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

BLUEFIELD, Va., Jan. 24, 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 December 31, 2022. The Company reported net income of $12.58 million, or $0.77 per diluted common share, for the quarter ended December 31, 2022. Net income for the year ended December 31, 2022, was $46.66 million or $2.82 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 February 10, 2023, and is expected to be paid on or about February 24, 2023. This marks the 38^th consecutive year of regular dividends to common shareholders.

During the fourth quarter, the Company entered into an agreement to acquire Mount Airy, North Carolina-based Surrey Bancorp. The acquisition will strengthen the Company’s presence in western North Carolina, result in top market share in Mount Airy, and add approximately $500 million in assets. Surrey has a record of excellent financial performance and a very strong core deposit franchise across its seven branch network. The acquisition is subject to customary regulatory and shareholder approvals and is expected to close in the second quarter of 2023.

Fourth Quarter 2022 and Current Highlights

Income Statement

• Net income of $12.58 million for the quarter was an increase of $2.03 million compared to $10.56 million recorded in the same quarter of 2021. The increase is primarily attributable to an increase in net interest income of $5.39 million as well as a decrease in noninterest expense of $971 thousand. The positive increases to income were offset by an increase in the provision for credit losses of $4.26 million compared to the same quarter of 2021.
• Annualized return on average assets was 1.59% for the fourth quarter and 1.45% for year-end 2022. Annualized return on average common equity was 11.99% for the fourth quarter and 11.04% for year-end 2022.
• Net interest margin for the fourth quarter was 4.34%, which was an 82 basis point increase from 3.52% reported for fourth quarter of 2021. The yield on earning assets increased 79 basis points, primarily driven by increased earnings on loans and securities.
• The cost of interest-bearing deposits declined 5 basis points to 0.08%, primarily driven by a decrease in the cost of time deposits and an increase in non-maturing deposits.  
• Net interest income increased $5.39 million compared to the same quarter of 2021. Interest and fees on loans increased $2.64 million from the same quarter of 2021 and is primarily attributable to loan demand and originations.   Interest income from securities of $1.90 million was an increase of $1.54 million over the fourth quarter of 2021. Interest on deposits in banks also increased $981 thousand to $1.22 million for the fourth quarter as a result of the Federal Open Market Committee’s incremental 425 basis point rate increase in overnight rates throughout 2022 as compared to the overnight rates of 2021.
• The provision for credit losses of $3.42 million for the quarter was an increase of $4.26 million compared to the same quarter of 2021. The increase was largely attributable to the growth of the loan portfolio throughout 2022 and an economic forecast that projects higher unemployment rates and weaker macroeconomic trends. The fourth quarter and full year of 2021 included recoveries of pandemic-related provisioning.
• Salaries and employee benefits for the fourth quarter decreased $580 thousand, or 4.64%, over the same quarter in 2021, while increasing $2.94 million, or 6.65%, for the full year of 2022 compared with 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 $234.63 million, a growth rate of 10.83%, during of 2022. Loan demand and originations were strong in all categories, including construction, commercial real estate, residential mortgage, and consumer loans.
• During the fourth quarter, the Company repurchased 55,210 of its common shares for $1.89 million. The Company repurchased 706,117 common shares for $21.31 million during 2022.   Share repurchases have been curtailed due to the announced acquisition of Surrey Bancorp.
• Non-performing loans to total loans remained low at 0.70% of total loans and continues the declining trend experienced over the past four quarters. The Company experienced net charge-offs for the fourth quarter of 2022 of $2.25 million, or 0.37% of annualized average loans, compared to net charge-offs of $1.17 million, or 0.22% of annualized average loans, for the same period in 2021. Net charge-offs for the year ended December 31, 2022, were $3.87 million, or 0.23% of annualized average loans, compared to net charge-offs of $2.96 million, or 0.18% of annualized average loans, for the same period in 2021.
• The allowance for credit losses to total loans was 1.27% at December 31, 2022.
• Book value per share at December 31, 2022, was $26.01, an increase of $0.67 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 December 31, 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 $1.28 billion in combined assets as of December 31, 2022. The Company reported consolidated assets of $3.14 billion as of December 31, 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																				Twelve Months Ended
			December 31,				September 30,				June 30,				March 31,				December 31,				December 31,
(Amounts in thousands, except share and per share data)			2022				2022				2022				2022				2021				2022				2021
Interest income
	Interest and fees on loans		$	27,873			$	26,405			$	25,651			$	24,641			$	25,236			$	104,570			$	102,832
	Interest on securities			1,900				1,785				1,551				750				362				5,986				1,737
	Interest on deposits in banks			1,215				1,532				768				248				234				3,763				741
Total interest income				30,988				29,722				27,970				25,639				25,832				114,319				105,310
Interest expense
	Interest on deposits			366				380				422				486				600				1,654				2,835
	Interest on borrowings			1				–				1				–				–				2				1
Total interest expense				367				380				423				486				600				1,656				2,836
Net interest income				30,621				29,342				27,547				25,153				25,232				112,663				102,474
Provision for (recovery of) credit losses				3,416				685				510				1,961				(846	)			6,572				(8,471	)
Net interest income after provision				27,205				28,657				27,037				23,192				26,078				106,091				110,945
Noninterest income				9,184				9,950				8,854				9,194				9,215				37,182				34,301
Noninterest expense				20,730				21,145				21,255				19,986				21,701				83,116				78,718
Income before income taxes				15,659				17,462				14,636				12,400				13,592				60,157				66,528
Income tax expense				3,076				4,111				3,423				2,885				3,037				13,495				15,360
Net income			$	12,583			$	13,351			$	11,213			$	9,515			$	10,555			$	46,662			$	51,168
Earnings per common share
	Basic		$	0.78			$	0.82			$	0.67			$	0.57			$	0.62			$	2.82			$	2.95
	Diluted			0.77				0.81				0.67				0.56				0.62				2.82				2.94
Cash dividends per common share
	Regular			0.29				0.29				0.27				0.27				0.27				1.12				1.04
Weighted average shares outstanding
	Basic			16,229,289				16,378,022				16,662,817				16,817,284				16,974,005				16,519,848				17,335,615
	Diluted			16,281,922				16,413,202				16,682,615				16,864,515				17,038,980				16,562,257				17,402,936
Performance ratios
	Return on average assets			1.59	%			1.63	%			1.38	%			1.20	%			1.32	%			1.45	%			1.63	%
	Return on average common equity			11.99	%			12.60	%			10.61	%			8.98	%			9.77	%			11.04	%			11.96	%
	Return on average tangible common equity(1)			17.75	%			18.51	%			15.56	%			13.10	%			14.28	%			16.17	%			17.53	%
(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															Twelve Months Ended
		December 31,			September 30,			June 30,			March 31,			December 31,			December 31,
(Amounts in thousands)		2022			2022			2022			2022			2021			2022			2021
Noninterest income
	Wealth management	$	958		$	932		$	993		$	972		$	940		$	3,855		$	3,853
	Service charges on deposits		3,354			3,689			3,672			3,498			3,718			14,213			13,446
	Other service charges and fees		3,006			2,988			3,297			3,017			3,091			12,308			12,422
	Net FDIC indemnification asset amortization		–			–			–			–			–			–			(1,226	)
	Gain on divestiture		–			1,658			–			–			–			1,658			–
	Other operating income		1,866			683			892			1,707			1,466			5,148			5,806
Total noninterest income		$	9,184		$	9,950		$	8,854		$	9,194		$	9,215		$	37,182		$	34,301
Noninterest expense
	Salaries and employee benefits	$	11,913		$	12,081		$	11,518		$	11,671		$	12,493		$	47,183		$	44,239
	Occupancy expense		1,196			1,188			1,165			1,269			1,368			4,818			4,913
	Furniture and equipment expense		1,413			1,478			1,496			1,614			1,418			6,001			5,627
	Service fees		1,905			1,635			2,563			1,503			1,946			7,606			6,324
	Advertising and public relations		574			718			577			540			589			2,409			2,076
	Professional fees		98			208			544			453			455			1,303			1,524
	Amortization of intangibles		364			365			360			357			364			1,446			1,446
	FDIC premiums and assessments		330			321			257			218			213			1,126			832
	Merger expense		596			–			–			–			–			596			–
	Divestiture expense		–			153			–			–			–			153			–
	Other operating expense		2,341			2,998			2,775			2,361			2,855			10,475			11,737
Total noninterest expense		$	20,730		$	21,145		$	21,255		$	19,986		$	21,701		$	83,116		$	78,718

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP ADJUSTED EARNINGS (Unaudited)
			Three Months Ended																				Twelve Months Ended
			December 31,				September 30,				June 30,				March 31,				December 31,				December 31,
			2022				2022				2022				2022				2021				2022				2021
(Amounts in thousands, except per share data)
Net income			$	12,583			$	13,351			$	11,213			$	9,515			$	10,555			$	46,662			$	51,168
Non-GAAP adjustments:
Merger expense				596				–				–				–				–				596				–
Divestiture expense				–				153				–				–				–				153				–
Gain on divestiture				–				(1,658	)			–				–				–				(1,658	)
Other items(1)				(450	)			–				(92	)			–				–				(542	)			–
Total adjustments				146				(1,505	)			(92	)			–				–				(1,451	)			–
Tax effect				(29	)			(361	)			(22	)			–				–				(412	)			–
Adjusted earnings, non-GAAP			$	12,758			$	12,207			$	11,143			$	9,515			$	10,555			$	45,623			$	51,168
Adjusted diluted earnings per common share,
non-GAAP			$	0.78			$	0.74			$	0.67			$	0.56			$	0.62			$	2.75			$	2.94
Performance ratios, non-GAAP
Adjusted return on average assets				1.61	%			1.49	%			1.37	%			1.20	%			1.32	%			1.42	%			1.63	%
Adjusted return on average common equity				12.16	%			11.52	%			10.55	%			8.98	%			9.77	%			10.80	%			11.96	%
Adjusted return on average tangible
		common equity(2)		17.93	%			16.92	%			15.46	%			13.10	%			14.28	%			15.84	%			17.53	%
(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 December 31,
			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)		$	2,383,161		$	27,944		4.65	%		$	2,163,613		$	25,274		4.63	%
	Securities available for sale			299,488			1,942		2.57	%			76,556			418		2.17	%
	Interest-bearing deposits			130,363			1,218		3.71	%			613,377			237		0.15	%
Total earning assets				2,813,012			31,104		4.39	%			2,853,546			25,929		3.60	%
Other assets				326,043									328,866
Total assets			$	3,139,055								$	3,182,412
Liabilities and stockholders’ equity
Interest-bearing deposits
	Demand deposits		$	666,517		$	27		0.02	%		$	668,335		$	28		0.02	%
	Savings deposits			856,755			106		0.05	%			843,501			64		0.03	%
	Time deposits			293,520			232		0.31	%			362,869			509		0.56	%
Total interest-bearing deposits				1,816,792			365		0.08	%			1,874,705			601		0.13	%
Borrowings
	Retail repurchase agreements			2,473			1		0.07	%			1,236			–		N/M
Total borrowings				2,473			1		0.07	%			1,236			–		N/M
Total interest-bearing liabilities				1,819,265			366		0.08	%			1,875,941			601		0.13	%
Noninterest-bearing demand deposits				864,537									838,920
Other liabilities				38,993									38,986
Total liabilities				2,722,795									2,753,847
Stockholders’ equity				416,260									428,565
Total liabilities and stockholders’ equity			$	3,139,055								$	3,182,412
Net interest income, FTE(1)						$	30,738								$	25,328
Net interest rate spread									4.31	%								3.47	%
Net interest margin, FTE(1)									4.34	%								3.52	%
(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 $395 thousand and $1.10 million for the three months ended December 31, 2022 and 2021, respectively.

AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)
			Twelve Months Ended December 31,
			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)		$	2,298,503		$	104,830		4.56	%		$	2,153,099		$	102,996		4.78	%
	Securities available for sale			256,221			6,172		2.41	%			81,049			2,008		2.48	%
	Interest-bearing deposits			330,785			3,767		1.14	%			570,040			745		0.13	%
Total earning assets				2,885,509			114,769		3.98	%			2,804,188			105,749		3.77	%
Other assets				328,635									330,640
Total assets			$	3,214,144								$	3,134,828
Liabilities and stockholders’ equity
Interest-bearing deposits
	Demand deposits		$	683,502		$	112		0.02	%		$	646,999		$	127		0.02	%
	Savings deposits			880,171			306		0.03	%			816,845			281		0.03	%
	Time deposits			322,158			1,235		0.38	%			387,249			2,427		0.63	%
Total interest-bearing deposits				1,885,831			1,653		0.09	%			1,851,093			2,835		0.15	%
Borrowings
	Retail repurchase agreements			2,239			2		0.07	%			1,194			1		0.07	%
Total borrowings				2,239			2		0.07	%			1,194			1		0.07	%
Total interest-bearing liabilities				1,888,070			1,655		0.09	%			1,852,287			2,836		0.15	%
Noninterest-bearing demand deposits				864,224									816,638
Other liabilities				39,363									38,151
Total liabilities				2,791,657									2,707,076
Stockholders’ equity				422,487									427,752
Total liabilities and stockholders’ equity			$	3,214,144								$	3,134,828
Net interest income, FTE(1)						$	113,114								$	102,913
Net interest rate spread									3.89	%								3.62	%
Net interest margin, FTE(1)									3.92	%								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 $2.62 million and $4.66 million for the twelve months ended December 31, 2022 and 2021, respectively.

CONDENSED CONSOLIDATED QUARTERLY BALANCE SHEETS (Unaudited)
			December 31,				September 30,				June 30,				March 31,				December 31,
(Amounts in thousands, except per share data)			2022				2022				2022				2022				2021
Assets
Cash and cash equivalents			$	170,846			$	229,095			$	398,242			$	457,306			$	677,439
Debt securities available for sale				300,349				299,620				287,767				268,703				76,292
Loans held for investment, net of unearned income				2,400,197				2,362,733				2,299,798				2,244,296				2,165,569
	Allowance for credit losses			(30,556	)			(29,388	)			(29,749	)			(28,981	)			(27,858	)
Loans held for investment, net				2,369,641				2,333,345				2,270,049				2,215,315				2,137,711
Premises and equipment, net				47,340				47,891				49,752				50,912				52,284
Other real estate owned				703				559				579				848				1,015
Interest receivable				9,279				8,345				8,433				8,100				7,900
Goodwill				129,565				129,565				129,565				129,565				129,565
Other intangible assets				4,176				4,541				4,905				5,266				5,622
Other assets				103,673				107,838				109,085				108,112				106,691
Total assets			$	3,135,572			$	3,160,799			$	3,258,377			$	3,244,127			$	3,194,519
Liabilities
Deposits
	Noninterest-bearing		$	872,168			$	878,423			$	877,962			$	860,652			$	842,783
	Interest-bearing			1,806,647				1,831,798				1,920,577				1,922,292				1,886,608
Total deposits				2,678,815				2,710,221				2,798,539				2,782,944				2,729,391
Securities sold under agreements to repurchase				1,874				1,958				2,635				2,488				1,536
Interest, taxes, and other liabilities				32,898				36,362				39,157				34,539				35,817
Total liabilities				2,713,587		–		2,748,541		–		2,840,331		–		2,819,971		–		2,766,744
Stockholders’ equity
Common stock				16,225				16,273				16,502				16,782				16,878
Additional paid-in capital				128,508				129,914				136,705				144,088				147,619
Retained earnings				292,971				285,096				276,499				269,798				264,824
Accumulated other comprehensive loss				(15,719	)			(19,025	)			(11,660	)			(6,512	)			(1,546	)
Total stockholders’ equity				421,985				412,258				418,046				424,156				427,775
Total liabilities and stockholders’ equity			$	3,135,572			$	3,160,799			$	3,258,377			$	3,244,127			$	3,194,519
Shares outstanding at period-end				16,225,399				16,273,177				16,502,144				16,781,975				16,878,220
Book value per common share			$	26.01			$	25.33			$	25.33			$	25.27			$	25.34
Tangible book value per common share(1)				17.76				17.09				17.18				17.24				17.34
(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)
	December 31,				September 30,				June 30,				March 31,				December 31,
(Amounts in thousands)	2022				2022				2022				2022				2021
Allowance for Credit Losses
Beginning balance	$	29,388			$	29,749			$	28,981			$	27,858			$	29,877
Provision for (recovery of)
credit losses charged to operations		3,416				685				510				1,961				(846	)
Charge-offs		(2,873	)			(2,158	)			(1,469	)			(1,302	)			(1,887	)
Recoveries		625				1,112				1,727				464				714
Net (charge-offs) recoveries		(2,248	)			(1,046	)			258				(838	)			(1,173	)
Ending balance	$	30,556			$	29,388			$	29,749			$	28,981			$	27,858
Nonperforming Assets
Nonaccrual loans	$	15,208			$	15,303			$	17,826			$	20,487			$	20,768
Accruing loans past due 90 days or more		142				131				131				–				87
Troubled debt restructurings ("TDRs")(1)		1,346				1,331				515				1,141				1,367
Total nonperforming loans		16,696				16,765				18,472				21,628				22,222
OREO		703				559				579				848				1,015
Total nonperforming assets	$	17,399			$	17,324			$	19,051			$	22,476			$	23,237
Additional Information
Total accruing TDRs(2)	$	7,112			$	7,028			$	8,313			$	8,782			$	8,652
Asset Quality Ratios
Nonperforming loans to total loans		0.70	%			0.71	%			0.80	%			0.96	%			1.03	%
Nonperforming assets to total assets		0.55	%			0.55	%			0.58	%			0.69	%			0.73	%
Allowance for credit losses to nonperforming loans		183.01	%			175.29	%			161.05	%			134.00	%			125.36	%
Allowance for credit losses to total loans		1.27	%			1.24	%			1.29	%			1.29	%			1.29	%
Annualized net charge-offs (recoveries) to average loans		0.37	%			0.18	%			-0.05	%			0.15	%			0.22	%
(1) Accruing TDRs restructured within the past six months or nonperforming
(2) Accruing total TDRs

FOR MORE INFORMATION, CONTACT:

David D. Brown

(276) 326-9000