First Community Bankshares, Inc. Announces Third Quarter 2023 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, 2023. The Company reported net income of $14.64 million, or $0.79 per diluted common share, for the quarter ended September 30, 2023. Net income for the nine months ended September 30, 2023, was $36.24 million or $2.06 per diluted common share.

The Company also declared a quarterly cash dividend to common shareholders of twenty-nine cents $0.29 per common share. The quarterly dividend is payable to common shareholders of record on November 10, 2023, and is expected to be paid on or about November 24, 2023. This marks the 38th consecutive year of regular dividends to common shareholders.

Third Quarter 2023 and Current Highlights

Income Statement

	o	Net income of $14.64 million for the quarter was approximately 9.66%, or $1.29 million, higher compared to net income of $13.35 million in the same quarter of 2022. Adjusted for non-recurring items, third quarter net income increased $2.52 million to $14.72 million compared to third quarter 2022. The increase is primarily attributable to a significant increase in net interest income.
	o	Net interest income increased $4.01 million compared to the same quarter in 2022, as increases in benchmark interest rates have improved net interest margin.
	o	Net interest margin of 4.51% is an increase of 50 basis points over the same quarter of 2022. The yield on earning assets increased 82 basis points primarily driven by increased earnings on loans and securities.
	o	Interest and fees on loans increased $7.09 million from the same quarter of 2022 and is attributable to both an increase in yield and an increase in average balance compared to the yield and average balance of the prior year. Interest income from securities of $1.91 million was an increase of $127 thousand over the same quarter of 2022 and is primarily attributable to an increase in yield from the same period of the prior year. Interest income on deposits in banks decreased $835 thousand to $697 thousand for the third quarter, primarily due to a significant decrease in the average balance compared to the third quarter of 2022.
	o	Annualized return on average assets was 1.74% for the third quarter and 1.49% for the first nine months of 2023 compared to 1.63% and 1.41% for the same periods, respectively of 2022. Annualized return on average common equity was 11.63% for the third quarter and 10.25% for the first nine months of 2023 compared to 12.60% and 10.73%, for the same periods, respectively of 2022.

Balance Sheet and Asset Quality

	o	The Company’s loan portfolio increased by $193.28 million, or 8.05%, from December 31, 2022. Excluding the Surrey transaction, the loan portfolio decreased approximately $45.81 million, or 1.91%.
	o	Deposits increased $67.32 million, or 2.51%, from year-end 2022. Excluding the Surrey transaction, deposits decreased approximately $336.31 million, or 12.55%, from December 31, 2022.
	o	The Company repurchased 299,012 common shares during the third quarter of 2023 for a total cost of $9.37 million. The Company repurchased 578,579 common shares year-to-date for a total cost of $17.06 million. The Company recently announced a new 2.7 million share repurchase program that replaces the small remainder of the prior program and expires December 31, 2026.
	o	Non-performing loans to total loans remained at 0.71% when compared with the prior quarter of June 30, 2023. The Company experienced net charge-offs for the third quarter of 2023 of $1.46 million, or 0.22%, of annualized average loans, compared to net charge-offs of $1.05 million, or 0.18%, of annualized average loans for the same period in 2022.
	o	The allowance for credit losses to total loans was 1.39% at September 30, 2023 compared to 1.38% for the second quarter of 2023.
	o	Accumulated other comprehensive loss of $17.44 million at September 30, 2023, is primarily attributable to a relatively small decline in the market value of investment securities compared to book value after the significant increases in benchmark interest rates over the last seven quarters.
	o	Book value per share at September 30, 2023, was $26.55, an increase of $0.54 from year-end 2022.

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 53 branch banking locations in Virginia, West Virginia, North Carolina, and Tennessee as of September 30, 2023. 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 $1.40 billion in combined assets as of September 30, 2023. The Company reported consolidated assets of $3.28 billion as of September 30, 2023. 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
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,
(Amounts in thousands, except share and per share data)	2023			2023			2023			2022			2022			2023			2022
Interest income
Interest and fees on loans	$	33,496		$	31,927		$	27,628		$	27,873		$	26,405		$	93,051		$	76,697
Interest on securities		1,912			2,057			2,099			1,900			1,785			6,068			4,086
Interest on deposits in banks		697			885			462			1,215			1,532			2,044			2,548
Total interest income		36,105			34,869			30,189			30,988			29,722			101,163			83,331
Interest expense
Interest on deposits		2,758			1,930			718			366			380			5,406			1,288
Interest on borrowings		-			77			59			1			-			136			1
Total interest expense		2,758			2,007			777			367			380			5,542			1,289
Net interest income		33,347			32,862			29,412			30,621			29,342			95,621			82,042
Provision for credit losses		1,109			4,105			1,742			3,416			685			6,956			3,156
Net interest income after provision		32,238			28,757			27,670			27,205			28,657			88,665			78,886
Noninterest income		9,622			8,785			8,583			9,184			9,950			26,990			27,998
Noninterest expense		22,913			24,671			20,813			20,730			21,145			68,397			62,386
Income before income taxes		18,947			12,871			15,440			15,659			17,462			47,258			44,498
Income tax expense		4,307			3,057			3,658			3,076			4,111			11,022			10,419
Net income	$	14,640		$	9,814		$	11,782		$	12,583		$	13,351		$	36,236		$	34,079

Adjustment to Net Income for Fair Value Changes to Restricted Stock Units (tax-effected)	$	237		$	335		$	20		$	-		$	-		$	592		$	-
Adjusted Net Income for diluted earnings per share	$	14,877		$	10,149		$	11,802		$	12,583		$	13,351		$	36,828		$	34,079

Earnings per common share
Basic	$	0.78		$	0.53		$	0.73		$	0.78		$	0.82		$	2.03		$	2.05
Diluted	$	0.79		$	0.55		$	0.72		$	0.77		$	0.81		$	2.06		$	2.05
Cash dividends per common share
Regular		0.29			0.29			0.29			0.29			0.27			0.87			0.83
Weighted average shares outstanding
Basic		18,786,032			18,407,078			16,228,297			16,229,289			16,378,022			17,816,505			16,617,766
Diluted		18,831,836			18,431,598			16,289,489			16,281,922			16,413,202			17,857,494			16,654,697
Performance ratios
Return on average assets		1.74	%		1.18	%		1.55	%		1.59	%		1.63	%		1.49	%		1.41	%
Return on average common equity		11.63	%		8.04	%		11.15	%		11.99	%		12.60	%		10.25	%		10.73	%
Return on average tangible common equity(1)		17.11	%		11.65	%		16.19	%		17.75	%		18.51	%		14.94	%		15.71	%

)

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)	2023		2023			2023		2022		2022		2023			2022
Noninterest income
Wealth management	$	1,145	$	965		$	1,017	$	958	$	932	$	3,127		$	2,897
Service charges on deposits		3,729		3,471			3,159		3,354		3,689		10,359			10,859
Other service charges and fees		3,564		3,460			3,082		3,006		2,988		10,106			9,302
(Loss) gain on sale of securities		-		(28	)		7		-		-		(21	)		-
Gain on divestiture		-		-			-		-		1,658		-			1,658
Other operating income		1,184		917			1,318		1,866		683		3,419			3,282
Total noninterest income	$	9,622	$	8,785		$	8,583	$	9,184	$	9,950	$	26,990		$	27,998
Noninterest expense
Salaries and employee benefits	$	12,673	$	12,686		$	11,595	$	11,913	$	12,081	$	36,954		$	35,270
Occupancy expense		1,271		1,276			1,168		1,196		1,188		3,715			3,622
Furniture and equipment expense		1,480		1,508			1,401		1,413		1,478		4,389			4,588
Service fees		2,350		2,284			2,019		1,905		1,635		6,653			5,701
Advertising and public relations		968		846			643		574		718		2,457			1,835
Professional fees		172		281			327		98		208		780			1,205
Amortization of intangibles		536		425			234		364		365		1,195			1,082
FDIC premiums and assessments		392		423			320		330		321		1,135			796
Merger expense		-		2,014			379		596		-		2,393			-
Divestiture expense		-		-			-		-		153		-			153
Other operating expense		3,071		2,928			2,727		2,341		2,998		8,726			8,134
Total noninterest expense	$	22,913	$	24,671		$	20,813	$	20,730	$	21,145	$	68,397		$	62,386

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,
(Amounts in thousands, except per share data)	2023			2023			2023			2022			2022			2023			2022
Adjusted Net Income for diluted earnings per share	$	14,877		$	10,149		$	11,802		$	12,583		$	13,351		$	36,828		$	34,079
Non-GAAP adjustments:
Loss (gain) on sale of securities		-			28			(7	)		-			-			21			-
Merger expense		-			2,014			379			596			-			2,393			-
Day 2 provision for allowance for credit losses - Surrey		-			1,614			-			-			-			1,614			-
Divestiture expense		-			-			-			-			153			-			153
Gain on divestiture		-			-			-			-			(1,658	)		-			(1,658	)
Other items(1)		(204	)		-			-			(450	)		-			-			(92	)
Total adjustments		(204	)		3,656			372			146			(1,505	)		4,028			(1,597	)
Tax effect		(49	)		522			10			(29	)		(361	)		532			(383	)
Adjusted earnings, non-GAAP	$	14,722		$	13,283		$	12,163		$	12,758		$	12,207		$	40,324		$	32,865

Adjusted diluted earnings per common share, non-GAAP	$	0.78		$	0.72		$	0.75		$	0.78		$	0.74		$	2.26		$	1.97
Performance ratios, non-GAAP
Adjusted return on average assets		1.75	%		1.60	%		1.60	%		1.61	%		1.49	%		1.66	%		1.36	%
Adjusted return on average common equity		11.70	%		10.88	%		11.51	%		12.16	%		11.52	%		11.40	%		10.35	%
Adjusted return on average tangible common equity(2)		17.21	%		15.77	%		16.72	%		17.93	%		16.92	%		16.62	%		15.16	%

(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,
	2023							2022
	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)	$	2,604,885	$	33,566		5.11	%	$	2,334,596	$	26,474		4.50	%
Securities available for sale		284,659		1,952		2.72	%		301,360		1,833		2.41	%
Interest-bearing deposits		50,855		697		5.44	%		275,290		1,531		2.21	%
Total earning assets		2,940,399		36,215		4.89	%		2,911,246		29,838		4.07	%
Other assets		393,001							328,534
Total assets	$	3,333,400						$	3,239,780

Liabilities and stockholders’ equity
Interest-bearing deposits
Demand deposits	$	699,066	$	165		0.09	%	$	689,376	$	28		0.02	%
Savings deposits		862,121		1,941		0.89	%		887,454		67		0.03	%
Time deposits		263,940		652		0.98	%		317,294		285		0.36	%
Total interest-bearing deposits		1,825,127		2,758		0.60	%		1,894,124		380		0.08	%
Borrowings
Retail repurchase agreements		1,254		-		N/M			2,378		-	N/M
Total borrowings		1,254		-		N/M			2,378		-	N/M
Total interest-bearing liabilities		1,826,381		2,758		0.60	%		1,896,502		380		0.08	%
Noninterest-bearing demand deposits		964,093							881,429
Other liabilities		43,574							41,373
Total liabilities		2,834,048							2,819,304
Stockholders’ equity		499,352							420,476
Total liabilities and stockholders’ equity	$	3,333,400						$	3,239,780
Net interest income, FTE(1)			$	33,457						$	29,458
Net interest rate spread						4.29	%						3.99	%
Net interest margin, FTE(1)						4.51	%						4.01	%

(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 $874 thousand and $487 thousand for the three months ended September 30, 2023 and 2022, respectively.

AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)

	Nine Months Ended September 30,
	2023							2022
	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)	$	2,523,814	$	93,261		4.94	%	$	2,269,974	$	76,886		4.53	%
Securities available for sale		306,435		6,191		2.70	%		241,640		4,230		2.34	%
Interest-bearing deposits		51,759		2,047		5.29	%		398,326		2,549		0.86	%
Total earning assets		2,882,008		101,499		4.71	%		2,909,940		83,665		3.84	%
Other assets		366,243							329,508
Total assets	$	3,248,251						$	3,239,448

Liabilities and stockholders’ equity
Interest-bearing deposits
Demand deposits	$	682,820	$	225		0.04	%	$	689,226	$	85		0.02	%
Savings deposits		850,411		3,731		0.59	%		888,062		200		0.03	%
Time deposits		272,435		1,450		0.71	%		331,808		1,003		0.40	%
Total interest-bearing deposits		1,805,666		5,406		0.40	%		1,909,096		1,288		0.09	%
Borrowings
Federal funds purchased		3,532		135		5.11	%		-		-		0.00	%
Retail repurchase agreements		1,674		1		0.06	%		2,161		1		0.07	%
Total borrowings		5,206		136		3.49	%		2,161		1		0.07	%
Total interest-bearing liabilities		1,810,872		5,542		0.41	%		1,911,257		1,289		0.09	%
Noninterest-bearing demand deposits		924,591							864,119
Other liabilities		40,014							39,487
Total liabilities		2,775,477							2,814,863
Stockholders’ equity		472,774							424,585
Total liabilities and stockholders’ equity	$	3,248,251						$	3,239,448
Net interest income, FTE(1)			$	95,957						$	82,376
Net interest rate spread						4.30	%						3.75	%
Net interest margin, FTE(1)						4.45	%						3.78	%

(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 $2.22 million for the nine months ended September 30, 2023 and 2022, respectively.

CONDENSED CONSOLIDATED QUARTERLY BALANCE SHEETS (Unaudited)

	September 30,			June 30,			March 31,			December 31,			September 30,
(Amounts in thousands, except per share data)	2023			2023			2023			2022			2022
Assets
Cash and cash equivalents	$	113,397		$	152,660		$	92,385		$	170,846		$	229,095
Debt securities available for sale		275,332			314,373			308,269			300,349			299,620
Loans held for investment, net of unearned income		2,593,472			2,621,073			2,388,897			2,400,197			2,362,733
Allowance for credit losses		(36,031	)		(36,177	)		(30,789	)		(30,556	)		(29,388	)
Loans held for investment, net		2,557,441			2,584,896			2,358,108			2,369,641			2,333,345
Premises and equipment, net		51,205			53,546			47,407			47,340			47,891
Other real estate owned		243			339			481			703			559
Interest receivable		10,428			10,185			8,646			9,279			8,345
Goodwill		143,946			143,946			129,565			129,565			129,565
Other intangible assets		15,681			16,217			3,942			4,176			4,541
Other assets		116,552			115,275			102,869			103,673			107,838
Total assets	$	3,284,225		$	3,391,437		$	3,051,672		$	3,135,572		$	3,160,799

Liabilities
Deposits
Noninterest-bearing	$	944,301		$	974,995		$	823,297		$	872,168		$	878,423
Interest-bearing		1,801,835			1,877,683			1,761,327			1,806,647			1,831,798
Total deposits		2,746,136			2,852,678			2,584,624			2,678,815			2,710,221
Securities sold under agreements to repurchase		1,029			1,348			1,866			1,874			1,958
Interest, taxes, and other liabilities		41,393			38,691			33,451			32,898			36,362
Total liabilities		2,788,558			2,892,717			2,619,941			2,713,587			2,748,541

Stockholders’ equity
Common stock		18,671			18,969			16,243			16,225			16,273
Additional paid-in capital		180,951			189,917			128,666			128,508			129,914
Retained earnings		313,489			304,295			300,047			292,971			285,096
Accumulated other comprehensive loss		(17,444	)		(14,461	)		(13,225	)		(15,719	)		(19,025	)
Total stockholders’ equity		495,667			498,720			431,731			421,985			412,258
Total liabilities and stockholders’ equity	$	3,284,225		$	3,391,437		$	3,051,672		$	3,135,572		$	3,160,799

Shares outstanding at period-end		18,671,470			18,969,281			16,243,551			16,225,399			16,273,177
Book value per common share	$	26.55		$	26.29		$	26.58		$	26.01		$	25.33
Tangible book value per common share(1)		18.00			17.85			18.36			17.76			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)	2023			2023			2023			2022			2022
Allowance for Credit Losses
Balance at beginning of period:
Allowance for credit losses - loans	$	36,177		$	30,789		$	30,556		$	29,388		$	29,749
Allowance for credit losses - loan commitments(1)		964			964			1,196			1,416			956
Total allowance for credit losses beginning of period		37,141			31,753			31,752			30,804			30,705
Adjustments to beginning balance:
Allowance for credit losses - loans - Surrey acquisition for purchased credit deteriorated loans		-			2,011			-			-			-
Allowance for credit losses - loan commitments(1)		-			-			-			-			-
Net Adjustments		-			2,011			-			-			-
Provision for credit losses:
Provision for credit losses - loans		1,315			4,105			1,974			3,416			685
(Recovery of) provision for credit losses - loan commitments(1)		(206	)		-			(232	)		(220	)		460
Total provision for credit losses - loans and loan commitments		1,109			4,105			1,742			3,196			1,145
Charge-offs		(2,157	)		(1,993	)		(2,570	)		(2,873	)		(2,158	)
Recoveries		696			1,265			829			625			1,112
Net (charge-offs) recoveries		(1,461	)		(728	)		(1,741	)		(2,248	)		(1,046	)
Balance at end of period:
Allowance for credit losses - loans		36,031			36,177			30,789			30,556			29,388
Allowance for credit losses - loan commitments(1)		758			964			964			1,196			1,416
Ending balance	$	36,789		$	37,141		$	31,753		$	31,752		$	30,804

Nonperforming Assets
Nonaccrual loans	$	18,366		$	18,628		$	15,557		$	15,208		$	15,303
Accruing loans past due 90 days or more		59			-			23			142			131
Modified loans past due 90 days or more(2)		-			-			-			-			-
Troubled debt restructurings (“TDRs”)(3)		-			-			-			1,346			1,331
Total nonperforming loans		18,425			18,628			15,580			16,696			16,765
OREO		243			339			481			703			559
Total nonperforming assets	$	18,668		$	18,967		$	16,061		$	17,399		$	17,324


Additional Information
Total modified loans(2)	$	1,674		$	642		$	429		$	-		$	-
Total accruing TDRs(4)	$	-		$	-		$	-		$	7,112		$	7,028

Asset Quality Ratios
Nonperforming loans to total loans		0.71	%		0.71	%		0.65	%		0.70	%		0.71	%
Nonperforming assets to total assets		0.57	%		0.56	%		0.53	%		0.55	%		0.55	%
Allowance for credit losses to nonperforming loans		195.55	%		194.21	%		197.62	%		183.01	%		175.29	%
Allowance for credit losses to total loans		1.39	%		1.38	%		1.29	%		1.27	%		1.24	%
Annualized net charge-offs (recoveries) to average loans		0.22	%		0.11	%		0.29	%		0.37	%		0.18	%

(1	)	Prior quarter information for loan commitments has been reclassed for presentation purposes.
(2	)	ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures. ASU adopted effective January 1, 2023.
(3	)	Accruing TDRs restructured within the past six months or nonperforming as reported prior to the adoption of ASU 2022-02 Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.
(4	)	Accruing total TDRs as reported prior to the adoption of ASU 2022-02 Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.