Business Overview and History
First Community Bankshares, Inc. (NASDAQ:FCBC) is a financial holding company that has been serving the banking needs of communities across Virginia, West Virginia, North Carolina, and Tennessee since its inception in 1874. With a rich history spanning over a century, FCBC has weathered various economic cycles and emerged as a resilient community bank dedicated to supporting the growth and prosperity of the regions it serves.
FCBC’s roots can be traced back to 1874 when it was founded as First Community Bank, a Virginia-chartered banking institution. The company was reincorporated in 1989 under the laws of the Commonwealth of Virginia as First Community Bankshares, Inc. In 2018, First Community Bankshares, Inc., a Nevada corporation, merged with and into its wholly-owned subsidiary, First Community Bankshares, Inc., a Virginia corporation, pursuant to an Agreement and Plan of Reincorporation and Merger. First Community Bankshares, Inc. continued as the surviving corporation.
Over the decades, the company has expanded its footprint through strategic acquisitions and organic growth, establishing a network of 53 branches as of September 30, 2024. FCBC operates as a financial holding company, with its wholly-owned subsidiary, First Community Bank, providing a full range of banking products and services to individual and commercial customers.
In addition to traditional banking services, FCBC offers wealth management and investment advisory services through its Trust Division and wholly owned subsidiary, First Community Wealth Management. As of September 30, 2024, the Trust Division and FCWM managed and administered $1.64 billion in combined assets under various fee-based arrangements. The company also provides commercial and personal insurance products through its strategic partnership with Bankers Insurance, LLC.
Financial Performance and Ratios
FCBC’s financial performance has been consistently strong, showcasing its ability to navigate various economic conditions. For the fiscal year ended December 31, 2023, the company reported revenue of $156.23 million and net income of $48.02 million, with a net interest margin of 4.40% and a return on average assets (ROA) of 1.49%. The company’s capital ratios remained well above the regulatory requirements, with a common equity Tier 1 ratio of 12.97% and a total risk-based capital ratio of 14.22% as of December 31, 2023.
For the third quarter of 2024, FCBC reported revenue of $36.89 million, representing a 2.2% year-over-year increase, primarily driven by higher interest income. Net income for the quarter was $13.03 million, a 10.9% decrease compared to the same period in 2023, mainly due to higher interest expenses. The company’s operating cash flow (OCF) for Q3 2024 was $11.44 million, a 15.5% decrease year-over-year, while free cash flow (FCF) remained relatively flat at $13.59 million, showing a slight 0.1% increase.
As of September 30, 2024, FCBC’s total assets stood at $3.22 billion, a slight decrease from $3.27 billion at the end of 2023. The loan portfolio amounted to $2.44 billion, down 4.98% from the previous year-end, while the securities available-for-sale portfolio decreased by 40.68% to $166.67 million. The company’s deposit base remained stable at $2.66 billion, a 2.32% decrease from the end of 2023.
FCBC operates in one business segment, Community Banking, which encompasses all operations, including commercial and consumer banking, lending activities, and wealth management. This segment is the primary source of earnings, derived from net interest income – the difference between interest earned on assets and interest paid on liabilities. The net interest margin on a fully taxable equivalent basis was 4.41% for the third quarter of 2024, a decrease of 10 basis points compared to the same period in 2023.
The company’s loan portfolio is diversified across three main segments: commercial loans (65% of total loans held for investment), consumer real estate loans (30.92%), and consumer and other loans (4.08%). The largest classes within the commercial loans segment are non-farm, non-residential (35.32%) and single family non-owner occupied (8.32%).
Liquidity
FCBC’s liquidity position remained strong, with cash and cash equivalents totaling $315.34 million as of September 30, 2024, up from $116.42 million at the end of 2023. The company’s free cash flow for the nine months ended September 30, 2024, was $42.82 million, compared to $61.83 million for the full year 2023.
The company maintains a solid liquidity profile with a debt-to-equity ratio of 0.0018, current ratio of 1.19, and quick ratio of 1.19. FCBC has access to substantial credit lines, including $353.31 million from the Federal Home Loan Bank (FHLB), $5.85 million from the Federal Reserve Bank (FRB) Discount Window, and $100 million in approved lines from correspondent banks.
Acquisition and Integration
In April 2023, FCBC completed the acquisition of Surrey Bancorp, a North Carolina-based bank holding company, for a total purchase price of $71.37 million. The transaction was accounted for using the acquisition method, and the Company recognized $14.38 million in goodwill as a result of the deal. The integration of Surrey’s operations and systems has been progressing smoothly, and the Company expects to continue realizing synergies from the acquisition.
Pandemic Response and Impact
During the COVID-19 pandemic, FCBC demonstrated its resilience and commitment to supporting its customers and communities. The company proactively implemented measures to assist borrowers affected by the economic disruptions, including loan payment deferrals and participation in the Paycheck Protection Program. While the pandemic had some impact on the company’s operations and financial performance, FCBC was able to navigate the challenges and maintain its strong financial position.
Regulatory Oversight and Risk Management
As a regulated financial institution, FCBC is subject to oversight by various federal and state banking authorities, including the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and state banking regulators. The company maintains a robust risk management framework to address credit, interest rate, liquidity, and operational risks, ensuring compliance with applicable laws and regulations.
FCBC’s board of directors and management team actively monitor the company’s risk profile and work to implement appropriate mitigating strategies. The Company’s allowance for credit losses, which stood at $35.12 million or 1.44% of total loans as of September 30, 2024, reflects its prudent approach to credit risk management.
Shareholder Returns and Capital Allocation
FCBC has a history of returning capital to its shareholders through regular quarterly cash dividends. The company’s Board of Directors recently declared a quarterly cash dividend of $0.31 per common share, payable on November 22, 2024, to shareholders of record as of November 8, 2024. This marks the 39th consecutive year of regular quarterly cash dividends paid by FCBC.
In addition to dividends, FCBC has also utilized share repurchase programs to enhance shareholder value. During the first nine months of 2024, the company repurchased 257,290 shares of its common stock at an average price of $33.88 per share, for a total cost of $8.72 million.
Competitive Landscape and Growth Strategies
FCBC operates in a highly competitive banking environment, facing competition from larger regional and national banks, as well as community banks and non-bank financial institutions. To maintain its competitive edge, the company focuses on building strong relationships with its customers, providing personalized service, and leveraging its community-based approach to banking.
FCBC’s growth strategies include organic expansion, targeted acquisitions, and continuous technological enhancements to improve operational efficiency and customer experience. The company is also exploring opportunities to expand its wealth management and insurance offerings to diversify its revenue streams and better serve its customer base.
The banking industry has experienced moderate growth in recent years, with a compound annual growth rate (CAGR) of around 3-5% for assets, loans, and deposits. FCBC has generally kept pace with these industry trends, maintaining its position as a strong community bank in its target markets.
Risks and Challenges
Like any financial institution, FCBC faces a variety of risks, including credit risk, interest rate risk, liquidity risk, and operational risk. The company’s management team actively monitors these risks and implements appropriate mitigating strategies to ensure the long-term stability and growth of the organization.
One key risk factor for FCBC is its geographic concentration, with a significant portion of its operations and customer base located in Virginia, West Virginia, North Carolina, and Tennessee. This regional concentration makes the company vulnerable to economic downturns or events specific to these markets.
Additionally, the banking industry is subject to intense regulatory oversight and changes in the regulatory landscape, which could impact FCBC’s operations and financial performance. The company must navigate these regulatory challenges to maintain compliance and continue serving its customers effectively.
Conclusion
FCBC’s long-standing history, strong financial performance, and commitment to its communities have positioned the company as a resilient and trusted banking partner in the regions it serves. As the company navigates the evolving banking landscape, it remains focused on delivering personalized service, driving innovation, and generating sustainable value for its shareholders. With its prudent risk management practices, diversified business model, and experienced leadership team, FCBC is well-equipped to continue its legacy of success in the competitive banking industry.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.