintiff vs. Allied Refrigeration, Inc., defendant and third party plaintiff vs. Dan Shortridge, Four Winds Development, Inc., W. Stephen Melcher, E.T. Boggess, Robert W. Culler, and First Community Bank, third party defendants. The lawsuit alleges a former officer of the Company collaborated with another bank, where he was previously employed, in the extension of a $200,000 loan to the defendant. The plaintiff in this matter is the Bank which extended the credit and sought collection from the borrower/defendant. The defendant and third-party plaintiff in the above referenced matter are also seeking enforcement of a mechanic's lien in relation to the development of a long-term care facility in Bluefield, Virginia. The Company is the beneficiary of a deed of trust on this care facility which secures the note in which the Company has a participation interest. The care facility was sold to a third party in December 1993. Due to the interrelationship of these matters and the civil matter in the preceding paragraph, these matters have been included in the previously discussed settlement and compromise and are expected to be dismissed as part of the pending settlement and court orders.
The Company was named as one of the defendants in a $2,370,000 lawsuit, Civil Action No. 82-C-610, styled Rhondal L. Toler, et al vs. The Castle Rock Bank of Pineville, filed on December 2, 1982 in the Circuit Court of Wyoming County, West Virginia, in which Rhondal L. and Annette Toler and Vern and Henrietta Ellison, plaintiffs, claimed that former representatives of Registrant's subsidiary misrepresented the condition of a company at the time the plaintiffs borrowed money to purchase the company. The Company has filed an answer denying all pertinent allegations made by the plaintiffs. In addition, the Company has filed a counterclaim seeking $322,000 plus costs which represents the plaintiff's outstanding indebtedness to the Company. This case was recently dismissed because it had been on the docket for more than one year and the plaintiff had failed to prosecute. The plaintiff filed a motion to reinstate. The Company has filed a motion objecting to the reinstatement
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of 1996.
Part II.
Item 5.

Item 5. Market for Registrant's Common Equity and Related Matters
Market Price of Common Stock
The common stock of FCFT, Inc. is traded over-the-counter and is listed on the NASDAQ (Level III) Electronic Billboard. The following table shows the approximate high and low bids as known to FCFT or reported by local brokers for each quarter in 1995 and 1996. Management has been advised that such quotations primarily represent actual transactions. Also, presented below is the book value and cash dividends paid per share as of and for each quarter of 1995 and 1996. The number of common stockholders of record on December 31, 1996 was 2,067 and outstanding shares totaled 4,519,996.
The holders of shares of common stock of the Company are entitled to such dividends as the Board of Directors, in its discretion, may declare out of funds legally available thereof.
The Company has historically paid dividends on a quarterly basis and currently intends to continue to pay such dividends in the foreseeable future. However, there can be no assurance that dividends will be paid in the future. The declaration and payment of future dividends will depend upon, among other things, the Company's earnings and financial condition, the general economic and regulatory climate.
The Company's ability to pay dividends to its shareholders depends to a large extent upon the dividends the Company receives from its subsidiaries. Dividends paid by its banking subsidiaries are subject to restrictions under various Federal banking laws. In addition, the banking subsidiaries must maintain certain capital levels which may restrict their ability to pay dividends to the Company. As of December 31, 1996, the net profits available for distribution to the shareholders as dividends without regulatory approval were approximately $13.9 million; however the regulators of the banking subsidiaries could administratively impose stricter limits on the ability of the banking subsidiaries to distribute net profits to the Company.
Item 6.

Item 6. Selected Financial Data
The required information is incorporated by reference to page 23 of the 1996 Annual Report.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The required information is incorporated by reference to pages 21 through 32 of the 1996 Annual Report.
Item 8.

Item 8. Financial Statements and Supplementary Data
The required information is incorporated by reference to pages 34 through 59 of the 1996 Annual Report.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Part III
Item 10.

Item 10. Directors and Executive Officers of the Registrant
The required information concerning directors has been omitted in accordance with General Instruction G. Such information regarding directors appears on pages 3, 4, 5, and 6 of the Proxy Statement relating to the 1997 Annual Meeting of Stockholders and is incorporated herein by reference.
A portion of the information relating to executive officers has been omitted in accordance with General Instruction G. Such information regarding executive officers appears on pages 6, 7, and 8 of the Proxy Statement relating to the 1997 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 11.

Item 11. Executive Compensation
The required information concerning management remuneration has been omitted in accordance with General Instruction G. Such information appearing on pages 7, 8, 10, and 11 of the Proxy Statement relating to the 1997 Annual Meeting of Stockholders is incorporated herein by reference.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
The required information concerning security ownership of certain beneficial owners and management has been omitted in accordance with General Instruction G. Such information appearing on pages 5 and 6 of the Proxy Statement relating to the 1997 Annual Meeting of Stockholders is incorporated herein by reference.
Item 13.

Item 13. Certain Relationships and Related Transactions
The required information concerning certain relationships and related transactions have been omitted in accordance with General Instruction G. Such information appearing on pages 5 and 6 of the Proxy Statement relating to the 1997 Annual Meeting of Stockholders is incorporated herein by reference.
Part IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements
The Consolidated Financial Statements of FCFT, Inc. and subsidiaries together with the Independent Auditors' Report dated January 30, 1997 are incorporated by reference to pages 34 through 58 of the 1996 Annual Report which is included herein as Exhibit 13.
(2) Financial Statement Schedules
All applicable financial statement schedules required by Regulation S-X are included in the Notes to Consolidated Financial Statements.
(b) No reports were filed on Form 8-K during the fourth quarter of 1996.
(c) Exhibits:
(2) 8-K filing of Blue Ridge Definitive Agreement is pending.
(3) Articles of Incorporation and Bylaws
The Registrant's Articles of Incorporation and By-laws were previously filed in a Registration Statement on Form S-4, Registration No. 33-32894 and are incorporated by reference in this Form 10-K.
(11) Statement Regarding Computation of Per Share Earnings
The statement regarding computation of per share earnings is included as Note 9 of the Notes to Consolidated. Financial Statements in the 1996 Annual Report to Stockholders and is incorporated herein by reference.
(13) Annual Report to Security Holders
(21) Subsidiaries of Registrant:
First Community Bank, Inc. ( a West Virginia Corporation) First Community Bank of Mercer County, Inc. ( a West Virginia Corporation) Citizens Bank of Tazewell, Inc. ( a Virginia Corporation)
(23) Independent Auditors' Consent
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BY: _______________________________________________
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
BY: _______________________________________________ Principal Accounting Officer
Message to Stockholders 3 Management's Discussion and Analysis 20 Consolidated Financial Statements 33 Board of Directors 60
About SNL Securities, Inc. SNL is the leading provider of financial, merger and market share information to banks, thrifts, investment bankers, Wall Street analysts and leading investors. Based in Charlottesville, Virginia, the company provides the most timely, accurate and complete information through databases and direct consulting.
The SNL comparative financial data represents 1996 year-end data for FCFT and September 30, 1996 data for the six-bank Peer Group and all banks in the SNL universe (600 banks). The six-bank Peer Group consists of WesBanco, Inc., City Holding Company, One Valley Bancorp of WV, Inc., Horizon Bancorp, Inc., and United Bankshares, Inc. in West Virginia and Premier Bankshares Corporation in Virginia.
Glossary of Terms
Message to Stockholders
TO OUR STOCKHOLDERS:
Through the hard work and dedication of your Board of Directors and employees
and with the support and loyalty of our family of stockholders and customers,
FCFT, Inc. is pleased to announce another exceptional, record setting year.
It is with pleasure that your Board of Directors, management and members
of the staff provide you with this report on the strong financial performance
of FCFT, Inc. for 1996 and a review of other activities for the year.
Throughout this Message to Stockholders, we have included information
pertaining to the performance of your Company as prepared by SNL
Securities, a leading firm in the financial securities research and
analysis industry (Graph 1).
Peer data is used to benchmark performance and identify opportunities
in which returns can be
improved. The continual use of this benchmarking process has enabled your
Company to set new records year after year and hopefully will continue to
provide us information and opportunities to extend these
successes. While comparison with peers never tells the complete story,
it is a good indication of the strengths of your Company. We
encourage you to review FCFT's performance compared with its peers as
presented herein (Graphs 2 - 9).
Earnings performance is not only an evaluation of how well a company has
performed in the past year, but is also a strong indicator of future
performance. Our Company's net income for 1996 was $13.917 million, an
8.82% increase over the $12.789 million reported in 1995. Since our Company
was formed in 1990, net income has nearly tripled representing an average
increase of 27.66% per year. Strong performance in terms of net income
provides for growth of stockholder value through increases in dividends and
book value and provides the resources needed to support new activities
and projects directed at continuing your Company's leadership role in the
banking industry.
Net income may be communicated more effectively as Earnings Per Share which
were $3.09 in 1996 as compared with $2.85 in 1995.
The strong earnings performance of our Company is the prime factor
supporting the substantial increase in dividends per share
which were $1.43 for 1996, a 16.26% increase over the $1.23 declared and paid
in 1995. Return on Average Equity and Return on Average Assets indicate your
Company's ability to utilize capital and assets to produce net
income. This analysis places FCFT as a
leader among its peers. The effective use of assets to produce net income is
measured by Return on Average Assets, which at 1.73%, produced another 2%
increase over the record 1.70% reported in 1995. Return on Average Equity,
which is generally thought of as a measure of the stewardship of stockholders'
investment, decreased to 16.26% from 16.77% in 1995. The decrease in Return
on Average Assets from that reported through the Third Quarter of 1996 and
Return on Average Equity from both that reported through the Third Quarter
of 1996 and for the year ended December 31, 1995 was due to a "payments
system fraud" (commonly referred to as a "kite") experienced by the Company
which resulted in a charge against income of $3.365 million during the Fourth
Quarter. Although repayment of the loss is anticipated from the principals
and their numerous business interests, the entire amount was charged against
1996's operations. Partially offsetting
the loss was a curtailment gain of $1.450 million resulting from the freeze
and pending termination of the Company's Defined Benefit
Pension Plan. The after tax net income impact of these two unusual items
was $1.149 million or $.26 per share reducing Return on
Average Assets by 14% and Return on Average Equity by 1.34%. The Pension Plan
termination is part of a simplification of retirement benefits the Company
offers to its employees moving from three separate plans
to a single plan which is more responsive to today's work force and which
provides benefits in relation to the success of the
Company from a stockholder's perspective.
Total resources of our Company increased 7.4% to a record level of $838
million at the end of 1996 as compared with $780 million at
the end of 1995. As significant as the growth in total resources was the
$62.5 million increase in outstanding loans to a new record
of $548 million. Loans, which provide our principal source of earnings,
experienced growth in all major categories allowing us to
maintain a consistent risk profile while creating additional earning assets.
With careful attention to loan underwriting standards and credit quality, an
increase in outstanding loans should positively impact net income in the
future as our Company continues to grow.
Reversing a five-year trend, non-performing assets experienced an increase
in 1996 to $8.5 million or 1.54% of total loans and other real
estate owned compared with $6.0 million or 1.20% at December 31, 1995. One
relationship, originated in 1983 totaling approximately $2 million, was
converted to non-accrual in 1996 as cash flow from rental activities fell
short of that required to service the
debt. The underlying collateral value together with the strength of the
several guarantors of this debt should ensure no loss of either principal
or interest as this problem is resolved in 1997. Much attention is being
directed toward the creation of earning assets from non-performing assets
as this will strengthen the overall composition of the balance sheet and
incrementally add to the earnings of your Company.
Our Trust and Financial Services Division, with total resources of $441
million at cost and a market value exceeding $580 million, provides a highly
demanded quality professional service throughout the geographic areas served
by FCFT, Inc. Quality trust services include agency accounts, trusts, estate
management and settlement, as well as custodial services allowing us to
provide the full range of financial services for customers whose needs exceed
what is offered by many competing financial institutions. The Trust and
Financial Services Division allows our Company to add value in many of our
existing banking relationships as well as create avenues for obtaining new
relationships by providing a high standard of quality service delivered on a
personal basis.
The market for your stock continued to recognize the financial successes
of our Company in 1996 with an average of high and low bids of $34.50 per
share at year-end. Year-end average prices represent a multiple on earnings
of 11.2X placing us conservatively in line with our peers. Expressed as a
multiple of book value, the year-end average price represents 175% of book
value, as compared with the 184% of book value reported for the end of 1995.
Dividends of $1.43 per share for 1996 represent a cash yield on current
market of 4.2%, substantially in line with many other financial instruments
which, unlike our stock, do not possess potential for future appreciation.
April 26,1996 marked the day FCFT moved into "Cyberspace" and went
"world-wide," as First Community Bank's site was established on the World
Wide Web. Our new location, http://www.fcbinc.com, has attracted more than
18,000 visitors including those from Spain, Australia, Japan, Croatia, the
Czech Republic and the United Kingdom. On October 28,1996, employees and
customers realized the benefits of our new computer system, an IBM Model 510
Risc processor. This upgrade provides much quicker response time, a shorter
daily processing cycle, and greatly enhances our ability to add new features,
products and ser-
vices which were not supportable prior to the upgrade.
Technology is changing not only the delivery channels available to customers
for products and services but the very products and services themselves. Our
original plans were to upgrade our internal computer system and add imaging
and several other new technology driven services by the end of 1996. Our
cautious approach to select not only the newest but indeed the best products
available has added time to our original schedule as better and more effective
products emerge daily. Our Technology Services Division is preparing for
24-hour access to customer information through IVR (Interactive Voice
Response) and telephone banking by mid-year. PC banking for both retail
and commercial customers is to be on-line by September with customer
check imaging technology in place by Third Quarter 1997. We view technology
as creating opportunity in two areas. First, customer
convenience can be greatly enhanced as access to their accounts on a real-time
basis will literally be around-the-clock. Secondly, new technology will
allow us to manage operational costs and increase stockholder returns while
raising the level of customer service. This truly creates a win-win situation
and one that excites us greatly.
Projected near-term economic indicators reflect a rather stable economy with
relatively low unemployment, managed levels of inflation and a
continuing robust stock market. These conditions support growth and create
an environment in which the financial services industry should
prosper. However, competition in our industry is increasing daily from
organizations which have unbundled financial services and which are
attempting to provide a low cost alternative to the more traditional
community bank. Relationship banking, built upon mutual trust and respect
and based upon doing what is right for the customer, has served your Company
and its stockholders well for almost 125 years. We plan to continue that
primary approach to our markets greatly enhanced by new personnel
capabilities, new access channels for customers and a broadened array of
products and services. We must grow closer to our customers and better
understand their needs and their expectations, becoming constantly aware of
changes and more responsive to those changes. In the past, even the best
traditional community bank was product driven. To be successful in the years
ahead, we must become fully customer or client driven with renewed emphasis
in market competencies. New competition will
demand this development and a great portion of our future success will depend
upon our abilities in customer responsiveness and satisfaction.
The "Q-Word" is simply about customer expectations and our ability to meet
them. Business Week in a special issue entitled "The Quality Imperative"
stated that service quality was one of the major challenges facing bankers in
the 1990's. We think the emphasis on the "Q-Word" has only begun as customer
expectations are dynamic and our efforts to meet and exceed those expectations
must also be as dynamic. We continually measure customer satisfaction
through surveys and focus groups as well as through use of "mystery shoppers"
who evaluate each of our offices on a frequent basis. In addition, during
1996, we employed an independent market research firm which asked about
4,000 customers to share with us what was important to them and then to
evaluate our service
against their expectations. We were most pleased that 69.6% of the customers
surveyed gave us a 9 or 10 (with 10 the highest) in Overall Satisfaction with
only 6. 1 % rating their level of Overall Satisfaction a 5 or lower. When
asked if they would recommend our banks to others, 63.3% said they
"Definitely Would Recommend" and 31.5% said they "Possibly Would
Recommend" our banks to others. The comparison of our banks with
others in the financial services industry is presented below. The results
of this survey also provide us with substantial information for further
improvement in service quality to better meet and exceed customer needs
and expectations. Awareness of the "Q-Word" and emphasis on service
quality throughout our organization will allow us to continue to meet and
exceed customer expectations, underwriting future successful economic
performance and enhanced value for you, our stockholders.
Regulations have historically provided non-banks the ability to out-service
the local community bank. Limitations on products such as brokerage and
insurance services have handicapped even the most progressive banks. In
recent months, regulations governing National banks have greatly broadened
their powers. The political process is a slow one but Congress must be
encouraged to move toward a universal charter for all members of the financial
services community and laws enacted during the Great Depression to protect
banks and bank customers must be modernized to give banks access to the same
financial services field enjoyed by many organizations which look and act like
a bank but which do not suffer similar regulatory burden. Credit unions
represent a major competitive force for America's banks as many have
completely breached the "common bond" requirement and are open to virtually
all customers in the markets they serve. Banks do not oppose
credit unions which have honored the "common bond" required by their enabling
legislation. Banks do oppose the fact that many credit unions have chosen to
ignore the requirement that customers have a real "common bond" and have
become full service financial providers while paying neither State nor Federal
income taxes. Congress must enact legislation which will make full service
credit unions subject to certain regulation and further require these credit
unions to be subject to Federal and State income tax. This will not be an
easy political battle but it is imperative that the issues are raised and
objective judgment used to either require the "common bond" clauses be adhered
to or to regulate full service credit unions similar to commercial banks.
We must all work together to see that desired legislative reform is
accomplished in 1997.
Leadership is a precious commodity not possessed by all but very necessary
for success. We were saddened in 1996 by the loss of two individuals
who not only possessed the qualities of leadership but contributed it to
your Company in abundance. On April 8, 1996, W.K. "Bill" Bentley, Past
President and Chief Executive Officer of the Company and a member of the
Board of Directors, departed this life. Bill was a person of incredible
strength both in his personal and professional life. His active role in the
Company greatly complimented its direction, growth, strength and
solidarity. His humor and wit added pleasurable moments and his willingness
to intellectually challenge issues under discussion always improved
the decisions reached. On September 7, 1996, French A. See, a long-time
supporter of the Company and its efforts, passed away. French was an employee
of the Bank of Adrian in Upshur County when it was robbed in 1934, joined the
Board of Directors in 1956 and served on various Boards of Directors and
Committees until his death. Our Company will always be indebted to French
for his interest in our success and his incessant efforts to always do his
part.
On July 3, 1996, the Company's affiliation with Citizens Bank of Tazewell,
Inc. was finalized establishing FCFT as a multi-state bank holding company
Citizens is a $50 million bank with offices in
Tazewell and Richlands, Virginia, immediately adjacent to our Mercer County, West Virginia markets. The addition of Citizens to our Company is a strategic advancement which allowed a strong and successful entry into western Virginia. On September 26, 1996, FCFT completed its acquisition of the Grafton and Rowlesburg branches of Huntington National Bank West Virginia. The addition
of these four branches to our Company will improve convenience for our
customers as well as add to stockholder value in the future. The accounting
treatment for the Citizens affiliation was on a pooling-of-interests basis
and, therefore, the historic financial statements included herein have all
been restated to include Citizens for all periods presented.
On December 26, 1996, FCFT entered a Definitive Agreement with Blue Ridge Bank
of Sparta, North Carolina. Blue Ridge is a $105 million bank with offices
located in Sparta, Taylorsville, Elkin and Hays, North Carolina. The
addition of Blue Ridge extends FCFT into its third state and enhances the
geographic diversity of your Company. The affiliation with Blue Ridge will
bring total banking resources to in excess of $940 million and improve
customer convenience and enhance stockholder value.
The success that your Company has enjoyed is the result of the efforts of many individuals substantially all of whom are stockholders themselves who, working as a team, share a common vision for the Company, an understanding of its goals and direction, and who continue with unwavering commitment toward that vision. Our world is experiencing change at an unprecedented pace. We are indebted to the many employees of the Company who working together, not only accept change, but create it, who not only reach goals, but exceed them, and who are not satisfied to sustain stockholder value and customer satisfaction but seek to improve them. To these individuals, we indeed owe our thanks. To the members of the Boards of Directors, regardless of whether
they serve as Directors of the Company, its subsidiaries, or as members of
Advisory Boards, we say thank you for your continued support, your guidance
and your unfailing encouragement. The names of these individuals are listed
in the back of this Annual Report and we hope you, as stockholders of the
Company, will share with them your appreciation for a job well done. To
you, the loyal members of our family of stockholders and customers, we
continue to offer our appreciation for your ongoing support and to welcome
your input.
Many of the paragraphs above discuss change - change in society and its
impact on the lives of those we serve, change in technology and its impact
on how we provide service and even the nature of the products and
services themselves, change in our competition, the economy, regulation
and generally the environment in which we provide services. Richard R.
Bilkell in his book, "A
Day in the Country", defines change as "the impetuous forward motion of
history" and Cass Bettinger in High Performance in the '90's goes on to say
change "is, after all, neither good nor bad; it is simply inevitable. The
challenge, of course, is quite clear: either we master the dynamics of the
change process and use it to our advantage, or we become its victims." During
recent years, great efforts have been focused internally to restructure our
organization and its people to create a more flexible, dynamic organization,
resilient in times of rapid change. This new organization, much less
structured in appearance, encourages participation in decision making by
all our people and rewards those who display a spirit of ownership and a
passion for excellence. Our emphasis on education has and will continue to
increase as education is the key to the future and we think a well educated
and empowered staff of carefully selected employees is key to our future
success. Tom Peters in his best seller "Thriving on Chaos" says " If the
word 'excellence' is to be applicable in the future, it requires wholesale
redefinition. Perhaps: Excellent firms don't believe in excellence - only
in constant improvement and constant change." We strive to be that
organization, driven by continual improvement in everything we do and
accepting change as new opportunity.
With the record setting performance established by your Company in 1996
come new and greater challenges and opportunities for 1997 and beyond. We
hope you share in our feelings of Corporate pride and excitement about FCFT's
performance and its bright future. Our report to you on the activities of
your Company
in 1996 is most respectfully presented in the pages which follow.
Sincerely,
James L. Harrison, Sr.
President & Chief Executive Officer
(Picture)
The Officers of FCFT from left to right: John M. Mendez, Vice President and Chief Financial Officer; Robert L Buzzo, Vice President; James L. Harrison, Sr., President and Chief Executive Officer.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Introduction
FCFT, Inc. (FCFT) is a multi-bank holding company headquartered in Princeton, Mercer County, West Virginia. With total resources of $838 million, FCFT provides financial and trust services to individuals and commercial customers through 23 full-service banking locations in West Virginia and Virginia.
During 1996, FCFT, Inc. merged with Citizens Bank of Tazewell (Citizens). This transaction was accounted for as a pooling of interests. The pooling of interests method requires the combining of the financial information as though they had always been combined. Consequently, the financial position and results of operations of FCFT and Citizens for 1996 and all prior periods presented have been restated to properly reflect this combination.
Summary Financial Results New records of financial performance were achieved by FCFT in 1996 as a result of significant loan growth coupled with a strong net interest margin.
Net income of $13.9 million in 1996 represented a $1.1 million increase over 1995 earnings of $12.8 million (Graph 10). Record earnings per share of $3.09 in 1996 resulted in an 8.4% increase over the $2.85 reported in 1995. This follows a 12.6% increase between 1994 and 1995 (Graph 13).
Two profitability ratios commonly used in the evaluation of earnings performance are Return on Average Assets (ROA) and Return on Average Equity (ROE) (Graphs 11 & 12). ROA measures net income in relation to total average assets and portrays the organization's ability to profitably employ its resources. ROA of 1.73% was produced in 1996 as compared with 1.70% and 1.55% in 1995 and 1994, respectively. ROE is the primary measurement of a stockholder's return on investment. ROE for 1996 totaled 16.26%, as compared with 16.77% and 16.33% in 1995 and 1994, respectively. The 3% reduction in ROE for 1996 was produced primarily by the capitalization of earnings in 1996 with average equity increasing $9.3 million during the year.
Key factors in FCFT's earnings performance were:
* An 18.5% increase in interest and fees on loans as a result of significant growth in the loan portfolio and increased asset yield,
* A 25.7% increase in noninterest income which included a pension curtailment gain of $1.5 million.
* A 12.4% decrease in other operating expenses as a result of the 1996 reduced FDIC deposit insurance premiums and litigation contingencies recorded in 1995.
* Check collection losses totalling $3.4 million.
Led by loan growth of $62.6 million during 1996, FCFT assets as of December 31, 1996 totaled $837.7 million. This is compared with $780.3 million at December 31,1995.
The net interest spread remained strong during 1996 despite a 33 basis point increase in funding costs. A 25 basis point increase in asset yield supported by a $48.0 million increase in average earning assets during 1996 sustained an already strong net interest margin. At 5.39%, the net interest margin is substantially unchanged from the previous year. The Company's strong and improving asset yield served to lessen the impact of the increase in the cost of funds during 1996.
Five-Year Selected Financial Data (Amounts in Thousands, Except Percent and Per Share Data)
Common Stock and Dividends On December 31,1996, FCFT's common stock price was $34.50, an increase of 4.54% from the December 31, 1995 closing price of $33.00. This market performance follows a substantial increase in 1995 of 11.86%.
Book value per common share was $19.76 at December 31, 1996 as compared with $17.98 and $15.59 at December 31, 1995 and 1994, respectively. The year-end common stock price of $34.50 represented 175% of book value. Total market capitalization at December 31, 1996 was $156 million. On the basis of 1996 earnings per share of $3.09 and the year-end market price of $34.50, the December 31, 1996 price/earnings multiple was 11.17 times.
Dividends declared in 1996 totaled $1.43 per share, compared with $1.23 per share in 1995 (Graph 14). The Company's objective is to pay 30% to 50% of earnings. Dividends declared were 46.2% and 43.2% of net income available to stockholders in 1996 and 1995, respectively.
Market Price and Dividends
Net Interest Margin Net interest margin measures the net interest income earned as a percentage of average earning assets. In 1996, the Company sustained its favorable net interest margin position ending the year at 5.39% (Graph 15). Although cost of funds increased 33 basis points during 1996, positive changes in the composition of balance sheet earning assets and a 25 basis point increase in asset yield supported the net interest margin despite the higher cost of funds.
The increase in average loans contributed to the increase in the asset yield in 1996. The noted increase in asset yield was primarily driven by an increase in the average yield on securities available for sale of 30 basis points.
Net Interest Income The fundamental source of the Company's earnings, net interest income, is defined as 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 short-term borrowings represent the major portion of interest-bearing liabilities. The level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in the level of interest rates.
On a tax equivalent basis, net interest income increased $2.6 million or 7.0% in 1996 following a $1.7 million or 4.6% increase in 1995. (Graph 16) Average earning assets increased 6.8% in 1996 and 3.0% in 1995. This increase was complemented by a change in the asset mix with a $62.9 million increase in the higher yielding loan portfolio.
Provision for Possible Loan Losses The provision for possible loan losses represents charges against operations to establish reserves for possible loan losses inherent in the Company's loan portfolio. The level of expense, as well as the required level of reserves, is dependent upon a number of factors including historical loss ratios by loan type, assessment of specific credit weaknesses within the portfolio, concentrations of credit, assessment of the prevailing economic climate, and other factors which may affect the overall condition of the loan portfolio.
The provision for possible loan losses was $2.3 million in 1996 $2.2 million in 1995 and $1.8 million in 1994.
Non-Interest Income
Non-interest income consists primarily of fiduciary income produced from trust services and service charges on deposit accounts. Increasing non-interest income produces higher returns on average assets and average equity without incremental capital. Non-interest income totaled $9.1 million in 1996, a $1.9 million increase or 25.7% from the $7.2 million in 1995 and a $2.0 million or 28.9% improvement over the 1994 totals of $7.0 million.
Non-interest income for 1996 includes a $1.5 million gain recognized in the fourth quarter as a result of the Company's curtailment of its Defined Benefit Pension Plan. Other income totaling $295,000 was recognized by the Company during 1996 from life insurance proceeds. Net securities losses on the sale of securities available for sale of $128,000 were recorded during 1996 as the Company repositioned a portion of its investment portfolio for improved performance. This follows gains of $457,000 in 1995 due principally to the sale of stock in a West Virginia bank holding company.
During 1994, a storage building owned by a subsidiary of the Company was destroyed by fire. Insurance proceeds over and above the carrying value of the building were recorded as a gain on involuntary conversion. The net gain from involuntary conversion was $890,000.
Service charges on deposit accounts continued to be the largest source of non-interest income in 1996. Service charge income totaled $3 million in 1996, an increase of $314,000 or 11.8% over 1995. This compares with a 14.8% increase or $343,000 in 1995. Other services charges, commissions and fees also experienced an increase in 1996 of $190,000 or 9.1% over 1995. This
compares with a 13.6% increase in 1995 of $250,000 over 1994 levels.
(Graph 17).
Fiduciary income in 1996 totaled $1.7 million, an increase of $110,000 or 6.8% over 1995. This represents the second consecutive year of growth in trust income, with 1995 experiencing a 7.3% increase or $110,000 over 1994.
Non-Interest Expense
Non-interest expense consists of salaries and benefits, occupancy, equipment and other expenses necessary for the operation of the Company.
Non-interest expense totaled $24.4 million in 1996, as compared with $22.7 million and $23.2 million in 1995 and 1994, respectively. The increase in 1996 was entirely attributable to check collection losses sustained by the Company in the fourth quarter. On November 18, 1996, the Company detected a "payments system fraud" perpetrated by a business customer and certain of its principals, all of whom are long-term customers of a subsidiary of the Company. The transaction commonly referred to as a "kite" involved the transfer of non-existent funds between a subsidiary bank of the Company and a third party bank to cover existing overdrafts. The Company recorded the check collection losses in December of 1996 which totaled $3.4 million and are reflected in non-interest expenses as a separate item. The customers involved have executed a note providing for repayment and have secured the note with various parcels of real estate. The Company anticipates repayment from this arrangement, although immediate total restitution is not expected.
Other operating expenses decreased $1.2 million from 1995 and 1994 levels, reflecting a reduction in this non-interest expense category in excess of 12%. This decrease was primarily attributable to $905,000 in litigation contingencies recorded in 1995 which were non-recurring in 1996 and a $662,000 decrease in
FDIC insurance premium expense for the year as a result of the FDIC's reduction of premium rates in June 1995 and a further reduction in January 1996.
Salaries and employee benefits decreased $464,000 or 4.6% when comparing 1996 with 1995. This decrease followed a 3.2% or $335,000 reduction between 1995 and 1994. The primary contributors to this reduction were a $137,000 decrease in pension expense as a result of the Company's termination of its Defined Benefit Pension Plan, a $148,000 adjustment in deferred compensation, and a $134,000 decrease in employee overtime expense.
Occupancy expense decreased $84,000 or 5% between 1996 and 1995. This decrease followed a 4.3% reduction between 1995 and 1994 of $76,000. Furniture and equipment expense incurred an increase of $68,000 or 5.9% between 1996 and 1995, following a 13.3% or $176,000 decrease between 1995 and 1994.
Other real estate expenses, as a component of non-interest expense, increased $239,000 between 1996 and 1995 principally due to valuation adjustments on foreclosed property. Other real estate provisions totaled $60,000, $24,000 and $469,000 in 1996, 1995 and 1994, respectively. The Company continually evaluates the carrying value of other real estate in light of current economic conditions and prospects for the liquidation of such properties.
The Company's net overhead ratio (non-interest expense less non-interest income excluding security gains and non-recurring gains divided by average earning assets) is a measure of its ability to manage and control costs (Graph 18). As this ratio decreases, more of the net interest income earned flows through to net income. The net overhead ratio for 1996, 1995 and 1994 was 2.02%, 2.27% and 2.51 respectively.
Income Tax Expense Income tax expense totaled $6.5 million in 1996, compared with $5 million in 1995 and $4.5 million in 1994. The major difference between the statutory tax rate and the effective tax rate results from income which is not taxable for Federal income tax purposes. The primary nontaxable income is that of state and municipal securities and industrial revenue bonds or loans. The effective tax rate reflects the significant increase in pre-tax income and a decline in the ratio of tax exempt income as a percentage of pre-tax income.
Investment Securities The investment portfolio totaling $100.3 million decreased $25.1 million between 1995 and 1996. The decrease in this portfolio is primarily the result of the reinvestment of maturities into the higher yielding loan portfolio.
Investment securities are comprised largely of U.S. Agency obligations, mortgage backed securities and state and municipal securities.
Obligations of States and Political Subdivisions totaling $47.5 million are comprised of high grade municipal securities generally carrying AAA ratings, most of which also carry credit enhancement insurance by major insurers of investment obligations.
The average maturity of the investment portfolio increased from 6.24 years in 1995 to 6.47 years in 1996 with an increase in tax equivalent yield from 7.31% at year-end 1995 to 7.39% at the close of 1996.
Securities Available for Sale
Securities available for sale are used as part of management's asset/liability strategy. These securities may be sold in response to changes in interest rates, changes in prepayment risk, liquidity needs and other factors. These securities are recorded at market value. At December 31, 1996, the Company had $136.1 million in securities available for sale, compared with $121.2 million at year-end 1995.
The market value of securities available for sale exceeded book value at year-end 1996 by $709,000. The average yield earned on securities available for sale in 1996 was 7.0% compared with 6.8% in 1995. The average maturity of the portfolio was 11. 7 years and 12.1 years at December 31, 1996 and 1995, respectively.
Loan Portfolio Loans, net of unearned income, totaled $547.7 million at December 31, 1996, reflecting a 12.9% increase over the 1995 year-end total of $485.2 million, as compared with loan totals at the end of 1994 equaling $421.2 million (Graph 19).
The loan-to-deposit ratio increased to 85% at December 31, 1996, up from 78% at December 31, 1995. The increases in loan totals and the loan-to-deposit ratio reflect the Company's emphasis on loan development.
The loan portfolio continues to be diversified among loan types and industry segments (Graph 20). Commercial and commercial real estate loans represent the largest portion of the portfolio and comprise 45% of total loans with 30% of all loans secured by commercial real estate.
Residential real estate loans comprise 31% of the portfolio. During 1996, loans to individuals experienced the largest increase as a percentage of total loans and now comprise 22% of the portfolio.
Reserve for Possible Loan Losses
The reserve for possible loan losses represents reserves available to absorb estimated loan losses and other credit-related charges. Loan losses arise primarily from the loan portfolio, but may also be derived form other sources, including commitments to extend credit, guarantees, and standby letters of credit. The reserve for possible loan losses is increased by both charges to earnings in the form of provisions for loan losses and recoveries of prior loan charge-offs, and decreased by loans charged-off. The provision for loan losses is added to bring the reserve to a level which, in management's judgement, is considered adequate to absorb potential losses inherent in the loan portfolio. Management performs monthly and quarterly assessments to determine the appropriate level of the reserve. The factors considered in this evaluation include, but are not necessarily limited to, estimated losses from loan and other credit arrangements, general economic conditions, changes in credit concentrations or pledged collateral, historical loan loss experience, and trends in portfolio, volume, maturity, composition, delinquencies, and non-accruals. While management has allocated reserves to various portfolio segments, the allowance is general in nature and is available for the entire portfolio.
The reserve for possible loan losses represented 144% of non-performing loans at year-end 1996 versus 165% and 108% at December 1995 and 1994, respectively. When other real estate is combined with non-performing loans, reserves equal 106% of non-performing assets at the end of 1996 versus 139% and 96% at December 1995 and 1994, respectively.
The increase in the reserve for possible loan losses in 1996 was the result of decreases in net charge-offs. Net charge-offs were $1.6 million in 1996, as compared with $2.4 million in 1995 and $2.9 million in 1994, respectively.
Non-Performing Assets Non-performing assets include loans on which interest accruals have been ceased, loans contractually past due 90 days or more and still accruing interest, and other real estate owned (OREO) pursuant to foreclosure proceedings. The levels of non-performing assets for the last five years are presented in the table below. Total nonperforming assets were $8.5 million at December 31, 1996.
Non-accruing loans increased slightly in 1996 and represent 1.0% of total loans. Reductions are expected as collateral securing our largest non-accruing relationship will be liquidated in 1997.
Deposits Market interest rates on interest bearing deposits continued the increasing trend from 1995. In 1996, the average rate paid on interest bearing liabilities was 4.34%, as compared to 4.01 % and 3.41% in 1995 and 1994, respectively. This increase in the Company's cost of funds is the result of strong competition among financial institutions, the bond and stock markets, and other providers of non-bank financial services, coupled with increased consumer awareness.
Average deposits totaled $625 million for 1996 compared to $610 million and $616 million for 1995 and 1994, respectively. This increase in deposits during 1996 was primarily attributable to the acquisition of the Grafton and Rowlesburg, West Virginia branches of Huntington National Bank West Virginia. The acquisition of these branches added approximately $21 million in deposits.
The increase in deposits was experienced in non-interest bearing demand accounts and certificates of deposit. During 1996, non-interest bearing demand deposits increased on average 4.7% with an 8% increase being experienced in average time deposits. Interest-bearing demand deposits and savings deposits decreased on average 5.6% and 4.7%, respectively, during 1996.
The Company's short-term borrowings consist primarily of Federal Funds purchased and securities sold under agreements to repurchase. Short-term borrowings increased, on average, by $19.1 million or 41.6% from 1995, following a 44.3% increase between 1995 and 1994. This category of borrowings is an accessible source of moderately priced funds and has become an important financing vehicle for the Company during the $125 million loan growth experienced over the last two years.
Average long-term borrowings, which represent long-term advances from the Federal Home Loan Bank to facilitate the purchase of investment securities, increased by 45.5% during 1996.
Stockholders' Equity Risk-based capital ratios are a measure of capital adequacy (Graph 21). At December 31, 1996, the Company's Tier I capital ratio was 15.77% compared with 16.04% in 1995. Risk-based capital ratios and the leverage ratio are used by banking regulators to measure the capital adequacy of banking institutions. The risk-based capital guidelines weight balance sheet assets and off balance sheet commitments in determining capital adequacy. The Company's total risk-based capital-to-assets ratio was 17.02% at the close of 1996 compared with 17.29% in 1995. Both of these ratios are well above the current minimum level of 8% prescribed for bank holding companies.
The leverage ratio is the measurement of total tangible equity to total assets. The Company's leverage ratio at December 31, 1996 was 10.33% compared to 9.86% at December 31, 1995, both of which are well above the minimum 3% and the recommended 4% to 5% range prescribed by Federal Reserve capital guidelines.
Liquidity Liquidity represents the Company's ability to respond to demands for funds and is usually derived from maturing investment securities, overnight investments, periodic repayment of loan principal, and from the Company's ability to generate new deposits. The Company also has the ability to attract short-term sources of funds and draw on credit lines which have been established at financial institutions to meet cash needs. Total liquidity of $350.3 million at December 31, 1996 is comprised of the following: cash on hand and deposits with other financial institutions of $27.4 million; securities available for sale of $136.1 million; and Federal Home Loan Bank credit availability of $186.8 million.
Interest Rate Sensitivity Net interest income is subject to variation as a result of changes in interest rate environments in conjunction with unbalanced repricing opportunities in earning assets and interest-bearing liabilities. 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 uses an earnings simulation model to measure interest rate sensitivity. The model 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 on the latest simulation, the Company believes that it possesses only a moderate level of interest rate risk, given its current balance sheet profile.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Summary of Significant Accounting Policies
Basis of Presentation The accounting and reporting policies of FCFT, Inc. and subsidiaries (FCFT or the Company) conform to generally accepted accounting principles and to predominant practices within the banking industry. In preparing such 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. 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 FCFT include the accounts of all wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In the Parent Company financial statements, the investment in subsidiaries is stated at equity in the net assets of such subsidiaries increased by the unamortized portion of the excess of fair value over the cost of net assets acquired, where applicable.
Securities Available for Sale 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 market value. Unrealized appreciation or depreciation in market value above or below amortized cost is included in stockholders' equity net of income taxes. Premiums and discounts are amortized to expense or accreted to income over the lives of the securities. Recognition of a gain or loss on a sale is based on the specific identification method.
Investment Securities Investments in debt securities which management has the ability and intent to hold to maturity or on a long-term basis are carried at cost. Premiums and discounts are amortized to expense and accreted to income over the lives of the securities. Gain or loss on the sale of investment securities, if any, is on the specific identification method. At December 31, 1996 and 1995, no securities were held for trading purposes and no trading account was maintained.
Allowance for Possible Loan Losses The allowance for possible loan losses is available to absorb future loan charge-offs. The allowance is increased by provisions charged to operations and reduced by losses, net of recoveries. The amount charged to operations is based on several factors including: (1) analytical reviews of significant commercial and commercial mortgage loans and loan loss experience in relationship to outstanding loans to determine an adequate allowance for possible loan losses required for outstanding loans: (2) a continuing review of loans evaluated by the loan review process as less than satisfactory, all nonperforming loans and overall portfolio quality: (3) regular examinations and appraisals of the loan portfolio conducted by federal and state supervisory authorities: and (4) management's judgment with respect to current and expected economic conditions, the level of delinquencies and nonaccrual loans, trends in the volume and term of loans, anticipated impact from changes in lending policies and procedures, changes in lending management, and any concentration of credit in certain industries or geographic areas.
Statement No. 114, "Accounting by Creditors for Impairment of a Loan", as amended, requires an allowance to be established as a component of the allowances for possible loan losses for certain loans when it is probable that all amounts due pursuant to contractual terms of the loan will not be collected and the recorded investment in the loan exceeds the fair value. Management reviews the impairment status of all loans designated as nonaccrual or have been classified as "substandard" or "doubtful" by FCFT's loan review process. Management does not individually evaluate certain smaller balance, homogeneous
loans, such as consumer installment loans and residential mortgage loans, for impairment. These loans are evaluated on an aggregate basis using a formula-based approach in accordance with the Company's policy. All of the loans deemed to be impaired were evaluated using the fair value of the collateral as the measurement standard.
Beginning in 1995, the Company adopted Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan." Under SFAS No. 114, the allowance for possible loan losses related to loans that are identified for evaluation in accordance with SFAS No. 114 is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Prior to 1995, the allowance for possible loan losses related to these loans was based on undiscounted cash flows or the fair value of the collateral for collateral dependent loans.
Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation of both buildings and improvements as well as for equipment is computed on the straight-line method over estimated useful lives. Maintenance and repairs are charged to current operations while betterments are capitalized. Disposition gains and losses are reflected in current operations. On January 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The impact of adopting this standard was not material to the Company.
Income on Loans Accrual of interest on loans is based generally on the daily amount of principal outstanding. It is the Company's policy to discontinue the accrual of interest on loans based on their payment status and the evaluation of 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 and interest accrued and not collected from prior years is charged to the reserve for possible loan losses. Credit card loans which become 180 days past due are automatically charged to the reserve for possible loan losses.
Loan Fee Income Loan origination fees are recorded as a reduction of direct costs associated with loan processing, including salaries, review of legal documents, obtainment of appraisals, and other direct costs. Fees in excess of those related costs are deferred and amortized over the life of the related loan. Loan commitment fees are deferred and amortized over the related commitment period.
Other Real Estate Owned Other real estate owned and acquired through foreclosure is stated at the lower of cost or fair market value less estimated costs to sell. Loan losses arising from the acquisition of such properties are charged against the reserve for possible loan losses. Expenses incurred in connection with operating the properties, subsequent write-downs and gains or losses upon sale are included in other non-interest income and expense. General reserves for possible loss on the disposition of other real estate are established through charges against current operations.
Intangible Assets The investment in subsidiaries in excess of amounts attributable to tangible and identified intangible assets at dates of acquisition is recorded as goodwill and is being amortized to operations over a period of fifteen years
using the straight-line method. The unamortized balance of goodwill was $3,202,000 and $2,490,000 at December 31, 1996 and 1995, respectively. A portion of the cost of purchased subsidiaries 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 which range from seven to ten years. The unamortized balance of identified intangibles was $914,000 and $1,132,000 at December 31, 1996 and 1995, respectively.
Income Taxes The company accounts for taxes using the provisions of SFAS No. 109. "Accounting for Income Taxes," which under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates to the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under SFAS No. 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
Reclassifications Certain amounts included in the 1995 and 1994 financial statements have been reclassified to conform with the presentation used in preparation of the 1996 financial statements.
Recent Accounting Pronouncements On January 1, 1996, the Company adopted SFAS No. 122 "Accounting for Mortgage Servicing Rights." The impact of adopting this standard was not material to the Company.
Cash Flows In 1996,1995 and 1994 for purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, federal funds sold, and interest bearing balances available for immediate withdrawal. Interest and income taxes paid in 1996, 1995 and 1994 were as follows:
Note 2. Merger and Acquisition
On July 3,1996, FCFT, Inc. merged with Citizens Bank of Tazewell (Citizens), headquartered in Tazewell, Virginia. As of the merger date, Citizens had approximately $52.2 million in total assets and $46.2 million in total deposits. Pursuant to the Agreement and Plan of Merger, FCFT exchanged 3.51 shares of its common stock for each share of Citizens' common stock, which totaled 263,159 shares upon consummation.
This transaction was accounted for as a pooling of interests. The pooling of interests method requires the combining of the financial information of the
merging companies as though they had always been combined.
Consequently, the financial position and results of operations of FCFT and
Citizens for 1996 and all prior periods presented have been restated to
properly reflect this combination.
Combined and separate results of operations of FCFT and Citizens for the periods presented are as follows:
On September 26, 1996, First Community Bank, Inc., a subsidiary of FCFT, Inc., acquired the Grafton and Rowlesburg, West Virginia branches of Huntington National Bank West Virginia. The acquisition of these branches added approximately $21 million in total deposits. The intangible value of this transaction totaled approximately $1 million which will be amortized over a 15-year period. The acquisition was accounted for under the purchase method of accounting. Accordingly, the consolidated results in future periods after September 26,1996 will include the operations of the Grafton and Rowlesburg branches only from the date of acquisition.
On December 30,1996, the Company entered into a Definitive Agreement to acquire all of the outstanding common stock of Blue Ridge Bank (Blue Ridge), headquartered in Sparta, North Carolina. Blue Ridge is a $105 million state-chartered bank with offices located in Sparta, Elkin, Hays and Taylorsville, North Carolina. FCFT will exchange $19.50 for each share of Blue Ridge common stock outstanding (approximately 1,212,148 shares). Management anticipates the consummation of this transaction by March 31, 1997. This merger will be accounted for under the purchase method of accounting. The intangible value of this transaction will total approximately $12.9 million and will be amortized over a 15-year period. Subsequent to the merger, Blue Ridge will operate as a wholly-owned subsidiary of FCFT, Inc.
Following are the significant components of the balance sheet of Blue Ridge as of December 31, 1996:
(Unaudited) (In Thousands) Total Loans $ 64,515 Total Assets 105,785 Total Deposits 93,354 Shareholders' Equity 11,088
Note 3. Securities Available for Sale
As of December 31, the cost and market value of securities classified as available for sale are as follows:
As of December 31, 1995, the Company transferred investment securities classified as held to maturity with an amortized cost of $26.6 million to securities available for sale. This transfer was made in accordance with the "Guide to Implementation of Statement No. 115 on Accounting for Certain Investments in Debt and Equity Securities" issued by FASB during 1995. The securities transferred increased the unrealized appreciation in securities available for sale by $755,000.
Securities available for sale with market values of $47,092,000 and $51,693,000 at December 31, 1996 and 1995, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, short-term borrowings and for other purposes.
The cost and market value of securities available for sale at December 31,1996, by contractual maturity, are shown on the following page. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. During 1996, the sale of securities available for sale resulted in gains of $90,000 and losses of $225,000. During 1995, the sale of securities available for sale resulted in gains of $572,000 and losses of $115,000. The following table presents maturities of investments by type on both a book and market value basis at December 31, 1996:
Note 4. Investment Securities Held to Maturity The book and approximate market value of investment securities as of December 31 are as follows:
Various investment securities with a book value of approximately $36,829,000 and $48,203,000, respectively, were pledged at December 31, 1996 and 1995 to secure public deposits and for other purposes required by law. There were no sales of investment securities during 1996 or 1995. The following table presents maturities of investments by type on both a book and market value basis at December 31, 1996:
Note 5. Loans
Banking subsidiaries of the Company are parties to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of their 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 in excess of the amount 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 Company's 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 with-
out being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's 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 management's credit evaluation of the counterparts. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.
Standby letters of credit and financial guarantees written 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, collateral of varying types and amounts is held to secure customer performance under certain of those letters of credit outstanding at December 31, 1996.
Financial instruments whose contract amounts represent credit risk at December 31, 1996 are commitments to extend credit (including availability of lines of credit and undrawn credit card availability) - $123.9 million, and standby letters of credit and financial guarantees written - $4.8 million. At December 31, 1996, neither the Company nor its subsidiaries has any amounts outstanding representing futures, forward exchange contracts or interest swaps.
In the normal course of business, the Company originates loan commitments. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral deemed necessary by the Company is based on management's credit evaluation and underwriting guidelines for the particular loan. The total commitments outstanding at December 31, 1996 are summarized as follows:
Additionally, the Company is also subject to certain asserted and unasserted potential claims encountered in the normal course of business. In the opinion of management, neither the resolution of these claims nor the funding of credit commitments will have a material effect on the Company's financial position or results of operations.
Presently, the Company has no significant concentrations of credit risk other than geographic concentrations. Most loans in the current portfolio are made and collateralized in West Virginia. Although portions of the West Virginia economy are closely related to coal and timber, they are supplemented by service industries. The current economy of the Company's market is relatively stable and is not seen as highly subject to volatile economic change.
In the normal course of business, the banking subsidiaries of the Company have 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 $9.8 million and $10.2 million at December 31, 1996 and 1995, respectively. New loans and payments attributable to the change from 1995 to 1996 total $2.7 million and $3.1 million, respectively.
Note 6. Reserve for Possible Loan Losses
Activity in the reserve for possible loan losses was as follows:
The following table presents FCFT's investment in loans considered to be impaired and related information on those impaired loans (in thousands):
Note 7. Premises and Equipment
Premises and equipment are comprised of the following as of December 31:
Note 8. Long-Term Advances from the Federal Home Loan Bank
Two of the Company's subsidiaries are members of the Federal Home Loan Bank ("FHLB") of Pittsburgh, Pennsylvania. Long-term advances from the FHLB mature as follows:
Advances from the FHLB are secured by stock in the FHLB of Pittsburgh, qualifying first mortgage loans, mortgage-backed securities and certain investment securities. Certain of these advances are subject to restrictions or penalties in the event of prepayment. Other various debt obligations of the Company totaled $126,000 at December 31, 1996 and $136,000 at December 31, 1995.
Note 9. Deposits
Time deposits include Certificates of Deposit issued in denominations of $100,000 or more which amounted to $71.8 million and $61.3 million at December 31, 1996 and 1995, respectively. Interest expense on these certificates was $3.1 million, $2.7 million, and $1.8 million for 1996,1995, and 1994, respectively. At December 31, 1996, the scheduled maturities of these certificates of
deposits are as follows: (Amounts in Thousands)
1997 $57,333 1998 7,445 1999 703 2000 3,669 2001 and thereafter 2,586 $71,736
Note 10. Per Share Amounts
Net income per share is based upon the weighted average number of shares of common stock outstanding during the year. The following table sets forth the net income used to determine net income per common share for the applicable years:
Note 11. Employee Benefits
Through 1995, the Company and its subsidiaries maintained three qualified employee benefit plans. On January 1, 1996 two deferred contribution plans were merged into a single plan with similar provisions. The first of these three plans is a non-contributory defined benefit pension plan. Benefits under the plan are based on length of service and qualifying compensation. The Company's funding policy is to contribute pension costs accrued. Net periodic pension expense in 1996, 1995, and 1994 is as follows:
The following table sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheets at December 31, 1996 and 1995, based upon a measurement date of December 31 for each year:
The weighted average discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.25% and 5%, respectively for both 1996 and 1995. The investment of pension assets is diversified among debt securities 23%, equity securities 63%, and cash and money market funds 14%.
In 1996, the Company recognized a $1.5 million curtailment gain from the freeze of the Company's Defined Benefit Pension Plan. The freeze of the plan was the result of the Company's decision to simplify the retirement benefits it offers.
Employee Stock Ownership and Savings Plan The Company maintained an Employee Stock Ownership and Savings Plan. Coverage under the plan is provided to all employees meeting minimum eligibility requirements. Annual contributions to the ESOP portion of the plan are made at the discretion of the Board of Directors, and are allocated to plan participants on the basis of relative compensation. Substantially all plan assets are invested in common stock of the Company. Total expense recognized by the Company related to the Employee Stock Ownership Plan was $454,000, $335,000, and $514,000 in 1996, 1995 and 1994, respectively.
The 401 (k) Savings portion of the plan is available to substantially all employees meeting minimum eligibility requirements. Participation is voluntary with the Company making matching contributions of 25% of employee contributions to the Plan up to 6% of base pay. Additional voluntary contributions by participating employees are available up to an additional 10% of base pay which are not matched by Company contributions. The cost of Company contributions under the Savings Plan was $59,000, $46,000, and $44,000 in 1996, 1995 and 1994, respectively. This plan was merged with the Employee Stock Ownership Plan on January 1, 1996. Subsequent
to this Plan merger, matching contributions will be at the discretion of the board up to 50% of elective deferrals of no more than 6% of base compensation.
Employee Welfare Plan The Company provides various medical, dental, 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 is automatic). The cost of coverage under the medical insurance program is shared by the Company and employees with the Company bearing the cost of the employee portion and with dependent coverages paid by the employee.
The Company adopted Financial Accounting Standards Board Statement 106 "Employers Accounting for Postretirement Benefits Other Than Pensions" as of January 1, 1993. The adoption of Statement 106 resulted in the recognition of a postretirement benefit obligation at the date of adoption (transition obligation). The Company has elected to recognize the obligation over the average remaining life expectancy of the participants. The transition obligation totaled $634,000 and is being recognized over 17 years. The net periodic postretirement benefit cost is expected to be approximately $72,000 on an annual basis, consisting of the interest cost of the accumulated benefit obligation and amortization of the benefit obligation. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation as of January 1, 1993 was 10% for 1993, decreasing each successive year until it reaches 6% in the year 2000. The weighted average discount rate was 7.25% in 1995 and 1996.
The Company does not have a postretirement plan for employees who retired after December 31,1993.
Deferred Compensation Plan A subsidiary of the Company has deferred compensation agreements with certain current and former officers providing for benefit payments over various periods commencing upon retirement or death. The balance sheet liability at December 31, 1996 was approximately $1,126,000.
Note 12. Compensating Balances Pursuant to agreements with the Federal Reserve Bank, the Company is required to maintain cash balances of approximately $1.3 million in lieu of charges for check clearing and other services.
Note 13. Litigation In the normal course of business, there are various outstanding commitments and contingent liabilities such as threatened legal action and legal proceedings in which the Company and its subsidiaries are defendants. These actions have arisen primarily out of commercial lending transactions and collection activities. Each of these actions involving significant damage allegations or material disputes of issues are detailed in Item 3. Legal Proceedings in the Company's 1996 Report on Form 10-K. Several of the claims and their current status are discussed below.
In January 1993, a lawsuit was filed against the Company by loan customers who claimed breach of implied duty of good faith and fair dealing, breach of fiduciary duty and breach of implied contract in connection with allegations that the Company failed to lend plaintiffs appropriate sums to complete construction and development of a condominium project. This action which sought $30 million in compensatory damages was concluded in a civil trial in May 1995 with the plaintiffs being awarded a verdict of approximately $513,000. The Company filed motions seeking abatement of portions of the verdict and received a reduction of $128,000. The remaining verdict of $385,000 was ordered with prejudgment interest totaling $248,000.
The amount due plaintiffs under the judgment, together with an estimate of prejudgment interest, was provided for in the Company's results of operations in the second and fourth quarters of 1995. All of the plaintiffs have now filed bankruptcy. The Company has asserted its right to setoff the judgment against the other judgments which are due to the Company by the plaintiffs as a result of defaulted loans earlier made by the Company to plaintiffs. In September, the Company and the plaintiff, with court approval, agreed to stay proceedings against the Company to permit negotiation and/or litigation in the plaintiff's bankruptcy cases of these offset issues.
Settlement negotiations commenced in the fourth quarter of 1996 and have yielded an agree-
ment in principal providing for the settlement of all outstanding issues relating to the judgment, including the offset claims, and in two related pending litigations (one, a civil matter in state court and the other, a mechanics' lien assertion in Federal Bankruptcy Court). The significant provisions of the proposed compromise, which is expected to be finalized in the first quarter of 1997, are as follows:
In settlement of the judgment against the Company, and the two related cases, the Company and third parties, including its insurance carrier, have agreed to pay sums aggregating $733,000 to the judgment plaintiffs and to the plaintiffs in the related civil matters and to pay the sum of $228,000 to plaintiffs' counsel. Payment of the settlement by the Company will result in full settlement of the judgment and the two related civil matters. A third party bank and co-defendant in one of the related civil matters has agreed to forgive indebtedness under a $200,000 note made by the third party plaintiff in that matter. The Company will also forgive indebtedness of plaintiffs totaling $62,500 and refinance secured notes of $573,610 owed by one of the judgement plaintiffs, on current market terms.
The net settlement cost to the Company of settlement of all the litigations discussed above is expected to be $468,000 and has been fully provided for in the Company's statement of condition. With execution of the final settlement agreement, the Company will have settled three separate matters seeking damages of $30 million, $.6 million and $1 million, respectively.
The Company is currently a defendant in other actions surrounding lending and collection activities in the normal course of business, certain of which have remained dormant for a number of years. While the Company and legal counsel are unable to assess the outcome of each of these matters, they are of the belief that these actions should not have a material adverse affect on the financial position or results of operations of the Company.
Note 14. Dividends
The primary source of funds for dividends paid by FCFT is dividends received from its subsidiary banks. Dividends paid by the banks are subject to restrictions by banking regulations. The most restrictive provision requires approval by regulatory bodies if dividends declared in any year exceed the year's net income, as defined, plus retained net profits of the two preceding years. At December 31, 1996, subsidiary earnings available for distribution as dividends to the Company without prior approval were $13.9 million.
Note 15. Regulatory Capital Requirements and Restrictions
FCFT, Inc. and First Community Bank Inc., First Community Bank of Mercer County Inc., and Citizens Bank of Tazewell, Inc. (collectively referred to as "the Banks') 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 Company's financial statements. Under the capital adequacy guidelines, and the regulatory framework for prompt corrective action, which applies to only the Banks, the entities must meet specific capital guidelines that involve quantitative measures of the entities' assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The entities' capital amounts and classification 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 FCFT, Inc. and the Banks to maintain minimum amounts and ratios (set forth in the table on p. 51) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 1996, that the Company meets all capital adequacy requirements to which it is subject.
As of December 31, 1996 and 1995, the most recent notifications from the Federal Reserve Board categorized the Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Banks must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table. There are no conditions or events since those notifications that management believes have changed the institution's category.
December 31, 1996
December 31, 1995
(a) Leverage ratio is calculated using ending assets due to a reorganization of Bank Subsidiaries prior to year-end.
Note 16. Income Taxes
Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts deducted for income tax purposes. The tax effects of significant items comprising the Company's net deferred tax asset of December 31, 1996 and 1995 are as follows:
The reconciliation between the federal statutory tax rate and the effective income tax rate is as follows:
Note 17. Other Operating Expenses
Included in other operating expenses are certain functional costs, the total of which exceeds one percent of combined interest income and non-interest income. Following are such costs for the years indicated:
Note 18. Fair Value of Financial Instruments
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" (SFAS 107). The pronouncement requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practical to estimate the value. SFAS 107 defines a financial instrument as cash, evidence of ownership in an entity, or a contract that conveys or imposes on an entity that contractual right or obligation to either receive or deliver cash for another financial instrument. Fair value is defined as 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 Company's 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 which will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different.
Financial Instruments with Book Value Equal to Fair Value The book values of cash and due from banks, interest-bearing balances with banks, federal funds sold and purchased, securities sold under agreements to repurchase, interest receivable, and interest, taxes and other liabilities are considered to be equal to fair value as a result of the short-term nature of these items.
Securities Available for Sale For securities available for sale, 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.
Investment Securities For investment securities, fair value has been 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 For all categories of loans, such as some residential mortgages, fair value is estimated by discounting the future cash flows using the current rates for similar loans.
Deposits 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.
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, Stand-by Letters of Credit, and Financial Guarantees The amount of off-balance sheet commitments to extend credit, stand-by 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 19. Parent Company Financial Information
Condensed financial information related to FCFT as of December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995 and 1994 are as follows:
CONDENSED BALANCE SHEETS
CONDENSED STATEMENTS OF INCOME
CONDENSED STATEMENTS OF CASH FLOWS (Amounts in Thousands)
Deloitte & Touche LLP 2500 One PPG Place Pittsburgh, Pennsylvania 15222-5401
Independent Auditors' Report
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF FCFT, INC.,
We have audited the accompanying consolidated balance sheets of FCFT, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of FCFT's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated 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, such consolidated financial statements present fairly, in
all material respects, the financial position of FCFT, Inc. and subsidiaries
as of December 31, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
Pittsburgh, Pennsylvania
January 30, 1997
Report on Management's Responsibilities
The management of FCFT, Inc. is responsible for the integrity of its financial
statements and their preparation in accordance with generally accepted
accounting principles. To fulfill this responsibility requires the
maintenance of a sound accounting system supported by strong internal
controls. The Company believes it has a high level of internal control
which is maintained by the recruitment and training of qualified personnel,
appropriate divisions of responsibility, the development and communication
of accounting and other procedures, and comprehensive internal audits.
Our independent auditors (Deloitte & Touche LLP) are engaged to examine,
and render an opinion on, the fairness of our consolidated financial
statements in conformity with generally accepted accounting principles.
Our independent auditors evaluate the effectiveness of our internal
accounting control systems, review selected transactions and carry out
other auditing procedures before expressing their opinion on our consolidated
financial statements.
The Board of Directors has appointed an Audit Committee composed of outside
directors which periodically meets with the independent auditors, bank
examiners, management and internal auditors to review the work of each.
The independent auditors, bank examiners and the Company's internal auditors
have free access to meet with the Audit Committee without management's
presence.
James L. Harrison, Sr.
President & Chief Executive Officer
John M. Mendez Vice President & Chief Financial Officer
Board of Directors, FCFT, Inc.
Sam Clark Agent, State Farm Insurance
Allen T. Hamner Professor of Chemistry, West Virginia Wesleyan College; Member Executive Committee
James L. Harrison, Sr. President and Chief Executive Officer, FCFT, Inc.; Member Executive Committee; President, First Community Bank, Inc.; and First Community Bank of Mercer County, Inc.
B. W. Harvey President, Highlands Real Estate Management, Inc.; Vice President, Acme Markets of Virginia, Inc.; Former President and Chief Executive Officer, Bluefield Supply Company
I. Norris Kantor Partner, Katz, Kantor & Perkins, Attorneys-at-Law; Member of Audit Committee
John M. Mendez Vice President & Chief Financial Officer, FCFT, Inc.; Vice President - Finance & Chief Administrative Officer, First Community Bank, Inc. and First Community Bank of Mercer County, Inc.
A. A. Modena Past President & Chief Executive Officer, The Flat Top National Bank of Bluefield; Member Executive Committee
Robert E. Perkinson, Jr. Vice President - Operations, MAPCO Coal, Inc. - Virginia Region
William P. Stafford President, Princeton Machinery Service, Inc.; President, Melrose Enterprises, Ltd.; Chairman, FCFT, Inc.; Member Executive Committee; Member Audit Committee
William P. Stafford, II Attorney-at-Law, Brewster, Morhous & Cameron
W. W. Tinder, Jr. Chairman of the Board and Chief Executive Officer, Tinder Enterprises, Inc.; President, Tinco Leasing Corporation (Real Estate Holdings); Member Executive Committee
Harold M. Wood Owner and Operator, Wood's General Store; Chairman of Audit Committee
Officers, FCFT, Inc.
James L. Harrison, Sr. President and Chief Executive Officer
John M. Mendez Vice President and Chief Financial Officer
Robert L. Buzzo Vice President and Secretary
Directors
Nick Ameli, Jr., CLU, ChFC Sales Manager, New York Life Insurance
K.A. Ammar, Jr.* President and Chief Executive Officer, Ammar's Inc. and Magic Mart
H.C. Arnold, Jr. Retired Public Accountant
Dr. James P. Bailey * Veterinarian, Veterinary Associates, Inc.
William B. Belchee Retired Bluefield Division Manager, Appalachian Power Company; President, Welch Insurance Agency
Claude E. Blankenship Officer, C and R Furniture: Former Mercer County Commissioner
W.C. Blankenship, Jr. Chairman of the Board, Citizens Bank of Tazewell, Inc,; Agent, State Farm Insurance
F.K. Blizzard Retired, Blizzard's Inc.
G. Ross Boyce Retired Senior Vice President, The Flat Top National Bank of Bluefield
D.L. Bowling, Jr.* President, True Energy, Inc.
Robert L. Buzzo* Vice President and Secretary, FCFT, Inc.; Chief Executive Officer, First Community Bank of Mercer County, Inc.- Bluefield
Sam Clark* Agent, State Farm Insurance
W. Paul Cole, Jr. President, Cole Chevrolet-Cadillac, Inc. and Cole Motor Company; Chairman of the Board, Truck City Parts, Inc.
L.M. Compton President, Compton Enterprises
Lillian S. Cooke Private Investor
C. William Davis* Attorney at Law, Richardson, Kemper, Hancock and Davis
H.R. Davis Auctioneer
Frank Ferrante * Retired Owner of Frankie's LaSalute
Lloyd D. Feuchtenberger, Jr. Retired Bakery Executive
Chester H. Friedl Pharmacist
H.A. Goodykoontz, Jr. Retired Pharmacist
Owen R. Griffith, Jr. Retired President and Chief Executive Officer, First Community Bank, Inc.
Anthony A. Gum Mayor, City of Buckhannon; Chairman, Business and Economics Division, West Virginia Wesleyan College
Allen T. Hamner, Ph.D.* Professor of Chemistry, West Virginia Wesleyan College
W.T. Hancock Of Counsel, Richardson, Kemper, Hancock and Davis
James L. Harrison, Sr.* President and Chief Executive Officer, FCFT, Inc.; President, First Community Bank, Inc.; and First Community Bank of Mercer County, Inc.
B.W. Harvey* President, Highlands Real Estate Management, Inc.; Vice President, Acme Markets of Virginia, Inc.
Chapman I. Johnston, Jr. Retired Chairman of the Board, Bluefield Supply Company
I. Norris Kantor* Partner, Katz, Kantor and Perkins, Attorneys-At-Law
Walden M. Keene Retired Coal Operator
Dr. John S. Lambert, Jr. Dentist
M. Neil Lohr Pharmacist, Princeton Pharmacy
Directors
Richard L. Lowry President, Murphy Insurance Agency
Dr. B.J. Martin, D.M.D. Martin Dental Associates
John P. McCabe Retired Vice Chairman of the Board, First Community Bank, Inc.
A. Herbert McClaugherty President, The Dean Company
John M. Mendez* Vice President and Chief Financial Officer, FCFT, Inc.; Vice President- Finance and Chief Administrative Officer, First Community Bank, Inc. and First Community Bank of Mercer County, Inc.
Edgar L. Miller, Sr. Owner, Edgar's Exxon Service Station
A.A. Modena* Past Executive Vice President and Secretary, FCFT, Inc.; Past President and Chief Executive Officer, The Flat Top National Bank of Bluefield
Dr. Samuel A. Muscari, Sr. Physician
Nora Belle Pasley Retired, Peoples Bank of Bluewell
Robert E. Perkinson, Jr.* Vice President-Operations, MAPCO Coal, Inc.-Virginia Region
Dr. Eduardo D. Plagata Physician
Alvin E. Platnick* President, Platnick Steel and Engineering, Inc.
Dr. William Prudich Physician, Montcalm Medical Services
Bernie Queen Retired, Amherst Coal Company
Clyde B. Ratliff President, Gasco Drilling, Inc.
Michael Ross President, Ross and Wharton Gas Co.
Richard G. Rundle* Attorney at Law, Rundle and Rundle, LC
M.M. Shumate Retired
E.T. Smith President, Smith Services, Inc.
Ira M. Smith* Attorney at Law, Smith and Lilly
Jack D. Stafford, P.E. President, Stafford Consultants, Inc.
William P. Stafford* President, Princeton Machinery Service, Inc.
William P. Stafford, II* Attorney at Law, Brewster, Morhous and Cameron
William D. Starling Retired Coal Operator
Robert R. Stuart, Jr. Retired Bakery Executive
Harold Tomchin Chairman of the Board, Tomchin Furniture Company
W.W. Tinder, Jr.* Chairman and Chief Executive Officer, Tinder Enterprises, Inc.
Robert J. Wallace Attorney at Law, Coleman and Wallace
Harold M. Wood* Owner, Wood's General Store
C. Paige Wooldridge Retired Resident Vice President, Norfolk Southern Corporation
Dale F. Woody* President, Woody Lumber Company
First Community Bank (A WEST VIRGINIA CORPORATION-MEMBER FDIC)
1001 Mercer Street Princeton, West Virginia 24740-5939 (304)487-9000 or (304)327-5175 Pine Plaza Branch (304)425-7523 Matoaka Branch (304)467-8860
Blue Prince Road, Green Valley Bluefield, West Virginia 24701-6160 (304)325-3641
211 Federal Street Bluefield, West Virginia 24701-0950 (304)325-7151
Highway 52 Bluefield, West Virginia 24701-3068 (304)589-3301
Corner of Bank and Cedar Streets Pineville, West Virginia 24874-0269 (304)732-7011
600 Guyandotte Avenue Mullens, West Virginia 25882-1024 (304)294-0700
Route 10, Cook Parkway Oceana, West Virginia 24870-1680 (304)682-8244
2 West Main Street Buckhannon, West Virginia 26201-0280 (304)472-1112
Tennerton Buckhannon, West Virginia 26201
Corner of Main and Latrobe Streets Grafton, West Virginia 26354-0278 (304)265-1111
216 Lincoln Street Grafton, West Virginia 26354-1442 (304)265-5111
Main Street Rowlesburg, West Virginia 26425 (304)454-2431
16 West Main Street Richwood, West Virginia 26261 (304)846-2641
874 Broad Street Summersville, West Virginia 26651 (304)872-4402
Route 20 and Williams River Road Cowen, West Virginia 26206 (304)226-5924
Route 55, Red Oak Plaza Craigsville, West Virginia 26205 (304)742-5101
Citizens Bank of Tazewell, Inc.
(A VIRGINIA CORPORATION - MEMBER FDIC)
643 E. Riverside Drive Tazewell, Virginia 24651 (540) 988-5577
Railroad Avenue Richlands, Virginia 24641 (540) 964-7454
Financial Information
Corporate Headquarters 1001 Mercer Street P.0. Box 5909 Princeton, West Virginia 24740-5909 (304) 487-9000
Stock Registrar and Transfer Agent First Community Bank, Inc. Trust and Financial Services Division P.0. Box 950 Bluefield, West Virginia 24701-0950 (304) 325-7151
Form 10-K The Annual Report on Form 10-K, filed with the Securities and Exchange Commission, is available to shareholders upon request to the Vice President & Chief Financial Officer of FCFT, Inc.
Financial Contact John M. Mendez Vice President & Chief Financial Officer, FCFT, Inc. P. 0. Box 5909 Princeton, West Virginia 24740-5909 (304) 487-9000
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14 (a) of the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6 (e) (2) )
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11 (c) or 240.14a-12
FCFT, INC. (Name of Registrant as Specified In Its Charter)
N.A. (Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6 (I) (4) and 0-11.
1) Title of each class of securities to which transaction applies: __________________________________________ __________________________________________
2) Aggregate number of securities to which transaction applies: __________________________________________ __________________________________________
3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined: __________________________________________
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11 (a) (2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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3) Filing Party: __________________________________________
4) Date Filed: __________________________________________
FCFT, INC. 1001 Mercer Street Princeton, West Virginia 24740
Notice of 1997 Annual Meeting of Stockholders
To the Stockholders of FCFT, Inc.:
The ANNUAL MEETING of Stockholders of FCFT, Inc. will be held at Bluefield Country Club, 1501 Whitethorn Street, Bluefield, West Virginia, at 3:00 p.m., local time on April 8, 1997, for the purpose of considering and voting upon the following items as more fully discussed herein.
1. Election of four directors to serve as members of the Board of Directors, Class of 2000. 2. Adoption of the agreement of merger between FCFT, Inc., and a newly formed Nevada corporation formed solely to change the corporate domicile of FCFT, Inc. from Delaware to Nevada. 3. Ratification of the selection of Deloitte & Touche, LLP, Pittsburgh, Pennsylvania, as independent auditors for the year ending December 31, 1997. 4. Transacting of such other business as may properly come before the meeting, or any adjournment thereof.
Only Stockholders of record at the close of business on March 10, 1997 are entitled to notice of and to vote at such meeting or at any adjournment thereof.
To ensure your shares are represented at the Annual Meeting, please complete, sign and return the enclosed proxy as promptly as possible whether or not you plan to attend the meeting. An addressed return envelope is enclosed for your convenience. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
By Order of the Board of Directors
John M. Mendez, Secretary to the Board
PROXY STATEMENT
Annual Meeting of Stockholders To Be Held on Tuesday, April 8, 1997
The Board of Directors of FCFT, Inc. (The "Corporation") solicits the enclosed proxy for use at the Annual Meeting of Stockholders of FCFT, Inc., which will be held on Tuesday, April 8, 1997, at 3:00 p.m., (local time) at Bluefield Country Club, 1501 Whitethorn Street, Bluefield, West Virginia, and at any adjournment thereof. The expenses of solicitation of the proxies for the meeting, including the cost of preparing, assembling and mailing the notice, proxy statement and return envelopes, the handling and tabulation of proxies received, and charges of brokerage houses and other institutions, nominees or fiduciaries for forwarding such documents to beneficial owners, will be paid by the Corporation. In addition to the mailing of the proxy material, solicitation may be made in person or by telephone or telegraph by offi- cers, directors or regular employees of the Corporation. This Proxy Statement and the proxies solicited hereby are being first sent or delivered to stockholders of the Corporation on or about March 11, 1997.
Voting Shares of Common Stock ($5 par value per share) represented by proxies in the accompanying form which are properly executed and returned to the Corporation will be voted at the Annual Meeting in accordance with the stockholder's instructions contained therein. In the absence of contrary instructions, shares represented by such proxies will be voted FOR the election of the nominees as described herein under "Election of Directors" and FOR ratification of the selection of Deloitte & Touche as independent public accountants for the year ended December 31, 1997. Any stockholder has the power to revoke his proxy at any time before it is voted. The Board of Directors has fixed March 10, 1997 as the record date for stockholders entitled to notice of and to vote at the Annual Meeting. Shares of Common Stock outstanding on the record date are entitled to be voted at the Annual Meeting, and the holders of record will have one vote for each share so held in the matters to be voted upon by the stockholders. There are no cumulative voting rights. Directors are elected by a plurality of votes present in person or by proxy and entitled to vote, assuming a quorum is present. All other matters coming before the meeting will be determined by majority vote of those present in person or by proxy and entitled to vote. Abstentions and broker non-votes thus have no direct effect on the election of directors, but have the effect of negative votes on other matters considered. As of the close of business on March 4, 1997, the outstanding shares of the Corporation consisted of 4,604,423 shares of Common Stock.
Election of Directors
The Corporation's Board of Directors is comprised of twelve directors, including ten non-employee directors, divided into three classes with staggered terms. All directors are elected for three-year terms. The nominees for the Board of Directors, to serve until the annual meeting of stockholders in 2000, are set forth below. All nominees are currently serving on the Corporation's Board of Directors. In the event any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who shall be designated by the present Board of Directors to fill the vacancy. In the event that additional persons are nominated for election as directors, the proxy holders intend to vote all proxies received by them for the nominees listed below. All nominees named herein have consented to be named and to serve as directors if elected.
Continuing Directors The following persons will continue to serve as members of the Board of Directors until the Annual Meeting of Stockholders in the year of the expiration of their designated term. The name, age, principal occupation and certain biographical information for each continuing director is presented below:
Compensation of Directors During 1996, non-employee members of the Board of Directors received $500 per month. Directors of the Corporation are also reimbursed for travel or other expenses incurred in attendance at Board or committee meetings. Directors who are employees of the Corporation receive no additional compensation for service on the Board or its committees.
Meeting Attendance The Board of Directors held 11 meetings during 1996. All directors and those nominees who are cur- rently directors attended at least 75% of all meetings of the Board and any committee of which they are a member with the exception of I. Norris Kantor who attended eight meetings.
Board Committees The Board of Directors of the Corporation has an Audit Committee consisting of Messrs. Kantor, Chairman; Wood; and William P.Stafford, all non-employee members of the Board. The Audit Committee of the Board of Directors, which held four meetings during 1996, reviews and acts on reports to the Board with respect to various auditing and accounting matters, the scope of the audit procedures and the results thereof, the internal accounting and control systems of the Corporation, the nature of service performed for the Corporation by and the fees to be paid to the independent auditors, the perfor- mance of the Corporation's independent and internal auditors and the accounting practices of the Corporation. The Audit Committee also recommends to the full Board of Directors the auditors to be appointed by the Board (subject to stockholders ratification). The Board does not maintain Nominat- ing or Compensation Committees.
Transactions With Directors and Officers Some of the directors and officers of the Corporation and members of their immediate families are at present, as in the past, customers of the Corporation's subsidiary banks, and have had and expect to have transactions with the banks. In addition, some of the directors and officers of the Corporation are, as in the past, also officers of or partners in entities which are customers of the banks and which have had and expect to have transactions with the banks. Such transactions were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than normal risk of collectibility or present other unfavorable features.
Principal Stockholders The following sets forth information with respect to those persons, who to the knowledge of man- agement, beneficially owned more than 5% of the Corporation's outstanding stock as of March 4, 1997. All shares are subject to the named entity's sole voting and investment power.
(1) William P. Stafford is deemed beneficial owner of the same shares by virtue of his position as President of the Foundation.
Ownership of Common Stock by Directors and Executive Officers The following table sets forth the beneficial ownership of the Common Stock of the Corporation as of March 4, 1997, by each director and nominee, each executive officer named in the Summary Compensation Table, and all directors and executive officers as a group including each executive officer named in this Proxy Statement.
(1) Mr. Perkinson serves as Co-trustee of the Trust Under Agreement for Robert E. Perkinson, Sr., and by virtue of voting power is deemed to share beneficial ownership of an additional 129,987 shares or 2.88% of the Corporation's outstanding stock held by the Trust.
(2) Mr. Stafford serves as President of The H.P. and Anne S. Hunnicutt Foundation, and by virtue of voting power is deemed beneficial owner of an additional 517,120 shares or 11.44% of the Corporation's outstanding stock held by the Foundation.
*Less than one percent.
Reports of Changes in Beneficial Ownership Based on a review of the forms submitted to the Corporation during and with respect to its fiscal year ended December 31, 1996, no person required to file reports pursuant to Section 16 of the Securities Exchange Act of 1934 failed to file any such report on a timely basis during that year.
Report on Executive Compensation
Executive Compensation Policy
Executive officers of the Corporation are not compensated by the Corporation, but rather, by a wholly-owned subsidiary bank. Accordingly, compensation of the executive officers who qualify for dis- closure is determined by the subsidiary bank's Executive Committee (executive management in the case of Mr. Mendez), consisting of bank directors Bailey, Harvey, Perkinson, William P. Stafford, and Tinder. Although a member of the Executive Committee, Mr. Harrison does not participate in any Committee discussions related to his employment provisions or compensation. Executive compensations (including compensation of the Chief Executive Officer), as determined by the Executive Committee ("Committee"), is not tied directly to Company performance through specific criteria. The compensa- tion policy of the Committee is to provide competitive levels of compensation with appropriate recog- nition of responsibility of the respective officers. Management compensation is intended to be set at levels that the Committee believes to be consistent with other companies in the banking industry of similar size, operations, and performance. Dr. James P. Bailey Robert E. Perkinson, Jr. B.W. Harvey William P. Stafford
W.W. Tinder, Jr.
Executive Compensation for the Years Ended December 31, 1996, 1995 and 1994 The following summary compensation table sets forth the information concerning compensation for services in all capacities awarded to, earned by or paid to the Corporation's President and Chief Executive Officer and to other executive officers of the Corporation whose salary and bonus exceeded $100,000 during the years ended December 31, 1996, 1995, and 1994.
Summary Compensation Table
No long term compensation is paid to the named executive officers.
Comparative Performance of the Company The following chart compares cumulative total shareholder return on the Corporation's common stock for the five-year period ended December 31, 1996 with cumulative total shareholder return of 1) The Standard & Poore's 500 market index ("S & P 500"); and 2) a group of four Peer Bank Holding Companies ("Peer"), selected by management of the Corporation based upon relative asset size and geographic location. The graph assumes an initial investment of $100 on December 31, 1991 in the Corporation's common stock and each of the comparative investments with dividends from each of the investments reinvested at year-end in additional shares of the stock at the then current market value.
Employment Contracts Under the provisions of employment contracts with Messrs. Harrison and Mendez, in the event of a change in control of the Corporation, Harrison and Mendez may elect to terminate services and be compensated at their annual salary for the balance of the term of the contract or for a period of twelve months, whichever is greater. In the event either officer is dismissed for reasons other than cause, as defined, he will be compensated at his annual salary for the balance of the term of the three-year con- tract, or twelve months, whichever is greater.
Retirement Benefits Through October 1996, the Corporation and its subsidiaries maintained a non-contributory Defined Benefit Pension Plan, for all employees meeting certain eligibility requirements. In October 1996, bene- fits under this plan were frozen with termination of the plan set for November 1996. Future retirement benefits will be provided principally through the Company's Employee Stock Ownership and Savings Plan. Annual benefits payable upon retirement to eligible employees were calculated as the sum of (i) the product of one percent of the employee's highest ten-year average compensation, (up to $150,000), multiplied by the years of service; and (ii) one-half of one percent of the employee's highest ten-year average compensation in excess of $7,800 (up to $150,000), multiplied by years of service not in excess of 35. An employee's highest ten-year average compensation consists of 1/10th of all amounts received by an employee as remuneration during the highest 10 consecutive years of compensation during the 15 years of service immediately preceding the normal retirement date, the early retirement date or the disability retirement date. With the pending termination of this plan, benefits as computed above will become payable in the form of private annuities or the actuarial equivalent of the life annuities at date of termination.
The following table includes the approximate annual retirement benefits that will be payable in a life annuity form under various assumptions as to salary and years of credit service classifications:
Compensation for purposes of the plan consists of all salary and earned income paid by the Corporation and is substantially identical to amounts reported in the Summary Compensation Table. The benefits listed in the table above are computed on the basis of a straight life annuity and are subject to any deductions for social security benefits or other off-set amounts. As of October 31, 1996, the date of the benefit freeze, the credited years of service under the retire- ment plan for the individuals named in the Summary Compensation Table were as follows: James L. Harrison, Sr.-12 years and John M. Mendez-12 years.
Employee Stock Ownership And Savings Plan The individuals listed in the Summary Compensation Table are covered under the Company's Employee Stock Ownership And Savings Plan ("ESOP"). Contributions to the ESOP portion of the plan are made annually at the discretion of the Board of Directors. Allocations of those contributions to par- ticipant's accounts are made on the basis of relative compensation (up to $150,000). Allocations to the accounts of the individuals named in the Summary Compensation Table for the 1996 year were: James L. Harrison, Sr.-$10,500; and John M. Mendez-$10,500. The 401(k) Savings portion of the plan matches deferred employee contributions at the rate of 25% up to 6% of compensation. Matching contributions for 1996 for the covered persons listed in the Summary Compensation Table were as follows: James L. Harrison, Sr.-$2,250; and John M. Mendez-$2,250.
Wrap Plan In July 1996, the Corporation created a Supplemental Executive Retirement Plan ("Plan") for the purpose of providing deferred compensation which cannot be accumulated under the Basic Savings Plan due to the deferral limitations on tax-qualified pension plan benefits and contributions for highly compensated employees. The Company makes a nonqualified matching credit on employee contributions at the rate of 25% up to 6% of compensation to the extent not included in the basic plan. There were no matching contributions for 1996 for the covered persons listed in the Summary Compensation Table.
Change in Corporate Domicile The Corporation is currently organized under the laws of the state of Delaware. The proposed change in domicile to the state of Nevada will, at current rates, save approximately $50,000 per year in franchise taxes. The change will be effected by formation of a new Nevada corporation and merging the Corporation into it, with the Nevada corporation to be the survivor, pursuant to an agreement of merger (the "Agreement") between the Corporation and the new Nevada corporation. The Agreement provides that on the effective date of the merger, outstanding shares will be exchanged on a one for one basis; and each stockholder will have exactly the same interest in the new corporation after that date as he or she previously held in the Corporation. The transaction will be free of tax consequences and no material impact on the market for the Corporation's common stock is expected. The articles of incorporation and bylaws of the new corporation will be similar to those of the Corporation; and the new corporation will have a capital structure identical to that of the Corporation, as shown in the financial statements contained in the accompanying annual report to stockholders. The rights of stockholders under Nevada law will be similar to their former rights under Delaware law. The officers, directors, employees and executive offices of the Corporation will not change, and the new corporation will succeed to all assets and liabilities of the Corporation. After the effective date, the Nevada corporation will be operated in the same manner as the Corporation, with the same policy as to dividends and similar matters.
The proposal must be approved by the holders of a majority of the Corporation's outstanding shares, and is subject to approval by the Federal Reserve Board.
THE BOARD OF DIRECTORS RECOMMENDS ADOPTION OF THE AGREEMENT OF MERGER CHANGING THE CORPORATION'S DOMICILE.
Ratification of the Selection of Auditors
Pursuant to the Bylaws of the Corporation, stockholders will be asked to ratify the selection of Deloitte & Touche, LLP, Pittsburgh, Pennsylvania, as independent auditors of the Corporation and its sub- sidiaries for the fiscal year ending December 31, 1997. The firm of Deloitte & Touche, LLP, as independent auditors has examined the financial statements of the Corporation and its subsidiaries each year since 1985 and has no relationship with the Corporation or its subsidiaries except in its capacity as auditors. In connection with its audit of the Corporation's financial statements for the years ended December 31, 1985 through 1996, Deloitte & Touche, LLP, reviewed the Corporation's annual reports to stockholders and its filings with the Securities and Exchange Commission and conducted reviews of quarterly reports to stockholders. The Audit Committee of the Board of Directors recommended to the Board of Directors that Deloitte & Touche, LLP, be appointed as independent auditors for the year ended December 31, 1997. The Board of Directors has made that appointment and recommends that the stockholders ratify the selection of Deloitte & Touche, LLP, as independent auditors for the ensuing year. A representative of Deloitte & Touche, LLP, is not expected to be present at the meeting . However, inquiries or questions of Deloitte & Touche, LLP, may be directed to Mr. Kenneth A. Liss, Partner, Deloitte & Touche, LLP, 2500 One PPG Place, Pittsburgh, PA 15222-5401, (412) 338-7200.
Other Matters
All properly executed proxies received by the Corporation will be voted at the meeting in accor- dance with the specifications contained thereon. The Board of Directors knows of no other matter which may properly come before the meeting for action. However, if any other matter does properly come before the meeting, the persons named in the proxy materials enclosed will vote in accordance with their judgment upon such matter.
Stockholder Proposals
If any stockholder intends to present a proposal at the 1998 Annual Meeting, such proposals must be received by the Corporation at its principal executive offices on or before November 13, 1997. Otherwise, such proposal will not be considered for inclusion in the Corporation's Proxy Statement for such meeting.
You are urged to properly complete, execute and return the enclosed form of proxy.
By Order of the Board of Directors
John M. Mendez, Secretary to the Board March 11, 1997
Proxy for Annual Meeting of Stockholders FCFT, INC. 1001 MERCER STREET, PRINCETON, WEST VIRGINIA 24740 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Robert L. Schumacher and Barbara J. Buchanan, or either of them, attorney and proxy with full power of substitution, to represent the undersigned at the Annual Meeting of the Stockholders of FCFT, Inc. (the "Corporation") to be held on Tuesday, April 8, 1997, at Bluefield Country Club, Whitethorn Street, Bluefield, West Virginia 24701, at 3:00 p.m., local time, and any adjournment thereof, with all power then possessed by the undersigned, and to vote, at that meeting or any adjournment thereof, all shares which the undersigned would be entitled to vote if personally present.
1. FOR [ ] the election of 4 directors-Class of 2000 James L. Harrison, Sr. A.A. Modena I. Norris Kantor William P. Stafford, II
WITHHOLD AUTHORITY [ ] You may withhold authority to vote for any nominee by lining through or otherwise striking out his name.
2. To adopt the agreement of merger by which the Corporation will change its corporate domicile from Delaware to Nevada. FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To ratify the selection of the firm Deloitte & Touche, LLP, Pittsburgh, Pennsylvania, as independent auditors for the Corporation for the fiscal year ending December 31, 1997. FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. To vote upon such other business as may properly come before this meeting.
CONTINUED ON REVERSE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF AUTHORITY IS NOT WITHHELD OR IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR ITEMS 1, 2 AND 3 ABOVE.
Dated: _________________________, 1997 ________________________________
Signature of Stockholder
________________________________
Signature of Stockholder
[ ] Please check if you plan to attend the Stockholder's Meeting on April 8, 1997.
Please sign your name(s) exactly as shown imprinted hereon. If more than one name appears as part of registration name, all names must sign. If acting in executor, trustee or other fiduciary capacity, please sign as such.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 33-72616 of FCFT, Inc. on Form S-8 of our report dated January 30, 1997, appearing in and incorporated by reference in this Annual Report on Form 10-K of FCFT, Inc. for the year ended December 31, 1996.
/S/ Deloitte & Touche LLP Deloitte & Touche LLP Pittsburgh, Pennsylvania March 31, 1997