First Community Bankshares, Inc. Announces Second Quarter

BLUEFIELD, Va., July 25, 2023 (GLOBE NEWSWIRE) -- First Community Bankshares, Inc. (NASDAQ: FCBC) (www.firstcommunitybank.com) (the “Company”) today reported its unaudited results of operations and other financial information for the quarter ended June 30, 2023. The Company reported net income of $ 9.81 million, or $ 0.55 per diluted common share, for the quarter ended June 30, 2023. When adjusted to exclude the impact of merger-related expenses associated with the acquisition of Surrey Bancorp, net income was $12.95 million for the second quarter. Net income for the six months ended June 30, 2023, was $ 21.60 million or $ 1.26 per diluted common share.

The Company also declared a quarterly cash dividend to common shareholders of twenty-nine cents ($ 0.29) per common share. The quarterly dividend is payable to common shareholders of record on August 11, 2023, and is expected to be paid on or about August 25, 2023. This marks the 38th consecutive year of regular dividends to common shareholders.

Second Quarter 2023 and Current Highlights

Income Statement

Net income of $9.81 million for the quarter was approximately 12.48%, or $1.40 million, lower compared to net income of $11.21 million in the same quarter of 2022. The decrease is primarily attributable to $2.01 million in one-time merger-related costs and $1.61 million in additional credit loss provision both associated with the acquisition of Surrey Bancorp on April 21, 2023.
When adjusted for merger-related costs and provisions and other non-recurring items, second quarter net income of $12.95 million, or $0.70 per diluted common share was an increase of $1.81 million, or 16.20%, from the same quarter last year.
Net interest income increased $5.32 million compared to the same quarter in 2022, as increases in interest rates improved net interest margin.
Net interest margin of 4.48% is an increase of 70 basis points over the same quarter of 2022. The yield on earning assets increased 91 basis points primarily driven by increased earnings on loans and securities.
Interest and fees on loans increased $6.28 million from the same quarter of 2022 and is attributable to both an increase in yield and an increase in average balance compared to the yield and average balance of the prior year. Interest income from securities of $2.06 million was an increase of $506 thousand over the same quarter of 2022 and is attributable to an increase in the portfolio and in yield from the same period of the prior year. Interest income on deposits in banks also increased $117 thousand to $885 thousand for the second quarter, primarily due to a significant increase in overnight rates compared to the second quarter of 2022.
Annualized return on average assets was 1.18% for the second quarter and 1.36% for the first six months of 2023 compared to 1.38% and 1.29% for the same periods, respectively of 2022. Annualized return on average common equity was 8.04% for the second quarter and 9.48% for the first six months of 2023 compared to 10.61% and 9.80% for the same periods, respectively of 2022.

Balance Sheet and Asset Quality

The Company completed the strategic acquisition of Surrey Bancorp, on April 21, 2023. Total assets of $466.25 million were acquired in the transaction increasing the Company's consolidated assets to $3.39 billion. In addition, the Company issued 2.99 million common shares in the purchase resulting in an increase in capital of $71.37 million. The purchase transaction created $14.38 million in goodwill and $12.70 million in other intangible assets. Other major balance sheet components increased in the transaction with $239.08 million acquired in loans and $403.64 million in deposits.
The Company’s loan portfolio increased by $220.88 million, or 9.20% from December 31, 2022. Excluding the Surrey transaction, the loan portfolio decreased approximately $18.20 million, or 0.76%.
Deposits increased $173.86 million, or 6.49% from year-end 2022. Excluding the Surrey transaction, deposits decreased approximately $229.77 million, or 8.58% from December 31, 2022.
The Company repurchased 279,567 common shares during the second quarter of 2023 for a total cost of $7.69 million. Share repurchases had been suspended in the fourth quarter of 2022 in anticipation of the now completed acquisition of Surrey Bancorp and not restarted until the second quarter of 2023.
Non-performing loans to total loans increased slightly to 0.71% from 0.65% that was reported at March 31, 2023. The Company experienced net charge-offs for the second quarter of 2023 of $728 thousand, or 0.11% of annualized average loans, compared to net recoveries of $258 thousand, or 0.05% of annualized average loans for the same period in 2022.
The allowance for credit losses to total loans was 1.38% at June 30, 2023 compared to 1.29% for the first quarter of 2023.
Accumulated other comprehensive loss of $14.46 million at June 30, 2023, is primarily attributable to a relatively small decline in the market value of investment securities compared to book value after the significant increases in benchmark interest rates of the last six quarters.
Book value per share at June 30, 2023, was $26.29, an increase of $0.28 from year-end 2022.

Non-GAAP Financial Measures

In addition to financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company uses certain non-GAAP financial measures that provide useful information for financial and operational decision making, evaluating trends, and comparing financial results to other financial institutions. The non-GAAP financial measures presented in this news release include “tangible book value per common share,” “return on average tangible common equity,” “adjusted earnings,” “adjusted diluted earnings per share,” “adjusted return on average assets,” “adjusted return on average common equity,” “adjusted return on average tangible common equity,” and certain financial measures presented on a fully taxable equivalent (“FTE”) basis. FTE basis is calculated using the federal statutory income tax rate of 21%. While the Company believes certain non-GAAP financial measures enhance the understanding of its business and performance, they are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP and may not be comparable to those reported by other financial institutions.

About First Community Bankshares, Inc.

First Community Bankshares, 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 53 branch banking locations in Virginia, West Virginia, North Carolina, and Tennessee as of June 30, 2023. First Community Bank offers wealth management and investment advice and services through its Trust Division and through its wholly owned subsidiary, First Community Wealth Management, which collectively managed and administered $ 1.42 billion in combined assets as of June 30, 2023. The Company reported consolidated assets of $ 3.39 billion as of June 30, 2023. The Company’s common stock is listed on the NASDAQ Global Select Market under the trading symbol, “FCBC”. Additional investor information is available on the Company’s website at www.firstcommunitybank.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.


CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months Ended															Six Months Ended
(Amounts in thousands,	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,
except share and per share data)	2023			2023			2022			2022			2022			2023			2022
Interest income
Interest and fees on loans	$	31,927		$	27,628		$	27,873		$	26,405		$	25,651		$	59,555		$	50,292
Interest on securities		2,057			2,099			1,900			1,785			1,551			4,156			2,301
Interest on deposits in banks		885			462			1,215			1,532			768			1,347			1,016
Total interest income		34,869			30,189			30,988			29,722			27,970			65,058			53,609
Interest expense		-
Interest on deposits		1,930			718			366			380			422			2,648			908
Interest on borrowings		77			59			1			-			1			136			1
Total interest expense		2,007			777			367			380			423			2,784			909
Net interest income		32,862			29,412			30,621			29,342			27,547			62,274			52,700
Provision for credit losses		4,105			1,742			3,416			685			510			5,847			2,471
Net interest income after provision		28,757			27,670			27,205			28,657			27,037			56,427			50,229
Noninterest income		8,785			8,583			9,184			9,950			8,854			17,368			18,048
Noninterest expense		24,671			20,813			20,730			21,145			21,255			45,484			41,241
Income before income taxes		12,871			15,440			15,659			17,462			14,636			28,311			27,036
Income tax expense		3,057			3,658			3,076			4,111			3,423			6,715			6,308
Net income	$	9,814		$	11,782		$	12,583		$	13,351		$	11,213		$	21,596		$	20,728

Earnings per common share
Basic	$	0.53		$	0.73		$	0.78		$	0.82		$	0.67		$	1.25		$	1.24
Diluted	$	0.55		$	0.72		$	0.77		$	0.81		$	0.67		$	1.26		$	1.24
Cash dividends per common share
Regular		0.29			0.29			0.29			0.27			0.27			0.58			0.54
Weighted average shares outstanding
Basic		18,407,078			16,228,297			16,229,289			16,378,022			16,662,817			17,323,706			16,739,624
Diluted		18,431,598			16,289,489			16,281,922			16,413,202			16,682,615			17,363,478			16,772,847
Performance ratios
Return on average assets		1.18	%		1.55	%		1.59	%		1.63	%		1.38	%		1.36	%		1.29	%
Return on average common equity		8.04	%		11.15	%		11.99	%		12.60	%		10.61	%		9.48	%		9.80	%
Return on average tangible common equity(1)		11.65	%		16.19	%		17.75	%		18.51	%		15.56	%		13.76	%		14.32	%

____________

)

A non-GAAP financial measure defined as net income divided by average stockholders' equity less average goodwill and other intangible assets

CONDENSED CONSOLIDATED QUARTERLY NONINTEREST INCOME AND EXPENSE (Unaudited)

	Three Months Ended											Six Months Ended
	June 30,			March 31,		December 31,		September 30,		June 30,		June 30,
(Amounts in thousands)	2023			2023		2022		2022		2022		2023			2022
Noninterest income
Wealth management	$	965		$	1,017	$	958	$	932	$	993	$	1,982		$	1,965
Service charges on deposits		3,471			3,159		3,354		3,689		3,672		6,630			7,170
Other service charges and fees		3,460			3,082		3,006		2,988		3,297		6,542			6,314
(Loss) gain on sale of securities		(28	)		7		-		-		-		(21	)		-
Gain on divestiture		-			-		-		1,658		-		-			-
Other operating income		917			1,318		1,866		683		892		2,235			2,599
Total noninterest income	$	8,785		$	8,583	$	9,184	$	9,950	$	8,854	$	17,368		$	18,048
Noninterest expense
Salaries and employee benefits	$	12,686		$	11,595	$	11,913	$	12,081	$	11,518	$	24,281		$	23,189
Occupancy expense		1,276			1,168		1,196		1,188		1,165		2,444			2,434
Furniture and equipment expense		1,508			1,401		1,413		1,478		1,496		2,909			3,110
Service fees		2,284			2,019		1,905		1,635		2,563		4,303			4,066
Advertising and public relations		846			643		574		718		577		1,489			1,117
Professional fees		281			327		98		208		544		608			997
Amortization of intangibles		425			234		364		365		360		659			717
FDIC premiums and assessments		423			320		330		321		257		743			475
Merger expense		2,014			379		596		-		-		2,393			-
Divestiture expense		-			-		-		153		-		-			-
Other operating expense		2,928			2,727		2,341		2,998		2,775		5,655			5,136
Total noninterest expense	$	24,671		$	20,813	$	20,730	$	21,145	$	21,255	$	45,484		$	41,241

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP ADJUSTED EARNINGS (Unaudited)

	Three Months Ended															Six Months Ended
(Amounts in thousands,	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,
except per share data)	2023			2023			2022			2022			2022			2023			2022
Net income	$	9,814		$	11,782		$	12,583		$	13,351		$	11,213		$	21,596		$	20,728
Non-GAAP adjustments:
Loss (gain) on sale of securities		28			(7	)		-			-			-			21			-
Merger expense		2,014			379			596			-			-			2,393			-
Day 2 provision for allowance for credit losses - Surrey		1,614			-			-			-			-			-			-
Divestiture expense		0			-			-			153			-			-			-
Gain on divestiture		0			-			-			(1,658	)		-			-			-
Other items (1)		0			-			(450	)		-			(92	)		1,614			(92	)
Total adjustments		3,656			372			146			(1,505	)		(92	)		4,028			(92	)
Tax effect		522			10			(29	)		(361	)		(22	)		532			(22	)
Adjusted earnings, non-GAAP	$	12,948		$	12,144		$	12,758		$	12,207		$	11,143		$	25,092		$	20,658

Adjusted diluted earnings per common share, non-GAAP	$	0.70		$	0.75		$	0.78		$	0.74		$	0.67		$	1.45		$	1.23
Performance ratios, non-GAAP
Adjusted return on average assets		1.56	%		1.60	%		1.61	%		1.49	%		1.37	%		1.58	%		1.29	%
Adjusted return on average common equity		10.61	%		11.49	%		12.16	%		11.52	%		10.55	%		11.02	%		9.76	%
Adjusted return on average tangible common equity (2)		15.37	%		16.69	%		17.93	%		16.92	%		15.46	%		15.98	%		14.27	%

__________

(1	)	Includes other non-recurring income and expense items
(2	)	A non-GAAP financial measure defined as adjusted earnings divided by average stockholders' equity less average goodwill and other intangible assets

AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)

	Three Months Ended June 30,
	2023							2022
	Average				Average Yield/			Average				Average Yield/
(Amounts in thousands)	Balance		Interest(1)		Rate(1)			Balance		Interest(1)		Rate(1)
Assets
Earning assets
Loans(2)(3)	$	2,570,477	$	31,997		4.99	%	$	2,273,844	$	25,714		4.54	%
Securities available for sale		318,263		2,099		2.65	%		280,823		1,597		2.28	%
Interest-bearing deposits		63,322		885		5.61	%		377,931		769		0.82	%
Total earning assets		2,952,062		34,981		4.75	%		2,932,598		28,080		3.84	%
Other assets		382,162							331,774
Total assets	$	3,334,224						$	3,264,372

Liabilities and stockholders' equity
Interest-bearing deposits
Demand deposits	$	712,943	$	34		0.02	%	$	698,978	$	29		0.02	%
Savings deposits		861,315		1,306		0.61	%		895,370		67		0.03	%
Time deposits		282,229		590		0.84	%		331,555		326		0.39	%
Total interest-bearing deposits		1,856,487		1,930		0.42	%		1,925,903		422		0.09	%
Borrowings
Federal funds purchased		5,927		76		5.14	%		-		-		0.00	%
Retail repurchase agreements		1,693		1		0.06	%		2,105		1	0.08		%
Total borrowings		7,620		77		4.05	%		2,105		1	0.08		%
Total interest-bearing liabilities		1,864,107		2,007		0.43	%		1,928,008		423		0.09	%
Noninterest-bearing demand deposits		939,902							874,507
Other liabilities		40,705							38,106
Total liabilities		2,844,714							2,840,621
Stockholders' equity		489,510							423,751
Total liabilities and stockholders' equity	$	3,334,224						$	3,264,372
Net interest income, FTE(1)			$	32,974						$	27,657
Net interest rate spread						4.32	%						3.75	%
Net interest margin, FTE(1)						4.48	%						3.78	%

__________

(1	)	Interest income and average yield/rate are presented on a FTE, non-GAAP, basis using the federal statutory income tax rate of 21%.
(2	)	Nonaccrual loans are included in the average balance; however, no related interest income is recorded during the period of nonaccrual.
(3	)	Interest on loans includes non-cash and accelerated purchase accounting accretion of $884 thousand and $870 thousand for the three months ended June 30, 2023 and 2022, respectively.

AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)

	Six Months Ended June 30,
	2023							2022
	Average				Average Yield/			Average				Average Yield/
(Amounts in thousands)	Balance		Interest(1)		Rate(1)			Balance		Interest(1)		Rate(1)
Assets
Earning assets
Loans(2)(3)	$	2,482,606	$	59,695		4.85	%	$	2,237,128	$	50,412		4.54	%
Securities available for sale		317,503		4,239		2.69	%		211,285		2,397		2.29	%
Interest-bearing deposits		52,219		1,350		5.21	%		460,864		1,018		0.45	%
Total earning assets		2,852,328		65,284		4.62	%		2,909,277		53,827		3.73	%
Other assets		352,643							330,003
Total assets	$	3,204,971						$	3,239,280

Liabilities and stockholders' equity
Interest-bearing deposits
Demand deposits	$	689,823		60		0.02	%	$	689,149	$	57		0.02	%
Savings deposits		844,459		1,790		0.43	%		888,371		133		0.03	%
Time deposits		276,752		798		0.58	%		339,186		718		0.43	%
Total interest-bearing deposits		1,811,034		2,648		0.29	%		1,916,706		908		0.10	%
Borrowings
Federal funds purchased		5,326		135		5.11	%		-		-		0.00	%
Retail repurchase agreements		1,889		1		0.06	%		2,050		1		0.08	%
Total borrowings		7,215		136		3.80	%		2,050		1		0.08	%
Total interest-bearing liabilities		1,818,249		2,784		0.31	%		1,918,756		909		0.10	%
Noninterest-bearing demand deposits		889,253							855,321
Other liabilities		38,204							38,529
Total liabilities		2,745,706							2,812,606
Stockholders' equity		459,265							426,674
Total liabilities and stockholders' equity	$	3,204,971						$	3,239,280
Net interest income, FTE(1)			$	62,500						$	52,918
Net interest rate spread						4.31	%						3.64	%
Net interest margin, FTE(1)						4.42	%						3.67	%

___________

(1	)	Interest income and average yield/rate are presented on a FTE, non-GAAP, basis using the federal statutory income tax rate of 21%.
(2	)	Nonaccrual loans are included in the average balance; however, no related interest income is recorded during the period of nonaccrual.
(3	)	Interest on loans includes non-cash and accelerated purchase accounting accretion of $1.08 million and $1.74 million for the six months ended June 30, 2023 and 2022, respectively.

CONDENSED CONSOLIDATED QUARTERLY BALANCE SHEETS (Unaudited)

	June 30,			March 31,			December 31,			September 30,			June 30,
(Amounts in thousands, except per share data)	2023			2023			2022			2022			2022
Assets
Cash and cash equivalents	$	152,660		$	92,385		$	170,846		$	229,095		$	398,242
Debt securities available for sale		314,373			308,269			300,349			299,620			287,767
Loans held for investment, net of unearned income		2,621,073			2,388,897			2,400,197			2,362,733			2,299,798
Allowance for credit losses		(36,177	)		(30,789	)		(30,556	)		(29,388	)		(29,749	)
Loans held for investment, net		2,584,896			2,358,108			2,369,641			2,333,345			2,270,049
Premises and equipment, net		53,546			47,407			47,340			47,891			49,752
Other real estate owned		339			481			703			559			579
Interest receivable		10,185			8,646			9,279			8,345			8,433
Goodwill		143,946			129,565			129,565			129,565			129,565
Other intangible assets		16,217			3,942			4,176			4,541			4,905
Other assets		115,275			102,869			103,673			107,838			109,085
Total assets	$	3,391,437		$	3,051,672		$	3,135,572		$	3,160,799		$	3,258,377

Liabilities
Deposits
Noninterest-bearing	$	974,995		$	823,297		$	872,168		$	878,423		$	877,962
Interest-bearing		1,877,683			1,761,327			1,806,647			1,831,798			1,920,577
Total deposits		2,852,678			2,584,624			2,678,815			2,710,221			2,798,539
Securities sold under agreements to repurchase		1,348			1,866			1,874			1,958			2,635
Interest, taxes, and other liabilities		38,691			33,451			32,898			36,362			39,157
Total liabilities		2,892,717			2,619,941			2,713,587			2,748,541			2,840,331

Stockholders' equity
Common stock		18,969			16,243			16,225			16,273			16,502
Additional paid-in capital		189,917			128,666			128,508			129,914			136,705
Retained earnings		304,295			300,047			292,971			285,096			276,499
Accumulated other comprehensive loss		(14,461	)		(13,225	)		(15,719	)		(19,025	)		(11,660	)
Total stockholders' equity		498,720			431,731			421,985			412,258			418,046
Total liabilities and stockholders' equity	$	3,391,437		$	3,051,672		$	3,135,572		$	3,160,799		$	3,258,377

Shares outstanding at period-end		18,969,281			16,243,551			16,225,399			16,273,177			16,502,144
Book value per common share	$	26.29		$	26.58		$	26.01		$	25.33		$	25.33
Tangible book value per common share(1)		17.85			18.36			17.76			17.09			17.18

___________

)

A non-GAAP financial measure defined as stockholders' equity less goodwill and other intangible assets, divided by shares outstanding

SELECTED CREDIT QUALITY INFORMATION (Unaudited)

	June 30,			March 31,			December 31,			September 30,			June 30,
(Amounts in thousands)	2023			2023			2022			2022			2022
Allowance for Credit Losses
Balance at beginning of year:
Allowance for credit losses - loans	$	30,789		$	30,556		$	29,388		$	29,749		$	28,981
Allowance for credit losses - loan commitments (1)		964			1,196			1,416			956			775
Total allowance for credit losses beginning of year		31,753			31,752			30,804			30,705			29,756
Adjustments to beginning balance:
Allowance for credit losses - loans - Surrey acquisition for purchased credit deteriorated loans		2,011			-			-			-			-
Allowance for credit losses - loan commitments (1)		-			-			-			-			-
Net Adjustments		2,011			-			-			-			-
Provision for credit losses:
Provision for credit losses - loans		4,105			1,974			3,416			685			510
(Recovery of) provision for credit losses - loan commitments (1)		-			(232	)		(220	)		460			181
Total provision for credit losses - loans and loan commitments		4,105			1,742			3,196			1,145			691
Charge-offs		(1,993	)		(2,570	)		(2,873	)		(2,158	)		(1,469	)
Recoveries		1,265			829			625			1,112			1,727
Net (charge-offs) recoveries		(728	)		(1,741	)		(2,248	)		(1,046	)		258
Balance at end of period:
Allowance for credit losses - loans		36,177			30,789			30,556			29,388			29,749
Allowance for credit losses - loan commitments (1)		964			964			1,196			1,416			956
Ending balance	$	37,141		$	31,753		$	31,752		$	30,804		$	30,705

Nonperforming Assets
Nonaccrual loans	$	18,628		$	15,557		$	15,208		$	15,303		$	17,826
Accruing loans past due 90 days or more		-			23			142			131			131
Modified loans past due 90 days or more (2)		-			-			-			-			-
Troubled debt restructurings ("TDRs") (3)		-			-			1,346			1,331			515
Total nonperforming loans		18,628			15,580			16,696			16,765			18,472
OREO		339			481			703			559			579
Total nonperforming assets	$	18,967		$	16,061		$	17,399		$	17,324		$	19,051


Additional Information
Total modified loans (2)	$	642		$	429		$	-		$	-		$	-
Total accruing TDRs (4)	$	-		$	-		$	7,112		$	7,028		$	8,313

Asset Quality Ratios
Nonperforming loans to total loans		0.71	%		0.65	%		0.70	%		0.71	%		0.80	%
Nonperforming assets to total assets		0.56	%		0.53	%		0.55	%		0.55	%		0.58	%
Allowance for credit losses to nonperforming loans		194.21	%		197.62	%		183.01	%		175.29	%		161.05	%
Allowance for credit losses to total loans		1.38	%		1.29	%		1.27	%		1.24	%		1.29	%
Annualized net charge-offs (recoveries) to average loans		0.11	%		0.29	%		0.37	%		0.18	%		-0.05	%

_________

(1	)	Prior quarter information for loan commitments has been reclassed for presentation purposes.
(2	)	ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures. ASU adopted effective January 1, 2023.
(3	)	Accruing TDRs restructured within the past six months or nonperforming as reported prior to the adoption of ASU 2022-02 Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.
(4	)	Accruing total TDRs as reported prior to the adoption of ASU 2022-02 Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.

FOR MORE INFORMATION, CONTACT:
David D. Brown
(276) 326-9000

First Community Bankshares, Inc. Announces Second Quarter 2023 Results and Quarterly Cash Dividend