First Community Bankshares, Inc. Announces First Quarter Results - First Community (NASDAQ:FCBC)

BLUEFIELD, Va., May 11, 2020 (GLOBE NEWSWIRE) -- First Community Bankshares, Inc. FCBC (www.firstcommunitybank.com) (the "Company") today reported its unaudited results of operations and other financial information for the quarter ended March 31, 2020. The Company reported net income of $7.87 million, or $0.44 per diluted common share, for the quarter ended March 31, 2020, which was a decrease of $0.16, or 26.67%, over the same quarter of 2019.

Additionally, the Company recently declared a quarterly cash dividend to common shareholders of twenty-five cents ($0.25) per common share. 2020 is the 35^th consecutive year of regular dividends to common shareholders.

First Quarter 2020 and Current Highlights

Pandemic and General
- The Company initiated social distancing practices at its branches and corporate offices on March 20, 2020, and those continue today. Remote working environments were successfully initiated for approximately 80% of the Company's back office workforce.
- Implemented a pay differential for employees continuing to work at branch and back-office locations.
- In order to aid its affected customers, the Company modified or deferred payments on 887 commercial loans totaling $254.72 million in principal balances and 1,535 retail loans totaling $72.80 million in principal balances.
- Through May 1, 2020, the Company processed 641 loans for proceeds of $58.26 million through the SBA's Paycheck Protection Program.
- The Coronavirus Aid, Relief, and Economic Security ("CARES") Act, signed into law on March 27, 2020 to address economic disruption caused by the COVID-19 pandemic, provides financial institutions with the option to not comply with the Financial Accounting Standards Board's Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments – Credit Losses (Topic 326) until the earlier of the end of the national emergency or the end of 2020. The Company has chosen to not comply with ASU No. 2016-13 and its Current Expected Credit Loss methodology ("CECL"), as permitted by the CARES Act, during the national emergency. Complying during the national emergency would impose significant and ongoing expenses on the Company and consume a significant amount of staff time when the need to process customer loan modifications and deferrals and PPP loan applications remains very high. Management believes the incurred loss impairment methodology provides a more practical measurement of credit losses in the current economic environment.
Income Statement
- Current year quarter earnings include a loan loss provision of $3.50 million, an increase of $2.28 million over first quarter of 2019. The provision had the effect of increasing loan loss reserves $2.71 million during the first quarter to recognize the impact of the coronavirus slowdown.
- Despite the significant increase in loan loss provision, return on average assets was 1.16% for the quarter.
- Net interest margin increased 11 basis points to 4.71% compared to the same quarter of 2019, reflective of the addition of Highlands Bankshares, Inc.
- The Company incurred $1.89 million in residual merger expenses during the quarter related to the Highlands acquisition that closed on December 31, 2019.
Balance Sheet
- Prior to the pandemic responses, the Company completed its stock repurchase authorization with the repurchase of 734,653 shares for approximately $21.87 million. Based on the current outlook for economic conditions, the Company has temporarily suspended further share repurchases. As of March 31, 2020, the Company continues to significantly exceed regulatory "well capitalized" targets, as well as all capital targets of its capital management plan.

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 58 branch banking locations in Virginia, West Virginia, North Carolina, and Tennessee as of March 31, 2020. First Community Bank offers wealth management and investment advice through its Trust Division and First Community Wealth Management, which collectively managed and administered $1.02 billion in combined assets as of March 31, 2020. The Company reported consolidated assets of $2.74 billion as of March 31, 2020. 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
		March 31,			December 31,			September 30,			June 30,			March 31,
(Amounts in thousands, except share and per share data)			2020			2019			2019			2019			2019
Interest income
	Interest and fees on loans	$	28,058		$	21,837		$	22,068		$	22,721		$	22,179
	Interest on securities		918			870			857			895			1,094
	Interest on deposits in banks		533			663			680			766			338
Total interest income			29,509			23,370			23,605			24,382			23,611
Interest expense
	Interest on deposits		1,825			1,312			1,383			1,392			1,305
	Interest on borrowings		2			1			1			1			120
Total interest expense			1,827			1,313			1,384			1,393			1,425
Net interest income			27,682			22,057			22,221			22,989			22,186
Provision for loan losses			3,500			91			675			1,585			1,220
Net interest income after provision			24,182			21,966			21,546			21,404			20,966
Noninterest income			7,549			9,314			7,634			8,649			8,080
Noninterest expense			21,664			18,883			17,444			16,651			16,785
Income before income taxes			10,067			12,397			11,736			13,402			12,261
Income tax expense			2,195			2,833			2,580			2,951			2,630
Net income		$	7,872		$	9,564		$	9,156		$	10,451		$	9,631

Earnings per common share
	Basic	$	0.44		$	0.61		$	0.59		$	0.67		$	0.61
	Diluted		0.44			0.61			0.58			0.66			0.60
Cash dividends per common share
	Regular		0.25			0.25			0.25			0.25			0.21
Weighted average shares outstanding
	Basic		17,998,994			15,611,093			15,603,992			15,712,204			15,839,424
	Diluted		18,050,071			15,670,047			15,664,587			15,775,320			15,920,950
Performance ratios
	Return on average assets		1.16	%		1.71	%		1.65	%		1.89	%		1.75	%
	Return on average common equity		7.49	%		11.08	%		10.80	%		12.57	%		11.77	%
	Return on average tangible common equity⁽¹⁾		11.12	%		15.33	%		15.19	%		17.57	%		16.66	%


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

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

			Three Months Ended
			March 31,			December 31,			September 30,			June 30,			March 31,
				2020			2019			2019			2019			2019
(Amounts in thousands, except per share data)
Net income			$	7,872		$	9,564		$	9,156		$	10,451		$	9,631
Non-GAAP adjustments:
	Net (gain) loss on sale of securities			(385	)		-			-			43			-
	Merger, acquisition, and divestiture expense			1,893			1,532			592			-			-
	Other items⁽¹⁾			-			(2,395	)		(900	)		(2,025	)		(1,675	)
Total adjustments				1,508			(863	)		(308	)		(1,982	)		(1,675	)
Tax effect				354			(331	)		(134	)		(550	)		(328	)
Adjusted earnings, non-GAAP			$	9,026		$	9,032		$	8,982		$	9,019		$	8,284

Adjusted diluted earnings per common share,
	non-GAAP		$	0.50		$	0.58		$	0.57		$	0.57		$	0.52
Performance ratios, non-GAAP
	Adjusted return on average assets			1.33	%		1.61	%		1.62	%		1.63	%		1.51	%
	Adjusted return on average common equity			8.59	%		10.46	%		10.59	%		10.84	%		10.12	%
	Adjusted return on average tangible
		common equity⁽²⁾		12.75	%		14.48	%		14.90	%		15.16	%		14.33	%


(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 March 31,
			2020						2019
		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⁾	$	2,081,132	$	28,105	5.43	%	$	1,765,132	$	22,236	5.11	%
	Securities available for sale		136,109		1,060	3.13	%		145,783		1,231	3.43	%
	Securities held to maturity		-		-	-			12,348		45	1.48	%
	Interest-bearing deposits		163,483		535	1.31	%		54,694		338	2.50	%
Total earning assets			2,380,724		29,700	5.02	%		1,977,957		23,850	4.89	%
Other assets			353,647						247,965
Total assets		$	2,734,371					$	2,225,922

Liabilities and stockholders' equity
Interest-bearing deposits
	Demand deposits	$	502,603	$	90	0.07	%	$	447,023	$	37	0.03	%
	Savings deposits		679,656		414	0.24	%		501,276		175	0.14	%
	Time deposits		485,085		1,322	1.10	%		438,454		1,093	1.01	%
Total interest-bearing deposits			1,667,344		1,826	0.44	%		1,386,753		1,305	0.38	%
Borrowings
	Retail repurchase agreements		1,459		2	0.59	%		3,259		1	0.13	%
	Wholesale repurchase agreements		-		-	-			15,278		119	3.17	%
	FHLB advances and other borrowings		134		1	1.70	%		-		-	-
Total borrowings			1,593		3	-			18,537		120	2.63	%
Total interest-bearing liabilities			1,668,937		1,829	0.44	%		1,405,290		1,425	0.41	%
Noninterest-bearing demand deposits			600,636						459,766
Other liabilities			42,174						28,894
Total liabilities			2,311,747						1,893,950
Stockholders' equity			422,624						331,972
Total liabilities and stockholders' equity		$	2,734,371					$	2,225,922
Net interest income, FTE⁽¹⁾				$	27,871					$	22,425
Net interest rate spread						4.58	%					4.48	%
Net interest margin, FTE⁽¹⁾						4.71	%					4.60	%


(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 $1.95 million and $764 thousand for the three months ended March 31, 2020 and 2019, respectively.

CONDENSED CONSOLIDATED QUARTERLY NONINTEREST INCOME AND EXPENSE (Unaudited)

		Three Months Ended
		March 31,			December 31,			September 30,			June 30,			March 31,
(Amounts in thousands)			2020			2019			2019			2019			2019
Noninterest income
	Wealth management	$	844		$	842		$	952		$	884		$	745
	Service charges on deposits		3,731			3,702			3,785			3,699			3,408
	Other service charges and fees		2,231			2,096			2,007			2,129			2,049
	Net gain (loss) on sale of securities		385			-			-			(43	)		-
	Net FDIC indemnification asset amortization		(486	)		(590	)		(719	)		(516	)		(552	)
	Other income		-			2,395			900			2,025			1,675
	Other operating income		844			869			709			471			755
Total noninterest income		$	7,549		$	9,314		$	7,634		$	8,649		$	8,080
Noninterest expense
	Salaries and employee benefits	$	11,386		$	9,495		$	9,334		$	9,153		$	9,166
	Occupancy expense		1,315			1,057			1,042			1,082			1,153
	Furniture and equipment expense		1,384			1,179			1,183			1,062			1,033
	Service fees		1,523			721			1,053			1,231			1,030
	Advertising and public relations		512			478			795			513			524
	Professional fees		233			408			375			328			414
	Amortization of intangibles		361			251			251			249			246
	FDIC premiums and assessments		-			-			-			150			168
	Merger, acquisition, and divestiture expense		1,893			1,532			592			-			-
	Other operating expense		3,057			3,762			2,819			2,883			3,051
Total noninterest expense		$	21,664		$	18,883		$	17,444		$	16,651		$	16,785

CONDENSED CONSOLIDATED QUARTERLY BALANCE SHEETS (Unaudited)

		March 31,			December 31,			September 30,			June 30,			March 31,
(Amounts in thousands, except per share data)			2020			2019			2019			2019			2019
Assets
Cash and cash equivalents		$	241,613		$	217,009		$	182,458		$	156,478		$	148,546
Debt securities available for sale			107,753			169,574			115,537			119,076			132,597
Loans held for sale			-			263			-			-			-
Loans held for investment, net of unearned income
	Noncovered		2,084,610			2,101,599			1,679,958			1,705,408			1,719,905
	Covered		12,115			12,861			14,158			15,520			17,475
	Allowance for loan losses		(21,137	)		(18,425	)		(18,493	)		(18,540	)		(18,243	)
Loans held for investment, net			2,075,588			2,096,035			1,675,623			1,702,388			1,719,137
FDIC indemnification asset			2,433			2,883			3,458			4,020			4,578
Premises and equipment, net			63,319			62,824			48,521			48,262			46,636
Other real estate owned, noncovered			2,502			3,969			2,528			3,810			3,903
Other real estate owned, covered			-			-			-			152			152
Interest receivable			6,117			6,677			4,842			5,317			5,227
Goodwill			129,565			129,565			92,744			92,744			92,744
Other intangible assets			8,159			8,519			4,280			4,532			4,780
Other assets			101,912			101,529			75,056			75,248			84,035
Total assets		$	2,738,961		$	2,798,847		$	2,205,047		$	2,212,027		$	2,242,335

Liabilities
Deposits
	Noninterest-bearing	$	620,292		$	627,868		$	472,478		$	480,573		$	479,299
	Interest-bearing		1,668,122			1,702,044			1,364,374			1,367,465			1,399,138
Total deposits			2,288,414			2,329,912			1,836,852			1,848,038			1,878,437
Securities sold under agreements to repurchase			1,348			1,601			1,863			3,083			3,700
FHLB and other borrowings			1,000			-			-			-			-
Interest, taxes, and other liabilities			36,593			38,515			28,969			27,220			27,096
Total liabilities			2,327,355			2,370,028			1,867,684			1,878,341			1,909,233

Stockholders' equity
Common stock			17,700			18,377			15,580			15,633			15,818
Additional paid-in capital			172,231			192,413			108,222			109,816			115,914
Retained earnings			222,814			219,535			213,866			208,618			202,103
Accumulated other comprehensive loss			(1,139	)		(1,506	)		(305	)		(381	)		(733	)
Total stockholders' equity			411,606			428,819			337,363			333,686			333,102
Total liabilities and stockholders' equity		$	2,738,961		$	2,798,847		$	2,205,047		$	2,212,027		$	2,242,335

Shares outstanding at period-end			17,700,140			18,376,991			15,579,740			15,633,388			15,818,368
Book value per common share		$	23.25		$	23.33		$	21.65		$	21.34		$	21.06
Tangible book value per common share⁽¹⁾			15.47			15.82			15.43			15.12			14.89


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

SELECTED CREDIT QUALITY INFORMATION (Unaudited)

	March31,			December 31,			September 30,			June 30,			March 31,
(Amounts in thousands)		2020			2019			2019			2019			2019
Allowance for Loan Losses
Beginning balance	$	18,425		$	18,493		$	18,540		$	18,243		$	18,267
Provision for loan losses charged to operations		3,500			91			675			1,585			1,220
Charge-offs		(1,194	)		(1,353	)		(964	)		(2,114	)		(1,622	)
Recoveries		406			1,194			242			826			378
Net charge-offs		(788	)		(159	)		(722	)		(1,288	)		(1,244	)
Ending balance	$	21,137		$	18,425		$	18,493		$	18,540		$	18,243

Nonperforming Assets
Non-covered nonperforming assets
Nonaccrual loans	$	20,263		$	16,113		$	16,701		$	16,368		$	18,544
Accruing loans past due 90 days or more		329			144			107			37			156
Troubled debt restructurings ("TDRs")⁽¹⁾		623			720			668			821			835
Total non-covered nonperforming loans		21,215			16,977			17,476			17,226			19,535
OREO		2,502			3,969			2,528			3,810			3,903
Total non-covered nonperforming assets	$	23,717		$	20,946		$	20,004		$	21,036		$	23,438

Covered nonperforming assets
Nonaccrual loans	$	145		$	244		$	243		$	203		$	237
Total covered nonperforming loans		145			244			243			203			237
OREO		-			-			-			152			152
Total covered nonperforming assets	$	145		$	244		$	243		$	355		$	389

Additional Information
Performing TDRs⁽²⁾	$	8,429		$	5,855		$	5,635		$	5,676		$	5,654
Total Accruing TDRs⁽³⁾		9,052			6,575			6,303			6,497			6,489

Non-covered ratios
Nonperforming loans to total loans		1.02	%		0.81	%		1.04	%		1.01	%		1.14	%
Nonperforming assets to total assets		0.87	%		0.75	%		0.91	%		0.96	%		1.05	%
Non-PCI allowance to nonperforming loans		99.63	%		108.53	%		105.82	%		107.63	%		93.39	%
Non-PCI allowance to total loans		1.01	%		0.88	%		1.10	%		1.09	%		1.06	%
Annualized net charge-offs to average loans		0.15	%		0.04	%		0.17	%		0.30	%		0.29	%

Total ratios
Nonperforming loans to total loans		1.02	%		0.81	%		1.05	%		1.01	%		1.14	%
Nonperforming assets to total assets		0.87	%		0.76	%		0.92	%		0.97	%		1.06	%
Allowance for loan losses to nonperforming loans		98.96	%		106.99	%		104.37	%		106.37	%		92.27	%
Allowance for loan losses to total loans		1.01	%		0.87	%		1.09	%		1.08	%		1.05	%
Annualized net charge-offs to average loans		0.15	%		0.04	%		0.17	%		0.30	%		0.29	%


(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 total TDRs

FOR MORE INFORMATION, CONTACT:

David D. Brown

(276) 326-9000

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