First Community Bankshares, Inc. Announces First Quarter Results

BLUEFIELD, Va., May 11, 2020 (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 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

[phone]