First Community Bankshares, Inc. — Q1 2023 Form 10-Q
Business and period. The company is a Virginia-based financial holding company operating through First Community Bank, with community banking and wealth management activities. This unaudited report covers the three months ended March 31, 2023; balance-sheet comparisons are to December 31, 2022. The bank operated 48 branches across Virginia, West Virginia, North Carolina, and Tennessee.
Financial performance and condition
| Metric | Q1 2023 | Comparable / change |
|---|---|---|
| Net income | $11.78 million | Up 23.8% from $9.52 million |
| Diluted EPS | $0.72 | Up from $0.56 |
| Interest income | $30.19 million | Up from $25.64 million |
| Net interest income | $29.41 million GAAP; $29.53 million FTE | GAAP up 16.9%; FTE margin 4.35%, versus 3.55% |
| Noninterest income | $8.58 million | Down 6.7% from $9.19 million |
| Noninterest expense | $20.81 million | Up 4.1% from $19.99 million |
| Operating cash flow | $15.83 million | Up from $10.44 million |
Net income growth was primarily driven by higher net interest income, reflecting improved yields and increased average loan and securities balances. Lower noninterest income and higher expenses partly offset the increase. The filing does not provide a single consolidated revenue figure labeled “revenue.”
At March 31, total assets were $3.05 billion, down 2.7% from year-end; loans held for investment were $2.39 billion before the allowance, down 0.5%. Deposits were $2.58 billion, down 3.5% ($94.2 million). Cash and cash equivalents fell to $92.4 million from $170.8 million. Investing activities provided $4.6 million, while financing activities used $98.9 million, primarily reflecting deposit outflows; cash declined $78.5 million during the quarter.
The allowance for credit losses on loans was $30.8 million, or 1.29% of loans. Nonperforming loans were 0.65% of loans, and nonperforming assets were 0.53% of assets. Net charge-offs were $1.74 million, or 0.29% of annualized average loans, compared with $0.84 million, or 0.15%, a year earlier. The allowance covered 197.6% of nonperforming loans.
Available-for-sale securities totaled $308.3 million at fair value, against amortized cost of $324.9 million, with $16.7 million of gross unrealized losses. Accumulated other comprehensive loss was $13.2 million. Management reported no expected credit loss on the securities and said it did not intend, and was not more likely than not required, to sell them before recovery.
Total stockholders’ equity was $431.7 million, up 2.3% from year-end; book value per share was $26.58. The company reported no long-term borrowings and $1.9 million of repurchase agreements. At the bank, regulatory capital ratios included a 11.72% Common Equity Tier 1 ratio and a 12.97% total risk-based capital ratio; the bank remained classified as well-capitalized. Available liquidity sources included $92.4 million in unencumbered cash, $393.7 million in unused FHLB capacity, $90.0 million of correspondent-bank lines, and $287.2 million of unpledged available-for-sale securities.
Material changes and notable events
- Net interest margin increased 80 basis points year over year to 4.35% FTE. The yield on earning assets rose 85 basis points; the cost of interest-bearing deposits increased to 0.16% from 0.10%.
- Noninterest income fell by $0.61 million, including lower deposit service charges and the absence of a $0.39 million bank-property sale gain recorded in Q1 2022.
- Noninterest expense rose by $0.83 million. The quarter included $0.38 million of Surrey Bancorp merger expenses; service fees increased $0.52 million, primarily from core processing costs.
- The Surrey Bancorp acquisition closed on April 21, 2023, after quarter-end. At closing, Surrey had approximately $468 million in assets, $253 million in loans, and $405 million in deposits; those amounts are not included in March 31 balances.
- Share repurchases were suspended in connection with the Surrey acquisition. Management said it anticipated resuming repurchases as soon as possible. The quarterly common dividend declared was $0.29 per share.
- Adoption of ASU 2022-02 on January 1, 2023, changed loan modification and disclosure treatment; management reported no material financial-statement impact.
Outlook, risks, and contingencies
The filing provides no specific earnings, revenue, or margin guidance. Management highlighted sensitivity to interest rates, economic conditions, deposit and funding dynamics, credit performance, inflation, regulation, cybersecurity, and execution of the Surrey acquisition. A modeled immediate and sustained 200-basis-point rate increase was associated with a 1.0% reduction in 12-month net interest income; a 200-basis-point decrease was associated with a 7.9% reduction. Management cautioned that these simulations depend on assumptions and actual results may differ.
Off-balance-sheet commitments to extend credit and standby letters of credit or financial guarantees totaled $380.9 million. The company maintains a $964,000 allowance for expected losses on unfunded commitments. The company is involved in routine legal proceedings and stated that their resolution was not expected to materially affect financial condition, operations, or cash flows. Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether deposit outflows continue, and how deposit mix and funding costs evolve after quarter-end.
- Whether net interest margin and earnings remain resilient as rates and customer behavior change; compare actual outcomes with the rate-sensitivity simulations.
- Whether loan delinquencies, charge-offs, and the allowance remain appropriate, particularly in the larger commercial real estate and consumer loan portfolios.
- How Surrey integration affects capital, liquidity, expenses, realized synergies, and the timing of any resumed share repurchases.
- Whether unrealized securities losses or liquidity needs lead to sales or credit-loss provisions despite management’s stated intent to hold the portfolio.