First Community Bankshares, Inc. Announces Third Quarter 2018 Results and Quarterly Dividend

BLUEFIELD, Va., Oct. 23, 2018 (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 and nine months ended September 30, 2018. The Company reported net income of $9.10 million, or $0.55 per diluted common share, for the quarter ended September 30, 2018, which represents a 22.22% increase in per share diluted earnings compared to the same quarter of 2017. Net income was $27.03 million, or $1.61 per diluted common share, for the nine months ended September 30, 2018, which represents a 35.29% increase in per share diluted earnings compared to the same period of 2017.

The Company also announced today that the Board of Directors declared a quarterly cash dividend to common shareholders of twenty-one cents ($0.21) per common share. The quarterly dividend is payable to common shareholders of record on November 2, 2018, and is expected to be paid on or about November 16, 2018. The current year marks the 33^rd consecutive year of regular cash dividends paid to shareholders.

Third Quarter 2018 Highlights

General
- The Company sold its remaining insurance agency assets to Bankers Insurance, LLC of Glen Allen, Virginia (“BI”) in exchange for an equity interest in BI. The sale, which closed October 1, 2018, strategically allows the Company to continue offering insurance products to its customers through a larger, more diversified insurance agency. The Company recognized a one-time goodwill impairment of $1.49 million in connection with the decision to divest the insurance agency.
- The Company prepaid its remaining $50 million of FHLB debt. The prepayment was funded with cash and equivalents on hand, as well as the proceeds from the sale of single issue trust preferred investment securities, and should result in annualized net pre-tax savings of approximately $800 thousand.
- The divestiture of the remaining insurance agency assets and reduction of FHLB debt, in conjunction with the sale of the remaining trust preferred securities culminates a 5-year plan to return the Company's balance sheet and business model to a traditional, simplified, and de-risked community bank.
- The Company finalized its 2017 tax returns and the deferred tax asset revaluation charge originally taken in the fourth quarter of 2017, which resulted in a reduction in tax expense of approximately $1.67 million.
- The Company completed its Plan of Reincorporation and Merger approved by the shareholders in April 2018 changing its corporate domicile from Nevada to Virginia, along with a slight revision to the spelling of its name.
Income Statement
- Net income increased $1.45 million, or 18.92%, to $9.10 million compared to the same quarter of 2017.
- Diluted earnings per share increased $0.10, or 22.22%, to $0.55 and adjusted diluted earnings per share increased $0.17, or 37.78%, to $0.62 compared to the same quarter of 2017.
- Return on average assets improved 26 basis points to 1.55% and return on average equity improved 198 basis points to 10.59% compared to the same quarter of 2017.
- Net interest margin increased 10 basis points to 4.36% compared to the same quarter of 2017.
Balance Sheet
- The Company repurchased 195,776 common shares for $6.57 million during the quarter compared to 39,516 common shares for $1.01 million during the same quarter of 2017. Year to date, the Company has repurchased 670,016 common shares for $21.29 million compared to 50,118 shares for $1.26 million during the same period of 2017.
- The Company and its subsidiary bank both significantly exceed regulatory “well capitalized” targets as of September 30, 2018.

Non-GAAP Financial Measures

The Company prepares its financial statements in accordance with GAAP. This press release refers to certain non-GAAP financial measures that the Company believes provide investors with important information, when used in conjunction with results presented in accordance with GAAP, regarding its operational performance. The Company’s non-GAAP financial measures presented in this release include adjusted earnings, tangible book value per common share, and average tangible common equity. Management believes that adjusted earnings provide the Company and investors a valuable tool to evaluate the Company’s financial results. The reconciliations of these measures to GAAP measures are provided within this news release.

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 44 branch banking locations in Virginia, West Virginia, North Carolina, and Tennessee as of September 30, 2018. First Community Bank offers wealth management and investment advice through its Trust Division and First Community Wealth Management, which collectively managed and administered $1.04 billion in combined assets as of September 30, 2018. The Company reported consolidated assets of $2.27 billion as of September 30, 2018. 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.

Financial Performance

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months Ended															Nine Months Ended
																September 30,
(Amounts in thousands, except share and per share data)	September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017				2018			2017
Interest income
Interest and fees on loans	$	22,556		$	22,422		$	22,755		$	22,314		$	22,694			$	67,733		$	67,435
Interest on securities		1,372			1,361			1,104			1,095			1,080				3,837			3,456
Interest on deposits in banks		358			514			471			353			275				1,343			655
Total interest income		24,286			24,297			24,330			23,762			24,049				72,913			71,546
Interest expense
Interest on deposits		1,269			1,327			1,251			1,313			1,275				3,847			3,674
Interest on borrowings		692			708			700			716			724				2,100			2,387
Total interest expense		1,961			2,035			1,951			2,029			1,999				5,947			6,061
Net interest income		22,325			22,262			22,379			21,733			22,050				66,966			65,485
Provision for loan losses		495			495			495			615			730				1,485			2,156
Net interest income after provision		21,830			21,767			21,884			21,118			21,320				65,481			63,329
Noninterest income		6,519			6,959			6,668			7,498			6,703				20,146			17,070
Noninterest expense		18,131			17,160			17,116			16,683			16,477				52,407			50,219
Income before income taxes		10,218			11,566			11,436			11,933			11,546				33,220			30,180
Income tax expense		1,118			2,500			2,568			10,720			3,894				6,186			9,908
Net income	$	9,100		$	9,066		$	8,868		$	1,213		$	7,652			$	27,034		$	20,272

Earnings per common share
Basic	$	0.55		$	0.54		$	0.52		$	0.07		$	0.45			$	1.62		$	1.19
Diluted		0.55			0.54			0.52			0.07			0.45				1.61			1.19
Cash dividends per common share		0.21			0.18			0.66			0.18			0.18				1.05			0.50
Weighted average shares outstanding
Basic		16,512,823			16,689,398			16,955,758			16,992,519			17,005,654				16,717,704			17,005,350
Diluted		16,612,416			16,788,615			17,047,638			17,083,949			17,082,729				16,810,425			17,076,958
Performance ratios
Return on average assets		1.55	%		1.53	%		1.52	%		0.20	%		1.29	%			1.53	%		1.14	%
Return on average common equity		10.59	%		10.68	%		10.30	%		1.35	%		8.61	%			10.52	%		7.80	%
Return on average tangible common equity⁽¹⁾		15.06	%		15.21	%		14.53	%		1.89	%		12.13	%			14.93	%		11.06	%

____________________
(1) A non-GAAP financial measure defined as average stockholders’ equity less average goodwill and other intangibles

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,
	2018			2018			2018			2017			2017			2018			2017
(Amounts in thousands, except per share data)
Net income, GAAP	$	9,100		$	9,066		$	8,868		$	1,213		$	7,652		$	27,034		$	20,272
Non-GAAP adjustments:
Net loss on sale of securities		618			-			-			4			-			618			657
FHLB debt prepayment fees		1,096			-			-			-			-			1,096			-
Goodwill impairment		1,492			-			-			-			-			1,492			-
Deferred tax asset revaluation		(1,669	)		-			-			6,552			-			(1,669	)		-
Other items		-			297			(130	)		(140	)		34			167			(158	)
Total adjustments		1,537			297			(130	)		6,416			34			1,704			499
Tax effect		411			96			(24	)		(50	)		12			483			350
Adjusted earnings, non-GAAP⁽¹⁾	$	10,226		$	9,267		$	8,762		$	7,679		$	7,674		$	28,255		$	20,421

Adjusted diluted earnings per common share	$	0.62		$	0.55		$	0.51		$	0.45		$	0.45		$	1.68		$	1.19
Performance ratios
Adjusted return on average assets		1.74	%		1.57	%		1.50	%		1.28	%		1.29	%		1.60	%		1.15	%
Adjusted return on average common equity		11.90	%		10.91	%		10.17	%		8.56	%		8.63	%		11.00	%		7.86	%
Adjusted return on average tangible common equity⁽²⁾		16.93	%		15.55	%		14.36	%		11.99	%		12.16	%		15.61	%		11.14	%

____________________
(1) Excludes gains, losses, and impairment losses on securities; goodwill and intangible impairment; deferred tax revaluation impacts; and other non-recurring income and expense items from net income
(2) A non-GAAP financial measure defined as average stockholders’ equity less average goodwill and other intangibles

Net Interest Income and Margin

AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)

	Three Months Ended September 30,
		2018						2017
	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⁾	$	1,792,284	$	22,632	5.01	%	$	1,843,612	$	22,765	4.90	%
Securities available for sale		188,975		1,647	3.46	%		157,038		1,373	3.47	%
Securities held to maturity		25,064		105	1.66	%		25,199		106	1.67	%
Interest-bearing deposits		66,137		358	2.15	%		73,802		275	1.48	%
Total earning assets		2,072,460		24,742	4.74	%		2,099,651		24,519	4.63	%
Other assets		253,199						258,763
Total assets	$	2,325,659					$	2,358,414

Liabilities and stockholders' equity
Interest-bearing deposits
Demand deposits	$	459,759	$	39	0.03	%	$	384,594	$	48	0.05	%
Savings deposits		502,255		85	0.07	%		518,355		84	0.06	%
Time deposits		463,885		1,145	0.98	%		509,251		1,143	0.89	%
Total interest-bearing deposits		1,425,899		1,269	0.35	%		1,412,200		1,275	0.36	%
Borrowings
Federal funds purchased		-		-	-			-		-	-
Retail repurchase agreements		3,455		1	0.11	%		58,194		10	0.07	%
Wholesale repurchase agreements		25,000		203	3.22	%		25,000		203	3.22	%
FHLB advances and other borrowings		47,826		488	4.05	%		50,000		511	4.05	%
Total borrowings		76,281		692	3.60	%		133,194		724	2.16	%
Total interest-bearing liabilities		1,502,180		1,961	0.52	%		1,545,394		1,999	0.51	%
Noninterest-bearing demand deposits		454,126						440,227
Other liabilities		28,430						20,101
Total liabilities		1,984,736						2,005,722
Stockholders' equity		340,923						352,692
Total liabilities and stockholders' equity	$	2,325,659					$	2,358,414
Net interest income, FTE			$	22,781					$	22,520
Net interest rate spread					4.22	%					4.12	%
Net interest margin					4.36	%					4.26	%

______________________
(1) Fully taxable equivalent ("FTE") basis based on the federal statutory rate of 21% for periods after January 1, 2018, and 35% for periods prior to January 1, 2018
(2) Interest on loans included non-cash purchase accounting accretion of $1.05 million and $1.38 million for the three months ended September 30, 2018 and 2017, respectively.
(3) Nonaccrual loans are included in average balances; however, no related interest income is recorded during the period of nonaccrual.

AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)

	Nine Months Ended September 30,
		2018						2017
	Average				Average Yield/		Average				Average Yield/
(Amounts in thousands)	Balance		Interest⁽¹⁾		Rate⁽¹⁾		Balance		Interest⁽²⁾		Rate⁽²⁾
Assets
Earning assets
Loans⁽³⁾	$	1,797,689	$	67,954	5.05	%	$	1,841,981	$	67,645	4.91	%
Securities available for sale		181,630		4,672	3.44	%		162,198		4,312	3.55	%
Securities held to maturity		25,098		314	1.67	%		35,578		382	1.44	%
Interest-bearing deposits		97,623		1,343	1.84	%		66,069		655	1.33	%
Total earning assets		2,102,040		74,283	4.72	%		2,105,826		72,994	4.63	%
Other assets		252,797						264,333
Total assets	$	2,354,837					$	2,370,159

Liabilities and stockholders' equity
Interest-bearing deposits
Demand deposits	$	469,081	$	206	0.06	%	$	384,265	$	162	0.06	%
Savings deposits		512,897		250	0.07	%		523,219		253	0.06	%
Time deposits		478,265		3,391	0.95	%		513,072		3,259	0.85	%
Total interest-bearing deposits		1,460,243		3,847	0.35	%		1,420,556		3,674	0.35	%
Borrowings
Federal funds purchased		-		-	-			2		-	0.00	%
Retail repurchase agreements		3,836		3	0.10	%		61,951		31	0.07	%
Wholesale repurchase agreements		25,000		603	3.22	%		25,000		602	3.22	%
FHLB advances and other borrowings		49,267		1,494	4.05	%		57,357		1,754	4.09	%
Total borrowings		78,103		2,100	3.59	%		144,310		2,387	2.21	%
Total interest-bearing liabilities		1,538,346		5,947	0.52	%		1,564,866		6,061	0.52	%
Noninterest-bearing demand deposits		444,672						435,825
Other liabilities		28,257						21,905
Total liabilities		2,011,275						2,022,596
Stockholders' equity		343,562						347,563
Total liabilities and stockholders' equity	$	2,354,837					$	2,370,159
Net interest income, FTE			$	68,336					$	66,933
Net interest rate spread					4.20	%					4.11	%
Net interest margin					4.35	%					4.25	%

______________________
(1) Fully taxable equivalent ("FTE") basis based on the federal statutory rate of 21% for periods after January 1, 2018, and 35% for periods prior to January 1, 2018
(2) Interest on loans included non-cash purchase accounting accretion of $4.26 million for the nine months ended September 30, 2018 and 2017.
(3) Nonaccrual loans are included in average balances; however, no related interest income is recorded during the period of nonaccrual.

Noninterest Income and Expense

CONDENSED 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)	2018			2018			2018			2017			2017			2018			2017
Noninterest income
Wealth management	$	791		$	823		$	794		$	811		$	758		$	2,408		$	2,339
Service charges on deposits		3,803			3,612			3,468			3,725			3,605			10,883			10,078
Other service charges and fees		1,925			1,934			1,857			1,788			1,709			5,716			5,156
Insurance commissions		299			338			329			343			306			966			1,004
Net loss on sale of securities		(618	)		-			-			(4	)		-			(618	)		(657	)
Net FDIC indemnification asset amortization		(645	)		(575	)		(382	)		(331	)		(268	)		(1,602	)		(3,186	)
Other operating income		964			827			602			1,166			593			2,393			2,336
Total noninterest income		6,519			6,959			6,668			7,498			6,703			20,146			17,070
Noninterest expense
Salaries and employee benefits		8,983			8,993			9,441			9,003			9,001			27,417			26,771
Occupancy expense		1,075			1,083			1,250			1,104			1,082			3,408			3,671
Furniture and equipment expense		985			945			1,046			1,114			1,133			2,976			3,311
Service fees		1,134			851			828			703			705			2,813			2,645
Advertising and public relations		478			461			522			506			551			1,461			1,700
Professional fees		337			430			307			589			339			1,074			1,978
Amortization of intangibles		261			263			261			266			266			785			790
FDIC premiums and assessments		234			252			211			212			227			697			698
FHLB debt prepayment fees		1,096			-			-			-			-			1,096			-
Goodwill impairment		1,492			-			-			-			-			1,492			-
Other operating expense		2,056			3,882			3,250			3,186			3,173			9,188			8,655
Total noninterest expense		18,131			17,160			17,116			16,683			16,477			52,407			50,219

Balance Sheet and Capital

CONDENSED CONSOLIDATED QUARTERLY BALANCE SHEETS (Unaudited)

(Amounts in thousands, except per share data)	September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017
Assets
Cash and cash equivalents	$	73,679		$	107,957		$	205,140		$	157,951		$	105,119
Debt securities available for sale		163,593			196,425			164,192			165,580			174,424
Debt securities held to maturity		25,047			25,082			25,115			25,149			25,182
Loans held for investment, net of unearned income
Non-covered		1,770,426			1,776,112			1,767,703			1,789,236			1,806,434
Covered		20,483			22,919			25,406			27,948			31,287
Allowance for loan losses		(18,256	)		(19,583	)		(19,500	)		(19,276	)		(19,206	)
Loans held for investment, net		1,772,653			1,779,448			1,773,609			1,797,908			1,818,515
FDIC indemnification asset		5,653			6,390			6,884			7,161			7,465
Premises and equipment, net		45,537			45,547			46,415			48,126			48,949
Other real estate owned, non-covered		4,754			4,805			4,620			2,409			3,543
Other real estate owned, covered		44			44			70			105			54
Interest receivable		5,374			5,580			5,155			5,778			5,156
Goodwill		94,287			95,779			95,779			95,779			95,779
Other intangible assets		5,366			5,628			5,891			6,151			6,417
Other assets		73,701			75,435			95,437			76,363			84,177
Total assets	$	2,269,688		$	2,348,120		$	2,428,307		$	2,388,460		$	2,374,780

Liabilities
Deposits
Noninterest-bearing	$	463,945		$	462,851		$	460,478		$	454,143		$	452,940
Interest-bearing		1,411,906			1,441,887			1,520,141			1,475,748			1,410,880
Total deposits		1,875,851			1,904,738			1,980,619			1,929,891			1,863,820
Securities sold under agreements to repurchase		30,151			27,869			29,115			30,086			83,783
FHLB borrowings		-			50,000			50,000			50,000			50,000
Interest, taxes, and other liabilities		25,284			26,392			26,536			27,769			24,540
Total liabilities		1,931,286			2,008,999			2,086,270			2,037,746			2,022,143

Stockholders' equity
Common stock		21,382			21,382			21,382			21,382			21,382
Additional paid-in capital		229,182			228,949			228,774			228,750			228,510
Retained earnings		189,902			184,279			178,227			180,543			182,145
Treasury stock, at cost		(99,247	)		(92,904	)		(83,865	)		(79,121	)		(79,333	)
Accumulated other comprehensive loss		(2,817	)		(2,585	)		(2,481	)		(840	)		(67	)
Total stockholders' equity		338,402			339,121			342,037			350,714			352,637
Total liabilities and stockholders' equity	$	2,269,688		$	2,348,120		$	2,428,307		$	2,388,460		$	2,374,780

Shares outstanding at period-end		16,390,502			16,574,347			16,847,452			16,998,226			16,986,502
Book value per common share	$	20.65		$	20.46		$	20.30		$	20.63		$	20.76
Tangible book value per common share⁽¹⁾		14.57			14.34			14.27			14.64			14.74

__________
(1) A non-GAAP financial measure defined as stockholders’ equity less goodwill and other intangibles, divided by common shares outstanding

Asset Quality

SELECTED CREDIT QUALITY INFORMATION (Unaudited)

(Amounts in thousands)	September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017
Allowance for Loan Losses
Beginning balance	$	19,583		$	19,500		$	19,276		$	19,206		$	18,886
Provision for loan losses charged to operations		495			495			495			615			730
Charge-offs		(2,176	)		(750	)		(698	)		(967	)		(717	)
Recoveries		354			338			427			422			307
Net charge-offs		(1,822	)		(412	)		(271	)		(545	)		(410	)
Ending balance	$	18,256		$	19,583		$	19,500		$	19,276		$	19,206

Nonperforming Assets
Non-covered nonperforming assets
Nonaccrual loans	$	20,542		$	21,467		$	21,650		$	18,997		$	18,942
Accruing loans past due 90 days or more		46			-			27			1			-
Troubled debt restructurings ("TDRs")⁽¹⁾		189			133			77			120			141
Total non-covered nonperforming loans		20,777			21,600			21,754			19,118			19,083
OREO		4,754			4,805			4,620			2,409			3,543
Total non-covered nonperforming assets	$	25,531		$	26,405		$	26,374		$	21,527		$	22,626

Covered nonperforming assets
Nonaccrual loans	$	330		$	509		$	596		$	342		$	420
Total covered nonperforming loans		330			509			596			342			420
OREO		44			44			70			105			54
Total covered nonperforming assets	$	374		$	553		$	666		$	447		$	474

Additional Information
Performing TDRs⁽²⁾	$	6,953		$	6,847		$	7,220		$	7,614		$	8,101
Total TDRs⁽³⁾		7,142			6,980			7,297			7,734			8,242

Non-covered ratios
Nonperforming loans to total loans		1.17	%		1.22	%		1.23	%		1.07	%		1.06	%
Nonperforming assets to total assets		1.14	%		1.14	%		1.10	%		0.91	%		0.97	%
Non-PCI allowance to nonperforming loans		87.87	%		90.66	%		89.64	%		100.83	%		100.64	%
Non-PCI allowance to total loans		1.03	%		1.10	%		1.10	%		1.08	%		1.06	%
Annualized net charge-offs to average loans		0.41	%		0.09	%		0.06	%		0.12	%		0.09	%

Total ratios
Nonperforming loans to total loans		1.18	%		1.23	%		1.25	%		1.07	%		1.06	%
Nonperforming assets to total assets		1.14	%		1.15	%		1.11	%		0.92	%		0.97	%
Allowance for loan losses to nonperforming loans		86.49	%		88.57	%		87.25	%		99.05	%		98.48	%
Allowance for loan losses to total loans		1.02	%		1.09	%		1.09	%		1.06	%		1.05	%
Annualized net charge-offs to average loans		0.40	%		0.09	%		0.06	%		0.12	%		0.09	%

__________
(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

Distribution channels: Banking, Finance & Investment Industry

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