First munity Bancshares(FCBC) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's analysis of financial condition and operations Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements and detailed notes on accounting policies and financial instrument specifics Condensed Consolidated Balance Sheets This section provides a snapshot of the Company's financial position, detailing assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheet Highlights (Amounts in thousands) | Metric | March 31, 2025 | December 31, 2024 | Change (QoQ) | % Change (QoQ) | |:-----------------------------------|---------------:|------------------:|-------------:|---------------:| | Total assets | $3,225,773 | $3,261,216 | $(35,443) | -1.09% | | Total liabilities | $2,729,356 | $2,734,824 | $(5,468) | -0.20% | | Total stockholders' equity | $496,417 | $526,392 | $(29,975) | -5.69% | | Loans held for investment, net | $2,348,915 | $2,381,264 | $(32,349) | -1.36% | | Debt securities available-for-sale | $129,659 | $169,849 | $(40,190) | -23.66% | | Total deposits | $2,684,477 | $2,691,247 | $(6,770) | -0.25% | Condensed Consolidated Statements of Income This section presents the Company's financial performance, detailing revenues, expenses, and net income over the period Condensed Consolidated Statements of Income Highlights (Amounts in thousands, except per share data) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (YoY) | % Change (YoY) | |:-----------------------------------|----------------------------------:|----------------------------------:|-------------:|---------------:| | Total interest income | $35,169 | $36,029 | $(860) | -2.39% | | Total interest expense | $4,871 | $4,400 | $471 | 10.70% | | Net interest income | $30,298 | $31,629 | $(1,331) | -4.21% | | Provision for credit losses | $321 | $1,011 | $(690) | -68.25% | | Total noninterest income | $10,229 | $9,259 | $970 | 10.48% | | Total noninterest expense | $24,944 | $23,386 | $1,558 | 6.66% | | Income before income taxes | $15,262 | $16,491 | $(1,229) | -7.45% | | Income tax expense | $3,444 | $3,646 | $(202) | -5.54% | | Net income | $11,818 | $12,845 | $(1,027) | -8.00% | | Basic earnings per common share | $0.64 | $0.70 | $(0.06) | -8.57% | | Diluted earnings per common share | $0.64 | $0.71 | $(0.07) | -9.86% | Condensed Consolidated Statements of Comprehensive Income This section details the Company's comprehensive income, including net income and other comprehensive gains or losses Condensed Consolidated Statements of Comprehensive Income Highlights (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (YoY) | |:---------------------------------------------------|----------------------------------:|----------------------------------:|-------------:| | Net income | $11,818 | $12,845 | $(1,027) | | Net unrealized gains (losses) on AFS debt securities | $2,108 | $(1,198) | $3,306 | | Other comprehensive gain (loss), net of tax | $1,666 | $(948) | $2,614 | | Total comprehensive income | $13,484 | $11,897 | $1,587 | Condensed Consolidated Statements of Changes in Stockholders' Equity This section outlines changes in stockholders' equity, reflecting net income, comprehensive income, and dividend distributions Key Changes in Stockholders' Equity (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |:-----------------------------------|----------------------------------:|----------------------------------:| | Net income | $11,818 | $12,845 | | Other comprehensive income (loss) | $1,666 | $(948) | | Common dividends declared | $(43,579) | $(5,358) | | Common stock options exercised | $120 | - | | Repurchase of common shares | - | $(2,973) | | Balance March 31 | $496,417 | $506,944 | - The decrease in stockholders' equity for Q1 2025 was primarily due to the payment of a special cash dividend of $2.07 per share, totaling approximately $37.93 million, in addition to the regular cash dividend of $0.31 per share[18][146] Condensed Consolidated Statements of Cash Flows This section details the Company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (YoY) | |:-----------------------------------|----------------------------------:|----------------------------------:|-------------:| | Net cash provided by operating activities | $13,211 | $16,932 | $(3,721) | | Net cash provided by investing activities | $74,244 | $164,107 | $(89,863) | | Net cash used in financing activities | $(50,227) | $(48,554) | $(1,673) | | Net increase in cash and cash equivalents | $37,228 | $132,485 | $(95,257) | | Cash and cash equivalents at end of period | $414,682 | $248,905 | $165,777 | Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Basis of Presentation This note outlines the company's general information, principles of consolidation, adherence to U.S. GAAP for interim financial information, use of estimates, and significant accounting policies. It also details the adoption and expected impact of recent accounting standards, noting no material impact from ASU No. 2023-07 and ASU 2023-09, and no expected material impact from ASU No. 2024-03 - First Community Bankshares, Inc. operates as a financial holding company, providing banking products and services through its wholly-owned subsidiary, First Community Bank, and wealth management services through its Trust Division and First Community Wealth Management[21] - The Company operates in one business segment: Community Banking, encompassing commercial and consumer banking, lending, and wealth management[22] - Recent accounting standards, ASU No. 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes), adopted in late 2023, had no material impact on the Company's financial statements. ASU No. 2024-03 (Expense Disaggregation Disclosures), effective December 31, 2027, is also not expected to have a material impact[27][28][29][30] Note 2. Debt Securities This note provides a detailed breakdown of available-for-sale debt securities, including their amortized cost, fair value, and unrealized gains and losses. It also categorizes these securities by contractual maturity and analyzes those in a continuous unrealized loss position, confirming no credit losses were deemed necessary as of March 31, 2025 Available-for-Sale Debt Securities (Amounts in thousands) | Metric | March 31, 2025 | December 31, 2024 | |:-----------------------------------|---------------:|------------------:| | Amortized Cost | $142,389 | $184,687 | | Fair Value | $129,659 | $169,849 | | Gross Unrealized Gains | $56 | $12 | | Gross Unrealized Losses | $(12,786) | $(14,850) | - As of March 31, 2025, 98 individual debt securities were in an unrealized loss position, representing 9.86% of the portfolio's depreciation. Management does not believe a credit loss provision is necessary as these securities continue to perform as scheduled and there is no intent or likelihood of selling them prior to recovery[34][35] Note 3. Loans This note details the Company's loan portfolio, categorized into commercial, consumer real estate, and consumer and other loans, presenting their amortized cost basis and percentage distribution as of March 31, 2025, and December 31, 2024 Loans Held for Investment, Net of Unearned Income (Amounts in thousands) | Loan Segment | March 31, 2025 Amount | March 31, 2025 Percent | December 31, 2024 Amount | December 31, 2024 Percent | |:-----------------------------------|----------------------:|-----------------------:|-------------------------:|--------------------------:| | Commercial loans | $1,568,650 | 65.84% | $1,581,492 | 65.46% | | Consumer real estate loans | $732,530 | 30.74% | $745,024 | 30.84% | | Consumer and other loans | $81,519 | 3.42% | $89,573 | 3.71% | | Total loans held for investment | $2,382,699 | 100.00% | $2,416,089 | 100.00% | Note 4. Credit Quality This note outlines the Company's loan risk grading matrix (Pass, Special Mention, Substandard, Doubtful, Loss) and presents the credit quality of the loan portfolio. It also details nonaccrual loans, aging of past due loans, collateral-dependent assets, and loan modifications made to borrowers experiencing financial difficulty, including their financial effects and performance Loan Portfolio by Credit Quality (March 31, 2025, Amounts in thousands) | Credit Quality | Commercial Loans | Consumer Real Estate Loans | Consumer and Other Loans | Total Loans | |:---------------|-----------------:|---------------------------:|-------------------------:|------------:| | Pass | $1,568,650 | $732,530 | $81,519 | $2,313,288 | | Special Mention| $21,554 | $2,132 | - | $21,554 | | Substandard | $47,857 | $23,238 | $1,612 | $47,857 | | Doubtful | - | - | - | - | | Loss | - | - | - | - | | Total | $1,568,650 | $732,530 | $81,519 | $2,382,699 | Nonaccrual Loans by Loan Class (Amounts in thousands) | Loan Class | March 31, 2025 | December 31, 2024 | |:-----------------------------------|---------------:|------------------:| | Commercial loans | $8,954 | $7,809 | | Consumer real estate loans | $9,937 | $10,261 | | Consumer and other loans | $1,080 | $1,099 | | Total nonaccrual loans | $19,974 | $19,869 | Collateral Dependent Loans (Amounts in thousands) | Type of Collateral | March 31, 2025 Balance | March 31, 2025 Coverage % | December 31, 2024 Balance | December 31, 2024 Coverage % | |:-------------------|-----------------------:|--------------------------:|--------------------------:|-----------------------------:| | Commercial Real Estate | $1,156 | 169.14% | - | - | | Other | - | - | $531 | 121.57% | | Total | $1,156 | 169.14% | $531 | 121.57% | - The Company made loan modifications to borrowers experiencing financial difficulty, totaling $1,025 thousand for payment delays, $203 thousand for term extensions, $803 thousand for term extension and rate reduction, and $93 thousand for interest rate reduction as of March 31, 2025[52] Note 5. Allowance for Credit Losses This note details the changes in the allowance for credit losses (ACL) for loans and loan commitments, including provisions, charge-offs, and recoveries, segmented by commercial, consumer real estate, and consumer and other loans for the three months ended March 31, 2025, and 2024 Allowance for Credit Losses (ACL) Changes (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |:---------------------------------------------------|----------------------------------:|----------------------------------:| | Balance at beginning of quarter (loans) | $34,825 | $36,189 | | Provision for credit losses (loans) | $350 | $1,011 | | Net recoveries (charge-offs) | $(1,391) | $(1,739) | | Allowance for credit losses - loans (ending balance) | $33,784 | $35,461 | | Total allowance for credit losses (ending balance) | $34,096 | $36,207 | Note 6. Deposits This note presents the composition of deposits, distinguishing between noninterest-bearing demand deposits and various categories of interest-bearing deposits as of March 31, 2025, and December 31, 2024 Deposit Components (Amounts in thousands) | Deposit Type | March 31, 2025 | December 31, 2024 | |:-----------------------------------|---------------:|------------------:| | Noninterest-bearing demand deposits | $893,794 | $883,499 | | Interest-bearing demand deposits | $654,738 | $675,522 | | Money market accounts | $330,327 | $338,527 | | Savings deposits | $570,661 | $553,158 | | Certificates of deposit | $158,735 | $162,139 | | Individual retirement accounts | $76,222 | $78,402 | | Total deposits | $2,684,477 | $2,691,247 | Note 7. Borrowings This note details the Company's borrowings, primarily retail repurchase agreements, and discloses the unused borrowing capacity with the FHLB as of March 31, 2025 Borrowings (Amounts in thousands) | Borrowing Type | March 31, 2025 Balance | March 31, 2025 Weighted Average Rate | December 31, 2024 Balance | December 31, 2024 Weighted Average Rate | |:---------------|-----------------------:|-------------------------------------:|--------------------------:|-------------------------------------:| | Retail repurchase agreements | $908 | 0.06% | $906 | 0.05% | - The Company had unused borrowing capacity with the FHLB totaling $330.83 million as of March 31, 2025, secured by $453.54 million in qualifying loans[61] Note 8. Derivative Instruments and Hedging Activities This note describes the Company's use of interest rate swap contracts as fair value hedging instruments to manage interest rate risk, presenting their notional amounts, fair values, and the effect on the consolidated statements of income Derivative Instruments (Amounts in thousands) | Metric | March 31, 2025 Notional Amount | March 31, 2025 Fair Value Assets | December 31, 2024 Notional Amount | December 31, 2024 Fair Value Assets | |:-------------------|---------------------------------:|---------------------------------:|---------------------------------:|---------------------------------:| | Interest rate swaps | $2,892 | $84 | $3,109 | $116 | Effect of Derivative Activity on Income (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |:-----------------------------------|----------------------------------:|----------------------------------:| | Interest rate swaps (income) expense | $(16) | $(27) | Note 9. Employee Benefit Plans This note provides information on the Company's nonqualified defined benefit plans (SERP and Director Plan) for key management and directors, detailing the components of net periodic pension cost Net Periodic Pension Cost (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |:-------------------|----------------------------------:|----------------------------------:| | Interest cost | $95 | $104 | | Amortization of losses | $5 | $9 | | Net periodic cost | $100 | $113 | Note 10. Earnings per Share This note presents the calculation of basic and diluted earnings per common share, including the weighted average shares outstanding and the dilutive effect of potential common shares Earnings Per Common Share (Amounts in thousands, except per share data) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |:-----------------------------------|----------------------------------:|----------------------------------:| | Net income | $11,818 | $12,845 | | Basic earnings per common share | $0.64 | $0.70 | | Diluted earnings per common share | $0.64 | $0.71 | | Weighted average shares outstanding, basic | 18,324,760 | 18,476,128 | | Weighted average shares outstanding, diluted | 18,451,321 | 18,545,910 | Note 11. Accumulated Other Comprehensive Income (Loss) This note details the changes in accumulated other comprehensive income (loss) (AOCI), net of tax, by component, specifically unrealized losses on available-for-sale securities and employee benefit plans, and presents reclassifications out of AOCI Changes in Accumulated Other Comprehensive Income (Loss) (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |:---------------------------------------------------|----------------------------------:|----------------------------------:| | Beginning balance | $(11,171) | $(10,951) | | Other comprehensive income (loss), net | $1,666 | $(948) | | Ending balance | $(9,505) | $(11,899) | Reclassifications Out of AOCI, Net of Tax (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |:-----------------------------------|----------------------------------:|----------------------------------:| | Employee benefit plans | $4 | $7 | Note 12. Fair Value This note defines fair value and its hierarchy (Level 1, 2, 3 inputs), describes the valuation methodologies for financial instruments measured at fair value on both a recurring and nonrecurring basis, and provides quantitative information for Level 3 fair value measurements - The Company categorizes fair value measurements into a three-level hierarchy: Level 1 (observable, unadjusted quoted prices in active markets), Level 2 (inputs other than Level 1 quoted prices that are directly or indirectly observable), and Level 3 (unobservable inputs requiring significant judgment)[69][70] Financial Assets and Liabilities Recorded at Fair Value on a Recurring Basis (March 31, 2025, Amounts in thousands) | Asset/Liability | Total Fair Value | Level 1 | Level 2 | Level 3 | |:-----------------------------------|-----------------:|--------:|--------:|--------:| | Available-for-sale debt securities | $129,659 | - | $129,659| - | | Equity securities | $55 | - | $55 | - | | Fair value loans | $2,808 | - | - | $2,808 | | Derivative assets | $84 | - | $84 | - | | Deferred compensation assets | $9,255 | $9,255 | - | - | | Deferred compensation liabilities | $10,761 | $10,761 | - | - | Assets Measured at Fair Value on a Nonrecurring Basis (Amounts in thousands) | Asset | March 31, 2025 Fair Value | December 31, 2024 Fair Value | |:-----------------------------------|--------------------------:|--------------------------:| | Collateral dependent assets with specific reserves | $1,156 | $531 | | OREO | $298 | $521 | Note 13. Litigation, Commitments, and Contingencies This note discloses the Company's involvement in legal actions and off-balance sheet financial instruments, including commitments to extend credit and standby letters of credit, and states that the resolution of legal matters is not expected to have a material adverse effect - The Company is a defendant in legal actions in the normal course of business, but believes their resolution will not have a material adverse effect on its financial position, results of operations, or cash flows[86][160] Off-Balance Sheet Financial Instruments (Amounts in thousands) | Instrument | March 31, 2025 | December 31, 2024 | |:-----------------------------------|---------------:|------------------:| | Commitments to extend credit | $247,031 | $252,225 | | Standby letters of credit and financial guarantees | $125,586 | $125,561 | | Total off-balance sheet risk | $372,617 | $377,786 | Note 14. Segment Information This note confirms that the Company operates in a single reportable segment, Community Banking, which encompasses all its operations including commercial and consumer banking, lending activities, and wealth management - The Company has one reportable segment: Community Banking, which includes commercial and consumer banking, lending activities, and wealth management[91][93] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition, changes in financial condition, and results of operations for the three months ended March 31, 2025, compared to the same period in 2024, including an executive overview, critical accounting estimates, performance highlights, and detailed analysis of key financial components Executive Overview This section provides an overview of the Company's operations, branch network, employee count, and primary sources of earnings - First Community Bankshares, Inc. is a financial holding company operating 53 branches across Virginia, West Virginia, North Carolina, and Tennessee, with 583 full-time equivalent employees as of March 31, 2025[97] - The primary source of earnings is net interest income, supplemented by fees for services, commissions, and deposit service charges. The Trust Division and First Community Wealth Management managed $1.62 billion in combined assets under management and administration as of March 31, 2025[97][98] Critical Accounting Estimates This section highlights the significant management estimates and assumptions required for preparing consolidated financial statements - The preparation of consolidated financial statements requires significant management estimates and assumptions, particularly for fair value measurements, impairment write-downs, and valuation reserves, which can materially impact financial condition and operating performance[99] Performance Overview This section summarizes key financial performance indicators, including net income, asset and liability changes, and asset quality metrics Key Performance Indicators (Three Months Ended March 31) | Metric | 2025 | 2024 | Change (YoY) | % Change (YoY) | |:-----------------------------------|-------:|-------:|-------------:|---------------:| | Net income (in thousands) | $11,818| $12,845| $(1,027) | -8.00% | | Basic EPS | $0.64 | $0.70 | $(0.06) | -8.57% | | Diluted EPS | $0.64 | $0.71 | $(0.07) | -9.86% | | Return on average assets | 1.49% | 1.60% | -0.11% | -6.88% | | Return on average common equity | 9.49% | 10.18% | -0.69% | -6.78% | - Consolidated assets totaled $3.23 billion at March 31, 2025. Loans decreased by $33.39 million (1.38%) and securities available-for-sale decreased by $40.19 million (23.66%) from December 31, 2024[104] - Deposits decreased by $6.77 million (0.25%), primarily due to declining higher-rate time deposits. Stockholder equity decreased by $29.98 million (5.69%) due to a special cash dividend payment in Q1 2025[104] - Non-performing loans to total loans increased to 0.85% in Q1 2025. Net charge-offs were $1.39 million (0.24% of annualized average loans), compared to $1.74 million (0.27%) in Q1 2024. The allowance for credit losses to total loans was 1.42% at March 31, 2025[104] Net Interest Income Analysis This section analyzes net interest income and margin, detailing the factors influencing changes in interest revenue and expense Net Interest Income and Margin (FTE Basis, Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (YoY) | % Change (YoY) | |:-----------------------------------|----------------------------------:|----------------------------------:|-------------:|---------------:| | Net interest income, FTE | $30,409 | $31,748 | $(1,339) | -4.22% | | Net interest rate spread, FTE | 3.94% | 4.10% | -0.16% | -3.90% | | Net interest margin, FTE | 4.34% | 4.47% | -0.13% | -2.91% | - The decrease in net interest income and margin was primarily due to a decrease in interest income from lower average balances in the loan ($154.04 million decrease) and available-for-sale securities ($89.74 million decrease) portfolios, coupled with an increase in interest expense driven by higher yields on time deposits[109][110][111] Provision for Credit Losses This section details the provision for credit losses, including amounts allocated for loans and loan commitments Provision for Credit Losses (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (YoY) | |:-----------------------------------|----------------------------------:|----------------------------------:|-------------:| | Provision for credit losses for loans | $350 | $1,011 | $(661) | | Recovery of provision for loan commitments | $(29) | - | $(29) | | Total provision for credit losses | $321 | $1,011 | $(690) | Noninterest Income This section analyzes the components of noninterest income, including wealth management fees and service charges Noninterest Income Components (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (YoY) | % Change (YoY) | |:-----------------------------------|----------------------------------:|----------------------------------:|-------------:|---------------:| | Wealth management | $1,162 | $1,099 | $63 | 5.73% | | Service charges on deposits | $3,836 | $3,310 | $526 | 15.89% | | Other service charges and fees | $3,340 | $3,450 | $(110) | -3.19% | | Other operating income | $1,891 | $1,400 | $491 | 35.07% | | Total noninterest income | $10,229 | $9,259 | $970 | 10.48% | - Noninterest income increased by $970 thousand, or 10.48%, primarily driven by a 15.89% increase in service charges on deposits and a 35.07% increase in other operating income[114] Noninterest Expense This section details the components of noninterest expense, including salaries, occupancy, and advertising costs Noninterest Expense Components (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (YoY) | % Change (YoY) | |:-----------------------------------|----------------------------------:|----------------------------------:|-------------:|---------------:| | Salaries and employee benefits | $13,335 | $12,581 | $754 | 5.99% | | Occupancy expense | $1,576 | $1,378 | $198 | 14.37% | | Advertising and public relations | $1,055 | $796 | $259 | 32.54% | | Other operating expense | $3,661 | $3,366 | $295 | 8.76% | | Total noninterest expense | $24,944 | $23,386 | $1,558 | 6.66% | - Total noninterest expense increased by $1.56 million, or 6.66%, primarily due to increases in salaries and employee benefits ($754 thousand), other operating expense ($295 thousand), and advertising and public relations ($259 thousand)[116] Income Tax Expense This section presents the Company's income tax expense and effective tax rate for the reporting periods Income Tax Expense (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (YoY) | % Change (YoY) | |:-------------------|----------------------------------:|----------------------------------:|-------------:|---------------:| | Income tax expense | $3,444 | $3,646 | $(202) | -5.54% | | Effective tax rate | 22.57% | 22.11% | 0.46% | 2.08% | Non-GAAP Financial Measures This section provides reconciliations and explanations for non-GAAP financial measures, specifically net interest income on a fully taxable equivalent basis - The Company uses net interest income on a fully taxable equivalent (FTE) basis as a non-GAAP financial measure to provide better comparability between taxable and tax-exempt amounts, adjusting for tax benefits using a 21% federal statutory income tax rate[119] Net Interest Income and Margin Reconciliation (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |:-----------------------------------|----------------------------------:|----------------------------------:| | Net interest income, GAAP | $30,298 | $31,629 | | FTE adjustment | $111 | $119 | | Net interest income, FTE | $30,409 | $31,748 | | Net interest margin, GAAP | 4.33% | 4.44% | | FTE adjustment | 0.02% | 0.03% | | Net interest margin, FTE | 4.34% | 4.47% | Financial Condition This section provides a detailed analysis of the Company's balance sheet components and overall financial health - Total assets decreased by $35.44 million (1.09%) from December 31, 2024, primarily due to decreases in loans and available-for-sale securities. Total liabilities decreased by $5.47 million (0.20%), mainly from a decrease in deposits[122] Investment Securities The investment securities portfolio is managed for interest income, liquidity, and collateral. Available-for-sale debt securities decreased significantly due to maturities and calls, though new purchases partially offset this. Management continues to evaluate securities for impairment, with no credit losses deemed necessary as of March 31, 2025 - Available-for-sale debt securities decreased by $40.19 million (23.66%) from December 31, 2024, driven by $81.39 million in maturities and calls, partially offset by $38.75 million in purchases[124] - The market value of debt securities available-for-sale as a percentage of amortized cost was 91.06% at March 31, 2025, down from 91.97% at December 31, 2024[124] - Management evaluates securities for impairment quarterly; as of March 31, 2025, all debt securities in an unrealized loss position continue to perform as scheduled, and no provision for credit losses was deemed necessary[125] Loans Held for Investment The loan portfolio, a primary source of interest income, decreased by $33.39 million (1.38%) from December 31, 2024. This was mainly due to decreases in commercial loans (non-farm, non-residential, multi-family, single family non-owner occupied) and consumer real estate loans (single family owner occupied), partially offset by an increase in commercial and industrial loans Loans Held for Investment, Net of Unearned Income (Amounts in thousands) | Loan Segment | March 31, 2025 | December 31, 2024 | March 31, 2024 | |:-----------------------------------|---------------:|------------------:|---------------:| | Commercial loans | $1,568,650 | $1,581,492 | $1,626,818 | | Consumer real estate loans | $732,530 | $745,024 | $780,839 | | Consumer and other loans | $81,519 | $89,573 | $112,176 | | Total loans held for investment | $2,382,699 | $2,416,089 | $2,519,833 | - Total loans decreased by $33.39 million (1.38%) from December 31, 2024. Commercial loans decreased by $12.84 million, and consumer real estate loans decreased by $12.49 million[127] Risk Elements The Company mitigates credit risk through underwriting practices and ongoing monitoring. Nonperforming assets decreased slightly, with nonaccrual loans increasing and OREO decreasing. Delinquent loans also saw a decrease, with nonaccrual loans primarily attributed to single family owner occupied, non-farm non-residential, and commercial and industrial categories Nonperforming Assets (Amounts in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | |:-----------------------------------|---------------:|------------------:|---------------:| | Nonaccrual loans | $19,974 | $19,869 | $19,617 | | Accruing loans past due 90 days or more | $117 | $149 | $30 | | Total nonperforming loans | $20,091 | $20,018 | $19,647 | | OREO | $298 | $521 | $374 | | Total nonperforming assets | $20,389 | $20,539 | $20,021 | Asset Quality Ratios | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | |:-----------------------------------|---------------:|------------------:|---------------:| | Nonperforming loans to total loans | 0.84% | 0.83% | 0.78% | | Nonperforming assets to total assets | 0.63% | 0.63% | 0.62% | | Allowance for credit losses to nonperforming loans | 168.15% | 173.97% | 180.49% | | Allowance for credit losses to total loans | 1.42% | 1.44% | 1.41% | - Delinquent loans (30+ days past due and nonaccrual) totaled $33.49 million as of March 31, 2025, a decrease of $4.06 million (10.81%) from December 31, 2024[131] Changes in Other Real Estate Owned (OREO) (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |:-----------------------------------|----------------------------------:|----------------------------------:| | Beginning balance January 1 | $521 | $192 | | Disposals | $(223) | $(41) | | Ending balance | $298 | $374 | Allowance for Credit Losses The Allowance for Credit Losses (ACL) for loans was $33.78 million (1.42% of total loans) as of March 31, 2025, a decrease of $1.04 million from December 31, 2024. This decrease reflects a $350 thousand provision offset by $1.39 million in net charge-offs. The Company also maintains an allowance for unfunded commitments - The ACL for loans was $33.78 million (1.42% of total loans) at March 31, 2025, decreasing by $1.04 million from December 31, 2024, due to a $350 thousand provision offset by $1.39 million in net charge-offs[139] - An allowance for unfunded commitments of $312 thousand was recorded at March 31, 2025, with a recovery of provision for credit losses of $29 thousand during the first three months of 2025[140] Deposits Total deposits decreased by $6.77 million (0.25%) from December 31, 2024. This was primarily due to decreases in interest-bearing demand and time deposits, partially offset by increases in noninterest-bearing demand and savings deposits - Total deposits decreased by $6.77 million (0.25%) from December 31, 2024. Interest-bearing demand deposits decreased by $20.78 million (3.08%) and time deposits decreased by $5.58 million (2.32%)[141] - These decreases were partially offset by an increase in noninterest-bearing demand deposits of $10.30 million (1.17%) and savings deposits of $9.3 million (1.04%)[141] Borrowings Total borrowings, specifically retail repurchase agreements, saw a minor decrease of $2 thousand (0.22%) compared to December 31, 2024 - Total borrowings in the form of retail repurchase agreements decreased by $2 thousand (0.22%) from December 31, 2024[142] Liquidity and Capital Resources This section discusses the Company's liquidity management strategies and capital adequacy, including regulatory requirements Liquidity The Company manages liquidity through an overall balance sheet approach and a Liquidity Plan, relying on dividends from the Bank, cash, investment securities, and lines of credit. As of March 31, 2025, it maintained substantial unencumbered cash, unused FHLB borrowing capacity, and available lines from correspondent banks - The Company's primary source of liquidity is dividends from the Bank, supplemented by cash, investment securities, and borrowings. It maintains a Liquidity Plan to manage liquidity risk[143][144] Available Liquidity Sources (March 31, 2025, Amounts in thousands) | Source | Amount | |:-----------------------------------|---------:| | Unencumbered cash | $414,682 | | Unused FHLB borrowing capacity | $330,830 | | Available credit from FRB Discount Window | $5,820 | | Available lines from correspondent banks | $100,000 | | Unpledged available-for-sale securities | $104,220 | | Total | $955,552 | Capital Resources Total stockholders' equity decreased by $29.98 million (5.69%) to $496.42 million at March 31, 2025, primarily due to a special cash dividend of $2.07 per share ($37.93 million total) and regular cash dividends, partially offset by net income - Total stockholders' equity decreased by $29.98 million (5.69%) to $496.42 million at March 31, 2025, primarily due to a special cash dividend of $2.07 per share ($37.93 million total) and regular cash dividends ($5.65 million), partially offset by $11.82 million in net income[146] - Book value per share decreased to $27.09 at March 31, 2025, from $28.73 at year-end 2024, mainly due to the special cash dividend[146] Capital Adequacy Requirements The Company and its Bank continue to meet all Basel III capital adequacy requirements and are classified as well-capitalized. While the Company's risk-based capital ratios decreased due to capital level reduction from the special dividend, the Bank's ratios increased due to a decrease in risk-weighted assets Capital Ratios | Ratio | Company (March 31, 2025) | Bank (March 31, 2025) | Company (December 31, 2024) | Bank (December 31, 2024) | |:---------------------------|-------------------------:|----------------------:|----------------------------:|-------------------------:| | Common equity Tier 1 ratio | 15.56% | 14.03% | 16.75% | 13.89% | | Tier 1 risk-based capital ratio | 15.56% | 14.03% | 16.75% | 13.89% | | Total risk-based capital ratio | 16.81% | 15.28% | 18.00% | 15.15% | | Tier 1 leverage ratio | 11.37% | 10.37% | 12.25% | 10.32% | - The Company and Bank continue to meet all capital adequacy requirements and are classified as well-capitalized under regulatory frameworks[147] Off-Balance Sheet Arrangements The Company extends contractual commitments with off-balance sheet risk to meet customer financing needs, including commitments to extend credit and standby letters of credit, with credit loss exposure equal to the contractual amount Off-Balance Sheet Arrangements (Amounts in thousands) | Arrangement | March 31, 2025 | December 31, 2024 | |:-----------------------------------|---------------:|------------------:| | Commitments to extend credit | $247,031 | $252,225 | | Standby letters of credit and financial guarantees | $125,586 | $125,561 | | Total off-balance sheet risk | $372,617 | $377,786 | Market Risk and Interest Rate Sensitivity The Company manages market risk, particularly interest rate risk, through its Asset/Liability Management Committee (ALCO) by reviewing asset and liability mixes and using simulation models to project net interest income and economic value of equity under various interest rate scenarios - The Company's profitability is largely dependent on net interest income, which is subject to interest rate risk due to differing repricing times of assets and liabilities[150] Sensitivity of Net Interest Income to Rate Shocks (12-month period, Dollars in thousands) | Increase (Decrease) in Basis Points | March 31, 2025 Change in Net Interest Income | March 31, 2025 Percent Change | December 31, 2024 Change in Net Interest Income | December 31, 2024 Percent Change | |:------------------------------------|---------------------------------------------:|-------------------------------:|---------------------------------------------:|-------------------------------:| | 200 | $2,795 | 2.2% | $2,997 | 2.4% | | 100 | $1,405 | 1.1% | $1,505 | 1.2% | | (100) | $(553) | (0.4)% | $(2,883) | -2.3% | | (200) | $(1,221) | (1.0)% | $(6,325) | -5.0% | Inflation and Changing Prices The Company acknowledges that inflation, driven by government spending, labor shortages, and supply chain issues, primarily impacts operating costs. However, management believes interest rates have a greater influence on financial performance than inflation - Inflation primarily affects the Company through increased operating costs, but management believes interest rates have a greater impact on financial performance than inflation[153] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the detailed disclosures regarding market risk and interest rate sensitivity provided in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" - The information required for quantitative and qualitative disclosures about market risk is incorporated by reference from the "Market Risk and Interest Rate Sensitivity" section in Item 2 of this Quarterly Report on Form 10-Q[155] Item 4. Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures, concluding their effectiveness as of March 31, 2025, and confirms no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This section presents the conclusion of the CEO and CFO regarding the effectiveness of the Company's disclosure controls and procedures - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2025, ensuring timely and accurate reporting of required information[156][157] Changes in Internal Control over Financial Reporting This section confirms that no material changes occurred in internal control over financial reporting during the quarter - There were no changes in the Company's internal control over financial reporting during the quarter ended March 31, 2025, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[159] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The Company is involved in various legal actions in the normal course of business but believes that the resolution of these matters will not have a material adverse effect on its financial position, results of operations, or cash flows - The Company is a defendant in various legal actions and asserted claims in the normal course of business, but their resolution is not expected to have a material adverse effect on financial position, results of operations, or cash flows[160] Item 1A. Risk Factors This section refers to the risk factors detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, and confirms that there have been no material changes to these risk factors during the current reporting period - There have been no material changes to the risk factors included in Part I, Item 1A, "Risk Factors," of the Company's Annual Report on Form 10-K for the year ended December 31, 2024[161] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that the Company did not repurchase any common shares during the first quarter of 2025, and provides information on the remaining shares authorized for repurchase under its existing plan - The Company did not repurchase any common shares during the first quarter of 2025[162] Common Stock Repurchase Plan | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs | |:--------------------|---------------------------------:|-----------------------------:|-----------------------------------------------------------------------------:| | January 1-31, 2025 | - | $- | 2,245,206 | | February 1-28, 2025 | - | $- | 2,245,206 | | March 1-31, 2025 | - | $- | 2,245,206 | | Total | - | $- | 2,245,206 | Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[163] Item 4. Mine Safety Disclosures This section indicates that there are no mine safety disclosures to report - There are no mine safety disclosures[164] Item 5. Other Information This section confirms no changes to procedures for recommending director nominees and no Rule 10b5-1 trading arrangements adopted or terminated by directors or executive officers during the quarter - No changes were made to the procedures by which security holders may recommend nominees to the Company's board of directors[165] - No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2025[166] Item 6. Exhibits This section provides a comprehensive list of exhibits filed with the Form 10-Q, including various agreements, corporate documents, equity compensation plans, and certifications, along with interactive data files - The exhibits include corporate documents (Articles of Incorporation, Bylaws), various stock option and compensation plans, employment agreements, and interactive data files (iXBRL) for the financial statements[169][171][173] Signatures This section contains the official signatures of the Registrant, First Community Bankshares, Inc., by its Chief Executive Officer and Chief Financial Officer, certifying the filing of the report - The report is duly signed by William P. Stafford, II, Chief Executive Officer, and David D. Brown, Chief Financial Officer, on behalf of First Community Bankshares, Inc. on May 2, 2025[175]