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First Community Bancshares, Inc. Announces Fourth Quarter and Full Year 2014 Results and Quarterly Dividend

BLUEFIELD, Va., Jan. 29, 2015 (GLOBE NEWSWIRE) -- First Community Bancshares, Inc. (Nasdaq:FCBC) (www.fcbinc.com) (the "Company") today reported net income of $5.72 million for the quarter and $25.49 million for the year ended December 31, 2014. Net income available to common shareholders totaled $5.49 million, or $0.29 per diluted common share, for the quarter and $24.58 million, or $1.31 per diluted common share, for the year ended December 31, 2014. Core earnings totaled $8.79 million for the quarter and $30.58 million for the year ended December 31, 2014.

On January 27, 2015, the Company announced 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 on or about February 20, 2015, to common shareholders of record on February 6, 2015. The current year marks the 30th consecutive year of cash dividends paid to stockholders.

Fourth Quarter 2014 Highlights –

  • Diluted earnings per common share of $0.29 represents an increase of 11.54% over $0.26 reported for the fourth quarter of 2013.
  • Asset quality metrics continue to improve as non-covered nonaccrual loans decreased $8.61 million, or 44.91%, to $10.56 million in the fourth quarter of 2014 compared to the same quarter of the prior year. Non-covered nonaccrual loans are at their lowest level in over six years.
  • The Company prepaid an additional $25 million in Federal Home Loan Bank convertible advances during the fourth quarter bringing total prepayments to $60 million for the year ended December 31, 2014. The 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 December 31, 2014, with a total risk-based capital ratio of 17.9%, a Tier 1 risk-based capital ratio of 16.6%, and a Tier 1 leverage ratio of 10.1%.
  • 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.
  • On December 12, 2014, the Company completed the sale of thirteen branches, ten in the Southeastern, coastal region of North Carolina and three in South Carolina, with deposits of approximately $215 million and loans of approximately $71 million. The sale resulted in a net gain of $755 thousand.
  • As a result of branch acquisition and divestiture activity, the Company's loan to deposit ratio declined to 84.5%, which is down significantly from recent periods.

Net Interest Income

The tax equivalent net interest margin increased to 4.19% for the fourth quarter of 2014 compared with 4.15% for the same quarter of 2013. Net interest income increased $1.62 million, or 7.01%, to $24.71 million for the fourth quarter of 2014 compared with the same quarter of 2013. Total interest income increased $817 thousand, or 2.99%, to $28.18 million for the fourth quarter of 2014 compared with the same quarter of 2013. The tax equivalent yield on loans increased 29 basis points to 5.89% and the average loan balance increased $39.02 million, or 2.29%, to $1.74 billion for the fourth quarter of 2014 compared with the same quarter of 2013.

Accretion income was enhanced in the fourth quarter of 2014 by discount accretion of $2.59 million related to the positive resolution of a sizable credit. Purchased credit impaired ("PCI") loan interest accretion totaled $2.75 million for the fourth quarter of 2014, of which $1.20 million was received in cash, compared to accretion income of $3.65 million for the same quarter of 2013, of which $1.80 million was received in cash. The normalized net interest margin, which excludes non-cash loan interest accretion and non-recurring discount accretion related to the positive resolution of a sizable credit, was 3.51% for the fourth quarter of 2014 and 3.83% for same quarter of 2013. Normalized net interest margin for the fourth quarter of 2014 was negatively impacted by excess liquidity, which will dissipate as liquidity is converted to loans and investments, from recent branch acquisition and divestiture activity. The normalized yield on loans was 4.95% for the fourth quarter of 2014 and 5.17% for the same quarter of 2013.

Total interest expense decreased $801 thousand, or 18.75%, to $3.47 million for the fourth quarter of 2014 compared with the same quarter of 2013. Deposit costs decreased $228 thousand, or 11.23%, to $1.80 million for the fourth quarter of 2014 compared with the same quarter of 2013, reflecting a 7 basis point decrease in the average rate paid on interest-bearing deposits. Borrowing costs decreased $573 thousand, or 25.57%, to $1.67 million for the fourth quarter of 2014 compared with the same quarter of 2013 due to debt prepayments. The average rate paid on interest-bearing liabilities decreased 17 basis points to 0.72% for the fourth quarter of 2014 compared with the same quarter of 2013. The average balance of interest-bearing liabilities decreased $1.86 million, or 0.10%, to $1.91 billion for the fourth quarter of 2014 compared with the same quarter of 2013, which included a $46.78 million increase in average interest-bearing deposits and a $48.64 million decrease in average total borrowings.

Noninterest Income

Noninterest income increased $547 thousand, or 7.87%, to $7.50 million for the fourth quarter of 2014 compared with the same quarter of 2013, which was largely due to the net gain on branch divestitures. The Company realized a net gain of $755 thousand on the sale of thirteen branches to CresCom Bank during the fourth quarter of 2014. Wealth management revenues decreased $98 thousand, or 13.39%, for the fourth quarter of 2014 compared with the same quarter of 2013. The Trust and Wealth Management Divisions reported $712 million in combined assets under management as of December 31, 2014. Service charges on deposits and other service charges and fees increased $549 thousand, or 10.38%, to $5.84 million for the fourth quarter of 2014 compared with the same quarter of 2013. Insurance commissions increased $42 thousand, or 3.00%, for the fourth quarter of 2014 compared with the same quarter of 2013. The Company realized a $1.69 million net loss on the sale of securities in the fourth quarter of 2014, which included the sale of the only remaining non-Agency mortgage-backed security at a loss of $1.62 million. The Company incurred no other-than-temporary impairment charges during the fourth quarter of 2014 compared to $320 thousand during the same quarter of 2013 related to the sold non-Agency mortgage-backed security. Net amortization expense relating to the FDIC indemnification asset decreased $494 thousand during the fourth quarter of 2014 compared to the same quarter of 2013. Other operating income increased $384 thousand, or 40.42%, for the fourth quarter of 2014 compared with the same quarter of 2013, primarily due to a $400 thousand legal settlement.

Noninterest Expense

Noninterest expense increased $3.30 million, or 15.88%, to $24.05 million for the fourth quarter of 2014 compared with the same quarter of 2013, which was largely due to FHLB debt prepayment fees, acquisition and divestiture expenses, and an increase in salaries and employee benefits. The Company incurred fees of $1.96 million related to the prepayment of $25 million in FHLB convertible advances. Expenses related to the branch acquisition and divestitures totaled $865 thousand in the fourth quarter of 2014. Salaries and employee benefits increased $756 thousand, or 7.50%, to $10.84 million for the fourth quarter of 2014 compared with the same quarter of 2013. Full-time equivalent employees totaled 725 as of December 31, 2014, a decrease of 4 employees compared with the same period of the prior year. The decrease was primarily due to branch consolidation and divestiture activities offset by the Bank of America branch acquisition. Occupancy, furniture, and equipment expenses increased $136 thousand, or 5.00%, to $2.85 million for the fourth quarter of 2014 compared with the same quarter of 2013. Other operating expense decreased $539 thousand, or 7.23%, to $6.91 million for the fourth quarter of 2014 compared with the same quarter of 2013. The decrease was primarily due to a $567 thousand decrease in the net loss on sales and expenses associated with other real estate owned to $403 thousand for the fourth quarter of 2014 compared to $970 thousand for the same quarter of 2013. The efficiency ratio for the fourth quarter of 2014 was 57.70% compared to 59.27% for the same quarter of 2013.

Allowance for Loan Losses and Asset Quality

The total allowance for loan losses was reduced to $20.23 million as of December 31, 2014, a decrease of $3.85 million, or 15.99%, compared to $24.08 million as of December 31, 2013. As of December 31, 2014, $20.17 million of the allowance was attributed to the legacy portfolio and $58 thousand was attributed to the PCI portfolio. Non-covered loans and other real estate owned are those assets not covered by FDIC loss share agreements. The allowance for loan losses, excluding PCI loans, as a percentage of non-covered loans was 1.29% as of December 31, 2014, compared with 1.50% as of December 31, 2013. Activity in the allowance in the fourth quarter of 2014 included the removal of $682 thousand of the allowance due to loans transferred in the branch divestiture. A recovery of loan losses previously charged to operations of $488 thousand was realized in the fourth quarter of 2014 compared to a provision of $1.53 million recorded in the same quarter of the prior year primarily due to the positive resolution of a sizable credit. Other allowance activity in the fourth quarter of 2014 included a provision for loan losses recorded through the FDIC indemnification asset of $29 thousand. The Company realized net recoveries of $209 thousand in the fourth quarter of 2014 compared to net charge-offs of $1.76 million in the same quarter of 2013, which was driven by the recovery of a sizable credit that had been written down in prior years.

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 1.40% as of December 31, 2014, compared to 1.98% for the same period of the prior year. Non-covered nonaccrual loans decreased to $10.56 million as of December 31, 2014, compared to $19.16 million as of December 31, 2013, which is the lowest level of nonaccrual loans in over six years. At quarter-end, the Company's non-covered nonaccrual loans as a percentage of total non-covered loans were 0.66%, compared to 1.23% for the same period of the prior year. The Company's non-covered nonperforming loans as a percentage of total non-covered loans were 0.90% and non-covered nonperforming assets as a percentage of total non-covered assets were 0.83% as of December 31, 2014.

Total nonperforming assets, including covered and non-covered loan portfolios, consisted of $12.99 million in nonaccrual loans, $3.48 million in unseasoned, accruing troubled debt restructurings, and $12.96 million in other real estate owned as of December 31, 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 $7.12 million, or 25.61%, and total covered nonperforming assets decreased $9.33 million, or 24.08%, as of December 31, 2014, compared to December 31, 2013.

Balance Sheet and Capital

Consolidated assets totaled $2.61 billion as of December 31, 2014, an increase of $5.42 million, or 0.21%, compared with $2.60 billion as of December 31, 2013. The change in consolidated assets was driven by a $195.06 million increase in federal funds sold and a $57.38 million increase in held-to-maturity securities offset by a $193.70 million decrease in available-for-sale securities and a $29.44 million decrease in the covered loan portfolio. Federal funds sold increased as a result of branch acquisition and divestiture activities in the fourth quarter. The decrease in securities available for sale is consistent with the Company's strategic objective of shifting earning asset mix towards loan assets. During 2014, the Company purchased short-term bonds in the held-to-maturity portfolio to provide the funding necessary to extinguish certain wholesale borrowings as they come due.

Consolidated liabilities totaled $2.26 billion as of December 31, 2014, a decrease of $17.35 million, or 0.76%, compared with $2.27 billion as of December 31, 2013. The change in consolidated liabilities was driven by a $60.00 million decrease in FHLB borrowings and a $16.00 million decrease in federal funds purchased offset by a $50.02 million increase in deposits. The Company prepaid the remaining $15 million of a $50 million FHLB convertible advance with a May 2017 maturity and 4.21% interest rate and $10 million of a $50 million FHLB convertible advance with a May 2017 maturity and 4.15% interest rate during the fourth quarter of 2014. The prepayments resulted in a pre-tax penalty of $1.96 million.

Total stockholders' equity increased to $351.37 million as of December 31, 2014, compared with $328.61 million as of December 31, 2013. Book value per as-converted common share increased 7.56% to $18.06 as of December 31, 2014, compared with $16.79 as of December 31, 2013. Tangible book value per common share increased 11.53% to $12.56 as of December 31, 2014, compared with $11.26 as of December 31, 2013. Additionally, the Company repurchased 132,773 common shares at a weighted average cost of $16.29 per share and paid a cash dividend of $0.50 per common share during 2014.

The Company significantly exceeds regulatory "well capitalized" targets as of December 31, 2014, with a total risk-based capital ratio of 17.85%, a Tier 1 risk-based capital ratio of 16.6%, and a Tier 1 leverage ratio of 10.1%.

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 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 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 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 53 banking locations throughout Virginia, West Virginia, North Carolina, and Tennessee as of December 31, 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 $712 million in combined assets as of December 31, 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 December 31, 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 $2.61 billion as of December 31, 2014. 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.

FIRST COMMUNITY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Year Ended
December 31, December 31,
(Amounts in thousands, except share and per share data) 2014 2013 2014 2013
Interest income
Interest and fees on loans held for investment $ 25,841 $ 24,053 $ 95,492 $ 96,600
Interest on securities -- taxable 1,145 2,121 5,975 7,875
Interest on securities -- nontaxable 1,021 1,159 4,350 4,790
Interest on deposits in banks 174 31 291 211
Total interest income 28,181 27,364 106,108 109,476
Interest expense
Interest on deposits 1,803 2,031 7,308 8,823
Interest on short-term borrowings 513 536 2,024 2,222
Interest on long-term borrowings 1,155 1,705 5,958 6,789
Total interest expense 3,471 4,272 15,290 17,834
Net interest income 24,710 23,092 90,818 91,642
(Recovery of) provision for loan losses (488) 1,528 145 8,208
Net interest income after provision for loan losses 25,198 21,564 90,673 83,434
Noninterest income
Wealth management income 634 732 3,030 3,412
Service charges on deposit accounts 3,729 3,493 13,828 13,558
Other service charges and fees 2,108 1,795 7,581 7,151
Insurance commissions 1,442 1,400 6,555 5,933
Net impairment losses recognized in earnings -- (320) (737) (320)
Net (loss) gain on sale of securities (1,691) 208 (1,385) 399
Net FDIC indemnification asset amortization (813) (1,307) (3,979) (5,597)
Net gain on branch divestiture 755 -- 755 --
Other operating income 1,334 950 4,355 5,235
Total noninterest income 7,498 6,951 30,003 29,771
Noninterest expense
Salaries and employee benefits 10,841 10,085 40,713 41,235
Occupancy expense of bank premises 1,513 1,683 6,338 7,033
Furniture and equipment 1,341 1,035 4,952 4,966
Amortization of intangible assets 255 184 787 729
FDIC premiums and assessments 361 316 1,672 1,717
FHLB debt prepayment fees 1,961 -- 5,008 --
Merger, acquisition, and divestiture expense 865 -- 1,150 57
Other operating expense 6,913 7,452 22,242 23,248
Total noninterest expense 24,050 20,755 82,862 78,985
Income before income taxes 8,646 7,760 37,814 34,220
Income tax expense 2,931 2,436 12,324 10,908
Net income 5,715 5,324 25,490 23,312
Dividends on preferred stock 227 252 910 1,024
Net income available to common shareholders $ 5,488 $ 5,072 $ 24,580 $ 22,288
Basic earnings per common share $ 0.30 $ 0.27 $ 1.34 $ 1.13
Diluted earnings per common share 0.29 0.26 1.31 1.11
Cash dividends per common share 0.13 0.12 0.50 0.48
Weighted average basic shares outstanding 18,403,959 19,136,317 18,406,363 19,792,099
Weighted average diluted shares outstanding 19,482,000 20,233,737 19,483,054 20,961,800
Return on average assets 0.80% 0.77% 0.94% 0.84%
Return on average common equity 6.48% 6.14% 7.51% 6.57%
FIRST COMMUNITY BANCSHARES, INC.
CONDENSED QUARTERLY STATEMENTS OF INCOME (Unaudited)
Quarter Ended
December 31, September 30, June 30, March 31, December 31,
(Amounts in thousands, except share and per share data) 2014 2014 2014 2014 2013
Interest Income
Interest and fees on loans held for investment $ 25,841 $ 23,407 $ 23,410 $ 22,834 $ 24,053
Interest on securities -- taxable 1,145 1,196 1,537 2,097 2,121
Interest on securities -- nontaxable 1,021 1,108 1,099 1,122 1,159
Interest on deposits in banks 174 40 47 30 31
Total interest income 28,181 25,751 26,093 26,083 27,364
Interest Expense
Interest on deposits 1,803 1,782 1,835 1,888 2,031
Interest on short-term borrowings 513 526 483 502 536
Interest on long-term borrowings 1,155 1,428 1,707 1,668 1,705
Total interest expense 3,471 3,736 4,025 4,058 4,272
Net interest income 24,710 22,015 22,068 22,025 23,092
(Recovery of) provision for loan losses (488) (2,439) 1,279 1,793 1,528
Net interest income after provision for loan losses 25,198 24,454 20,789 20,232 21,564
Noninterest Income
Wealth management income 634 670 718 1,008 732
Service charges on deposit accounts 3,729 3,606 3,423 3,070 3,493
Other service charges and fees 2,108 1,852 1,850 1,771 1,795
Insurance commissions 1,442 1,695 1,454 1,964 1,400
Net impairment losses recognized in earnings -- (219) (254) (264) (320)
Net (loss) gain on sale of securities (1,691) 320 (59) 45 208
Net FDIC indemnification asset amortization (813) (1,096) (936) (1,134) (1,307)
Net gain on branch divestiture 755 -- -- -- --
Other operating income 1,334 839 1,408 774 950
Total noninterest income 7,498 7,667 7,604 7,234 6,951
Noninterest Expense
Salaries and employee benefits 10,841 9,924 10,043 9,905 10,085
Occupancy expense of bank premises 1,513 1,469 1,578 1,778 1,683
Furniture and equipment 1,341 1,212 1,205 1,194 1,035
Amortization of intangible assets 255 179 178 175 184
FDIC premiums and assessments 361 419 458 434 316
FHLB debt prepayment fees 1,961 3,047 -- -- --
Merger, acquisition, and divestiture expense 865 285 -- -- --
Other operating expense 6,913 4,934 4,701 5,694 7,452
Total noninterest expense 24,050 21,469 18,163 19,180 20,755
Income before income taxes 8,646 10,652 10,230 8,286 7,760
Income tax expense 2,931 3,609 3,223 2,561 2,436
Net income 5,715 7,043 7,007 5,725 5,324
Dividends on preferred stock 227 228 227 228 252
Net income available to common shareholders $ 5,488 $ 6,815 $ 6,780 $ 5,497 $ 5,072
Basic earnings per common share $ 0.30 $ 0.37 $ 0.37 $ 0.30 $ 0.27
Diluted earnings per common share 0.29 0.36 0.36 0.29 0.26
Cash dividends per common share 0.13 0.13 0.12 0.12 0.12
Weighted average basic shares outstanding 18,403,959 18,402,764 18,395,996 18,423,123 19,136,317
Weighted average diluted shares outstanding 19,482,000 19,466,126 19,457,237 19,506,647 20,233,737
FIRST COMMUNITY BANCSHARES, INC.
RECONCILIATION OF GAAP NET INCOME TO CORE EARNINGS (Unaudited)
Three Months Ended Year Ended
December 31, September 30, June 30, March 31, December 31, December 31,
2014 2014 2014 2014 2013 2014 2013
(Amounts in thousands, except per share data)
Net income, GAAP $ 5,715 $ 7,043 $ 7,007 $ 5,725 $ 5,324 $ 25,490 $ 23,312
Non-GAAP adjustments:
Net impairment losses recognized in earnings -- 219 254 264 320 737 320
Net loss (gain) on sale of securities 1,691 (320) 59 (45) (208) 1,385 (399)
Net gain on debt prepayment -- -- -- -- -- -- (296)
Net gain on branch divestiture (755) -- -- -- -- (755) --
FHLB debt prepayment fees 1,961 3,047 -- -- -- 5,008 --
Merger, acquisition, and divestiture expense 865 285 -- -- -- 1,150 57
Other noncore, nonrecurring items 1,173 -- (536) -- -- 637 2,700
Total adjustments to core earnings 4,935 3,231 (223) 219 112 8,162 2,382
Tax effect 1,859 1,217 (84) 82 42 3,074 890
Core earnings, non-GAAP $ 8,791 $ 9,057 $ 6,868 $ 5,862 $ 5,394 $ 30,578 $ 24,804
Core return on average assets 1.28% 1.41% 1.07% 0.92% 0.96% 1.17% 0.93%
Core return on average common equity 10.39% 10.83% 8.49% 7.49% 7.69% 9.34% 7.31%
Core return on average tangible common equity 15.50% 16.06% 12.73% 11.36% 11.47% 13.99% 10.74%
Core diluted earnings per common share $0.45 $0.47 $0.35 $0.30 $0.31 $1.57 $1.18
FIRST COMMUNITY BANCSHARES, INC.
EFFICIENCY RATIO CALCULATION (Unaudited)
Three Months Ended Year Ended
December 31, September 30, June 30, March 31, December 31, December 31,
2014 2014 2014 2014 2013 2014 2013
(Amounts in thousands)
Noninterest expense, GAAP $ 24,050 $ 21,469 $ 18,163 $ 19,180 $ 20,755 $ 82,862 $ 78,985
Non-GAAP adjustments:
FHLB debt prepayment fees (1,961) (3,047) -- -- -- (5,008) --
Merger, acquisition, and divestiture expense (865) (285) -- -- -- (1,150) (57)
OREO expense and net loss (403) (580) (254) (857) (970) (2,094) (2,037)
Other noncore, nonrecurring items (1,573) -- -- -- -- (1,573) (2,700)
Adjusted noninterest expense 19,248 17,557 17,909 18,323 18,265 73,037 74,191
Net interest income, GAAP 24,710 22,015 22,068 22,025 23,092 90,818 91,642
Noninterest income, GAAP 7,498 7,667 7,604 7,234 6,951 30,003 29,771
Non-GAAP adjustments: --
Tax equivalency adjustment 613 582 699 663 662 2,557 2,741
Net impairment losses recognized in earnings -- 219 254 264 320 737 320
Net loss (gain) on sale of securities 1,691 (320) 59 (45) (208) 1,385 (399)
Net gain on branch divestiture (755) -- -- -- -- (755) --
Net gain on debt prepayment -- -- -- -- -- -- (296)
Other noncore, nonrecurring items (400) -- (536) -- -- (936) --
Adjusted net interest and noninterest income 33,357 30,163 30,148 30,141 30,817 123,809 123,779
Non-GAAP efficiency ratio 57.70% 58.21% 59.40% 60.79% 59.27% 58.99% 59.94%
FIRST COMMUNITY BANCSHARES, INC.
CONDENSED QUARTERLY BALANCE SHEETS (Unaudited)
As of the Quarter Ended
December 31, September 30, June 30, March 31, December 31,
2014 2014 2014 2014 2013
(Amounts in thousands)
Cash and due from banks $ 39,450 $ 44,703 $ 47,869 $ 45,879 $ 43,598
Federal funds sold 196,873 55,503 38,142 22,352 1,817
Interest-bearing deposits in banks 1,337 5,716 10,770 10,771 11,152
Total cash and cash equivalents 237,660 105,922 96,781 79,002 56,567
Securities available for sale 326,117 351,693 398,425 483,864 519,820
Securities held to maturity 57,948 31,029 19,398 8,161 568
Loans held for sale 1,792 1,150 459 1,743 883
Loans held for investment, net of unearned income:
Covered under loss share agreements 122,240 126,611 132,717 143,170 151,682
Not covered under loss share agreements 1,567,176 1,636,181 1,626,707 1,588,694 1,559,039
Less allowance for loan losses (20,227) (21,159) (23,911) (23,798) (24,077)
Loans, net 1,670,981 1,742,783 1,735,972 1,709,809 1,687,527
FDIC indemnification asset 27,900 29,745 30,908 32,510 34,691
Property, plant, and equipment, net 55,844 59,283 59,145 60,043 61,116
Other real estate owned:
Covered under loss share agreements 6,324 7,620 8,814 8,705 7,541
Not covered under loss share agreements 6,638 5,612 5,693 5,923 7,318
Interest receivable 6,315 6,346 6,206 6,259 7,521
Goodwill 100,722 105,657 105,657 105,455 105,455
Intangible assets 6,422 2,334 2,512 2,691 2,866
Other assets 105,065 102,103 105,890 107,924 111,524
Total assets $ 2,607,936 $ 2,550,127 $ 2,575,401 $ 2,610,346 $ 2,602,514
Deposits:
Noninterest-bearing $ 417,729 $ 397,523 $ 357,871 $ 353,137 $ 339,680
Interest-bearing 353,874 347,589 362,318 382,752 361,821
Savings 525,478 519,902 517,766 531,096 524,010
Time 703,678 667,261 685,149 707,704 725,231
Total deposits 2,000,759 1,932,275 1,923,104 1,974,689 1,950,742
Interest, taxes, and other liabilities 26,062 25,131 23,576 23,323 22,770
Federal funds purchased -- -- -- -- 16,000
Securities sold under agreements to repurchase 121,742 114,439 120,159 112,337 118,308
FHLB borrowings 90,000 115,000 150,000 150,000 150,000
Other borrowings 17,999 16,047 16,087 16,087 16,088
Total liabilities 2,256,562 2,202,892 2,232,926 2,276,436 2,273,908
Preferred stock 15,151 15,151 15,151 15,151 15,251
Common stock 20,500 20,500 20,500 20,500 20,493
Additional paid-in capital 215,873 215,729 215,670 215,827 215,663
Retained earnings 141,206 138,111 133,688 129,115 125,826
Treasury stock, at cost (35,751) (35,808) (35,797) (35,996) (33,887)
Accumulated other comprehensive loss (5,605) (6,448) (6,737) (10,687) (14,740)
Total stockholders' equity 351,374 347,235 342,475 333,910 328,606
Total liabilities and stockholders' equity $ 2,607,936 $ 2,550,127 $ 2,575,401 $ 2,610,346 $ 2,602,514
Shares outstanding at period-end 18,406,219 18,402,919 18,403,692 18,392,020 18,514,579
Book value per common share at period-end(1) $ 18.06 $ 17.85 $ 17.61 $ 17.18 $ 16.79
Tangible book value per common share at period-end(2) $ 12.56 $ 12.30 $ 12.05 $ 11.61 $ 11.26
(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
December 31, September 30, June 30, March 31, December 31,
(Amounts in thousands) 2014 2014 2014 2014 2013
Allowance for Loan Losses
Beginning balance $ 21,159 $ 23,911 $ 23,798 $ 24,077 $ 24,665
Removal of loans transferred (682) -- -- -- --
(Recovery of) provision for loan losses charged to operations (488) (2,439) 1,279 1,793 1,528
Provision for (recovery of) loan losses recorded through the FDIC indemnification asset 29 (110) (138) (203) (361)
Charge-offs (1,362) (1,118) (1,785) (2,216) (2,807)
Recoveries 1,571 915 757 347 1,052
Net recoveries (charge-offs) 209 (203) (1,028) (1,869) (1,755)
Ending balance $ 20,227 $ 21,159 $ 23,911 $ 23,798 $ 24,077
Summary of Asset Quality
Non-covered nonperforming
Nonaccrual loans $ 10,556 $ 11,480 $ 17,464 $ 20,909 $ 19,161
Accruing loans past due 90 days or more -- -- -- -- --
Troubled debt restructurings ("TDRs")(1) 3,480 3,450 1,877 1,775 1,311
Total non-covered nonperforming loans 14,036 14,930 19,341 22,684 20,472
Other real estate owned ("OREO") not covered under FDIC loss share agreements 6,638 5,612 5,693 5,923 7,318
Total non-covered nonperforming assets $ 20,674 $ 20,542 $ 25,034 $ 28,607 $ 27,790
Covered nonperforming
Nonaccrual loans $ 2,438 $ 1,131 $ 955 $ 1,261 $ 3,353
Accruing loans past due 90 days or more -- -- 109 109 86
Total covered nonperforming loans 2,438 1,131 1,064 1,370 3,439
OREO covered under FDIC loss share agreements 6,324 7,620 8,814 8,705 7,541
Total covered nonperforming assets 8,762 8,751 9,878 10,075 10,980
Total nonperforming assets $ 29,436 $ 29,293 $ 34,912 $ 38,682 $ 38,770
Performing TDRs(2) $ 11,054 $ 11,701 $ 11,029 $ 11,193 $ 10,900
Total TDRs(3) 14,534 15,151 12,906 12,968 12,211
Asset Quality Ratios
Excluding covered assets
Nonperforming loans to total loans 0.90% 0.91% 1.19% 1.43% 1.31%
Nonperforming assets to total assets 0.83% 0.85% 1.03% 1.16% 1.14%
Non-PCI allowance for loan losses to nonperforming loans 143.69% 140.35% 121.47% 102.74% 113.92%
Non-PCI allowance to non-covered total loans 1.29% 1.28% 1.44% 1.47% 1.50%
Annualized net charge-offs to average loans NM 0.05% 0.26% 0.48% 0.45%
Including covered assets
Nonperforming loans to total loans 0.98% 0.91% 1.16% 1.39% 1.40%
Nonperforming assets to total assets 1.13% 1.15% 1.36% 1.48% 1.49%
Nonperforming assets to total loans and
other real estate owned 138.55% 114.84% 112.07% 115.74% 145.60%
Allowance for loan losses to nonperforming loans 122.78% 131.74% 117.18% 98.94% 100.69%
Allowance for loan losses to total loans 1.20% 1.20% 1.36% 1.37% 1.41%
(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 December 31,
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) $ 1,744,810 $ 25,889 5.89% $ 1,705,790 $ 24,097 5.60%
Securities available-for-sale 337,952 2,592 3.04% 535,074 3,887 2.88%
Securities held-to-maturity 44,538 140 1.25% 567 11 7.70%
Interest-bearing deposits 268,724 174 0.26% 27,923 31 0.44%
Total earning assets 2,396,024 28,795 4.77% 2,269,354 28,026 4.90%
Other assets 328,105 351,189
Total assets $ 2,724,129 $ 2,620,543
Liabilities
Interest-bearing deposits
Demand deposits $ 376,285 $ 52 0.05% $ 369,516 $ 66 0.07%
Savings deposits 564,892 127 0.09% 521,589 140 0.11%
Time deposits 731,026 1,624 0.88% 734,316 1,825 0.99%
Total interest-bearing deposits 1,672,203 1,803 0.43% 1,625,421 2,031 0.50%
Borrowings
Federal funds purchased -- -- 0.00% 2,505 2 0.32%
Retail repurchase agreements 70,686 23 0.13% 62,212 25 0.16%
Wholesale repurchase agreements 50,000 473 3.75% 50,000 473 3.76%
FHLB advances and other borrowings 116,333 1,172 4.00% 170,941 1,741 4.04%
Total borrowings 237,019 1,668 2.79% 285,658 2,241 3.11%
Total interest-bearing liabilities 1,909,222 3,471 0.72% 1,911,079 4,272 0.89%
Noninterest-bearing demand deposits 437,781 345,937
Other liabilities 26,133 20,615
Total liabilities 2,373,136 2,277,631
Stockholders' equity 350,993 342,912
Total liabilities and stockholders' equity $ 2,724,129 $ 2,620,543
Net interest income, tax equivalent $ 25,324 $ 23,754
Net interest rate spread(3) 4.05% 4.01%
Net interest margin(4) 4.19% 4.15%
(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)
Year Ended December 31,
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) $ 1,744,520 $ 95,707 5.49% $ 1,699,614 $ 96,768 5.69%
Securities available-for-sale 410,136 12,400 3.02% 543,697 15,184 2.79%
Securities held-to-maturity 20,843 267 1.28% 667 54 8.10%
Interest-bearing deposits 98,090 291 0.30% 63,566 211 0.33%
Total earning assets 2,273,589 108,665 4.78% 2,307,544 112,217 4.86%
Other assets 334,981 354,058
Total assets $ 2,608,570 $ 2,661,602
Liabilities
Interest-bearing deposits
Demand deposits $ 366,932 $ 206 0.06% $ 361,979 $ 240 0.07%
Savings deposits 535,256 514 0.10% 516,247 584 0.11%
Time deposits 704,518 6,588 0.94% 772,741 7,999 1.04%
Total interest-bearing deposits 1,606,706 7,308 0.45% 1,650,967 8,823 0.53%
Borrowings
Federal funds purchased 892 3 0.34% 632 2 0.32%
Retail repurchase agreements 72,917 97 0.13% 69,141 265 0.38%
Wholesale repurchase agreements 50,000 1,878 3.76% 53,118 1,890 3.56%
FHLB advances and other borrowings 147,504 6,004 4.07% 168,399 6,854 4.07%
Total borrowings 271,313 7,982 2.94% 291,290 9,011 3.09%
Total interest-bearing liabilities 1,878,019 15,290 0.81% 1,942,257 17,834 0.92%
Noninterest-bearing demand deposits 367,315 342,919
Other liabilities 20,617 20,815
Total liabilities 2,265,951 2,305,991
Stockholders' equity 342,619 355,611
Total liabilities and stockholders' equity $ 2,608,570 $ 2,661,602
Net interest income, tax equivalent $ 93,375 $ 94,383
Net interest rate spread(3) 3.97% 3.94%
Net interest margin(4) 4.11% 4.09%
(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 December 31,
2014 2013
Average Yield/ Average Yield/
(Amounts in thousands) Interest(1) Rate(1) Interest(1) Rate(1)
Earning assets
Loans(2) $ 25,889 5.89% $ 24,097 5.60%
PCI accretion income 2,745 3,649
Less: cash PCI accretion income 1,198 1,796
Non-cash PCI accretion income 1,547 1,853
Non-recurring discount accretion 2,588 --
Loans, excluding non-cash PCI accretion income 21,754 4.95% 22,244 5.17%
Other earning assets 2,906 1.77% 3,929 2.77%
Total earning assets 24,660 4.08% 26,173 4.58%
Total interest-bearing liabilities 3,471 0.72% 4,272 0.89%
Net interest income, tax equivalent $ 21,189 $ 21,901
Net interest rate spread(3) 3.36% 3.69%
Net interest margin(4) 3.51% 3.83%
Year Ended December 31,
2014 2013
Average Yield/ Average Yield/
(Amounts in thousands) Interest(1) Rate(1) Interest(1) Rate(1)
Earning assets
Loans(2) $ 95,707 5.49% $ 96,768 5.69%
PCI accretion income 11,469 14,726
Less: cash PCI accretion income 4,412 7,023
Non-cash PCI accretion income 7,057 7,703
Non-recurring discount accretion 2,588 --
Loans, excluding non-cash PCI accretion income 86,062 4.93% 89,065 5.24%
Other earning assets 12,958 2.45% 15,449 2.54%
Total earning assets 99,020 4.36% 104,514 4.53%
Total interest-bearing liabilities 15,290 0.81% 17,834 0.92%
Net interest income, tax equivalent $ 83,730 $ 86,680
Net interest rate spread(3) 3.55% 3.61%
Net interest margin(4) 3.68% 3.76%
(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: David D. Brown (276) 326-9000

Source:First Community Bancshares, Inc.