First Community Bankshares, Inc. (NASDAQ:FCBC) is a financial holding company that provides a wide range of banking products and services through its wholly-owned subsidiary, First Community Bank. The company has a strong presence in Virginia, West Virginia, North Carolina, and Tennessee, operating 53 branches as of March 31, 2024.
In the first quarter of 2024, First Community Bankshares reported net income of $12.85 million, up 9.02% from the same period in 2023. The company's annual net income for 2023 was $48.02 million, while its annual revenue reached $174.62 million. Additionally, the company generated annual operating cash flow of $61.83 million and annual free cash flow of $59.06 million.
Business Overview
First Community Bankshares operates in a single business segment, Community Banking, which encompasses commercial and consumer banking, lending activities, and wealth management services. The company's Trust Division and wholly-owned subsidiary, First Community Wealth Management, provide trust management, estate administration, and investment advisory services, managing and administering $1.55 billion in combined assets as of March 31, 2024.
The company's loan portfolio is diversified across commercial, consumer real estate, and consumer and other loan segments. As of March 31, 2024, the commercial loan segment accounted for 64.56% of the total loan portfolio, with the largest concentrations in non-farm, non-residential (35.21%), commercial and industrial (8.08%), and multi-family residential (7.71%) loans. The consumer real estate segment made up 30.99% of the loan portfolio, primarily in single family owner-occupied (27.30%) and home equity lines (3.46%) loans. The consumer and other loan segment represented 4.45% of the total loan portfolio.
Financials
In the first quarter of 2024, First Community Bankshares reported a net interest margin of 4.47%, up 12 basis points from the same period in 2023. This improvement was driven by a 62 basis point increase in the yield on earning assets, primarily due to higher yields on loans. Interest and fees on loans increased $5.79 million, or 20.95%, compared to the first quarter of 2023, reflecting both higher yields and a larger loan portfolio.
The company's provision for credit losses decreased $731 thousand, or 42.00%, in the first quarter of 2024 compared to the same period in 2023. This decrease was commensurate with changes in economic forecasts and the loan portfolio composition.
Noninterest income increased $676 thousand, or 7.88%, in the first quarter of 2024, primarily due to higher interchange income and service charges on deposits. Noninterest expense increased $2.57 million, or 12.36%, driven by higher salaries and employee benefits, service fees, and other operating expenses, largely attributable to the addition of the Surrey Bancorp branches and staff.
First Community Bankshares' annualized return on average assets was 1.60% in the first quarter of 2024, up from 1.55% in the same period of 2023. The company's annualized return on average common equity was 10.18% in the first quarter of 2024, down from 11.15% in the same period of 2023.
Liquidity
As of March 31, 2024, the company's nonperforming assets totaled $20.02 million, or 0.62% of total assets, up from $19.65 million, or 0.60% of total assets, as of December 31, 2023. The allowance for credit losses to total loans ratio was 1.41% as of March 31, 2024, unchanged from December 31, 2023.
The company's liquidity position remains strong, with $248.91 million in unencumbered cash and $402.00 million in unused borrowing capacity from the FHLB as of March 31, 2024. Additionally, the company had $100.00 million in available lines from correspondent banks and $121.70 million in unpledged available-for-sale securities.
First Community Bankshares' capital ratios remain well above regulatory requirements. As of March 31, 2024, the company's common equity Tier 1 capital ratio was 15.21%, the Tier 1 risk-based capital ratio was 15.21%, and the total risk-based capital ratio was 16.47%. The company's Tier 1 leverage ratio was 11.68%. These ratios demonstrate the company's strong capital position and ability to support future growth and withstand potential economic challenges.
Acquisition and Integration
On April 21, 2023, First Community Bankshares completed the acquisition of Surrey Bancorp, a North Carolina-based bank holding company, and its wholly-owned subsidiary, Surrey Bank & Trust. The $71.37 million transaction added approximately $239.08 million in loans and $403.64 million in deposits to First Community Bankshares' balance sheet. The company incurred $2.99 million in merger-related expenses, with $2.39 million recorded in 2023.
Management has successfully integrated the Surrey Bancorp operations, leveraging the company's existing infrastructure and expertise to drive synergies and enhance the combined organization's profitability. The acquisition has strengthened First Community Bankshares' market presence and diversified its geographic footprint, positioning the company for continued growth and success.
Outlook
First Community Bankshares has not provided specific financial guidance for the remainder of 2024. However, the company's management has expressed confidence in the organization's ability to navigate the current economic environment and capitalize on opportunities for growth. The company's diversified business model, strong capital position, and prudent risk management practices position it well to weather any potential economic headwinds.
Risks and Challenges
As with any financial institution, First Community Bankshares faces various risks and challenges, including interest rate risk, credit risk, operational risk, and regulatory risk. The company's management team actively monitors these risks and implements appropriate strategies to mitigate them.
Interest rate risk is a significant concern, as changes in benchmark interest rates can impact the company's net interest margin and profitability. To manage this risk, the company utilizes interest rate swaps and other hedging strategies to modify its exposure to interest rate fluctuations.
Credit risk is another key risk, as the company's loan portfolio may be impacted by borrowers' inability to make required payments. First Community Bankshares maintains a robust credit risk management framework, including thorough underwriting practices and ongoing monitoring of the loan portfolio.
Operational risks, such as cybersecurity threats and internal control failures, are also closely monitored and mitigated through the implementation of robust policies, procedures, and technology solutions.
Regulatory risk is inherent in the banking industry, as First Community Bankshares must comply with various federal and state banking regulations. The company's management team actively engages with regulatory authorities and stays abreast of regulatory changes to ensure compliance and maintain the company's strong reputation.
Conclusion
First Community Bankshares, Inc. is a well-capitalized, diversified community bank with a strong presence in its core markets. The company's recent acquisition of Surrey Bancorp has further strengthened its market position and geographic footprint, positioning it for continued growth and success.
Despite the challenges posed by the current economic environment, First Community Bankshares has demonstrated its resilience through its solid financial performance, prudent risk management practices, and commitment to serving its customers and communities. With its experienced management team, diversified business model, and strong capital position, the company is well-equipped to navigate the evolving banking landscape and capitalize on future opportunities.