First Community Bankshares, Inc. (FCBC) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; quarterly figures below highlight Q4. Amounts are in U.S. dollars. The company operates as a community bank through First Community Bank, with 53 branches in Virginia, West Virginia, North Carolina and Tennessee, plus wealth-management services.
Financial results and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $127.68 million | $112.66 million |
| Net interest margin, FTE | 4.44% | 3.92% |
| Net income | $48.02 million | $46.66 million |
| Diluted earnings per share | $2.72 | $2.82 |
| Return on average assets / equity | 1.48% / 10.02% | 1.45% / 11.04% |
| Provision for credit losses | $7.99 million | $6.57 million |
| Net cash from operating activities | $61.83 million | $59.02 million |
Net interest income rose 13.3%, reflecting higher loan balances and yields as well as the Surrey Bancorp acquisition. Interest expense on deposits climbed to $9.34 million from $1.65 million. Total assets were $3.27 billion, loans net of allowance were $2.54 billion, deposits were $2.72 billion, and stockholders’ equity was $503.29 million at year-end.
Cash and cash equivalents were $116.42 million, down from $170.85 million. The company reported $1.12 million of repurchase-agreement borrowings at year-end and no year-end FHLB advances. Available liquidity sources included $342.81 million of unused FHLB capacity, $123.81 million of Federal Reserve Discount Window capacity, $100 million of correspondent-bank lines, and $135.88 million of unpledged available-for-sale securities. Management stated liquidity was adequate for obligations and projected shareholder dividends over the next 12 months.
Company capital ratios were 14.69% CET1, 15.94% total risk-based capital, and 11.52% Tier 1 leverage; the Bank was classified as well-capitalized. The available-for-sale securities portfolio had a $280.96 million fair value versus $295.05 million amortized cost; accumulated other comprehensive loss improved to $10.95 million from $15.72 million.
Material changes and Q4 performance
- Surrey Bancorp was acquired on April 21, 2023. The transaction added $466.25 million of assets, including $239.08 million of loans and $403.64 million of deposits; FCBC issued about 3.00 million shares. It recorded $14.38 million of goodwill and $12.70 million of core deposit intangibles. Reported year-end loan and deposit growth was substantially acquisition-driven: excluding Surrey, loans declined about 2.79% and deposits declined about 13.44% versus year-end 2022.
- Full-year net income increased 2.9%, but diluted EPS fell from $2.82 to $2.72. Average shares increased following the acquisition. The annual dividend was $1.16 per share, compared with $1.12 in 2022.
- Q4 net income was $11.78 million and diluted EPS was $0.66, compared with $12.58 million and $0.77 in Q4 2022. Q4 net interest income increased to $32.06 million from $30.62 million, while noninterest expense rose to $26.78 million from $20.73 million. Q4 included a $3.00 million estimated litigation accrual; the year-ago quarter included a $3.42 million recovery of credit losses.
- Full-year noninterest expense rose 14.5% to $95.18 million, including $2.39 million of Surrey merger costs and the $3.00 million litigation accrual. The allowance for credit losses increased to $36.19 million, or 1.41% of loans, from $30.56 million, or 1.27%.
Outlook, risks and unusual items
The filing provides no specific earnings, margin, loan-growth, or deposit-growth guidance. Management describes organic growth supplemented by complementary acquisitions as its strategy and expects additional cost savings and synergies from Surrey, but gives no quantified targets.
- Credit quality bears monitoring: nonperforming loans rose to 0.76% of loans from 0.70%; nonperforming assets were $19.65 million, and 2023 net charge-offs were $4.81 million, or 0.19% of average loans. Commercial loans represented 64.59% of the loan portfolio.
- Deposits excluding Surrey declined about $360.13 million during 2023; post-acquisition Surrey deposit attrition was $70.77 million. Uninsured deposits were 18.37% of deposits. Management identifies deposit outflows, confidence shocks and funding access as liquidity risks.
- Interest-rate sensitivity modeling showed net interest income decreasing 7.5% under an immediate, sustained 200-basis-point decline, versus a 1.3% increase under a 200-basis-point rise. The filing cautions that these models depend on assumptions and actual outcomes may differ.
- The Bank faces a putative class-action lawsuit concerning overdraft and repeated nonsufficient-funds fees. No class had been certified; the estimated reasonably possible loss range was $1.5 million to $3.5 million, and $3.0 million was accrued. Management said it was exploring settlement while disputing the allegations.
- Management reported no material cybersecurity impact in 2023, but identified evolving cyber and third-party service-provider threats as risks. The auditor issued unqualified opinions on the financial statements and internal control; the allowance for credit losses was identified as a critical audit matter.
Key facts for investors to verify
- Whether deposit trends stabilize and the company retains acquired Surrey customers; separate organic balance-sheet performance from acquisition effects.
- Whether credit deterioration, nonperforming loans and charge-offs continue to rise, and whether the $36.19 million allowance remains adequate.
- How the overdraft-fee litigation progresses, including any settlement terms or changes to the accrued liability.
- Whether higher deposit costs pressure the 4.44% FTE net interest margin as rates and customer deposit behavior change.
- Whether anticipated Surrey synergies materialize and whether ongoing expenses, goodwill and acquired intangibles affect returns and per-share results.