First Community Bankshares, Inc. Announces Third Quarter 2022 Results and Quarterly Cash Dividend

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 September 30, 2022. The Company reported net income of $13.35 million, or $0.81 per diluted common share, for the quarter ended September 30, 2022. Net income for the nine months ended September 30, 2022, was $34.08 million or $2.05 per diluted common share.

The Company also declared a quarterly cash dividend to common shareholders of twenty-nine cents ($0.29) per common share, an increase of two cents ($0.02), or 7.41%, over the quarterly dividend declared in the same quarter of 2021. The quarterly dividend is payable to common shareholders of record on November 4, 2022, and is expected to be paid on or about November 18, 2022. This marks the 37th consecutive year of regular dividends to common shareholders.

Third Quarter 2022 and Current Highlights

Income Statement

Net income of $13.35 million for the quarter was an increase of $743 thousand compared to $12.61 million recorded in the same quarter of 2021. The increase is primarily attributable to an increase in net interest income of $4.2 million and the branch sale gains of $1.66 million offset by an increase in the provision for credit losses of $2.08 million and an increase in salaries and employee benefits of $1.44 million compared to 2021.
On September 16, 2022, the Company completed the sale of First Community Bank’s Emporia, Virginia branch to Benchmark Community Bank. A gain of $1.66 million was realized from the sale.
When adjusted for non-core and non-recurring items, adjusted earnings have increased from $9.52 million in the first quarter and $11.14 million in the second quarter of 2022.
Net interest margin for the third quarter was 4.01%, which was a 45 basis point increase from 3.56% reported for third quarter of 2021. The yield on earning assets increased 42 basis points, primarily driven by increased earnings on securities and overnight funds.
The cost of interest-bearing deposits declined 6 basis points to 0.08%, primarily driven by a decrease in the cost of time deposits and focus on non-maturing deposits. Additionally, non-maturing deposit balances remained strong even after the Emporia branch sale.
Net interest income increased $4.2 million compared to the same quarter of 2021. Interest income from securities of $1.79 million was an increase of $1.34 million over the third quarter of 2021. Interest on fed funds also increased $1.31 million to $1.53 million for the third quarter as a result of the Federal Open Market Committee’s incremental 300 basis point rate increase in overnight rates throughout 2022 as compared to the overnight rates of 2021. Interest and fees on loans increased $1.29 million from the same quarter of 2021 and is primarily attributable to loan demand and originations.
The provision for credit losses of $685 thousand for the quarter was an increase of $2.08 million compared to the same quarter of 2021. The increase was attributable to a return to normalized provisions as compared with prior year recoveries of pandemic-related provisioning.
Despite the significant increase in credit loss provision over 2021, annualized return on average assets was 1.63% for the third quarter and 1.41% for the first nine months of 2022. Annualized return on average common equity was 12.60% for the third quarter and 10.73% for the first nine months of 2022.
Salaries and employee benefits for the third quarter increased $1.44 million, or 13.48%, over the same quarter in 2021. Salaries and employee benefits for the first nine months increased $3.52 million, or 11.10%, over the first nine months of 2021. During the first quarter of 2022, the Company implemented annualized wage increases of approximately $2.5 million as part of its ongoing strategic initiative to enhance Human Capital Management, which included an increased minimum wage.

Balance Sheet and Asset Quality

The Company’s loan portfolio increased by $197.16 million, an annualized growth rate of 12.17%, during the first nine months of 2022. Loan demand and originations were strong in all categories, including construction, commercial real estate, residential mortgage, and consumer loans.
Total deposits sold to Benchmark as part of the Emporia branch sale totaled $61.05 million.
During the third quarter, the Company repurchased 235,400 of its common shares for $7.38 million. The Company repurchased 650,907 common shares for $19.42 million during the first nine months of 2022.
Non-performing loans to total loans remained very low at 0.71% of total loans and continues the declining trend experienced over the past four quarters. The Company experienced net charge-offs for the third quarter of 2022 of $1.05 million, or 0.18% of annualized average loans, compared to net charge-offs of $586 thousand, or 0.11% of annualized average loans, for the same period in 2021. Net charge-offs for the nine-month period ended September 30, 2022, were $1.63 million, or 0.10% of annualized average loans, compared to net charge-offs of $1.79 million, or 0.11% of annualized average loans, for the same period in 2021.
The allowance for credit losses to total loans decreased slightly to 1.24% of total loans.
Book value per share at September 30, 2022, was $25.33, a slight decrease of $0.01 from year-end 2021.

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 48 branch banking locations in Virginia, West Virginia, North Carolina, and Tennessee as of September 30, 2022. 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 $1.19 billion in combined assets as of September 30, 2022. The Company reported consolidated assets of $3.16 billion as of September 30, 2022. 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															Nine Months Ended
(Amounts in thousands, except share and per share data)		September 30,			June 30,			March 31,			December 31,			September 30,			September 30,
(Amounts in thousands, except share and per share data)		2022			2022			2022			2021			2021			2022			2021
Interest income
	Interest and fees on loans	$	26,405		$	25,651		$	24,641		$	25,236		$	25,119		$	76,697		$	77,596
	Interest on securities		1,785			1,551			750			362			445			4,086			1,375
	Interest on deposits in banks		1,532			768			248			234			225			2,548			507
Total interest income			29,722			27,970			25,639			25,832			25,789			83,331			79,478
Interest expense
	Interest on deposits		380			422			486			600			642			1,288			2,235
	Interest on borrowings		-			1			-			-			1			1			1
Total interest expense			380			423			486			600			643			1,289			2,236
Net interest income			29,342			27,547			25,153			25,232			25,146			82,042			77,242
Provision for (recovery of) credit losses			685			510			1,961			(846	)		(1,394	)		3,156			(7,625	)
Net interest income after provision			28,657			27,037			23,192			26,078			26,540			78,886			84,867
Noninterest income			9,950			8,854			9,194			9,215			8,720			27,998			25,086
Noninterest expense			21,145			21,255			19,986			21,701			18,836			62,386			57,017
Income before income taxes			17,462			14,636			12,400			13,592			16,424			44,498			52,936
Income tax expense			4,111			3,423			2,885			3,037			3,816			10,419			12,323
Net income		$	13,351		$	11,213		$	9,515		$	10,555		$	12,608		$	34,079		$	40,613

Earnings per common share
	Basic	$	0.82		$	0.67		$	0.57		$	0.62		$	0.73		$	2.05		$	2.32
	Diluted		0.81			0.67			0.56			0.62			0.73			2.05			2.32
Cash dividends per common share
	Regular		0.29			0.27			0.27			0.27			0.27			0.83			0.77
Weighted average shares outstanding
	Basic		16,378,022			16,662,817			16,817,284			16,974,005			17,221,244			16,617,766			17,457,477
	Diluted		16,413,202			16,682,615			16,864,515			17,038,980			17,279,576			16,654,697			17,511,900
Performance ratios
	Return on average assets		1.63	%		1.38	%		1.20	%		1.32	%		1.59	%		1.41	%		1.74	%
	Return on average common equity		12.60	%		10.61	%		8.98	%		9.77	%		11.65	%		10.73	%		12.70	%
	Return on average tangible common equity(1)		18.51	%		15.56	%		13.10	%		14.28	%		17.04	%		15.71	%		18.63	%

(1)	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										Nine Months Ended
		September 30,		June 30,		March 31,		December 31,		September 30,		September 30,
(Amounts in thousands)		2022		2022		2022		2021		2021		2022		2021
Noninterest income
	Wealth management	$	932	$	993	$	972	$	940	$	974	$	2,897	$	2,913
	Service charges on deposits		3,689		3,672		3,498		3,718		3,599		10,859		9,728
	Other service charges and fees		2,988		3,297		3,017		3,091		3,143		9,302		9,331
	Net FDIC indemnification asset amortization		-		-		-		-		-		-		(1,226	)
	Gain on divestiture		1,658		-		-		-		-		1,658		-
	Other operating income		683		892		1,707		1,466		1,004		3,282		4,340
Total noninterest income		$	9,950	$	8,854	$	9,194	$	9,215	$	8,720	$	27,998	$	25,086
Noninterest expense
	Salaries and employee benefits	$	12,081	$	11,518	$	11,671	$	12,493	$	10,646	$	35,270	$	31,746
	Occupancy expense		1,188		1,165		1,269		1,368		1,155		3,622		3,545
	Furniture and equipment expense		1,478		1,496		1,614		1,418		1,385		4,588		4,209
	Service fees		1,635		2,563		1,503		1,946		1,530		5,701		4,378
	Advertising and public relations		718		577		540		589		536		1,835		1,487
	Professional fees		208		544		453		455		313		1,205		1,069
	Amortization of intangibles		365		360		357		364		365		1,082		1,082
	FDIC premiums and assessments		321		257		218		213		216		796		619
	Divestiture expense		153		-		-		-		-		153		-
	Other operating expense		2,998		2,775		2,361		2,855		2,690		8,134		8,882
Total noninterest expense		$	21,145	$	21,255	$	19,986	$	21,701	$	18,836	$	62,386	$	57,017

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

				Three Months Ended															Nine Months Ended
				September 30,			June 30,			March 31,			December 31,			September 30,			September 30,
				2022			2022			2022			2021			2021			2022			2021
(Amounts in thousands, except per share data)
Net income				$	13,351		$	11,213		$	9,515		$	10,555		$	12,608		$	34,079		$	40,613
Non-GAAP adjustments:
	Net (gain) loss on sale of securities				-			-			-			-			-			-			-
	Divestiture expense				153			-			-			-			-			153			-
	Gain on divestiture				(1,658	)		-			-			-			-			(1,658	)
	Other items(1)				-			(92	)		-			-			-			(92	)		-
Total adjustments					(1,505	)		(92	)		-			-			-			(1,597	)		-
Tax effect					(361	)		(22	)		-			-			-			(383	)		-
Adjusted earnings, non-GAAP				$	12,207		$	11,143		$	9,515		$	10,555		$	12,608		$	32,865		$	40,613

Adjusted diluted earnings per common share,
	non-GAAP			$	0.74		$	0.67		$	0.56		$	0.62		$	0.73		$	1.97		$	2.32
Performance ratios, non-GAAP
	Adjusted return on average assets				1.49	%		1.37	%		1.20	%		1.32	%		1.59	%		1.36	%		1.74	%
	Adjusted return on average common equity				11.52	%		10.55	%		8.98	%		9.77	%		11.65	%		10.35	%		12.70	%
	Adjusted return on average tangible
			common equity(2)		16.92	%		15.46	%		13.10	%		14.28	%		17.04	%		15.16	%		18.63	%

(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 September 30,
		2022						2021
		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)	$	2,334,596	$	26,474	4.50	%	$	2,149,647	$	25,161	4.64	%
	Securities available for sale		301,360		1,833	2.41	%		79,995		509	2.52	%
	Interest-bearing deposits		275,290		1,531	2.21	%		586,787		224	0.15	%
Total earning assets			2,911,246		29,838	4.07	%		2,816,429		25,894	3.65	%
Other assets			328,534						330,679
Total assets		$	3,239,780					$	3,147,108

Liabilities and stockholders' equity
Interest-bearing deposits
	Demand deposits	$	689,376	$	28	0.02	%	$	651,237	$	27	0.02	%
	Savings deposits		887,454		67	0.03	%		826,144		63	0.03	%
	Time deposits		317,294		285	0.36	%		378,895		551	0.58	%
Total interest-bearing deposits			1,894,124		380	0.08	%		1,856,276		641	0.14	%
Borrowings
	Retail repurchase agreements		2,378		-	N/M			1,040		1	0.07	%
Total borrowings			2,378		-	N/M			1,040		1	0.07	%
Total interest-bearing liabilities			1,896,502		380	0.08	%		1,857,316		642	0.14	%
Noninterest-bearing demand deposits			881,429						824,112
Other liabilities			41,373						36,419
Total liabilities			2,819,304						2,717,847
Stockholders' equity			420,476						429,261
Total liabilities and stockholders' equity		$	3,239,780					$	3,147,108
Net interest income, FTE(1)				$	29,458					$	25,252
Net interest rate spread						3.99	%					3.51	%
Net interest margin, FTE(1)						4.01	%					3.56	%

(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 $487 thousand and $1.01 million for the three months ended September 30, 2022 and 2021, respectively.

AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)

		Nine Months Ended September 30,
		2022						2021
		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)	$	2,269,974	$	76,886	4.53	%	$	2,149,556	$	77,722	4.83	%
	Securities available for sale		241,640		4,230	2.34	%		82,563		1,590	2.57	%
	Interest-bearing deposits		398,326		2,549	0.86	%		555,435		508	0.12	%
Total earning assets			2,909,940		83,665	3.84	%		2,787,554		79,820	3.83	%
Other assets			329,508						331,239
Total assets		$	3,239,448					$	3,118,793

Liabilities and stockholders' equity
Interest-bearing deposits
	Demand deposits	$	689,226	$	85	0.02	%	$	639,809	$	99	0.02	%
	Savings deposits		888,062		200	0.03	%		807,863		217	0.04	%
	Time deposits		331,808		1,003	0.40	%		395,465		1,918	0.65	%
Total interest-bearing deposits			1,909,096		1,288	0.09	%		1,843,137		2,234	0.16	%
Borrowings
	Retail repurchase agreements		2,161		1	0.07	%		1,179		1	0.07	%
Total borrowings			2,161		1	0.07	%		1,179		1	0.07	%
Total interest-bearing liabilities			1,911,257		1,289	0.09	%		1,844,316		2,235	0.16	%
Noninterest-bearing demand deposits			864,119						809,128
Other liabilities			39,487						37,871
Total liabilities			2,814,863						2,691,315
Stockholders' equity			424,585						427,478
Total liabilities and stockholders' equity		$	3,239,448					$	3,118,793
Net interest income, FTE(1)				$	82,376					$	77,585
Net interest rate spread						3.75	%					3.67	%
Net interest margin, FTE(1)						3.78	%					3.72	%

(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 $2.22 million and $3.45 million for the nine months ended September 30, 2022 and 2021, respectively.

CONDENSED CONSOLIDATED QUARTERLY BALANCE SHEETS (Unaudited)

		September 30,			June 30,			March 31,			December 31,			September 30,
(Amounts in thousands, except per share data)		2022			2022			2022			2021			2021
Assets
Cash and cash equivalents		$	229,095		$	398,242		$	457,306		$	677,439		$	635,007
Debt securities available for sale			299,620			287,767			268,703			76,292			77,440
Loans held for investment, net of unearned income			2,362,733			2,299,798			2,244,296			2,165,569			2,152,103
	Allowance for credit losses		(29,388	)		(29,749	)		(28,981	)		(27,858	)		(29,877	)
Loans held for investment, net			2,333,345			2,270,049			2,215,315			2,137,711			2,122,226
Premises and equipment, net			47,891			49,752			50,912			52,284			52,842
Other real estate owned			559			579			848			1,015			1,240
Interest receivable			8,345			8,433			8,100			7,900			8,146
Goodwill			129,565			129,565			129,565			129,565			129,565
Other intangible assets			4,541			4,905			5,266			5,622			5,987
Other assets			107,838			109,085			108,112			106,691			107,258
Total assets		$	3,160,799		$	3,258,377		$	3,244,127		$	3,194,519		$	3,139,711

Liabilities
Deposits
	Noninterest-bearing	$	878,423		$	877,962		$	860,652		$	842,783		$	820,147
	Interest-bearing		1,831,798			1,920,577			1,922,292			1,886,608			1,853,699
Total deposits			2,710,221			2,798,539			2,782,944			2,729,391			2,673,846
Securities sold under agreements to repurchase			1,958			2,635			2,488			1,536			1,106
Interest, taxes, and other liabilities			36,362			39,157			34,539			35,817			37,395
Total liabilities			2,748,541			2,840,331			2,819,971			2,766,744			2,712,347

Stockholders' equity
Common stock			16,273			16,502			16,782			16,878			17,071
Additional paid-in capital			129,914			136,705			144,088			147,619			154,086
Retained earnings			285,096			276,499			269,798			264,824			258,860
Accumulated other comprehensive loss			(19,025	)		(11,660	)		(6,512	)		(1,546	)		(2,653	)
Total stockholders' equity			412,258			418,046			424,156			427,775			427,364
Total liabilities and stockholders' equity		$	3,160,799		$	3,258,377		$	3,244,127		$	3,194,519		$	3,139,711

Shares outstanding at period-end			16,273,177			16,502,144			16,781,975			16,878,220			17,071,052
Book value per common share		$	25.33		$	25.33		$	25.27		$	25.34		$	25.03
Tangible book value per common share(1)			17.09			17.18			17.24			17.34			17.09


(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)

	September 30,			June 30,			March 31,			December 31,			September 30,
(Amounts in thousands)	2022			2022			2022			2021			2021
Allowance for Credit Losses
Beginning balance	$	29,749		$	28,981		$	27,858		$	29,877		$	31,857
Provision for (recovery of)
credit losses charged to operations		685			510			1,961			(846	)		(1,394	)
Charge-offs		(2,158	)		(1,469	)		(1,302	)		(1,887	)		(1,255	)
Recoveries		1,112			1,727			464			714			669
Net (charge-offs) recoveries		(1,046	)		258			(838	)		(1,173	)		(586	)
Ending balance	$	29,388		$	29,749		$	28,981		$	27,858		$	29,877

Nonperforming Assets
Nonaccrual loans	$	15,303		$	17,826		$	20,487		$	20,768		$	22,070
Accruing loans past due 90 days or more		131			131			-			87			5
Troubled debt restructurings ("TDRs")(1)		1,331			515			1,141			1,367			359
Total nonperforming loans		16,765			18,472			21,628			22,222			22,434
OREO		559			579			848			1,015			1,240
Total nonperforming assets	$	17,324		$	19,051		$	22,476		$	23,237		$	23,674


Additional Information
Total accruing TDRs(2)	$	7,028		$	8,313		$	8,782		$	8,652		$	8,185

Asset Quality Ratios
Nonperforming loans to total loans		0.71	%		0.80	%		0.96	%		1.03	%		1.04	%
Nonperforming assets to total assets		0.55	%		0.58	%		0.69	%		0.73	%		0.75	%
Allowance for credit losses to nonperforming loans		175.29	%		161.05	%		134.00	%		125.36	%		133.18	%
Allowance for credit losses to total loans		1.24	%		1.29	%		1.29	%		1.29	%		1.39	%
Annualized net charge-offs (recoveries) to average loans		0.18	%		-0.05	%		0.15	%		0.22	%		0.11	%


(1) Accruing TDRs restructured within the past six months or nonperforming
(2) Accruing total TDRs