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First Community Bancshares, Inc. Announces Third Quarter 2014 Results and Quarterly Dividend

BLUEFIELD, Va., Oct. 28, 2014 (GLOBE NEWSWIRE) -- First Community Bancshares, Inc. (Nasdaq:FCBC) (www.fcbinc.com) (the "Company") today reported net income of $7.04 million for the quarter and $19.78 million for the nine months ended September 30, 2014. Net income available to common shareholders totaled $6.82 million, or $0.36 per diluted common share, for the quarter and $19.09 million, or $1.02 per diluted common share, for the nine months ended September 30, 2014. Core earnings totaled $9.06 million for the quarter and $21.79 million for the nine months ended September 30, 2014.

The Company also announced today that the board of directors declared a quarterly cash dividend to common shareholders of thirteen cents ($0.13) per common share. The quarterly dividend is payable to common shareholders of record on November 7, 2014, and is expected to be paid on or about November 21, 2014. The current year marks the 29th consecutive year of cash dividends paid to stockholders.

Third Quarter 2014 Highlights –

  • Diluted earnings per common share of $0.36 represents an increase of 38.5% over $0.26 reported for the third quarter of 2013.
  • The non-covered loan portfolio increased $77.1 million compared to year-end 2013 and $102.9 million compared to the third quarter of 2013. This marks the sixth consecutive quarter non-covered loan growth has exceeded covered loan declines.
  • Non-covered delinquent loans as a percentage of total non-covered loans experienced a significant decrease of 97 basis points, or 43.11%, to 1.28% compared to the third quarter of 2013. The decrease is attributed to significant declines in non-covered nonaccrual loans. This marks the sixth consecutive quarter the percentage of non-covered delinquent loans to total non-covered loans has improved.
  • The Company experienced positive resolution of a sizeable credit during the third quarter, which resulted in the significant recovery of loan loss provision. Additionally, net charge-offs of $203 thousand were a decrease of $825 thousand, or 80.25%, from $1.03 million for the second quarter of 2014 and $1.40 million, or 87.33%, from $1.60 million for the third quarter of 2013.
  • The Company prepaid $35 million of a $50 million Federal Home Loan Bank convertible advance. This prepayment was in keeping with the Company's strategic goal of reducing high cost wholesale debt.
  • The Company significantly exceeds regulatory "well capitalized" targets as of September 30, 2014, with a total risk-based capital ratio of 16.8%, a Tier 1 risk-based capital ratio of 15.5%, and a Tier 1 leverage ratio of 10.7%.
  • The Company announced the pending sale of 13 branches, 10 in the southeastern, coastal region of North Carolina and 3 in South Carolina, with deposits of approximately $230 million and loans of approximately $59 million.
  • On October 24, 2014, the Company completed the purchase of seven branches in southwestern Virginia and central North Carolina from Bank of America, with deposits of approximately $318 million.

Net Interest Income

The tax equivalent net interest margin increased to 4.06% for the third quarter of 2014 compared with 3.99% for the same quarter of 2013. Net interest income decreased $311 thousand, or 1.39%, to $22.02 million for the third quarter of 2014 compared with the same quarter of 2013. Total interest income decreased $945 thousand, or 3.54%, to $25.75 million for the third quarter of 2014 compared with the same quarter of 2013. The tax equivalent yield on loans decreased 23 basis points to 5.27% while the average loan balance increased $72.53 million, or 4.28%, to $1.77 billion for the third quarter of 2014 compared with the same quarter of 2013.

Loan interest accretion stemming from the Peoples and Waccamaw acquisitions totaled $2.81 million for the third quarter of 2014, of which $1.37 million was received in cash, compared to $3.47 million for the same quarter of 2013, of which $1.74 million was received in cash. The normalized net interest margin for the third quarters of 2014 and 2013, which excludes non-cash loan interest accretion, was 3.80% and 3.69%, respectively. The normalized yield on loans for the third quarters of 2014 and 2013 was 4.94% and 5.09%, respectively.

Total interest expense decreased $634 thousand, or 14.51%, to $3.74 million for the third quarter of 2014 compared with the same quarter of 2013. Deposit costs decreased $365 thousand, or 17.00%, to $1.78 million for the third quarter of 2014 compared with the same quarter of 2013, reflecting a 6 basis point decrease in the average rate paid on interest-bearing deposits. Borrowing costs decreased $269 thousand, or 12.10%, to $1.95 million for the third quarter of 2014 compared with the same quarter of 2013. The average rate paid on interest-bearing liabilities decreased 8 basis points to 0.82% for the third quarter of 2014 compared with the same quarter of 2013. The average balance of interest-bearing liabilities decreased $114.71 million, or 5.97%, to $1.81 billion for the third quarter of 2014 compared with the same quarter of 2013, which included a $95.21 million decrease in average interest-bearing deposits and a $19.50 million decrease in average total borrowings.

Noninterest Income

Noninterest income decreased $444 thousand, or 5.47%, to $7.67 million for the third quarter of 2014 compared with the same quarter of 2013, which was largely due to a decrease in other operating income and net impairment losses offset by a net gain on the sale of securities. Other operating income decreased $619 thousand, or 42.46%, for the third quarter of 2014 compared with the same quarter of 2013, primarily due to a $510 thousand decrease in secondary market income. The Company incurred other-than-temporary impairment charges of $219 thousand during the third quarter of 2014 related to a non-Agency mortgage-backed security. The Company realized a $320 thousand net gain on the sale of securities for the third quarter of 2014, which was an increase of $359 thousand compared to a net loss of $39 thousand in the same quarter of 2013.Wealth management revenues decreased $193 thousand, or 22.36%, for the third quarter of 2014 compared with the same quarter of 2013. The Trust and Wealth Management Divisions reported $700 million in combined assets under management as of September 30, 2014. Service charges on deposits and other service charges and fees increased $99 thousand, or 1.85%, for the third quarter of 2014 compared with the same quarter of 2013. Insurance commissions increased $136 thousand, or 8.72%, for the third quarter of 2014 compared with the same quarter of 2013. Net amortization expense relating to the FDIC indemnification asset experienced a slight increase during the third quarter of 2014, compared to the same quarter of 2013.

Noninterest Expense

Noninterest expense increased $1.32 million, or 6.53%, to $21.47 million for the third quarter of 2014 compared with the same quarter of 2013, which was largely due to FHLB debt prepayment fees and acquisition and divestiture expenses offset by a decrease in salaries and employee benefits and a decrease in other operating expenses. The Company incurred fees of $3.05 million related to the prepayment of $35 million of a $50 million FHLB convertible advance. Expenses related to the pending seven branch acquisitions and thirteen branch sales totaled $285 thousand in the third quarter of 2014. Salaries and employee benefits decreased $1.16 million, or 10.43%, to $9.92 million for the third quarter of 2014 compared with the same quarter of 2013, which was primarily due to a $1.07 million contractual executive severance charge in the third quarter of 2013. Absent the one-time severance charge, salaries and employee benefits decreased $85 thousand, or 0.85%, from the third quarter of 2013. Full-time equivalent employees totaled 691 as of September 30, 2014, a decrease of 35 employees compared with the same period of the prior year. The decrease in employees was a result of branch consolidation activities during the first half of 2014, as well as general staffing reductions throughout the Company. Other operating expense decreased $508 thousand, or 9.33%, to $4.93 million for the third quarter of 2014 compared with the same quarter of 2013, which was primarily due to decreases in problem loan, marketing, and legal expenses offset by increases in service fees and employee benefit plans. Other operating expense included a net loss on sales and expenses associated with other real estate owned of $580 thousand for the third quarter of 2014 compared to $272 thousand for the same quarter of 2013. Occupancy, furniture, and equipment expenses decreased $307 thousand, or 10.27%, to $2.68 million for the third quarter of 2014 compared with the same quarter of 2013. The efficiency ratio for the third quarter of 2014 was 58.11% compared to 60.35% for the third quarter of 2013.

Allowance for Loan Losses and Asset Quality

The total allowance for loan losses was reduced to $21.16 million as of September 30, 2014, compared with $24.08 million as of December 31, 2013, and $24.67 million as of September 30, 2013. As of September 30, 2014, $20.96 million of the allowance was attributed to the legacy portfolio and $196 thousand was attributed to the acquired Peoples portfolio. Non-covered loans and other real estate owned are those assets not covered by loss share agreements between the FDIC and the Bank in relation to the acquisition of Waccamaw. The allowance for loan losses, excluding purchased credit impaired ("PCI") loans, as a percentage of non-covered loans was 1.28% as of September 30, 2014, compared with 1.50% as of December 31, 2013, and 1.54% as of September 30, 2013. Activity in the allowance in the third quarter of 2014 included a recovery of loan losses previously charged to operations of $2.44 million, a decrease of $4.77 million compared to a net provision of $2.33 million recorded in the same quarter of the prior year, which was primarily due to the release of specific reserves on a problem credit that experienced favorable resolution during the third quarter of 2014. Other allowance activity in the third quarter of 2014 included a net recovery of previous impairments recorded through the FDIC indemnification asset of $110 thousand due to better than expected performance in the Waccamaw PCI loan portfolio. Net charge-offs decreased $1.55 million, or 88.43%, in the third quarter of 2014 compared with the fourth quarter of 2013 and decreased $1.40 million, or 87.33%, compared with the third quarter of 2013. The ratio of annualized net charge-offs to average non-covered loans improved significantly to 0.05% for the third quarter of 2014, which represents a decrease of 37 basis points compared with 0.42% for the third quarter of 2013.

Asset quality in the non-covered portfolio continues to improve as non-covered delinquent loans, which are comprised of loans 30 days or more past due and nonaccrual loans, as a percentage of total non-covered loans decreased to 1.28% as of September 30, 2014, compared to 2.25% for the same period of the prior year. Non-covered nonaccrual loans totaled $11.48 million as of September 30, 2014, compared to $19.16 million as of December 31, 2013, and $26.40 million as of September 30, 2013. At quarter-end, the Company's non-covered nonperforming loans as a percentage of total non-covered loans were 0.91% and non-covered nonperforming assets as a percentage of total non-covered assets were 0.85%. At quarter-end, the Company's non-covered nonaccrual loans as a percentage of total non-covered loans were 0.70%, compared to 1.72% for the same period of the prior year.

Total nonperforming assets, including covered and non-covered loan portfolios, consisted of $12.61 million in nonaccrual loans, $3.45 million in unseasoned, accruing troubled debt restructurings, and $13.23 million in other real estate owned as of September 30, 2014. In comparison, total nonperforming assets consisted of $22.51 million in nonaccrual loans, $86 thousand in accruing loans past due 90 days or more, $1.31 million in unseasoned, accruing troubled debt restructurings, and $14.86 million in other real estate owned as of December 31, 2013. In addition, total non-covered nonperforming assets decreased $7.25 million, or 26.08%, and total covered nonperforming assets decreased $2.23 million, or 20.30%, as of September 30, 2014, compared to December 31, 2013.

Balance Sheet and Capital

Consolidated assets totaled $2.55 billion as of September 30, 2014, a decrease of $52.39 million, or 2.01%, compared with $2.60 billion as of December 31, 2013. The change in consolidated assets was driven by a $168.13 million decrease in available-for-sale securities and a $25.07 million decrease in the covered loan portfolio offset by a $77.14 million increase in the non-covered loan portfolio, a $49.36 million increase in cash and cash equivalents, and a $30.46 million increase in held-to-maturity securities. The decrease in securities available for sale is consistent with the Company's strategic objective of shifting earning asset mix towards loan assets. During the first nine months of 2014, the Company purchased short-term bonds in the held-to-maturity category and it is expected that this portfolio will continue to grow consistently and will provide the funding necessary to extinguish certain wholesale borrowings as they come due.

Consolidated liabilities totaled $2.20 billion as of September 30, 2014, a decrease of $71.02 million, or 3.12%, compared with $2.27 billion as of December 31, 2013. The change in consolidated liabilities was driven by a $35.00 million decrease in FHLB borrowings, an $18.47 million decrease in deposits, and a $16.00 million decrease in federal funds purchased. The Company prepaid $35 million of a $50 million FHLB convertible advance during the third quarter of 2014 that matures in May 2017 and bears an interest rate of 4.21%. The prepayment resulted in a pre-tax penalty of $3.05 million.

Total stockholders' equity increased to $347.24 million as of September 30, 2014, compared with $328.61 million as of December 31, 2013. Book value per as-converted common share increased to $17.85 as of September 30, 2014, compared with $16.79 as of December 31, 2013, an increase of 6.31%. Tangible book value per common share increased to $12.30 as of September 30, 2014, compared with $11.26 as of December 31, 2013, an increase of 9.24%. Additionally, the Company repurchased 132,773 common shares at a weighted average cost of $16.29 per share and paid a cash dividend of $0.37 per common share during the first nine months of 2014.

The Company significantly exceeds regulatory "well capitalized" targets as of September 30, 2014, with a total risk-based capital ratio of 16.8%, a Tier 1 risk-based capital ratio of 15.5%, and a Tier 1 leverage ratio of 10.7%.

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.

Core earnings are a non-GAAP financial measure that excludes certain items from net income. Excluded items include gains, losses, and impairment losses on securities; goodwill and intangible impairment; amortization of intangibles; taxes; and other nonrecurring income and expense items. Management believes that core earnings provide the Company and investors a valuable tool to evaluate the Company's financial results.

The efficiency ratio is a non-GAAP financial measure that is computed by dividing adjusted noninterest expense by the sum of tax equivalent net interest income and adjusted noninterest income. Management believes this measure provides investors with 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.

Tangible book value per common share is a non-GAAP financial measure that is defined as stockholders' equity less goodwill and other intangibles, divided by as-converted common shares outstanding. Average tangible common equity is a non-GAAP financial measure that is defined as average stockholders' equity less average goodwill, other intangibles, and the preferred liquidation preference.

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 59 banking locations throughout Virginia, West Virginia, North Carolina, South Carolina, and Tennessee as of September 30, 2014. First Community Bank offers wealth management and investment services through its wholly-owned subsidiary First Community Wealth Management, a registered investment advisory firm, and the Bank's Trust Division, which collectively managed $700 million in combined assets as of September 30, 2014. The Company provides insurance services through its wholly-owned subsidiary Greenpoint Insurance Group, Inc., a full-service insurance agency headquartered in High Point, North Carolina, that operated 11 insurance locations throughout Virginia, West Virginia, and North Carolina as of September 30, 2014. The Company's common stock is listed on the NASDAQ Global Select Market under the trading symbol, "FCBC". The Company reported consolidated assets of $2.55 billion as of September 30, 2014. Additional investor information can be found 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.

FIRST COMMUNITY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(Amounts in thousands, except share and per share data) 2014 2013 2014 2013
Interest income
Interest and fees on loans held for investment $ 23,407 $ 23,439 $ 69,651 $ 72,547
Interest on securities --- taxable 1,196 1,999 4,830 5,754
Interest on securities --- nontaxable 1,108 1,216 3,329 3,631
Interest on deposits in banks 40 42 117 180
Total interest income 25,751 26,696 77,927 82,112
Interest expense
Interest on deposits 1,782 2,147 5,505 6,792
Interest on short-term borrowings 526 517 1,511 1,686
Interest on long-term borrowings 1,428 1,706 4,803 5,084
Total interest expense 3,736 4,370 11,819 13,562
Net interest income 22,015 22,326 66,108 68,550
(Recovery of) provision for loan losses (2,439) 2,333 633 6,680
Net interest income after provision for loan losses 24,454 19,993 65,475 61,870
Noninterest income
Wealth management income 670 863 2,396 2,680
Service charges on deposit accounts 3,606 3,582 10,099 10,065
Other service charges and fees 1,852 1,777 5,473 5,356
Insurance commissions 1,695 1,559 5,113 4,533
Net impairment losses recognized in earnings (219) -- (737) --
Net gain (loss) on sale of securities 320 (39) 306 191
Net FDIC indemnification asset amortization (1,096) (1,089) (3,166) (4,290)
Other operating income 839 1,458 3,021 4,285
Total noninterest income 7,667 8,111 22,505 22,820
Noninterest expense
Salaries and employee benefits 9,924 11,080 29,872 31,150
Occupancy expense of bank premises 1,469 1,700 4,825 5,350
Furniture and equipment 1,212 1,288 3,611 3,931
Amortization of intangible assets 179 183 532 545
FDIC premiums and assessments 419 460 1,311 1,401
FHLB debt prepayment fees 3,047 -- 3,047 --
Merger, acquisition, and divestiture expense 285 -- 285 57
Other operating expense 4,934 5,442 15,329 15,796
Total noninterest expense 21,469 20,153 58,812 58,230
Income before income taxes 10,652 7,951 29,168 26,460
Income tax expense 3,609 2,539 9,393 8,472
Net income 7,043 5,412 19,775 17,988
Dividends on preferred stock 228 261 683 772
Net income available to common shareholders $ 6,815 $ 5,151 $ 19,092 $ 17,216
Basic earnings per common share $ 0.37 $ 0.26 $ 1.04 $ 0.86
Diluted earnings per common share 0.36 0.26 1.02 0.85
Cash dividends per common share 0.13 0.12 0.37 0.36
Weighted average basic shares outstanding 18,402,764 20,008,861 18,407,173 20,013,095
Weighted average diluted shares outstanding 19,466,126 21,123,788 19,472,136 21,196,063
Return on average assets 1.06% 0.77% 0.99% 0.86%
Return on average common equity 8.15% 6.06% 7.86% 6.71%
FIRST COMMUNITY BANCSHARES, INC.
CONDENSED QUARTERLY STATEMENTS OF INCOME (Unaudited)
Quarter Ended
September 30, June 30, March 31, December 31, September 30,
(Amounts in thousands, except share and per share data) 2014 2014 2014 2013 2013
Interest Income
Interest and fees on loans held for investment $ 23,407 $ 23,410 $ 22,834 $ 24,053 $ 23,439
Interest on securities --- taxable 1,196 1,537 2,097 2,121 1,999
Interest on securities --- nontaxable 1,108 1,099 1,122 1,159 1,216
Interest on deposits in banks 40 47 30 31 42
Total interest income 25,751 26,093 26,083 27,364 26,696
Interest Expense
Interest on deposits 1,782 1,835 1,888 2,031 2,147
Interest on short-term borrowings 526 483 502 536 517
Interest on long-term borrowings 1,428 1,707 1,668 1,705 1,706
Total interest expense 3,736 4,025 4,058 4,272 4,370
Net interest income 22,015 22,068 22,025 23,092 22,326
(Recovery of) provision for loan losses (2,439) 1,279 1,793 1,528 2,333
Net interest income after provision for loan losses 24,454 20,789 20,232 21,564 19,993
Noninterest Income
Wealth management income 670 718 1,008 732 863
Service charges on deposit accounts 3,606 3,423 3,070 3,493 3,582
Other service charges and fees 1,852 1,850 1,771 1,795 1,777
Insurance commissions 1,695 1,454 1,964 1,400 1,559
Net impairment losses recognized in earnings (219) (254) (264) (320) --
Net gain (loss) on sale of securities 320 (59) 45 208 (39)
Net FDIC indemnification asset amortization (1,096) (936) (1,134) (1,307) (1,089)
Other operating income 839 1,408 774 950 1,458
Total noninterest income 7,667 7,604 7,234 6,951 8,111
Noninterest Expense
Salaries and employee benefits 9,924 10,043 9,905 10,085 11,080
Occupancy expense of bank premises 1,469 1,578 1,778 1,683 1,700
Furniture and equipment 1,212 1,205 1,194 1,035 1,288
Amortization of intangible assets 179 178 175 184 183
FDIC premiums and assessments 419 458 434 316 460
FHLB debt prepayment fees 3,047 -- -- -- --
Merger, acquisition, and divestiture expense 285 -- -- -- --
Other operating expense 4,934 4,701 5,694 7,452 5,442
Total noninterest expense 21,469 18,163 19,180 20,755 20,153
Income before income taxes 10,652 10,230 8,286 7,760 7,951
Income tax expense 3,609 3,223 2,561 2,436 2,539
Net income 7,043 7,007 5,725 5,324 5,412
Dividends on preferred stock 228 227 228 252 261
Net income available to common shareholders $ 6,815 $ 6,780 $ 5,497 $ 5,072 $ 5,151
Basic earnings per common share $ 0.37 $ 0.37 $ 0.30 $ 0.27 $ 0.26
Diluted earnings per common share 0.36 0.36 0.29 0.26 0.26
Cash dividends per common share 0.13 0.12 0.12 0.12 0.12
Weighted average basic shares outstanding 18,402,764 18,395,996 18,423,123 19,136,317 20,008,861
Weighted average diluted shares outstanding 19,466,126 19,457,237 19,506,647 20,233,737 21,123,788
FIRST COMMUNITY BANCSHARES, INC.
RECONCILIATION OF GAAP NET INCOME TO CORE EARNINGS (Unaudited)
Three Months Ended Nine Months Ended
September 30, June 30, March 31, December 31, September 30, September 30,
2014 2014 2014 2013 2013 2014 2013
(Amounts in thousands, except per share data)
Net income, GAAP $ 7,043 $ 7,007 $ 5,725 $ 5,324 $ 5,412 $ 19,775 $ 17,988
Non-GAAP adjustments:
Net impairment losses recognized in earnings 219 254 264 320 -- 737 --
Net (gain) loss on sale of securities (320) 59 (45) (208) 39 (306) (191)
Net gain on debt prepayment -- -- -- -- -- -- (296)
FHLB debt prepayment fees 3,047 -- -- -- -- 3,047 --
Merger, acquisition, and divestiture expense 285 -- -- -- -- 285 57
Branch closure/consolidation expense -- -- -- 1,520 -- -- --
Other noncore, nonrecurring items -- (536) -- -- 1,072 (536) 1,180
Total adjustments to core earnings 3,231 (223) 219 1,632 1,111 3,227 750
Tax effect 1,217 (84) 82 610 415 1,215 280
Core earnings, non-GAAP $ 9,057 $ 6,868 $ 5,862 $ 6,346 $ 6,108 $ 21,787 $ 18,458
Core return on average assets 1.41% 1.07% 0.92% 0.96% 0.92% 1.13% 0.92%
Core return on average common equity 10.83% 8.49% 7.49% 7.69% 7.19% 8.97% 7.19%
Core return on average tangible common equity 16.06% 12.73% 11.36% 11.47% 10.57% 13.45% 10.51%
Core diluted earnings per common share $0.47 $0.35 $0.30 $0.31 $0.29 $1.12 $0.87
FIRST COMMUNITY BANCSHARES, INC.
EFFICIENCY RATIO CALCULATION (Unaudited)
Three Months Ended Nine Months Ended
September 30, June 30, March 31, December 31, September 30, September 30,
2014 2014 2014 2013 2013 2014 2013
(Amounts in thousands)
Noninterest expense, GAAP $ 21,469 $ 18,163 $ 19,180 $ 20,755 $ 20,153 $ 58,812 $ 58,230
Non-GAAP adjustments:
FHLB debt prepayment fees (3,047) -- -- -- -- (3,047) --
OREO expense and net loss (580) (254) (857) (970) (272) (1,691) (1,067)
Merger, acquisition, and divestiture expense (285) -- -- -- -- (285) (57)
Branch acquisition/divestiture expense -- -- -- -- -- -- --
Branch closure/consolidation expense -- -- -- (1,520) -- -- --
Other noncore, nonrecurring items -- -- -- -- (1,072) -- (1,180)
Adjusted noninterest expense 17,557 17,909 18,323 18,265 18,809 53,789 55,926
Net interest income, GAAP 22,015 22,068 22,025 23,092 22,326 66,108 68,550
Noninterest income, GAAP 7,667 7,604 7,234 6,951 8,111 22,505 22,820
Non-GAAP adjustments:
Tax equivalency adjustment 633 699 663 662 691 1,943 2,079
Net impairment losses recognized in earnings 219 254 264 320 -- 737 --
Net (gain) loss on sale of securities (320) 59 (45) (208) 39 (306) (191)
Net gain on debt prepayment -- -- -- -- -- -- (296)
Other noncore, nonrecurring items -- (536) -- -- -- (536) --
Adjusted net interest and noninterest income 30,214 30,148 30,141 30,817 31,167 90,451 92,962
Non-GAAP efficiency ratio 58.11% 59.40% 60.79% 59.27% 60.35% 59.47% 60.16%
FIRST COMMUNITY BANCSHARES, INC.
CONDENSED QUARTERLY BALANCE SHEETS (Unaudited)
As of the Quarter Ended
September 30, June 30, March 31, December 31, September 30,
2014 2014 2014 2013 2013
(Amounts in thousands)
Cash and due from banks $ 44,703 $ 47,869 $ 45,879 $ 43,598 $ 47,982
Federal funds sold 55,503 38,142 22,352 1,817 33,374
Interest-bearing deposits in banks 5,716 10,770 10,771 11,152 11,219
Total cash and cash equivalents 105,922 96,781 79,002 56,567 92,575
Securities available for sale 351,693 398,425 483,864 519,820 545,676
Securities held to maturity 31,029 19,398 8,161 568 567
Loans held for sale 1,150 459 1,743 883 825
Loans held for investment, net of unearned income:
Covered under loss share agreements 126,611 132,717 143,170 151,682 163,425
Not covered under loss share agreements 1,636,181 1,626,707 1,588,694 1,559,039 1,533,272
Less allowance for loan losses (21,159) (23,911) (23,798) (24,077) (24,665)
Loans, net 1,742,783 1,735,972 1,709,809 1,687,527 1,672,857
FDIC indemnification asset 29,745 30,908 32,510 34,691 37,102
Property, plant, and equipment, net 59,283 59,145 60,043 61,116 63,526
Other real estate owned:
Covered under loss share agreements 7,620 8,814 8,705 7,541 7,381
Not covered under loss share agreements 5,612 5,693 5,923 7,318 5,450
Interest receivable 6,346 6,206 6,259 7,521 7,336
Goodwill 105,657 105,657 105,455 105,455 104,892
Intangible assets 2,334 2,512 2,691 2,866 2,976
Other assets 102,103 105,890 107,924 111,524 112,313
Total assets $2,550,127 $2,575,401 $2,610,346 $2,602,514 $2,652,651
Deposits:
Noninterest-bearing $ 397,523 $ 357,871 $ 353,137 $ 339,680 $ 353,951
Interest-bearing 347,589 362,318 382,752 361,821 374,546
Savings 519,902 517,766 531,096 524,010 527,887
Time 667,261 685,149 707,704 725,231 740,181
Total deposits 1,932,275 1,923,104 1,974,689 1,950,742 1,996,565
Interest, taxes, and other liabilities 25,131 23,576 23,323 22,770 24,653
Federal funds purchased -- -- -- 16,000 --
Securities sold under agreements to repurchase 114,439 120,159 112,337 118,308 114,647
FHLB borrowings 115,000 150,000 150,000 150,000 150,000
Other borrowings 16,047 16,087 16,087 16,088 15,839
Total liabilities 2,202,892 2,232,926 2,276,436 2,273,908 2,301,704
Preferred stock 15,151 15,151 15,151 15,251 15,471
Common stock 20,500 20,500 20,500 20,493 20,478
Additional paid-in capital 215,729 215,670 215,827 215,663 215,671
Retained earnings 138,111 133,688 129,115 125,826 123,018
Treasury stock, at cost (35,808) (35,797) (35,996) (33,887) (10,946)
Accumulated other comprehensive loss (6,448) (6,737) (10,687) (14,740) (12,745)
Total stockholders' equity 347,235 342,475 333,910 328,606 350,947
Total liabilities and stockholders' equity $2,550,127 $2,575,401 $2,610,346 $2,602,514 $2,652,651
Shares outstanding at period end 18,402,919 18,403,692 18,392,020 18,514,579 19,888,028
Book value per common share at period end(1) $ 17.85 $ 17.61 $ 17.18 $ 16.79 $ 16.75
Tangible book value per common share at period end(2) $ 12.30 $ 12.05 $ 11.61 $ 11.26 $ 11.60
(1) Book value per common share is defined as stockholders' equity divided by as-converted common shares outstanding.
(2) Tangible book value per common share is defined as stockholders' equity less goodwill and other intangibles divided by as-converted common shares outstanding.
FIRST COMMUNITY BANCSHARES, INC.
SELECTED CREDIT QUALITY INFORMATION (Unaudited)
As of and for the Quarter Ended
September 30, June 30, March 31, December 31, September 30,
(Amounts in thousands) 2014 2014 2014 2013 2013
Allowance for Loan Losses
Beginning balance $ 23,911 $ 23,798 $ 24,077 $ 24,665 $ 23,122
(Recovery of) provision for loan losses charged to operations (2,439) 1,279 1,793 1,528 2,333
(Recovery of) provision for loan losses recorded through the FDIC indemnification asset (110) (138) (203) (361) 812
Charge-offs (1,118) (1,785) (2,216) (2,807) (1,955)
Recoveries 915 757 347 1,052 353
Net charge-offs (203) (1,028) (1,869) (1,755) (1,602)
Ending balance $ 21,159 $ 23,911 $ 23,798 $ 24,077 $ 24,665
Summary of Asset Quality
Non-covered nonperforming
Nonaccrual loans $ 11,480 $ 17,464 $ 20,909 $ 19,161 $ 26,397
Accruing loans past due 90 days or more -- -- -- -- --
Troubled debt restructurings ("TDRs")(1) 3,450 1,877 1,775 1,311 2,228
Total non-covered nonperforming loans 14,930 19,341 22,684 20,472 28,625
Other real estate owned ("OREO") not covered under FDIC loss share agreements 5,612 5,693 5,923 7,318 5,450
Total non-covered nonperforming assets $ 20,542 $ 25,034 $ 28,607 $ 27,790 $ 34,075
Covered nonperforming
Nonaccrual loans $ 1,131 $ 955 $ 1,261 $ 3,353 $ 3,579
Accruing loans past due 90 days or more -- 109 109 86 82
Total covered nonperforming loans 1,131 1,064 1,370 3,439 3,661
OREO covered under FDIC loss share agreements 7,620 8,814 8,705 7,541 7,381
Total covered nonperforming assets 8,751 9,878 10,075 10,980 11,042
Total nonperforming assets $ 29,293 $ 34,912 $ 38,682 $ 38,770 $ 45,117
Performing TDRs(2) $ 11,701 $ 11,029 $ 11,193 $ 10,900 $ 9,697
Total TDRs(3) 15,151 12,906 12,968 12,211 11,925
Asset Quality Ratios
Excluding covered assets
Nonperforming loans to total loans 0.91% 1.19% 1.43% 1.31% 1.87%
Nonperforming assets to total assets 0.85% 1.03% 1.16% 1.14% 1.37%
Non-PCI allowance for loan losses to nonperforming loans 140.35% 121.47% 102.74% 113.92% 82.52%
Non-PCI allowance to non-covered total loans 1.28% 1.44% 1.47% 1.50% 1.54%
Annualized net charge-offs to average loans 0.05% 0.26% 0.48% 0.45% 0.42%
Including covered assets
Nonperforming loans to total loans 0.91% 1.16% 1.39% 1.40% 1.90%
Nonperforming assets to total assets 1.15% 1.36% 1.48% 1.49% 1.70%
Nonperforming assets to total loans and other real estate owned 114.84% 112.07% 115.74% 145.60% 149.60%
Allowance for loan losses to nonperforming loans 131.74% 117.18% 98.94% 100.69% 76.40%
Allowance for loan losses to total loans 1.20% 1.36% 1.37% 1.41% 1.45%
(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 nonperforming and performing TDRs
FIRST COMMUNITY BANCSHARES, INC.
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)
Three Months Ended September 30,
2014 2013
Average Average Yield/ Average Average Yield/
(Amounts in thousands) Balance Interest(1) Rate(1) Balance Interest(1) Rate(1)
Assets
Earning assets
Loans(2) $ 1,766,769 $ 23,460 5.27% $ 1,694,243 $ 23,476 5.50%
Securities available-for-sale 376,778 2,811 2.96% 547,686 3,857 2.79%
Securities held-to-maturity 24,189 73 1.20% 597 12 7.97%
Interest-bearing deposits 45,826 40 0.35% 45,259 42 0.37%
Total earning assets 2,213,562 26,384 4.73% 2,287,785 27,387 4.75%
Other assets 331,771 356,847
Total assets $ 2,545,333 $ 2,644,632
Liabilities
Interest-bearing deposits
Demand deposits $ 349,013 $ 49 0.06% $ 362,548 $ 58 0.06%
Savings deposits 521,334 121 0.09% 520,884 142 0.11%
Time deposits 675,454 1,612 0.95% 757,575 1,947 1.02%
Total interest-bearing deposits 1,545,801 1,782 0.46% 1,641,007 2,147 0.52%
Borrowings
Federal funds purchased 69 -- 0.00% -- -- --
Retail repurchase agreements 69,565 23 0.13% 65,382 34 0.21%
Wholesale repurchase agreements 50,000 474 3.76% 50,000 473 3.75%
FHLB advances and other borrowings 142,115 1,457 4.07% 165,868 1,716 4.10%
Total borrowings 261,749 1,954 2.96% 281,250 2,223 3.14%
Total interest-bearing liabilities 1,807,550 3,736 0.82% 1,922,257 4,370 0.90%
Noninterest-bearing demand deposits 371,877 349,156
Other liabilities 18,888 20,226
Total liabilities 2,198,315 2,291,639
Stockholders' equity 347,018 352,993
Total liabilities and stockholders' equity $ 2,545,333 $ 2,644,632
Net interest income, tax equivalent $ 22,648 $ 23,017
Net interest rate spread(3) 3.91% 3.85%
Net interest margin(4) 4.06% 3.99%
(1) Fully taxable equivalent at the rate of 35% ("FTE"). The FTE basis adjusts for the tax benefits of income on certain tax exempt loans and investments using the federal statutory rate of 35% for each period presented. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and nontaxable amounts.
(2) Nonaccrual loans are included in average balances outstanding, but with no related interest income during the period of nonaccrual.
(3) Represents the difference between the yield on earning assets and cost of funds.
(4) Represents tax equivalent net interest income divided by average earning assets.
FIRST COMMUNITY BANCSHARES, INC.
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)
Nine Months Ended September 30,
2014 2013
Average Average Yield/ Average Average Yield/
(Amounts in thousands) Balance Interest(1) Rate(1) Balance Interest(1) Rate(1)
Assets
Earning assets
Loans(2) $ 1,744,422 $ 69,818 5.35% $ 1,697,533 $ 72,671 5.72%
Securities available-for-sale 434,462 9,808 3.02% 546,603 11,297 2.76%
Securities held-to-maturity 12,858 127 1.32% 700 43 8.21%
Interest-bearing deposits 40,587 117 0.39% 75,577 180 0.32%
Total earning assets 2,232,329 79,870 4.78% 2,320,413 84,191 4.85%
Other assets 337,298 355,025
Total assets $ 2,569,627 $ 2,675,438
Liabilities
Interest-bearing deposits
Demand deposits $ 363,780 $ 154 0.06% $ 359,439 $ 173 0.06%
Savings deposits 525,269 387 0.10% 514,447 444 0.12%
Time deposits 695,585 4,964 0.95% 785,690 6,176 1.05%
Total interest-bearing deposits 1,584,634 5,505 0.46% 1,659,576 6,793 0.55%
Borrowings
Federal funds purchased 1,192 3 0.34% -- -- --
Retail repurchase agreements 73,669 74 0.13% 71,476 240 0.45%
Wholesale repurchase agreements 50,000 1,405 3.76% 52,521 1,416 3.60%
FHLB advances and other borrowings 158,009 4,832 4.09% 169,190 5,113 4.04%
Total borrowings 282,870 6,314 2.98% 293,187 6,769 3.09%
Total interest-bearing liabilities 1,867,504 11,819 0.85% 1,952,763 13,562 0.93%
Noninterest-bearing demand deposits 343,568 341,903
Other liabilities 18,758 20,882
Total liabilities 2,229,830 2,315,548
Stockholders' equity 339,797 359,890
Total liabilities and stockholders' equity $ 2,569,627 $ 2,675,438
Net interest income, tax equivalent $ 68,051 $ 70,629
Net interest rate spread(3) 3.93% 3.92%
Net interest margin(4) 4.08% 4.07%
(1) Fully taxable equivalent at the rate of 35% ("FTE"). The FTE basis adjusts for the tax benefits of income on certain tax exempt loans and investments using the federal statutory rate of 35% for each period presented. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and nontaxable amounts.
(2) Nonaccrual loans are included in average balances outstanding, but with no related interest income during the period of nonaccrual.
(3) Represents the difference between the yield on earning assets and cost of funds.
(4) Represents tax equivalent net interest income divided by average earning assets.
FIRST COMMUNITY BANCSHARES, INC.
RECONCILIATION OF GAAP NET INTEREST MARGIN TO NORMALIZED NET INTEREST MARGIN (Unaudited)
Three Months Ended September 30,
2014 2013
Average Yield/ Average Yield/
(Amounts in thousands) Interest(1) Rate(1) Interest(1) Rate(1)
Earning assets
Loans(2) $ 23,460 5.27% $ 23,476 5.50%
Accretion income 2,813 3,472
Less: cash accretion income 1,367 1,737
Non-cash accretion income 1,446 1,735
Loans, excluding non-cash accretion income 22,014 4.94% 21,741 5.09%
Other earning assets 2,924 2.60% 3,911 2.61%
Total earning assets 24,938 4.47% 25,652 4.45%
Total interest-bearing liabilities 3,736 0.82% 4,370 0.90%
Net interest income, tax equivalent $ 21,202 $ 21,282
Net interest rate spread(3) 3.65% 3.55%
Net interest margin(4) 3.80% 3.69%
Nine Months Ended September 30,
2014 2013
Average Yield/ Average Yield/
(Amounts in thousands) Interest(1) Rate(1) Interest(1) Rate(1)
Earning assets
Loans(2) $ 69,818 5.35% $ 72,671 5.72%
Accretion income 8,724 11,077
Less: cash accretion income 3,214 5,227
Non-cash accretion income 5,510 5,850
Loans, excluding non-cash accretion income 64,308 4.93% 66,821 5.26%
Other earning assets 10,052 2.75% 11,520 2.47%
Total earning assets 74,360 4.46% 78,341 4.51%
Total interest-bearing liabilities 11,819 0.85% 13,562 0.93%
Net interest income, tax equivalent $ 62,541 $ 64,779
Net interest rate spread(3) 3.61% 3.59%
Net interest margin(4) 3.75% 3.73%
(1) Fully taxable equivalent at the rate of 35% ("FTE"). The FTE basis adjusts for the tax benefits of income on certain tax exempt loans and investments using the federal statutory rate of 35% for each period presented. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and nontaxable amounts.
(2) Nonaccrual loans are included in average balances outstanding, but with no related interest income during the period of nonaccrual.
(3) Represents the difference between the yield on earning assets and cost of funds.
(4) Represents tax equivalent net interest income divided by average earning assets.

CONTACT: FOR MORE INFORMATION, CONTACT: David D. Brown (276) 326-9000

Source:First Community Bancshares, Inc.