First Community Bancshares, Inc. Announces Second Quarter 2017 Results and Increased Quarterly Dividend

Company Release - 7/25/2017 4:00 PM ET

BLUEFIELD, Va., July 25, 2017 (GLOBE NEWSWIRE) -- First Community Bancshares, Inc. (NASDAQ:FCBC) (www.firstcommunitybank.com) (the “Company”) today reported its unaudited results of operations and other financial information for the quarter and six months ended June 30, 2017. The Company reported net income available to common shareholders of $6.42 million, or $0.38 per diluted common share for the quarter ended June 30, 2017, which represents a 5.56% increase in per share diluted earnings compared to the same quarter of 2016. Net income available to common shareholders was $12.62 million, or $0.74 per diluted common share for the six months ended June 30, 2017, which represents a 5.71% increase in per share diluted earnings compared to the same period of 2016.

The Company also announced today that the Board of Directors declared a quarterly cash dividend to common shareholders of eighteen cents ($0.18) per common share, which represents an increase of 12.50% over the most recent cash dividend. The quarterly dividend is payable to common shareholders of record on August 4, 2017, and is expected to be paid on or about August 18, 2017. The current year marks the 32nd consecutive year of cash dividends paid to stockholders.

Second Quarter 2017 Highlights

  • Income Statement
    • Net income available to common shareholders increased $163 thousand, or 2.61%, to $6.42 million compared to the same quarter of 2016.
    • Diluted earnings per share increased $0.02, or 5.56%, to $0.38 compared to the same quarter of 2016.
    • Net interest margin increased 24 basis points to 4.32%, and normalized net interest margin increased 18 basis points to 3.99% compared to the same quarter of 2016.
       
  • Balance Sheet
    • Book value per common share increased $0.55 to $20.50 compared to December 31, 2016.
    • Tangible book value per common share increased $0.58 to $14.47 compared to December 31, 2016.
    • The Company and its subsidiary bank both significantly exceed regulatory “well capitalized” targets as of June 30, 2017.

Non-GAAP Financial Measures

The Company prepares its financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). This press release also 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 core earnings, the efficiency ratio, tangible book value per common share, average tangible common equity, and normalized net interest margin. Management believes that core earnings provide the Company and investors a valuable tool to evaluate the Company’s financial results. Management believes that the efficiency ratio provides important information about the Company’s operating expense control and efficiency of operations. Management also believes this ratio focuses attention on the core operating performance of the Company over time and is highly useful in comparing period-to-period operating performance of core business operations. The efficiency ratio used by the Company may not be comparable to efficiency ratios reported by other financial institutions. The reconciliations of these measures to GAAP measures are provided within this news release.

About First Community Bancshares, Inc.

First Community Bancshares, 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 June 30, 2017. First Community Bank provides insurance services through First Community Insurance Services, which operates 6 in-branch locations in Virginia and West Virginia and offers wealth management and investment advice through its Trust Division and First Community Wealth Management, which collectively managed $926 million in combined assets as of June 30, 2017. The Company reported consolidated assets of $2.37 billion as of June 30, 2017. 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.fcbinc.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 Six Months Ended
   June 30, March 31, December 31, September 30, June 30, June 30,
(Amounts in thousands, except share and per share data) 2017   2017   2016   2016   2016   2017   2016 
Interest income             
 Interest and fees on loans$22,914  $21,827  $21,956  $21,952  $22,237  $44,741  $43,810 
 Interest on securities 1,170   1,206   1,362   1,643   1,891   2,376   3,848 
 Interest on deposits in banks 221   159   98   26   9   380   29 
Total interest income 24,305   23,192   23,416   23,621   24,137   47,497   47,687 
Interest expense             
 Interest on deposits 1,233   1,166   1,145   1,133   1,087   2,399   2,201 
 Interest on borrowings 778   885   1,314   1,367   1,359   1,663   2,684 
Total interest expense 2,011   2,051   2,459   2,500   2,446   4,062   4,885 
Net interest income 22,294   21,141   20,957   21,121   21,691   43,435   42,802 
Provision for (recovery of) loan losses 934   492   500   (1,154)  722   1,426   1,909 
Net interest income after              
 provision (recovery) 21,360   20,649   20,457   22,275   20,969   42,009   40,893 
Total noninterest income 5,475   5,691   6,238   5,895   7,030   11,166   14,933 
Total noninterest expense 17,458   17,083   16,653   18,557   18,722   34,541   37,536 
Income before income taxes 9,377   9,257   10,042   9,613   9,277   18,634   18,290 
Income tax expense 2,959   3,055   3,638   3,230   3,022   6,014   5,951 
Net income  6,418   6,202   6,404   6,383   6,255   12,620   12,339 
Dividends on preferred stock -   -   -   -   -   -   - 
Net income available to common shareholders$6,418  $6,202  $6,404  $6,383  $6,255  $12,620  $12,339 
                
Earnings per common share             
 Basic$0.38  $0.36  $0.38  $0.37  $0.36  $0.74  $0.70 
 Diluted 0.38   0.36   0.38   0.37   0.36   0.74   0.70 
Cash dividends per common share 0.16   0.16   0.16   0.16   0.14   0.32   0.28 
Weighted average shares outstanding             
 Basic 17,012,189   16,998,125   16,891,010   17,031,074   17,414,320   17,005,196   17,636,783 
 Diluted 17,082,832   17,072,174   17,043,869   17,083,526   17,462,845   17,075,961   17,675,128 
Performance ratios             
 Return on average assets 1.08%   1.06%   1.05%   1.03%   1.02%   1.07%   1.00% 
 Return on average common equity 7.41%   7.35%   7.49%   7.58%   7.47%   7.38%   7.31% 
 Return on average tangible common equity(1) 10.51%   10.50%   10.75%   11.07%   10.88%   10.51%   10.60% 
                
                               
(1) A non-GAAP financial measure defined as average stockholders’ equity less average goodwill, other intangibles, and preferred stock liquidation preference


RECONCILIATION OF GAAP NET INCOME TO CORE EARNINGS (Unaudited) 
                 
   Three Months Ended Six Months Ended 
   June 30, March 31, December 31, September 30, June 30, June 30, 
    2017   2017   2016   2016   2016   2017   2016  
(Amounts in thousands, except per share data)              
Net income, GAAP$6,418  $6,202  $6,404  $6,383  $6,255  $12,620  $12,339  
Non-GAAP adjustments:              
 Net gain on divestitures -   -   (619)  (3,065)  -   -   -  
 Allowance reversal for sold loans -   -   -   (1,354)  -   -   -  
 Merger, acquisition, and divestiture expense -   -   55   226   410   -   449  
 Net loss (gain) on sale of securities 657   -   (388)  (25)  79   657   78  
 Net impairment losses -   -   -   4,635   11   -   11  
 Other non-core items (174)  (18)  (48)  (264)  -   (192)  (240) 
Total adjustments to core earnings 483   (18)  (1,000)  153   500   465   298  
Tax effect 345   (7)  (708)  56   184   338   110  
Core earnings, non-GAAP(1)$6,556  $6,191  $6,112  $6,480  $6,571  $12,747  $12,527  
                 
Core diluted earnings per common share$0.38  $0.36  $0.36  $0.38  $0.38  $0.74  $0.71  
Performance ratios              
 Core return on average assets 1.11%   1.06%   1.01%   1.05%   1.07%   1.08%   1.02%  
 Core return on average common equity 7.57%   7.33%   7.15%   7.70%   7.85%   7.45%   7.42%  
 Core return on average tangible common equity(2) 10.74%   10.48%   10.26%   11.24%   11.43%   10.61%   10.77%  
                 
                                
(1) Excludes gains, losses, and impairment losses on securities; goodwill and intangible impairment; taxes; 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, other intangibles, and preferred stock liquidation preference 
                 

Net Interest Income and Margin

AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)
              
   Three Months Ended June 30,
   2017
 2016
   Average    Average Yield/ Average    Average Yield/
(Amounts in thousands)Balance Interest(1) Rate(1) Balance Interest(1) Rate(1)
Assets           
Earning assets           
 Loans(2)$1,843,441 $22,986 5.00% $1,775,435 $22,263 5.04%
 Securities available for sale 167,869  1,455 3.48%  336,510  2,195 2.62%
 Securities held to maturity 34,664  125 1.45%  72,331  191 1.06%
 Interest-bearing deposits 68,455  221 1.29%  5,184  9 0.70%
Total earning assets 2,114,429  24,787 4.70%  2,189,460  24,658 4.53%
Other assets 263,767      283,945    
Total assets$2,378,196     $2,473,405    
              
Liabilities and stockholders' equity           
Interest-bearing deposits           
 Demand deposits$387,113 $110 0.11% $339,365 $60 0.07%
 Savings deposits 525,808  35 0.03%  542,238  63 0.05%
 Time deposits 514,527  1,088 0.85%  518,163  964 0.75%
Total interest-bearing deposits 1,427,448  1,233 0.35%  1,399,766  1,087 0.31%
Borrowings           
 Federal funds purchased 5  - 1.07%  9,078  14 0.62%
 Retail repurchase agreements 60,809  10 0.07%  65,718  12 0.07%
 Wholesale repurchase agreements 25,000  201 3.22%  50,000  469 3.77%
 FHLB advances and other borrowings 55,635  567 4.09%  132,459  864 2.62%
Total borrowings 141,449  778 2.21%  257,255  1,359 2.12%
Total interest-bearing liabilities 1,568,897  2,011 0.51%  1,657,021  2,446 0.59%
Noninterest-bearing demand deposits 441,547      460,255    
Other liabilities 20,197      19,520    
Total liabilities 2,030,641      2,136,796    
Stockholders' equity 347,555      336,609    
Total liabilities and stockholders' equity$2,378,196     $2,473,405    
Net interest income, FTE  $22,776     $22,212  
Net interest rate spread    4.19%     3.94%
Net interest margin    4.32%     4.08%
              
                     
(1) Fully taxable equivalent ("FTE") basis based on the federal statutory rate of 35%
(2) 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)
              
   Six Months Ended June 30,
    2017   2016 
   Average    Average Yield/ Average    Average Yield/
(Amounts in thousands)Balance Interest(1) Rate(1) Balance Interest(1) Rate(1)
Assets           
Earning assets           
 Loans(2)$1,841,152 $44,880 4.92% $1,752,918 $43,862 5.03%
 Securities available for sale 164,820  2,939 3.60%  345,546  4,463 2.60%
 Securities held to maturity 40,854  276 1.36%  72,421  385 1.07%
 Interest-bearing deposits 62,140  380 1.23%  10,388  29 0.56%
Total earning assets 2,108,966  48,475 4.64%  2,181,273  48,739 4.49%
Other assets 267,163      290,551    
Total assets$2,376,129     $2,471,824    
              
Liabilities and stockholders' equity           
Interest-bearing deposits           
 Demand deposits$384,098 $212 0.11% $340,945 $117 0.07%
 Savings deposits 525,691  71 0.03%  539,004  129 0.05%
 Time deposits 515,014  2,116 0.83%  525,899  1,955 0.75%
Total interest-bearing deposits 1,424,803  2,399 0.34%  1,405,848  2,201 0.31%
Borrowings           
 Federal funds purchased 3  - 1.07%  6,251  20 0.64%
 Retail repurchase agreements 63,861  21 0.07%  71,855  25 0.07%
 Wholesale repurchase agreements 25,000  399 3.22%  50,000  937 3.77%
 FHLB advances and other borrowings 61,096  1,243 4.10%  120,236  1,702 2.85%
Total borrowings 149,960  1,663 2.24%  248,342  2,684 2.17%
Total interest-bearing liabilities 1,574,763  4,062 0.53%  1,654,190  4,885 0.59%
Noninterest-bearing demand deposits 433,588      454,552    
Other liabilities 22,822      23,652    
Total liabilities 2,031,173      2,132,394    
Stockholders' equity 344,956      339,430    
Total liabilities and stockholders' equity$2,376,129     $2,471,824    
Net interest income, FTE  $44,413     $43,854  
Net interest rate spread    4.11%     3.90%
Net interest margin    4.25%     4.04%
              
                     
(1) Fully taxable equivalent ("FTE") basis based on the federal statutory rate of 35%
(2) Nonaccrual loans are included in average balances; however, no related interest income is recorded during the period of nonaccrual.


RECONCILIATION OF GAAP NET INTEREST MARGIN TO NON-GAAP NORMALIZED NET INTEREST MARGIN (Unaudited)    
              
   Three Months Ended June 30,    
   2017
 2016
    
(Amounts in thousands)Interest(1) Average Yield/
Rate(1)
 Interest(1) Average Yield/
Rate(1)
    
Earning assets           
Loans(2)$22,986 5.00% $22,263 5.04%    
 Accretion income 2,534    2,248      
 Less: cash accretion income 788    786      
 Non-cash accretion income 1,746    1,462      
Loans, normalized(3) 21,240 4.62%  20,801 4.71%    
Other earning assets 1,801 2.67%  2,395 2.33%    
Total earning assets 23,041 4.37%  23,196 4.26%    
Total interest-bearing liabilities 2,011 0.51%  2,446 0.59%    
Net interest income, FTE(3)$21,030   $20,750      
Net interest rate spread, normalized(3)  3.86%   3.67%    
Net interest margin, normalized(3)  3.99%   3.81%    
              
              
(1) FTE basis based on the federal statutory rate of 35%    
(2) Nonaccrual loans are included in average balances; however, no related interest income is recorded during the period of nonaccrual.    
(3) Normalized totals are non-GAAP financial measures that exclude non-cash loan interest accretion related to PCI loans.    
              
   Six Months Ended June 30,    
   2017
 2016
    
(Amounts in thousands)Interest(1) Average Yield/
Rate(1)
 Interest(1) Average Yield/
Rate(1)
    
Earning assets           
Loans(2)$44,880 4.92% $43,862 5.03%    
 Accretion income 4,318    4,500      
 Less: cash accretion income 1,438    1,591      
 Non-cash accretion income 2,880    2,909      
Loans, normalized(3) 42,000 4.60%  40,953 4.70%    
Other earning assets 3,595 2.71%  4,877 2.29%    
Total earning assets 45,595 4.36%  45,830 4.23%    
Total interest-bearing liabilities 4,062 0.53%  4,885 0.59%    
Net interest income, FTE(3)$41,533   $40,945      
Net interest rate spread, normalized(3)  3.83%   3.63%    
Net interest margin, normalized(3)  3.97%   3.77%    
              
              
(1) FTE basis based on the federal statutory rate of 35%    
(2) Nonaccrual loans are included in average balances; however, no related interest income is recorded during the period of nonaccrual.    
(3) Normalized totals are non-GAAP financial measures that exclude non-cash loan interest accretion related to PCI loans.    
              

Noninterest Income and Expense

CONDENSED QUARTERLY STATEMENTS OF INCOME (Unaudited)
               
  Three Months Ended Six Months Ended
  June 30, March 31, December 31, September 30, June 30, June 30,
(Amounts in thousands) 2017   2017   2016   2016   2016   2017   2016 
Noninterest income             
 Wealth management$791  $790  $681  $653  $810  $1,581  $1,494 
 Service charges on deposits 3,360   3,113   3,442   3,494   3,361   6,473   6,652 
 Other service charges and fees 2,168   2,078   2,014   2,024   2,054   4,246   4,064 
 Insurance commissions 325   373   59   1,592   1,600   698   3,791 
 Net impairment losses recognized in earnings -   -   -   (4,635)  (11)  -   (11)
 Net gain (loss) on sale of securities (657)  -   388   25   (79)  (657)  (78)
 Net FDIC indemnification asset amortization (1,586)  (1,332)  (1,618)  (1,369)  (1,328)  (2,918)  (2,487)
 Net gain on divestitures -   -   619   3,065   -   -   - 
 Other operating income 1,074   669   653   1,046   623   1,743   1,508 
Total noninterest income 5,475   5,691   6,238   5,895   7,030   11,166   14,933 
Noninterest expense             
 Salaries and employee benefits 9,157   8,884   9,411   9,828   10,198   18,041   20,673 
 Occupancy expense 1,341   1,248   1,158   1,249   1,359   2,589   2,890 
 Furniture and equipment expense 1,087   1,091   1,070   1,066   1,109   2,178   2,205 
 Amortization of intangibles 263   261   265   316   277   524   555 
 FDIC premiums and assessments 227   244   274   363   372   471   746 
 Merger, acquisition, and divestiture expense -   -   55   226   410   -   449 
 Other operating expense 5,383   5,355   4,420   5,509   4,997   10,738   10,018 
Total noninterest expense 17,458   17,083   16,653   18,557   18,722   34,541   37,536 
               

Efficiency Ratio

EFFICIENCY RATIO CALCULATION (Unaudited)
                
   Three Months Ended Six Months Ended
   June 30, March 31, December 31, September 30, June 30, June 30,
    2017   2017   2016   2016   2016   2017   2016 
(Amounts in thousands)             
Noninterest expense, GAAP$  17,458  $  17,083  $  16,653  $  18,557  $  18,722  $  34,541  $  37,536 
Non-GAAP adjustments             
 Merger, acquisition, and divestiture expense   -     -     (55)    (226)    (410)    -     (449)
 OREO expense and net loss   (213)    (328)    (184)    (278)    (247)    (541)    (958)
 Other non-core items   (327)    -     8     (168)    (30)    (327)    (204)
Adjusted noninterest expense   16,918     16,755      16,422     17,885     18,035     33,673     35,925 
                
Net interest income, GAAP   22,294     21,141     20,957     21,121     21,691     43,435     42,802 
Noninterest income, GAAP   5,475     5,691     6,238     5,895     7,030     11,166     14,933 
Non-GAAP adjustments             
 Tax equivalency adjustment   481     497     520     509     521     978     1,052 
 Net impairment losses   -     -     -     4,635     11     -     11 
 Net loss (gain) on sale of securities   657     -     (388)    (25)    79     657     78 
 Net gain on divestitures   -     -     (619)    (3,065)    -     -     - 
 Other non-core items   (501)    (18)    (40)    (432)    (30)    (519)    (444)
Adjusted net interest and noninterest income   28,406     27,311     26,668     28,638     29,302     55,717     58,432 
                
Non-GAAP efficiency ratio(1) 59.56%  61.35%  61.58%  62.45%  61.55%  60.44%  61.48%
GAAP efficiency ratio 62.87%  63.67%  61.24%  68.69%  65.19%  63.26%  65.01%
                
                               
(1) A non-GAAP financial measure computed by dividing adjusted noninterest expense by the sum of tax equivalent net interest income and adjusted noninterest income 
                

Balance Sheet and Capital

CONDENSED CONSOLIDATED QUARTERLY BALANCE SHEETS (Unaudited)
            
   June 30, March 31, December 31, September 30, June 30,
(Amounts in thousands, except per share data) 2017   2017   2016   2016   2016 
Assets         
Total cash and cash equivalents$106,799  $152,851  $76,307  $65,929  $44,301 
Securities available for sale 157,854   158,685   165,579   220,856   322,699 
Securities held to maturity 25,216   47,092   47,133   72,182   72,239 
Loans held for investment, net of unearned income         
 Non-covered 1,796,263   1,784,371   1,795,954   1,774,547   1,733,398 
 Covered 45,845   51,412   56,994   61,837   68,585 
 Less allowance for loan losses (18,886)  (18,458)  (17,948)  (19,633)  (21,099)
Loans held for investment, net 1,823,222   1,817,325   1,835,000   1,816,751   1,780,884 
FDIC indemnification asset 8,159   9,931   12,173   14,332   16,431 
Premises and equipment, net 49,598   50,057   50,085   50,564   50,199 
Other real estate owned, non-covered 3,914   4,477   5,109   4,052   4,187 
Other real estate owned, covered 124   241   276   2,437   2,017 
Interest receivable 5,072   5,059   5,553   5,498   6,115 
Goodwill 95,779   95,779   95,779   101,776   100,486 
Other intangible assets 6,683   6,947   7,207   7,964   4,688 
Other assets 84,183   82,069   86,197   87,932   91,082 
Total assets$2,366,603  $2,430,513  $2,386,398  $2,450,273  $2,495,328 
            
Liabilities         
Deposits         
 Noninterest-bearing$443,800  $467,677  $427,705  $473,509  $451,003 
 Interest-bearing 1,413,574   1,438,917   1,413,633   1,388,390   1,373,412 
Total deposits 1,857,374   1,906,594   1,841,338   1,861,899   1,824,415 
Federal funds purchased -   -   -   -   42,000 
Securities sold under agreements to repurchase 86,011   90,653   98,005   118,532   113,392 
FHLB borrowings 50,000   65,000   65,000   90,000   140,000 
Other borrowings -   244   15,708   15,707   15,756 
Interest, taxes, and other liabilities 24,443   24,618   27,290   26,599   25,553 
Total liabilities 2,017,828   2,087,109   2,047,341   2,112,737   2,161,116 
            
Stockholders' equity         
Common stock 21,382   21,382   21,382   21,382   21,382 
Additional paid-in capital 228,326   228,176   228,142   227,884   227,791 
Retained earnings 177,556   173,860   170,377   166,689   163,030 
Treasury stock, at cost (78,488)  (78,533)  (78,833)  (78,789)  (74,974)
Accumulated other comprehensive (loss) income (1)  (1,481)  (2,011)  370   (3,017)
Total stockholders' equity 348,775   343,404   339,057   337,536   334,212 
Total liabilities and stockholders' equity$2,366,603  $2,430,513  $2,386,398  $2,450,273  $2,495,328 
            
Shares outstanding at period-end 17,017,071   17,013,185   16,994,208   16,988,972   17,155,322 
Book value per common share(1)$20.50  $20.18  $19.95  $19.87  $19.48 
Tangible book value per common share(2) 14.47   14.15   13.89   13.41   13.35 
            
                       
(1) Stockholders' equity divided by as-converted common shares outstanding
(2) A non-GAAP financial measure defined as stockholders’ equity less goodwill and other intangibles, divided by as-converted common shares outstanding
            

Asset Quality

SELECTED CREDIT QUALITY INFORMATION (Unaudited)
            
   June 30, March 31, December 31, September 30, June 30,
(Amounts in thousands) 2017   2017   2016   2016   2016 
Allowance for Loan Losses          
Beginning balance$18,458  $17,948  $19,633  $21,099  $20,467 
Provision for (recovery of) loan losses charged