First Community Bancshares, Inc. Announces Second Quarter 2014 Results

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| Source: First Community Bancshares, Inc.

BLUEFIELD, Va., July 29, 2014 (GLOBE NEWSWIRE) -- First Community Bancshares, Inc. (Nasdaq:FCBC) (www.fcbinc.com) (the "Company") today reported net income of $7.01 million for the quarter and $12.73 million for the six months ended June 30, 2014. Net income available to common shareholders totaled $6.78 million, or $0.36 per diluted common share, for the quarter and $12.28 million, or $0.65 per diluted common share, for the six months ended June 30, 2014. Core earnings totaled $6.87 million for the quarter and $12.73 million for the six months ended June 30, 2014.

Second Quarter 2014 Highlights –

  • Diluted earnings per common share of $0.36 represents an increase of 24.1% over $0.29 reported for the first quarter of 2014 and an increase of 38.5% over $0.26 reported for the second quarter of 2013.
  • The Company announced the pending acquisition of seven branches in southwest Virginia and central North Carolina with deposits of approximately $440 million.
  • The Company recently announced an 8.3% increase in the cash dividend to common shareholders.
  • The non-covered loan portfolio increased $67.7 million compared to year-end 2013 and $119.3 million compared to the second quarter of 2013. This marks the fifth consecutive quarter non-covered loan growth has exceeded covered loan declines.
  • Annualized growth in the non-covered loan portfolio was 9.6% during the quarter.
  • Non-covered delinquent loans as a percentage of total non-covered loans experienced a significant decrease of 86 basis points, or 34.0%, to 1.67% compared to the second quarter of 2013. The decrease is attributed to an $11.7 million, or 40.0%, decrease in non-covered nonaccrual loans.
  • Net charge-offs of $1.03 million were a decrease of 45.0% from $1.87 million in first quarter 2014 and 79.2% from $4.93 million in second quarter 2013.
  • The Company significantly exceeds regulatory "well capitalized" targets as of June 30, 2014, with a total risk-based capital ratio of 16.4%, a Tier 1 risk-based capital ratio of 15.2%, and a Tier 1 leverage ratio of 10.4%.

Net Interest Income

The tax equivalent net interest margin increased to 4.08% for the second quarter of 2014 compared with 4.07% for the same quarter of 2013. Net interest income decreased $794 thousand, or 47%, to $22.07 million for the second quarter of 2014 compared with the same quarter of 2013. Total interest income decreased $1.32 million, or 4.81%, to $26.09 million for the second quarter of 2014 compared with the same quarter of 2013. The tax equivalent yield on loans decreased 38 basis points to 5.38% while the average loan balance increased $55.80 million, or 3.30%, to $1.75 billion for the second quarter of 2014 compared with the same quarter of 2013.

Loan interest accretion stemming from the Peoples and Waccamaw acquisitions totaled $2.79 million for the second quarter of 2014, of which $1.25 million was received in cash, compared to $3.76 million for the same quarter of 2013, of which $1.71 million was received in cash. The normalized net interest margin for the second quarters of 2014 and 2013, which excludes non-cash loan interest accretion, was 3.80% and 3.71%, respectively. The normalized yield on loans for the second quarters of 2014 and 2013 was 5.03% and 5.27%, respectively.

Total interest expense decreased $525 thousand, or 11.54%, to $4.03 million for the second quarter of 2014 compared with the same quarter of 2013. Deposit costs decreased $448 thousand, or 19.62%, to $1.84 million for the second quarter of 2014 compared with the same quarter of 2013, reflecting a 9 basis point decrease in the average rate paid on interest-bearing deposits. Borrowing costs decreased $77 thousand, or 3.40%, to $2.19 million for the second quarter of 2014 compared with the same quarter of 2013. The average rate paid on interest-bearing liabilities decreased 7 basis points to 0.86% for the second quarter of 2014 compared with the same quarter of 2013. The average balance of interest-bearing liabilities decreased $79.79 million, or 4.09%, to $1.87 billion for the second quarter of 2014 compared with the same quarter of 2013, which included a $68.05 million decrease in average interest-bearing deposits and a $11.74 million decrease in average total borrowings.

Noninterest Income

Noninterest income increased $756 thousand, or 11.04%, to $7.60 million for the second quarter of 2014 compared with the same quarter of 2013, which was largely due to a decrease in the net negative amortization related to the FDIC indemnification asset and an increase in other operating income offset by a decrease in wealth management income and a net impairment loss on securities. Other operating income increased $398 thousand, or 39.41%, for the second quarter of 2014 compared with the same quarter of 2013. The increase in other operating income included a $536 thousand death benefit received in a life insurance settlement. Wealth management revenues decreased $253 thousand, or 26.06%, for the second quarter of 2014 compared with the same quarter of 2013. The Trust and Wealth Management Divisions reported $709 million in combined assets under management as of June 30, 2014. Insurance commissions increased $146 thousand, or 11.16%, for the second quarter of 2014 compared with the same quarter of 2013. Net amortization expense relating to the FDIC indemnification asset decreased $726 thousand, or 43.68%, during the second quarter of 2014, compared to the same quarter of 2013 as a result of less accretion recognized on non-impaired acquired loans. The Company incurred other-than-temporary impairment charges of $254 thousand during the second quarter of 2014 related to a non-Agency mortgage-backed security. Service charges on deposits and other service charges and fees increased $165 thousand, or 3.23%, for the second quarter of 2014 compared with the same quarter of 2013. The Company realized a $59 thousand net loss on the sale of securities for the second quarter of 2014, which was a decrease of $172 thousand compared to a net gain of $113 thousand in the same quarter of 2013.

Noninterest Expense

Noninterest expense decreased $370 thousand, or 2.00%, to $18.16 million for the second quarter of 2014 compared with the same quarter of 2013. Salaries and employee benefits experienced a slight increase of $83 thousand, or 0.83%, to $10.04 million for the second quarter of 2014 compared with the same quarter of 2013. Full-time equivalent employees totaled 743 as of June 30, 2014, a decrease of 30 employees compared with the same period of the prior year. Occupancy, furniture, and equipment expenses decreased $312 thousand, or 10.08%, to $2.78 million for the second quarter of 2014 compared with the same quarter of 2013. Other operating expense decreased $117 thousand, or 2.43%, to $4.70 million for the second quarter of 2014 compared with the same quarter of 2013, which was primarily due to decreases in legal and marketing expenses offset by increases in service fees and ATM processing expense. Other operating expense included a net loss on sales and expenses associated with other real estate owned of $254 thousand for the second quarter of 2014 compared to $170 thousand for the same quarter of 2013. The efficiency ratio for the second quarter of 2014 was 59.51% compared to 60.60% for the second quarter of 2013.

Allowance for Loan Losses and Asset Quality

The total allowance for loan losses was reduced to $23.91 million as of June 30, 2014, compared with $24.08 million as of December 31, 2013, and $23.12 million as of June 30, 2013. As of June 30, 2014, $23.50 million of the allowance was attributed to the legacy portfolio, $273 thousand was attributed to the acquired Peoples portfolio, and $137 thousand was attributed to the acquired Waccamaw portfolio. Non-covered loans and other real estate owned are those assets not covered by loss share agreements between the FDIC and the Bank in relation to the acquisition of Waccamaw. The allowance for loan losses, excluding purchased credit impaired ("PCI") loans, as a percentage of non-covered loans was 1.44% as of June 30, 2014, compared with 1.50% as of December 31, 2013, and 1.47% as of June 30, 2013. Activity in the allowance in the second quarter of 2014 included a provision for loan losses charged to operations of $1.28 million, a decrease of $1.93 million, or 60.09%, compared to a net provision of $3.21 million recorded in the same quarter of the prior year. Other allowance activity in the second quarter of 2014 included a net recovery of previous impairments recorded through the FDIC indemnification asset of $138 thousand due to better than expected performance in the Waccamaw PCI loan portfolio. Net charge-offs decreased $727 thousand, or 41.42%, in the second quarter of 2014 compared with the fourth quarter of 2013 and decreased $3.91 million, or 79.16%, compared with the second quarter of 2013. The ratio of annualized net charge-offs to average non-covered loans improved to 0.26% for the second quarter of 2014, which represents a decrease of 105 basis points compared with 1.31% for the second quarter of 2013.

Asset quality in the non-covered portfolio continues to improve as non-covered delinquent loans, which are comprised of loans 30 days or more past due and nonaccrual loans, as a percentage of total non-covered loans showed a significant decrease to 1.67% as of June 30, 2014, compared to 2.53% for the same period of the prior year. Non-covered nonaccrual loans totaled $17.46 million as of June 30, 2014, compared to $19.16 million as of December 31, 2013, and $29.13 million as of June 30, 2013. At quarter end, the Company's non-covered nonperforming loans as a percentage of total non-covered loans were 1.19% and non-covered nonperforming assets as a percentage of total non-covered assets were 1.03%.

Total nonperforming assets, including covered and non-covered loan portfolios, consisted of $18.42 million in nonaccrual loans, $109 thousand in accruing loans past due 90 days or more, $1.88 million in unseasoned, accruing troubled debt restructurings, and $14.51 million in other real estate owned as of June 30, 2014. In comparison, total nonperforming assets consisted of $22.51 million in nonaccrual loans, $86 thousand in accruing loans past due 90 days or more, $1.31 million in unseasoned, accruing troubled debt restructurings, and $14.86 million in other real estate owned as of December 31, 2013. In addition, total non-covered nonperforming assets decreased $2.76 million, or 9.92%, and total covered nonperforming assets decreased $1.10 million, or 10.04%, as of June 30, 2014, compared to December 31, 2013.

Balance Sheet and Capital

Consolidated assets totaled $2.58 billion as of June 30, 2014, a decrease of $27.11 million, or 1.04%, compared with $2.60 billion as of December 31, 2013. The change in consolidated assets was driven by a $121.40 million decrease in available-for-sale securities and an $18.97 million decrease in the covered loan portfolio, offset by a $67.67 million increase in the non-covered loan portfolio, a $40.21 million increase in cash and cash equivalents, and an $18.83 million increase in held-to-maturity securities. Consolidated liabilities totaled $2.23 billion as of June 30, 2014, a decrease of $40.98 million, or 1.80%, compared with $2.27 billion as of December 31, 2013. The change in consolidated liabilities was driven by a $27.64 million decrease in deposits and a $16.00 million decrease in federal funds purchased.

During the first six months of 2014, the Company purchased medium-term bonds in the held-to-maturity category and it is expected that this portfolio will continue to grow consistently and will provide the funding necessary to extinguish certain wholesale borrowings as they come due.

Total stockholders' equity increased to $342.48 million as of June 30, 2014, compared with $328.61 million as of December 31, 2013. Book value per as-converted common share increased to $17.61 as of June 30, 2014, compared with $16.79 as of December 31, 2013. Tangible book value per common share increased to $12.05 as of June 30, 2014, compared with $11.26 as of December 31, 2013. Additionally, the Company repurchased 131,500 common shares at a weighted average cost of $16.30 per share and paid a cash dividend of $0.24 per common share during the first six months of 2014.

The Company significantly exceeds regulatory "well capitalized" targets as of June 30, 2014, with a total risk-based capital ratio of 16.4%, a Tier 1 risk-based capital ratio of 15.2%, and a Tier 1 leverage ratio of 10.4%.

Non-GAAP Financial Measures

The Company prepares its financial statements in accordance with generally accepted accounting principles in the United States ("GAAP"). This press release also refers to certain non-GAAP financial measures that the Company believes provide investors with important information, when used in conjunction with results presented in accordance with GAAP, regarding its operational performance.

Core earnings are a non-GAAP financial measure that excludes certain items from net income. Excluded items include gains, losses, and impairment losses on securities; goodwill and intangible impairment; amortization of intangibles; taxes; and other nonrecurring income and expense items. Management believes that core earnings provide the Company and investors a valuable tool to evaluate the Company's financial results.

The efficiency ratio is a non-GAAP financial measure that is computed by dividing adjusted noninterest expense by the sum of tax equivalent net interest income and adjusted noninterest income. Management believes this measure provides investors with important information about the Company's operating expense control and efficiency of operations. Management also believes this ratio focuses attention on the core operating performance of the Company over time and is highly useful in comparing period-to-period operating performance of core business operations. The efficiency ratio used by the Company may not be comparable to efficiency ratios reported by other financial institutions.

Tangible book value per common share is a non-GAAP financial measure that is defined as stockholders' equity less goodwill and other intangibles, divided by as-converted common shares outstanding. Average tangible common equity is a non-GAAP financial measure that is defined as average stockholders' equity less average goodwill, other intangibles, and the preferred liquidation preference.

About First Community Bancshares, Inc.

First Community Bancshares, Inc., a financial holding company headquartered in Bluefield, Virginia, provides banking products and services through its wholly-owned subsidiary First Community Bank. First Community Bank operated 63 banking locations throughout Virginia, West Virginia, North Carolina, South Carolina, and Tennessee as of June 30, 2014. First Community Bank offers wealth management and investment services through its wholly-owned subsidiary First Community Wealth Management, a registered investment advisory firm, and the Bank's Trust Division, which collectively managed $709 million in combined assets as of June 30, 2014. The Company provides insurance services through its wholly-owned subsidiary Greenpoint Insurance Group, Inc., a full-service insurance agency headquartered in High Point, North Carolina, that operated 9 insurance locations throughout Virginia, West Virginia, and North Carolina as of June 30, 2014. The Company's common stock is listed on the NASDAQ Global Select Market under the trading symbol "FCBC". The Company reported consolidated assets of $2.58 billion as of June 30, 2014. Additional investor information can be found on the Company's website at www.fcbinc.com.

This news release may include forward-looking statements. These forward-looking statements are based on current expectations that involve risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may differ materially. These risks include: changes in business or other market conditions; the timely development, production and acceptance of new products and services; the challenge of managing asset/liability levels; the management of credit risk and interest rate risk; the difficulty of keeping expense growth at modest levels while increasing revenues; and other risks detailed from time to time in the Company's Securities and Exchange Commission reports including, but not limited to, the Annual Report on Form 10-K for the most recent fiscal year end. Pursuant to the Private Securities Litigation Reform Act of 1995, the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

FIRST COMMUNITY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
         
  Three Months Ended Six Months Ended
  June 30, June 30,
(Amounts in thousands, except share and per share data) 2014 2013 2014 2013
Interest income        
Interest and fees on loans held for investment  $ 23,410  $ 24,264  $ 46,244  $ 49,108
Interest on securities -- taxable  1,537  1,869  3,634  3,755
Interest on securities -- nontaxable  1,099  1,207  2,221  2,415
Interest on deposits in banks  47  72  77  138
Total interest income  26,093  27,412  52,176  55,416
Interest expense        
Interest on deposits  1,835  2,283  3,723  4,645
Interest on short-term borrowings  483  579  985  1,169
Interest on long-term borrowings  1,707  1,688  3,375  3,378
Total interest expense  4,025  4,550  8,083  9,192
Net interest income  22,068  22,862  44,093  46,224
Provision for loan losses  1,279  3,205  3,072  4,347
Net interest income after provision for loan losses  20,789  19,657  41,021  41,877
Noninterest income        
Wealth management income  718  971  1,726  1,817
Service charges on deposit accounts  3,423  3,315  6,493  6,483
Other service charges and fees  1,850  1,793  3,621  3,579
Insurance commissions  1,454  1,308  3,418  2,974
Net impairment losses recognized in earnings  (254)  --  (518)  --
Net (loss) gain on sale of securities  (59)  113  (14)  230
Net FDIC indemnification asset amortization  (936)  (1,662)  (2,070)  (3,201)
Other operating income  1,408  1,010  2,182  2,827
Total noninterest income  7,604  6,848  14,838  14,709
Noninterest expense        
Salaries and employee benefits  10,043  9,960  19,948  20,070
Occupancy expense of bank premises  1,578  1,795  3,356  3,650
Furniture and equipment  1,205  1,300  2,399  2,643
Amortization of intangible assets  178  183  353  362
FDIC premiums and assessments  458  469  892  941
Merger related expense  --  8  --  57
Other operating expense  4,701  4,818  10,395  10,354
Total noninterest expense  18,163  18,533  37,343  38,077
Income before income taxes  10,230  7,972  18,516  18,509
Income tax expense  3,223  2,537  5,784  5,933
Net income  7,007  5,435  12,732  12,576
Dividends on preferred stock  227  253  455  511
Net income available to common shareholders  $ 6,780  $ 5,182  $ 12,277  $ 12,065
         
Basic earnings per common share  $ 0.37  $ 0.26  $ 0.67  $ 0.60
Diluted earnings per common share  0.36  0.26  0.65  0.59
Cash dividends per common share  0.12  0.12  0.24  0.24
         
Weighted average basic shares outstanding  18,395,996 19,997,991  18,409,414 20,015,247
Weighted average diluted shares outstanding  19,457,237  21,205,078  19,475,333  21,367,146
         
Return on average assets 1.06% 0.78% 0.96% 0.90%
Return on average common equity 8.38% 5.97% 7.71% 7.03%
         
FIRST COMMUNITY BANCSHARES, INC.
CONDENSED QUARTERLY STATEMENTS OF INCOME (Unaudited)
           
  Quarter Ended
  June 30, March 31, December 31, September 30, June 30,
(Amounts in thousands, except share and per share data) 2014 2014 2013 2013 2013
Interest Income          
Interest and fees on loans held for investment  $ 23,410  $ 22,834  $ 24,053  $ 23,439  $ 24,264
Interest on securities -- taxable  1,537  2,097  2,121  1,999  1,869
Interest on securities -- nontaxable  1,099  1,122  1,159  1,216  1,207
Interest on deposits in banks  47  30  31  42  72
Total interest income  26,093  26,083  27,364  26,696  27,412
Interest Expense          
Interest on deposits  1,835  1,888  2,031  2,147  2,283
Interest on short-term borrowings  483  502  536  517  579
Interest on long-term borrowings  1,707  1,668  1,705  1,706  1,688
Total interest expense  4,025  4,058  4,272  4,370  4,550
Net interest income  22,068  22,025  23,092  22,326  22,862
Provision for loan losses  1,279  1,793  1,528  2,333  3,205
Net interest income after provision for loan losses  20,789  20,232  21,564  19,993  19,657
Noninterest Income          
Wealth management income  718  1,008  732  863  971
Service charges on deposit accounts  3,423  3,070  3,493  3,582  3,315
Other service charges and fees  1,850  1,771  1,795  1,777  1,793
Insurance commissions  1,454  1,964  1,400  1,559  1,308
Net impairment losses recognized in earnings  (254)  (264)  (320)  --  --
Net (loss) gain on sale of securities  (59)  45  208  (39)  113
Net FDIC indemnification asset amortization  (936)  (1,134)  (1,307)  (1,089)  (1,662)
Other operating income  1,408  774  950  1,458  1,010
Total noninterest income  7,604  7,234  6,951  8,111  6,848
Noninterest Expense          
Salaries and employee benefits  10,043  9,905  10,085  11,080  9,960
Occupancy expense of bank premises  1,578  1,778  1,683  1,700  1,795
Furniture and equipment  1,205  1,194  1,035  1,288  1,300
Amortization of intangible assets  178  175  184  183  183
FDIC premiums and assessments  458  434  316  460  469
Merger related expense  --  --  --  --  8
Other operating expense  4,701  5,694  7,452  5,442  4,818
Total noninterest expense  18,163  19,180  20,755  20,153  18,533
Income before income taxes  10,230  8,286  7,760  7,951  7,972
Income tax expense  3,223  2,561  2,436  2,539  2,537
Net income  7,007  5,725  5,324  5,412  5,435
Dividends on preferred stock  227  228  252  261  253
Net income available to common shareholders  $ 6,780  $ 5,497  $ 5,072  $ 5,151  $ 5,182
           
Basic earnings per common share  $ 0.37  $ 0.30  $ 0.27  $ 0.26  $ 0.26
Diluted earnings per common share  0.36  0.29  0.26  0.26  0.26
Cash dividends per common share  0.12  0.12  0.12  0.12  0.12
           
Weighted average basic shares outstanding  18,395,996  18,423,123  19,136,317  20,008,861  19,997,991
Weighted average diluted shares outstanding  19,457,237  19,506,647  20,233,737  21,123,788  21,205,078
           
FIRST COMMUNITY BANCSHARES, INC.
RECONCILIATION OF GAAP NET INCOME TO CORE EARNINGS (Unaudited)
               
  Three Months Ended Six Months Ended
  June 30, March 31, December 31, September 30, June 30, June 30,
  2014 2014 2013 2013 2013 2014 2013
(Amounts in thousands, except per share data)              
Net income, GAAP  $ 7,007  $ 5,725  $ 5,324  $ 5,412  $ 5,435  $ 12,732  $ 12,576
Non-GAAP adjustments:              
Net impairment losses recognized in earnings  254  264  320  --  --  518  --
Net loss (gain) on sale of securities  59  (45)  (208)  39  (113)  14  (230)
Net gain on debt prepayment  --  --  --  --  --  --  (296)
Merger related expense  --  --  --  --  8  --  57
Branch closure/consolidation expense  --  --  1,520  --  --  --  --
Other noncore, nonrecurring items  (536)  --  --  1,072  --  (536)  108
Total adjustments to core earnings  (223)  219  1,632  1,111  (105)  (4)  (361)
Tax effect  (84)  82  610  415  (39)  (2)  (135)
Core earnings, non-GAAP  $ 6,868  $ 5,862  $ 6,346  $ 6,108  $ 5,369  $ 12,730  $ 12,350
               
Core return on average assets 1.07% 0.92% 0.96% 0.92% 0.80% 0.99% 0.93%
Core return on average common equity 8.49% 7.49% 7.69% 7.19% 6.19% 8.00% 7.20%
Core return on average tangible common equity 12.73% 11.36% 11.47% 10.57% 8.97% 12.06% 10.48%
Core diluted earnings per common share $0.35 $0.30 $0.31 $0.29 $0.25 $0.65 $0.58
               
FIRST COMMUNITY BANCSHARES, INC.
EFFICIENCY RATIO CALCULATION (Unaudited)
               
  Three Months Ended Six Months Ended
  June 30, March 31, December 31, September 30, June 30, June 30,
  2014 2014 2013 2013 2013 2014 2013
(Amounts in thousands)              
Noninterest expense, GAAP  $ 18,163  $ 19,180  $ 20,755  $ 20,153  $ 18,533  $ 37,343  $ 38,077
Non-GAAP adjustments:              
Merger related expense  --  --  --  --  (8)  --  (57)
OREO expense and net loss  (254)  (857)  (970)  (272)  (170)  (1,111)  (795)
Branch closure/consolidation expense  --  --  (1,520)  --  --  --  --
Other noncore, nonrecurring items  --  --  --  (1,072)  --  --  (108)
Adjusted noninterest expense  17,909  18,323  18,265  18,809  18,355  36,232  37,117
               
Net interest income, GAAP  22,068  22,025  23,092  22,326  22,862  44,093  46,224
Noninterest income, GAAP  7,604  7,234  6,951  8,111  6,848  14,838  14,709
Non-GAAP adjustments:              
Tax equivalency adjustment  699  663  662  691  693  1,361  1,388
Net impairment losses recognized in earnings  254  264  320  --  --  518  --
Net loss (gain) on sale of securities  59  (45)  (208)  39  (113)  14  (230)
Net gain on debt prepayment  --  --  --  --  --  --  (296)
Other noncore, nonrecurring items  (536)  --  --  --  --  (536)  --
Adjusted net interest and noninterest income  30,148  30,141  30,817  31,167  30,290  60,288  61,795
               
Non-GAAP efficiency ratio 59.40% 60.79% 59.27% 60.35% 60.60% 60.10% 60.06%
               
FIRST COMMUNITY BANCSHARES, INC.
CONDENSED QUARTERLY BALANCE SHEETS (Unaudited)
           
  As of the Quarter Ended
  June 30, March 31, December 31, September 30, June 30,
  2014 2014 2013 2013 2013
(Amounts in thousands)          
Cash and due from banks  $ 47,869  $ 45,879  $ 43,598  $ 47,982  $ 44,307
Federal funds sold  38,142  22,352  1,817  33,374  22,876
Interest-bearing deposits in banks  10,770  10,771  11,152  11,219  14,936
Total cash and cash equivalents  96,781  79,002  56,567  92,575  82,119
Securities available for sale  398,425  483,864  519,820  545,676  550,158
Securities held to maturity  19,398  8,161  568  567  627
Loans held for sale  459  1,743  883  825  4,621
Loans held for investment, net of unearned income:          
Covered under loss share agreements  132,717  143,170  151,682  163,425  184,076
Not covered under loss share agreements  1,626,707  1,588,694  1,559,039  1,533,272  1,507,422
Less allowance for loan losses  (23,911)  (23,798)  (24,077)  (24,665)  (23,122)
Loans, net  1,735,972  1,709,809  1,687,527  1,672,857  1,672,997
FDIC indemnification asset  30,908  32,510  34,691  37,102  40,389
Property, plant, and equipment, net  59,145  60,043  61,116  63,526  64,085
Other real estate owned:          
Covered under loss share agreements  8,814  8,705  7,541  7,381  6,407
Not covered under loss share agreements  5,693  5,923  7,318  5,450  4,743
Interest receivable  6,206  6,259  7,521  7,336  8,010
Goodwill  105,657  105,455  105,455  104,892  104,892
Intangible assets  2,512  2,691  2,866  2,976  3,159
Other assets  105,890  107,924  111,524  112,313  113,149
Total assets  $ 2,575,401  $ 2,610,346  $ 2,602,514  $ 2,652,651  $ 2,650,735
           
Deposits:          
Noninterest-bearing  $ 357,871  $ 353,137  $ 339,680  $ 353,951  $ 349,972
Interest-bearing  362,318  382,752  361,821  374,546  354,862
Savings  517,766  531,096  524,010  527,887  513,781
Time  685,149  707,704  725,231  740,181  770,081
Total deposits  1,923,104  1,974,689  1,950,742  1,996,565  1,988,696
Interest, taxes, and other liabilities  23,576  23,323  22,770  24,653  23,019
Federal funds purchased  --  --  16,000  --  --
Securities sold under agreements to repurchase  120,159  112,337  118,308  114,647  121,204
FHLB borrowings  150,000  150,000  150,000  150,000  150,000
Other borrowings  16,087  16,087  16,088  15,839  15,877
Total liabilities  2,232,926  2,276,436  2,273,908  2,301,704  2,298,796
           
Preferred stock  15,151  15,151  15,251  15,471  15,921
Common stock  20,500  20,500  20,493  20,478  20,447
Additional paid-in capital  215,670  215,827  215,663  215,671  215,139
Retained earnings  133,688  129,115  125,826  123,018  120,273
Treasury stock, at cost  (35,797)  (35,996)  (33,887)  (10,946)  (7,763)
Accumulated other comprehensive loss  (6,737)  (10,687)  (14,740)  (12,745)  (12,078)
Total stockholders' equity  342,475  333,910  328,606  350,947  351,939
Total liabilities and stockholders' equity  $ 2,575,401  $ 2,610,346  $ 2,602,514  $ 2,652,651  $ 2,650,735
           
Shares outstanding at period end  18,403,692  18,392,020  18,514,579  19,888,028  20,060,862
Book value per common share at period end(1)  $ 17.61  $ 17.18  $ 16.79  $ 16.75  $ 16.63
Tangible book value per common share at period end(2)  $ 12.05  $ 11.61  $ 11.26  $ 11.60  $ 11.53
           
(1) Book value per common share is defined as stockholders' equity divided by as-converted common shares outstanding.
(2) Tangible book value per common share is defined as stockholders' equity less goodwill and other intangibles divided by as-converted common shares outstanding.
           
FIRST COMMUNITY BANCSHARES, INC.
SELECTED CREDIT QUALITY INFORMATION (Unaudited)
           
  As of and for the Quarter Ended
  June 30, March 31, December 31, September 30, June 30,
(Amounts in thousands) 2014 2014 2013 2013 2013
Allowance for Loan Losses          
Beginning balance  $ 23,798  $ 24,077  $ 24,665  $ 23,122  $ 24,850
Provision for loan losses charged to operations  1,279  1,793  1,528  2,333  3,205
(Recovery of) provision for loan losses recorded through the FDIC indemnification asset  (138)  (203)  (361)  812  --
Charge-offs  (1,785)  (2,216)  (2,807)  (1,955)  (5,006)
Recoveries  757  347  1,052  353  73
Net charge-offs  (1,028)  (1,869)  (1,755)  (1,602)  (4,933)
Ending balance  $ 23,911  $ 23,798  $ 24,077  $ 24,665  $ 23,122
           
Summary of Asset Quality          
Non-covered nonperforming          
Nonaccrual loans  $ 17,464  $ 20,909  $ 19,161  $ 26,397  $ 29,125
Accruing loans past due 90 days or more  --  --  --  --  --
Troubled debt restructurings ("TDRs")(1)  1,877  1,775  1,311  2,228  276
Total non-covered nonperforming loans  19,341  22,684  20,472  28,625  29,401
Other real estate owned ("OREO") not covered under FDIC loss share agreements  5,693  5,923  7,318  5,450  4,743
Total non-covered nonperforming assets  $ 25,034  $ 28,607  $ 27,790  $ 34,075  $ 34,144
Covered nonperforming          
Nonaccrual loans  $ 955  $ 1,261  $ 3,353  $ 3,579  $ 3,889
Accruing loans past due 90 days or more  109  109  86  82  --
Total covered nonperforming loans  1,064  1,370  3,439  3,661  3,889
OREO covered under FDIC loss share agreements  8,814  8,705  7,541  7,381  6,407
Total covered nonperforming assets  9,878  10,075  10,980  11,042  10,296
Total nonperforming assets  $ 34,912  $ 38,682  $ 38,770  $ 45,117  $ 44,440
           
Performing TDRs(2)  $ 11,029  $ 11,193  $ 10,900  $ 9,697  $ 10,927
Total TDRs(3)  12,906  12,968  12,211  11,925  11,203
           
Asset Quality Ratios          
Excluding covered assets          
Nonperforming loans to total loans 1.19% 1.43% 1.31% 1.87% 1.95%
Nonperforming assets to total assets 1.03% 1.16% 1.14% 1.37% 1.39%
Non-PCI allowance for loan losses to nonperforming loans 121.47% 102.74% 113.92% 82.52% 75.12%
Non-PCI allowance to non-covered total loans 1.44% 1.47% 1.50% 1.54% 1.47%
Annualized net charge-offs to average loans 0.26% 0.48% 0.45% 0.42% 1.31%
Including covered assets          
Nonperforming loans to total loans 1.16% 1.39% 1.40% 1.90% 1.97%
Nonperforming assets to total assets 1.36% 1.48% 1.49% 1.70% 1.68%
Nonperforming assets to total loans and other real estate owned 112.07% 115.74% 145.60% 149.60% 160.70%
Allowance for loan losses to nonperforming loans 117.18% 98.94% 100.69% 76.40% 69.46%
Allowance for loan losses to total loans 1.36% 1.37% 1.41% 1.45% 1.37%
           
(1) Accruing TDRs restructured within the past six months or nonperforming
(2) Accruing TDRs with six months or more of satisfactory payment performance
(3) Accruing nonperforming and performing TDRs
           
FIRST COMMUNITY BANCSHARES, INC.
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)
             
  Three Months Ended June 30,
  2014 2013
  Average   Average Yield/ Average   Average Yield/
(Amounts in thousands) Balance Interest(1) Rate(1) Balance Interest(1) Rate(1)
Assets            
Earning assets            
Loans(2)  $ 1,748,048  $ 23,467 5.38%  $ 1,692,248  $ 24,308 5.76%
Securities available-for-sale  428,111  3,239 3.03%  547,411  3,711 2.72%
Securities held-to-maturity  12,767  39 1.23%  690  14 8.14%
Interest-bearing deposits  49,325  47 0.38%  83,168  72 0.35%
Total earning assets  2,238,251  26,792 4.80%  2,323,517  28,105 4.85%
Other assets  334,279      355,778    
Total assets  $ 2,572,530      $ 2,679,295    
             
Liabilities            
Interest-bearing deposits            
Demand deposits  $ 372,536  $ 52 0.06%  $ 361,993  $ 59 0.07%
Savings deposits  524,539  128 0.10%  516,375  148 0.11%
Time deposits  697,326  1,655 0.95%  784,078  2,076 1.06%
Total interest-bearing deposits  1,594,401  1,835 0.46%  1,662,446  2,283 0.55%
Borrowings            
Federal funds purchased  --  --  --  4  --  --
Retail repurchase agreements  61,458  24 0.16%  73,408  100 0.55%
Wholesale repurchase agreements  50,000  468 3.75%  50,000  468 3.75%
FHLB advances and other borrowings  166,087  1,698 4.10%  165,877  1,699 4.11%
Total borrowings  277,545  2,190 3.16%  289,289  2,267 3.14%
Total interest-bearing liabilities  1,871,946  4,025 0.86%  1,951,735  4,550 0.93%
Noninterest-bearing demand deposits  344,485      344,180    
Other liabilities  16,490      18,163    
Total liabilities  2,232,921      2,314,078    
Stockholders' equity  339,609      365,217    
Total liabilities and stockholders' equity  $ 2,572,530      $ 2,679,295    
Net interest income, tax equivalent    $ 22,767      $ 23,555  
Net interest rate spread(3)     3.94%     3.92%
Net interest margin(4)     4.08%     4.07%
             
(1) Fully taxable equivalent at the rate of 35% ("FTE"). The FTE basis adjusts for the tax benefits of income on certain tax exempt loans and investments using the federal statutory rate of 35% for each period presented. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and nontaxable amounts.
(2) Nonaccrual loans are included in average balances outstanding, but with no related interest income during the period of nonaccrual.
(3) Represents the difference between the yield on earning assets and cost of funds.
(4) Represents tax equivalent net interest income divided by average earning assets.
             
FIRST COMMUNITY BANCSHARES, INC.
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)
             
  Six Months Ended June 30,
  2014 2013
  Average   Average Yield/ Average   Average Yield/
(Amounts in thousands) Balance Interest(1) Rate(1) Balance Interest(1) Rate(1)
Assets            
Earning assets            
Loans(2)  $ 1,733,061  $ 46,359 5.39%  $ 1,699,196  $ 49,196 5.84%
Securities available-for-sale  463,783  7,047 3.06%  546,053  7,440 2.75%
Securities held-to-maturity  7,098  54 1.53%  753  30 8.03%
Interest-bearing deposits  37,924  77 0.41%  90,987  138 0.31%
Total earning assets  2,241,866  53,537 4.82%  2,336,989  56,804 4.90%
Other assets  340,117      354,107    
Total assets  $ 2,581,983      $ 2,691,096    
             
Liabilities            
Interest-bearing deposits            
Demand deposits  $ 371,286  $ 106 0.06%  $ 357,878  $ 115 0.06%
Savings deposits  527,270  265 0.10%  511,175  302 0.12%
Time deposits  705,817  3,352 0.96%  799,980  4,228 1.07%
Total interest-bearing deposits  1,604,373  3,723 0.47%  1,669,033  4,645 0.56%
Borrowings            
Federal funds purchased  1,763  3 0.34%  2  --  --
Retail repurchase agreements  64,391  51 0.16%  74,573  206 0.56%
Wholesale repurchase agreements  50,000  931 3.75%  53,802  943 3.53%
FHLB advances and other borrowings  166,087  3,375 4.10%  170,879  3,398 4.01%
Total borrowings  282,241  4,360 3.12%  299,256  4,547 3.06%
Total interest-bearing liabilities  1,886,614  8,083 0.87%  1,968,289  9,192 0.94%
Noninterest-bearing demand deposits  340,550      338,216    
Other liabilities  18,692      21,218    
Total liabilities  2,245,856      2,327,723    
Stockholders' equity  336,127      363,393    
Total liabilities and stockholders' equity  $ 2,581,983      $ 2,691,116    
Net interest income, tax equivalent    $ 45,454      $ 47,612  
Net interest rate spread(3)     3.95%     3.96%
Net interest margin(4)     4.09%     4.11%
             
(1) Fully taxable equivalent at the rate of 35% ("FTE"). The FTE basis adjusts for the tax benefits of income on certain tax exempt loans and investments using the federal statutory rate of 35% for each period presented. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and nontaxable amounts.
(2) Nonaccrual loans are included in average balances outstanding, but with no related interest income during the period of nonaccrual.
(3) Represents the difference between the yield on earning assets and cost of funds.
(4) Represents tax equivalent net interest income divided by average earning assets.
             
FIRST COMMUNITY BANCSHARES, INC.
RECONCILIATION OF GAAP NET INTEREST MARGIN TO NORMALIZED NET INTEREST MARGIN (Unaudited)
         
   Three Months Ended June 30, 
  2014 2013
    Average Yield/   Average Yield/
(Amounts in thousands) Interest(1) Rate(1) Interest(1) Rate(1)
Earning assets        
Loans(2)  $ 23,467 5.38%  $ 24,308 5.76%
Accretion income  2,789    3,763  
Less: cash accretion income  1,247    1,708  
Non-cash accretion income  1,542    2,055  
Loans, excluding non-cash accretion income  21,925 5.03%  22,253 5.27%
Other earning assets  3,325 2.72%  3,797 2.41%
Total earning assets  25,250 4.52%  26,050 4.50%
Total interest-bearing liabilities  4,025 0.86%  4,550 0.93%
Net interest income, tax equivalent  $ 21,225    $ 21,500  
Net interest rate spread(3)   3.66%   3.57%
Net interest margin(4)   3.80%   3.71%
         
   Six Months Ended June 30, 
  2014 2013
    Average Yield/   Average Yield/
(Amounts in thousands) Interest(1) Rate(1) Interest(1) Rate(1)
Earning assets        
Loans(2)  $ 46,359 5.39%  $ 49,196 5.84%
Accretion income  5,912    7,605  
Less: cash accretion income  1,848    3,491  
Non-cash accretion income  4,064    4,114  
Loans, excluding non-cash accretion income  42,295 4.92%  45,082 5.35%
Other earning assets  7,178 2.84%  7,608 2.41%
Total earning assets  49,473 4.45%  52,690 4.54%
Total interest-bearing liabilities  8,083 0.86%  9,192 0.94%
Net interest income, tax equivalent  $ 41,390    $ 43,498  
Net interest rate spread(3)   3.59%   3.60%
Net interest margin(4)   3.73%   3.75%
         
(1) Fully taxable equivalent at the rate of 35% ("FTE"). The FTE basis adjusts for the tax benefits of income on certain tax exempt loans and investments using the federal statutory rate of 35% for each period presented. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and nontaxable amounts.
(2) Nonaccrual loans are included in average balances outstanding, but with no related interest income during the period of nonaccrual.
(3) Represents the difference between the yield on earning assets and cost of funds.
(4) Represents tax equivalent net interest income divided by average earning assets.
         
David D. Brown
(276) 326-9000