Exhibit 99.1

 

NEWS RELEASE
FOR IMMEDIATE RELEASE:		FOR MORE INFORMATION, CONTACT:
October 28, 2014		David D. Brown
		(276) 326-9000

 

First Community Bancshares, Inc. Announces Third Quarter 2014 Results

and Quarterly Dividend

 

Bluefield, Virginia – First Community Bancshares, Inc. (NASDAQ: FCBC) (www.fcbinc.com) (the “Company”) today reported net income of $7.04 million for the quarter and $19.78 million for the nine months ended September 30, 2014. Net income available to common shareholders totaled $6.82 million, or $0.36 per diluted common share, for the quarter and $19.09 million, or $1.02 per diluted common share, for the nine months ended September 30, 2014. Core earnings totaled $9.06 million for the quarter and $21.79 million for the nine months ended September 30, 2014.

 

The Company also announced today 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 to common shareholders of record on November 7, 2014, and is expected to be paid on or about November 21, 2014. The current year marks the 29^th consecutive year of cash dividends paid to stockholders.

 

Third Quarter 2014 Highlights –

 

·

Diluted earnings per common share of $0.36 represents an increase of 38.5% over $0.26 reported for the third quarter of 2013.

·

The non-covered loan portfolio increased $77.1 million compared to year-end 2013 and $102.9 million compared to the third quarter of 2013. This marks the sixth consecutive quarter non-covered loan growth has exceeded covered loan declines.

·

Non-covered delinquent loans as a percentage of total non-covered loans experienced a significant decrease of 97 basis points, or 43.11%, to 1.28% compared to the third quarter of 2013. The decrease is attributed to significant declines in non-covered nonaccrual loans. This marks the sixth consecutive quarter the percentage of non-covered delinquent loans to total non-covered loans has improved.

·

The Company experienced positive resolution of a sizeable credit during the third quarter, which resulted in the significant recovery of loan loss provision. Additionally, net charge-offs of $203 thousand were a decrease of $825 thousand, or 80.25%, from $1.03 million for the second quarter of 2014 and $1.40 million, or 87.33%, from $1.60 million for the third quarter of 2013.

·

The Company prepaid $35 million of a $50 million Federal Home Loan Bank convertible advance. This 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 September 30, 2014, with a total risk-based capital ratio of 16.8%, a Tier 1 risk-based capital ratio of 15.5%, and a Tier 1 leverage ratio of 10.7%.

·

The Company announced the pending sale of 13 branches, 10 in the southeastern, coastal region of North Carolina and 3 in South Carolina, with deposits of approximately $230 million and loans of approximately $59 million.

·

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.

 

Net Interest Income

 

The tax equivalent net interest margin increased to 4.06% for the third quarter of 2014 compared with 3.99% for the same quarter of 2013. Net interest income decreased $311 thousand, or 1.39%, to $22.02 million for the third quarter of 2014 compared with the same quarter of 2013. Total interest income decreased $945 thousand, or 3.54%, to $25.75 million for the third quarter of 2014 compared with the same quarter of 2013. The tax equivalent yield on loans decreased 23 basis points to 5.27% while the average loan balance increased $72.53 million, or 4.28%, to $1.77 billion for the third quarter of 2014 compared with the same quarter of 2013.

 

 

Loan interest accretion stemming from the Peoples and Waccamaw acquisitions totaled $2.81 million for the third quarter of 2014, of which $1.37 million was received in cash, compared to $3.47 million for the same quarter of 2013, of which $1.74 million was received in cash. The normalized net interest margin for the third quarters of 2014 and 2013, which excludes non-cash loan interest accretion, was 3.80% and 3.69%, respectively. The normalized yield on loans for the third quarters of 2014 and 2013 was 4.94% and 5.09%, respectively.

 

Total interest expense decreased $634 thousand, or 14.51%, to $3.74 million for the third quarter of 2014 compared with the same quarter of 2013. Deposit costs decreased $365 thousand, or 17.00%, to $1.78 million for the third quarter of 2014 compared with the same quarter of 2013, reflecting a 6 basis point decrease in the average rate paid on interest-bearing deposits. Borrowing costs decreased $269 thousand, or 12.10%, to $1.95 million for the third quarter of 2014 compared with the same quarter of 2013. The average rate paid on interest-bearing liabilities decreased 8 basis points to 0.82% for the third quarter of 2014 compared with the same quarter of 2013. The average balance of interest-bearing liabilities decreased $114.71 million, or 5.97%, to $1.81 billion for the third quarter of 2014 compared with the same quarter of 2013, which included a $95.21 million decrease in average interest-bearing deposits and a $19.50 million decrease in average total borrowings.

 

Noninterest Income

 

Noninterest income decreased $444 thousand, or 5.47%, to $7.67 million for the third quarter of 2014 compared with the same quarter of 2013, which was largely due to a decrease in other operating income and net impairment losses offset by a net gain on the sale of securities. Other operating income decreased $619 thousand, or 42.46%, for the third quarter of 2014 compared with the same quarter of 2013, primarily due to a $510 thousand decrease in secondary market income. The Company incurred other-than-temporary impairment charges of $219 thousand during the third quarter of 2014 related to a non-Agency mortgage-backed security. The Company realized a $320 thousand net gain on the sale of securities for the third quarter of 2014, which was an increase of $359 thousand compared to a net loss of $39 thousand in the same quarter of 2013.Wealth management revenues decreased $193 thousand, or 22.36%, for the third quarter of 2014 compared with the same quarter of 2013. The Trust and Wealth Management Divisions reported $700 million in combined assets under management as of September 30, 2014. Service charges on deposits and other service charges and fees increased $99 thousand, or 1.85%, for the third quarter of 2014 compared with the same quarter of 2013. Insurance commissions increased $136 thousand, or 8.72%, for the third quarter of 2014 compared with the same quarter of 2013. Net amortization expense relating to the FDIC indemnification asset experienced a slight increase during the third quarter of 2014, compared to the same quarter of 2013.

 

Noninterest Expense

 

Noninterest expense increased $1.32 million, or 6.53%, to $21.47 million for the third quarter of 2014 compared with the same quarter of 2013, which was largely due to FHLB debt prepayment fees and acquisition and divestiture expenses offset by a decrease in salaries and employee benefits and a decrease in other operating expenses. The Company incurred fees of $3.05 million related to the prepayment of $35 million of a $50 million FHLB convertible advance. Expenses related to the pending seven branch acquisitions and thirteen branch sales totaled $285 thousand in the third quarter of 2014. Salaries and employee benefits decreased $1.16 million, or 10.43%, to $9.92 million for the third quarter of 2014 compared with the same quarter of 2013, which was primarily due to a $1.07 million contractual executive severance charge in the third quarter of 2013. Absent the one-time severance charge, salaries and employee benefits decreased $85 thousand, or 0.85%, from the third quarter of 2013. Full-time equivalent employees totaled 691 as of September 30, 2014, a decrease of 35 employees compared with the same period of the prior year. The decrease in employees was a result of branch consolidation activities during the first half of 2014, as well as general staffing reductions throughout the Company. Other operating expense decreased $508 thousand, or 9.33%, to $4.93 million for the third quarter of 2014 compared with the same quarter of 2013, which was primarily due to decreases in problem loan, marketing, and legal expenses offset by increases in service fees and employee benefit plans. Other operating expense included a net loss on sales and expenses associated with other real estate owned of $580 thousand for the third quarter of 2014 compared to $272 thousand for the same quarter of 2013. Occupancy, furniture, and equipment expenses decreased $307 thousand, or 10.27%, to $2.68 million for the third quarter of 2014 compared with the same quarter of 2013. The efficiency ratio for the third quarter of 2014 was 58.11% compared to 60.35% for the third quarter of 2013.

 

Allowance for Loan Losses and Asset Quality

 

The total allowance for loan losses was reduced to $21.16 million as of September 30, 2014, compared with $24.08 million as of December 31, 2013, and $24.67 million as of September 30, 2013. As of September 30, 2014, $20.96 million of the allowance was attributed to the legacy portfolio and $196 thousand was attributed to the acquired Peoples portfolio. Non-covered loans and other real estate owned are those assets not covered by loss share agreements between the FDIC and the Bank in relation to the acquisition of Waccamaw. The allowance for loan losses, excluding purchased credit impaired (“PCI”) loans, as a percentage of non-covered loans was 1.28% as of September 30, 2014, compared with 1.50% as of December 31, 2013, and 1.54% as of September 30, 2013. Activity in the allowance in the third quarter of 2014 included a recovery of loan losses previously charged to operations of $2.44 million, a decrease of $4.77 million compared to a net provision of $2.33 million recorded in the same quarter of the prior year, which was primarily due to the release of specific reserves on a problem credit that experienced favorable resolution during the third quarter of 2014. Other allowance activity in the third quarter of 2014 included a net recovery of previous impairments recorded through the FDIC indemnification asset of $110 thousand due to better than expected performance in the Waccamaw PCI loan portfolio. Net charge-offs decreased $1.55 million, or 88.43%, in the third quarter of 2014 compared with the fourth quarter of 2013 and decreased $1.40 million, or 87.33%, compared with the third quarter of 2013. The ratio of annualized net charge-offs to average non-covered loans improved significantly to 0.05% for the third quarter of 2014, which represents a decrease of 37 basis points compared with 0.42% for the third quarter of 2013.

 

 

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 1.28% as of September 30, 2014, compared to 2.25% for the same period of the prior year. Non-covered nonaccrual loans totaled $11.48 million as of September 30, 2014, compared to $19.16 million as of December 31, 2013, and $26.40 million as of September 30, 2013. At quarter-end, the Company’s non-covered nonperforming loans as a percentage of total non-covered loans were 0.91% and non-covered nonperforming assets as a percentage of total non-covered assets were 0.85%. At quarter-end, the Company’s non-covered nonaccrual loans as a percentage of total non-covered loans were 0.70%, compared to 1.72% for the same period of the prior year.

 

Total nonperforming assets, including covered and non-covered loan portfolios, consisted of $12.61 million in nonaccrual loans, $3.45 million in unseasoned, accruing troubled debt restructurings, and $13.23 million in other real estate owned as of September 30, 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 $7.25 million, or 26.08%, and total covered nonperforming assets decreased $2.23 million, or 20.30%, as of September 30, 2014, compared to December 31, 2013.

 

Balance Sheet and Capital

 

Consolidated assets totaled $2.55 billion as of September 30, 2014, a decrease of $52.39 million, or 2.01%, compared with $2.60 billion as of December 31, 2013. The change in consolidated assets was driven by a $168.13 million decrease in available-for-sale securities and a $25.07 million decrease in the covered loan portfolio offset by a $77.14 million increase in the non-covered loan portfolio, a $49.36 million increase in cash and cash equivalents, and a $30.46 million increase in held-to-maturity securities. The decrease in securities available for sale is consistent with the Company’s strategic objective of shifting earning asset mix towards loan assets. During the first nine months of 2014, the Company purchased short-term bonds in the held-to-maturity category and it is expected that this portfolio will continue to grow consistently and will provide the funding necessary to extinguish certain wholesale borrowings as they come due.

 

Consolidated liabilities totaled $2.20 billion as of September 30, 2014, a decrease of $71.02 million, or 3.12%, compared with $2.27 billion as of December 31, 2013. The change in consolidated liabilities was driven by a $35.00 million decrease in FHLB borrowings, an $18.47 million decrease in deposits, and a $16.00 million decrease in federal funds purchased. The Company prepaid $35 million of a $50 million FHLB convertible advance during the third quarter of 2014 that matures in May 2017 and bears an interest rate of 4.21%. The prepayment resulted in a pre-tax penalty of $3.05 million.

 

Total stockholders’ equity increased to $347.24 million as of September 30, 2014, compared with $328.61 million as of December 31, 2013. Book value per as-converted common share increased to $17.85 as of September 30, 2014, compared with $16.79 as of December 31, 2013, an increase of 6.31%. Tangible book value per common share increased to $12.30 as of September 30, 2014, compared with $11.26 as of December 31, 2013, an increase of 9.24%. Additionally, the Company repurchased 132,773 common shares at a weighted average cost of $16.29 per share and paid a cash dividend of $0.37 per common share during the first nine months of 2014.

 

The Company significantly exceeds regulatory “well capitalized” targets as of September 30, 2014, with a total risk-based capital ratio of 16.8%, a Tier 1 risk-based capital ratio of 15.5%, and a Tier 1 leverage ratio of 10.7%.

 

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 that is 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 that is 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 that is 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 59 banking locations throughout Virginia, West Virginia, North Carolina, South Carolina, and Tennessee as of September 30, 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 $700 million in combined assets as of September 30, 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 September 30, 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 $2.55 billion as of September 30, 2014. Additional investor information can be found 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								Nine Months Ended
		September 30,								September 30,
(Amounts in thousands, except share and per share data)		2014				2013				2014				2013
Interest income
Interest and fees on loans held for investment		$	23,407			$	23,439			$	69,651			$	72,547
Interest on securities -- taxable			1,196				1,999				4,830				5,754
Interest on securities -- nontaxable			1,108				1,216				3,329				3,631
Interest on deposits in banks			40				42				117				180
Total interest income			25,751				26,696				77,927				82,112
Interest expense
Interest on deposits			1,782				2,147				5,505				6,792
Interest on short-term borrowings			526				517				1,511				1,686
Interest on long-term borrowings			1,428				1,706				4,803				5,084
Total interest expense			3,736				4,370				11,819				13,562
Net interest income			22,015				22,326				66,108				68,550
(Recovery of) provision for loan losses			(2,439	)			2,333				633				6,680
Net interest income after provision for loan losses			24,454				19,993				65,475				61,870
Noninterest income
Wealth management income			670				863				2,396				2,680
Service charges on deposit accounts			3,606				3,582				10,099				10,065
Other service charges and fees			1,852				1,777				5,473				5,356
Insurance commissions			1,695				1,559				5,113				4,533
Net impairment losses recognized in earnings			(219	)			-				(737	)			-
Net gain (loss) on sale of securities			320				(39	)			306				191
Net FDIC indemnification asset amortization			(1,096	)			(1,089	)			(3,166	)			(4,290	)
Other operating income			839				1,458				3,021				4,285
Total noninterest income			7,667				8,111				22,505				22,820
Noninterest expense
Salaries and employee benefits			9,924				11,080				29,872				31,150
Occupancy expense of bank premises			1,469				1,700				4,825				5,350
Furniture and equipment			1,212				1,288				3,611				3,931
Amortization of intangible assets			179				183				532				545
FDIC premiums and assessments			419				460				1,311				1,401
FHLB debt prepayment fees			3,047				-				3,047				-
Merger, acquisition, and divestiture expense			285				-				285				57
Other operating expense			4,934				5,442				15,329				15,796
Total noninterest expense			21,469				20,153				58,812				58,230
Income before income taxes			10,652				7,951				29,168				26,460
Income tax expense			3,609				2,539				9,393				8,472
Net income			7,043				5,412				19,775				17,988
Dividends on preferred stock			228				261				683				772
Net income available to common shareholders		$	6,815			$	5,151			$	19,092			$	17,216
Basic earnings per common share		$	0.37			$	0.26			$	1.04			$	0.86
Diluted earnings per common share			0.36				0.26				1.02				0.85
Cash dividends per common share			0.13				0.12				0.37				0.36
Weighted average basic shares outstanding			18,402,764				20,008,861				18,407,173				20,013,095
Weighted average diluted shares outstanding			19,466,126				21,123,788				19,472,136				21,196,063
Return on average assets			1.06	%			0.77	%			0.99	%			0.86	%
Return on average common equity			8.15	%			6.06	%			7.86	%			6.71	%

 

  

FIRST COMMUNITY BANCSHARES, INC.

CONDENSED QUARTERLY STATEMENTS OF INCOME (Unaudited)

  

		Quarter Ended
(Amounts in thousands, except share and per		September 30,				June 30,				March 31,				December 31,				September 30,
share data)		2014				2014				2014				2013				2013
Interest Income
Interest and fees on loans held for investment		$	23,407			$	23,410			$	22,834			$	24,053			$	23,439
Interest on securities -- taxable			1,196				1,537				2,097				2,121				1,999
Interest on securities -- nontaxable			1,108				1,099				1,122				1,159				1,216
Interest on deposits in banks			40				47				30				31				42
Total interest income			25,751				26,093				26,083				27,364				26,696
Interest Expense
Interest on deposits			1,782				1,835				1,888				2,031				2,147
Interest on short-term borrowings			526				483				502				536				517
Interest on long-term borrowings			1,428				1,707				1,668				1,705				1,706
Total interest expense			3,736				4,025				4,058				4,272				4,370
Net interest income			22,015				22,068				22,025				23,092				22,326
(Recovery of) provision for loan losses			(2,439	)			1,279				1,793				1,528				2,333
Net interest income after provision for loan losses			24,454				20,789				20,232				21,564				19,993
Noninterest Income
Wealth management income			670				718				1,008				732				863
Service charges on deposit accounts			3,606				3,423				3,070				3,493				3,582
Other service charges and fees			1,852				1,850				1,771				1,795				1,777
Insurance commissions			1,695				1,454				1,964				1,400				1,559
Net impairment losses recognized in earnings			(219	)			(254	)			(264	)			(320	)			-
Net gain (loss) on sale of securities			320				(59	)			45				208				(39	)
Net FDIC indemnification asset amortization			(1,096	)			(936	)			(1,134	)			(1,307	)			(1,089	)
Other operating income			839				1,408				774				950				1,458
Total noninterest income			7,667				7,604				7,234				6,951				8,111
Noninterest Expense
Salaries and employee benefits			9,924				10,043				9,905				10,085				11,080
Occupancy expense of bank premises			1,469				1,578				1,778				1,683				1,700
Furniture and equipment			1,212				1,205				1,194				1,035				1,288
Amortization of intangible assets			179				178				175				184				183
FDIC premiums and assessments			419				458				434				316				460
FHLB debt prepayment fees			3,047				-				-				-				-
Merger, acquisition, and divestiture expense			285				-				-				-				-
Other operating expense			4,934				4,701				5,694				7,452				5,442
Total noninterest expense			21,469				18,163				19,180				20,755				20,153
Income before income taxes			10,652				10,230				8,286				7,760				7,951
Income tax expense			3,609				3,223				2,561				2,436				2,539
Net income			7,043				7,007				5,725				5,324				5,412
Dividends on preferred stock			228				227				228				252				261
Net income available to common shareholders		$	6,815			$	6,780			$	5,497			$	5,072			$	5,151
Basic earnings per common share		$	0.37			$	0.37			$	0.30			$	0.27			$	0.26
Diluted earnings per common share			0.36				0.36				0.29				0.26				0.26
Cash dividends per common share			0.13				0.12				0.12				0.12				0.12
Weighted average basic shares outstanding			18,402,764				18,395,996				18,423,123				19,136,317				20,008,861
Weighted average diluted shares outstanding			19,466,126				19,457,237				19,506,647				20,233,737				21,123,788

 

 

 

FIRST COMMUNITY BANCSHARES, INC.

RECONCILIATION OF GAAP NET INCOME TO CORE EARNINGS (Unaudited)

 

		Three Months Ended																				Nine Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				September 30,
		2014				2014				2014				2013				2013				2014				2013
(Amounts in thousands, except per share data)
Net income, GAAP		$	7,043			$	7,007			$	5,725			$	5,324			$	5,412			$	19,775			$	17,988
Non-GAAP adjustments:
Net impairment losses recognized in earnings			219				254				264				320				-				737				-
Net (gain) loss on sale of securities			(320	)			59				(45	)			(208	)			39				(306	)			(191	)
Net gain on debt prepayment			-				-				-				-				-				-				(296	)
FHLB debt prepayment fees			3,047				-				-				-				-				3,047				-
Merger, acquisition, and  divestiture expense			285				-				-				-				-				285				57
Branch closure/consolidation expense			-				-				-				1,520				-				-				-
Other noncore, nonrecurring items			-				(536	)			-				-				1,072				(536	)			1,180
Total adjustments to core earnings			3,231				(223	)			219				1,632				1,111				3,227				750
Tax effect			1,217				(84	)			82				610				415				1,215				280
Core earnings, non-GAAP		$	9,057			$	6,868			$	5,862			$	6,346			$	6,108			$	21,787			$	18,458
Core return on average assets			1.41	%			1.07	%			0.92	%			0.96	%			0.92	%			1.13	%			0.92	%
Core return on average common equity			10.83	%			8.49	%			7.49	%			7.69	%			7.19	%			8.97	%			7.19	%
Core return on average tangible  common equity			16.06	%			12.73	%			11.36	%			11.47	%			10.57	%			13.45	%			10.51	%
Core diluted earnings per common share		$	0.47			$	0.35			$	0.30			$	0.31			$	0.29			$	1.12			$	0.87

 

  

FIRST COMMUNITY BANCSHARES, INC.

EFFICIENCY RATIO CALCULATION (Unaudited)

 

		Three Months Ended																				Nine Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				September 30,
		2014				2014				2014				2013				2013				2014				2013
(Amounts in thousands)
Noninterest expense, GAAP		$	21,469			$	18,163			$	19,180			$	20,755			$	20,153			$	58,812			$	58,230
Non-GAAP adjustments:
FHLB debt prepayment fees			(3,047	)			-				-				-				-				(3,047	)			-
OREO expense and net loss			(580	)			(254	)			(857	)			(970	)			(272	)			(1,691	)			(1,067	)
Merger, acquisition, and divestiture expense			(285	)			-				-				-				-				(285	)			(57	)
Branch acquisition/divestiture expense			-				-				-				-				-				-				-
Branch closure/consolidation expense			-				-				-				(1,520	)			-				-				-
Other noncore, nonrecurring items			-				-				-				-				(1,072	)			-				(1,180	)
Adjusted noninterest expense			17,557				17,909				18,323				18,265				18,809				53,789				55,926
Net interest income, GAAP			22,015				22,068				22,025				23,092				22,326				66,108				68,550
Noninterest income, GAAP			7,667				7,604				7,234				6,951				8,111				22,505				22,820
Non-GAAP adjustments:
Tax equivalency adjustment			633				699				663				662				691				1,943				2,079
Net impairment losses recognized in earnings			219				254				264				320				-				737				-
Net (gain) loss on sale of securities			(320	)			59				(45	)			(208	)			39				(306	)			(191	)
Net gain on debt prepayment			-				-				-				-				-				-				(296	)
Other noncore, nonrecurring items			-				(536	)			-				-				-				(536	)			-
Adjusted net interest and  noninterest income			30,214				30,148				30,141				30,817				31,167				90,451				92,962
Non-GAAP efficiency ratio			58.11	%			59.40	%			60.79	%			59.27	%			60.35	%			59.47	%			60.16	%

 

  

FIRST COMMUNITY BANCSHARES, INC.

CONDENSED QUARTERLY BALANCE SHEETS (Unaudited)

 

		As of the Quarter Ended
		September 30,				June 30,				March 31,				December 31,				September 30,
		2014				2014				2014				2013				2013
(Amounts in thousands)
Cash and due from banks		$	44,703			$	47,869			$	45,879			$	43,598			$	47,982
Federal funds sold			55,503				38,142				22,352				1,817				33,374
Interest-bearing deposits in banks			5,716				10,770				10,771				11,152				11,219
Total cash and cash equivalents			105,922				96,781				79,002				56,567				92,575
Securities available for sale			351,693				398,425				483,864				519,820				545,676
Securities held to maturity			31,029				19,398				8,161				568				567
Loans held for sale			1,150				459				1,743				883				825
Loans held for investment, net of unearned income:
Covered under loss share agreements			126,611				132,717				143,170				151,682				163,425
Not covered under loss share agreements			1,636,181				1,626,707				1,588,694				1,559,039				1,533,272
Less allowance for loan losses			(21,159	)			(23,911	)			(23,798	)			(24,077	)			(24,665	)
Loans, net			1,742,783				1,735,972				1,709,809				1,687,527				1,672,857
FDIC indemnification asset			29,745				30,908				32,510				34,691				37,102
Property, plant, and equipment, net			59,283				59,145				60,043				61,116				63,526
Other real estate owned:
Covered under loss share agreements			7,620				8,814				8,705				7,541				7,381
Not covered under loss share agreements			5,612				5,693				5,923				7,318				5,450
Interest receivable			6,346				6,206				6,259				7,521				7,336
Goodwill			105,657				105,657				105,455				105,455				104,892
Intangible assets			2,334				2,512				2,691				2,866				2,976
Other assets			102,103				105,890				107,924				111,524				112,313
Total assets		$	2,550,127			$	2,575,401			$	2,610,346			$	2,602,514			$	2,652,651
Deposits:
Noninterest-bearing		$	397,523			$	357,871			$	353,137			$	339,680			$	353,951
Interest-bearing			347,589				362,318				382,752				361,821				374,546
Savings			519,902				517,766				531,096				524,010				527,887
Time			667,261				685,149				707,704				725,231				740,181
Total deposits			1,932,275				1,923,104				1,974,689				1,950,742				1,996,565
Interest, taxes, and other liabilities			25,131				23,576				23,323				22,770				24,653
Federal funds purchased			-				-				-				16,000				-
Securities sold under agreements to repurchase			114,439				120,159				112,337				118,308				114,647
FHLB borrowings			115,000				150,000				150,000				150,000				150,000
Other borrowings			16,047				16,087				16,087				16,088				15,839
Total liabilities			2,202,892				2,232,926				2,276,436				2,273,908				2,301,704
Preferred stock			15,151				15,151				15,151				15,251				15,471
Common stock			20,500				20,500				20,500				20,493				20,478
Additional paid-in capital			215,729				215,670				215,827				215,663				215,671
Retained earnings			138,111				133,688				129,115				125,826				123,018
Treasury stock, at cost			(35,808	)			(35,797	)			(35,996	)			(33,887	)			(10,946	)
Accumulated other comprehensive loss			(6,448	)			(6,737	)			(10,687	)			(14,740	)			(12,745	)
Total stockholders' equity			347,235				342,475				333,910				328,606				350,947
Total liabilities and stockholders' equity		$	2,550,127			$	2,575,401			$	2,610,346			$	2,602,514			$	2,652,651
Shares outstanding at period end			18,402,919				18,403,692				18,392,020				18,514,579				19,888,028
Book value per common share at period end(1)		$	17.85			$	17.61			$	17.18			$	16.79			$	16.75
Tangible book value per common share  at period end(2)		$	12.30			$	12.05			$	11.61			$	11.26			$	11.60

  

(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
		September 30,				June 30,				March 31,				December 31,				September 30,
(Amounts in thousands)		2014				2014				2014				2013				2013
Allowance for Loan Losses
Beginning balance		$	23,911			$	23,798			$	24,077			$	24,665			$	23,122
(Recovery of) provision for loan losses charged to operations			(2,439	)			1,279				1,793				1,528				2,333
(Recovery of) provision for loan losses recorded through the FDIC indemnification asset			(110	)			(138	)			(203	)			(361	)			812
Charge-offs			(1,118	)			(1,785	)			(2,216	)			(2,807	)			(1,955	)
Recoveries			915				757				347				1,052				353
Net charge-offs			(203	)			(1,028	)			(1,869	)			(1,755	)			(1,602	)
Ending balance		$	21,159			$	23,911			$	23,798			$	24,077			$	24,665
Summary of Asset Quality
Non-covered nonperforming
Nonaccrual loans		$	11,480			$	17,464			$	20,909			$	19,161			$	26,397
Accruing loans past due 90 days or more			-				-				-				-				-
Troubled debt restructurings ("TDRs")(1)			3,450				1,877				1,775				1,311				2,228
Total non-covered nonperforming loans			14,930				19,341				22,684				20,472				28,625
Other real estate owned ("OREO") not covered  under FDIC loss share agreements			5,612				5,693				5,923				7,318				5,450
Total non-covered nonperforming assets		$	20,542			$	25,034			$	28,607			$	27,790			$	34,075
Covered nonperforming
Nonaccrual loans		$	1,131			$	955			$	1,261			$	3,353			$	3,579
Accruing loans past due 90 days or more			-				109				109				86				82
Total covered nonperforming loans			1,131				1,064				1,370				3,439				3,661
OREO covered under FDIC loss share agreements			7,620				8,814				8,705				7,541				7,381
Total covered nonperforming assets			8,751				9,878				10,075				10,980				11,042
Total nonperforming assets		$	29,293			$	34,912			$	38,682			$	38,770			$	45,117
Performing TDRs(2)		$	11,701			$	11,029			$	11,193			$	10,900			$	9,697
Total TDRs(3)			15,151				12,906				12,968				12,211				11,925
Asset Quality Ratios
Excluding covered assets
Nonperforming loans to total loans			0.91	%			1.19	%			1.43	%			1.31	%			1.87	%
Nonperforming assets to total assets			0.85	%			1.03	%			1.16	%			1.14	%			1.37	%
Non-PCI allowance for loan losses to nonperforming loans			140.35	%			121.47	%			102.74	%			113.92	%			82.52	%
Non-PCI allowance to non-covered total loans			1.28	%			1.44	%			1.47	%			1.50	%			1.54	%
Annualized net charge-offs to average loans			0.05	%			0.26	%			0.48	%			0.45	%			0.42	%
Including covered assets
Nonperforming loans to total loans			0.91	%			1.16	%			1.39	%			1.40	%			1.90	%
Nonperforming assets to total assets			1.15	%			1.36	%			1.48	%			1.49	%			1.70	%
Nonperforming assets to total loans and other real estate owned			114.84	%			112.07	%			115.74	%			145.60	%			149.60	%
Allowance for loan losses to nonperforming loans			131.74	%			117.18	%			98.94	%			100.69	%			76.40	%
Allowance for loan losses to total loans			1.20	%			1.36	%			1.37	%			1.41	%			1.45	%

 

(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 September 30,
		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)		$	1,766,769			$	23,460				5.27	%		$	1,694,243			$	23,476				5.50	%
Securities available-for-sale			376,778				2,811				2.96	%			547,686				3,857				2.79	%
Securities held-to-maturity			24,189				73				1.20	%			597				12				7.97	%
Interest-bearing deposits			45,826				40				0.35	%			45,259				42				0.37	%
Total earning assets			2,213,562				26,384				4.73	%			2,287,785				27,387				4.75	%
Other assets			331,771												356,847
Total assets		$	2,545,333											$	2,644,632
Liabilities
Interest-bearing deposits
Demand deposits		$	349,013			$	49				0.06	%		$	362,548			$	58				0.06	%
Savings deposits			521,334				121				0.09	%			520,884				142				0.11	%
Time deposits			675,454				1,612				0.95	%			757,575				1,947				1.02	%
Total interest-bearing deposits			1,545,801				1,782				0.46	%			1,641,007				2,147				0.52	%
Borrowings
Federal funds purchased			69				-				0.00	%			-				-				-
Retail repurchase agreements			69,565				23				0.13	%			65,382				34				0.21	%
Wholesale repurchase agreements			50,000				474				3.76	%			50,000				473				3.75	%
FHLB advances and other borrowings			142,115				1,457				4.07	%			165,868				1,716				4.10	%
Total borrowings			261,749				1,954				2.96	%			281,250				2,223				3.14	%
Total interest-bearing liabilities			1,807,550				3,736				0.82	%			1,922,257				4,370				0.90	%
Noninterest-bearing demand deposits			371,877												349,156
Other liabilities			18,888												20,226
Total liabilities			2,198,315												2,291,639
Stockholders' equity			347,018												352,993
Total liabilities and stockholders' equity		$	2,545,333											$	2,644,632
Net interest income, tax equivalent						$	22,648											$	23,017
Net interest rate spread(3)											3.91	%											3.85	%
Net interest margin(4)											4.06	%											3.99	%

 

(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)

  

		Nine Months Ended September 30,
		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)		$	1,744,422			$	69,818				5.35	%		$	1,697,533			$	72,671				5.72	%
Securities available-for-sale			434,462				9,808				3.02	%			546,603				11,297				2.76	%
Securities held-to-maturity			12,858				127				1.32	%			700				43				8.21	%
Interest-bearing deposits			40,587				117				0.39	%			75,577				180				0.32	%
Total earning assets			2,232,329				79,870				4.78	%			2,320,413				84,191				4.85	%
Other assets			337,298												355,025
Total assets		$	2,569,627											$	2,675,438
Liabilities
Interest-bearing deposits
Demand deposits		$	363,780			$	154				0.06	%		$	359,439			$	173				0.06	%
Savings deposits			525,269				387				0.10	%			514,447				444				0.12	%
Time deposits			695,585				4,964				0.95	%			785,690				6,176				1.05	%
Total interest-bearing deposits			1,584,634				5,505				0.46	%			1,659,576				6,793				0.55	%
Borrowings
Federal funds purchased			1,192				3				0.34	%			-				-				-
Retail repurchase agreements			73,669				74				0.13	%			71,476				240				0.45	%
Wholesale repurchase agreements			50,000				1,405				3.76	%			52,521				1,416				3.60	%
FHLB advances and other borrowings			158,009				4,832				4.09	%			169,190				5,113				4.04	%
Total borrowings			282,870				6,314				2.98	%			293,187				6,769				3.09	%
Total interest-bearing liabilities			1,867,504				11,819				0.85	%			1,952,763				13,562				0.93	%
Noninterest-bearing demand deposits			343,568												341,903
Other liabilities			18,758												20,882
Total liabilities			2,229,830												2,315,548
Stockholders' equity			339,797												359,890
Total liabilities and stockholders' equity		$	2,569,627											$	2,675,438
Net interest income, tax equivalent						$	68,051											$	70,629
Net interest rate spread(3)											3.93	%											3.92	%
Net interest margin(4)											4.08	%											4.07	%

 

(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 September 30,
		2014								2013
						Average Yield/								Average Yield/
(Amounts in thousands)		Interest(1)				Rate(1)				Interest(1)				Rate(1)
Earning assets
Loans(2)		$	23,460				5.27	%		$	23,476				5.50	%
Accretion income			2,813								3,472
Less: cash accretion income			1,367								1,737
Non-cash accretion income			1,446								1,735
Loans, excluding non-cash accretion income			22,014				4.94	%			21,741				5.09	%
Other earning assets			2,924				2.60	%			3,911				2.61	%
Total earning assets			24,938				4.47	%			25,652				4.45	%
Total interest-bearing liabilities			3,736				0.82	%			4,370				0.90	%
Net interest income, tax equivalent		$	21,202							$	21,282
Net interest rate spread(3)							3.65	%							3.55	%
Net interest margin(4)							3.80	%							3.69	%

 

		Nine Months Ended September 30,
		2014								2013
						Average Yield/								Average Yield/
(Amounts in thousands)		Interest(1)				Rate(1)				Interest(1)				Rate(1)
Earning assets
Loans(2)		$	69,818				5.35	%		$	72,671				5.72	%
Accretion income			8,724								11,077
Less: cash accretion income			3,214								5,227
Non-cash accretion income			5,510								5,850
Loans, excluding non-cash accretion income			64,308				4.93	%			66,821				5.26	%
Other earning assets			10,052				2.75	%			11,520				2.47	%
Total earning assets			74,360				4.46	%			78,341				4.51	%
Total interest-bearing liabilities			11,819				0.85	%			13,562				0.93	%
Net interest income, tax equivalent		$	62,541							$	64,779
Net interest rate spread(3)							3.61	%							3.59	%
Net interest margin(4)							3.75	%							3.73	%

 

(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.