First Community Bankshares (FCBC) Q3 2026 earnings review
First Community profit rises, but pre-merger loans barely move
First Community Bankshares, a regional bank operating 61 branches across Virginia and three neighbouring states, lifted its lending profit while its pre-merger loan book stood still. Tax-equivalent net interest income rose 15% from a year ago as the bank cut deposit rates and added assets from Hometown Bancshares. Profit per share excluding one-offs climbed 11% to $0.78, while nearly half of the reported 16% jump in fee income came from one-time insurance and property gains, by our math.
| Loans excluding Hometown merger | -0.4% from year-end 2025 (-1.1% from a year ago by our math) |
|---|---|
| Net interest income (tax-equivalent) | $36.0M +14.7% from a year ago |
| Profit per share, excluding one-offs | $0.78 +11.4% from a year ago by our math |
| Quarterly cash dividend outlook | Held at $0.33 +6.5% from a year ago |
⚖️ Verdict: 🟢 Bullish
The story got better because new lending revived and funding costs fell. Third-quarter loan originations rose 41% to $126 million, which pushed total loans up $18 million from June and widened the lending margin. One caution: excluding the Hometown purchase, loans are still down slightly since December, and the bank paused share buybacks for a second quarter.
The question now is whether the rebound in loan originations is big enough to grow the loan book on its own and absorb the bank's idle cash. Either new loans keep outpacing payoffs and lift interest income, or payoffs stay high and leave the bank relying on lower-yielding bonds. Fourth-quarter loan balances excluding Hometown will tell.
🐂 Bull Case
Lower Deposit Rates Lifted the Lending Margin
First Community Bankshares, a regional lender with 61 branches across Virginia and neighbouring states, earns most of its money from the spread between loan yields and deposit rates. Net interest margin (NIM), which measures that spread as a share of earning assets, rose to 4.46% from 4.38% last quarter. The bank said the gain was "primarily driven by an increase in average earning assets and lower funding costs".
- Tax-equivalent net interest income: $36.0 million, up 14.7% from a year ago
- Cost of interest-bearing deposits: 0.84%, down 0.15 percentage points from a year ago
- Average loan yield: 5.37%, up 0.13 percentage points from a year ago
This matters because the lender cut what it pays depositors while charging more on loans, even though purchase accounting income from past mergers fell by more than half. What to watch: the cost of interest-bearing deposits in the fourth quarter. A reading below 0.84% would show the bank can keep cutting funding costs as certificates of deposit renew.
New Lending Rebounded and Operating Costs Fell
The Virginia lender originated $125.6 million of new loans during the third quarter, up 41.4% from $88.8 million a year ago. Because of that rebound, the total loan book added $17.7 million from last quarter, by our math, reversing a $22.0 million drop in the same period last year. At the same time, management kept overhead growth well below revenue growth.
By our math, noninterest expense fell by 4.7 percentage points of net revenue from a year ago, to 57.6%. Salaries and employee benefits, the largest cost line, dropped by 2.5 percentage points of net revenue to 31.6%, while intangible amortisation rose 0.3 points. What to watch: fourth-quarter loan production against the $125.6 million level. Another quarter above $120 million would keep the loan book growing without mergers.
Problem Loans Fell for a Second Quarter
Credit quality across the loan book improved after the January purchase of Hometown Bancshares. Total nonperforming assets — loans not paying interest plus foreclosed property — fell 6.1% from a year ago to $15.9 million, "reflecting continued improvement in asset quality and the second consecutive quarterly decline", the company said. Problem loans dropped to 0.64% of total loans from 0.70% in June and 0.71% a year ago.
Annualised net charge-offs, which measure loans written off as uncollectible, fell to 0.11% of average loans from 0.24% a year ago. That kept the quarterly credit loss provision low at $680 thousand and lifted reserve coverage to 206.5% of problem loans. What to watch: nonperforming loans in the fourth-quarter report. A drop below $15 million would bring problem loans back near pre-merger levels.
🐻 Bear Case
Loans From Before the Merger Still Shrank
First Community reported that its loan portfolio grew 7.0% from the end of 2025, "associated with the acquisition of Hometown Bancshares, completed in the first quarter of 2026". Hometown brought $171.0 million of loans when the deal closed in January. Excluding that acquired book, underlying loans shrank by $8.4 million, or 0.4%, over the first nine months of the year, and fell 1.1% from a year ago by our math.
The bank therefore relied on an acquisition to grow its earning assets while its existing branches barely replaced loan payoffs. Because Hometown also added $357.7 million of deposits, nearly twice the loans acquired, Only 81.8% of total deposits now sit in higher-yielding loans, down from 88.6% a year ago by our math. What to watch: year-end loans excluding the $171.0 million Hometown book. A balance below $2.31 billion would mean underlying lending shrank for the full year.
One-Off Gains Drove Half the Fee Growth
In its highlights, First Community said noninterest income rose $1.76 million, or 16.1%, from a year ago on higher operating income and service fees. The reconciliation table at the back of the release shows that $902 thousand of that increase came from non-recurring "BOLI proceeds and the sale of bank property" (bank-owned life insurance payouts and branch sales). Stripping out those one-offs, fee income grew 7.9% by our math, less than half the headline rate.
Meanwhile, wealth management revenue — fees from managing $1.82 billion of client trust and investment assets — fell 3.4% from a year ago and 5.4% from last quarter to $1.32 million. Deposit service charges rose 4.4%, trailing the 15.1% jump in total deposits. What to watch: wealth management fees and total assets under management next quarter. Another drop would show the bank is losing fee business despite a larger branch network.
Modified Loans Rose and Share Buybacks Stopped
While problem loans fell, total modified loans — loans where the bank changed terms for borrowers facing financial difficulty — rose 49.2% from a year ago to $3.42 million, by our math. On capital return, First Community bought back no shares for a second straight quarter after spending $20.3 million in the first quarter. Because it issued 1.03 million shares to buy Hometown, diluted share count sits 3.2% higher than a year ago.
That higher share count held per-share profit growth excluding one-offs to 11.4%, by our math, compared with 14.2% for net income excluding one-offs. The board has also declared no special dividend so far in 2026 after paying $3.07 per share across 2025. What to watch: fourth-quarter share repurchases and any special dividend announcement. A third quarter with no buybacks or special payout would leave excess capital sitting in low-yielding cash.
👓 Other Themes
Bank Shifted Idle Cash Into Bond Portfolio
The average rate First Community earned on cash held at other banks dropped 0.56 percentage points from a year ago to 3.88%. In response, management moved $96.3 million into available-for-sale debt securities during the quarter, lifting the bond portfolio by 40.3% to $335.3 million, by our math. Unrealised after-tax bond losses in equity widened by $3.6 million in the quarter to $11.8 million.
💲 Other KPIs
Total deposits rose 15.1% from a year ago and 0.4% from last quarter. Excluding the $357.7 million added by Hometown Bancshares in January, deposits from branches owned a year ago grew 1.5% by our math, giving the bank low-cost funding.
Net worth per share excluding goodwill and other merger intangibles rose 4.2% from a year ago and 1.8% from June. Retained earnings from the second-quarter Bearing Insurance sale and third-quarter profit outweighed the initial dilution from the Hometown purchase.
Weighted average diluted shares rose 3.2% from a year ago and stayed nearly unchanged from 18.98 million in the second quarter. The bank issued 1.03 million shares for Hometown in January and bought back 505 thousand shares that same quarter.
🔮 Guidance
Unchanged from last quarter. The board declared a $0.33 quarterly dividend payable November 27, which is 6.5% higher than the $0.31 paid in the fourth quarter of 2025 by our math. First Community does not issue revenue or profit forecasts, and this declaration marks its 41st straight year of regular dividends.
❓ Key Questions
Will the board declare a special dividend in Q4?
First Community paid $3.07 per share in special dividends during 2025, including $1.00 in the fourth quarter, and gained $10.4 million pre-tax from selling Bearing Insurance in June. With share buybacks paused for two quarters, investors need to know how management will use excess capital.
What drove the 41% jump in Q3 loan production?
New loan originations reached $125.6 million, turning quarterly loan growth positive, yet underlying loans remain down 0.4% since year-end. Management did not disclose whether the new loans came from Hometown's West Virginia branches or commercial real estate.
Why did wealth management fees fall while assets grew?
Wealth management revenue fell 3.4% from a year ago and 5.4% from last quarter to $1.32 million, even though managed and administered assets rose from $1.75 billion to $1.82 billion over the past year.
What duration and yields did the new bonds carry?
The lender added $96.3 million to its available-for-sale bond portfolio in Q3, and unrealised bond losses in equity widened by $3.6 million. Knowing the yield and maturity of those purchases would clarify the risk to book value if interest rates rise.