FIRST COMMUNITY BANKSHARES INC /VA/ Annual Performance Review

This investor-focused summary provides a clear and comprehensive overview of FIRST COMMUNITY BANKSHARES INC /VA/'s latest annual performance. We cut through the financial jargon to present a straightforward picture of the bank's financial health, strategic decisions, and key risks for the year ended December 31, 2025.

Business Overview FIRST COMMUNITY BANKSHARES INC /VA/ operates as a bank holding company. It primarily provides a range of banking and financial services through its subsidiary banks. These services include commercial and retail banking, such as accepting deposits, making commercial, real estate, and consumer loans, and offering other financial products to individuals, businesses, and government entities within its operating markets.

Financial Performance FIRST COMMUNITY BANKSHARES INC /VA/ faced significant challenges this past year. The bank reported a notable decline in profitability, with Earnings Per Share (EPS) consistently falling over the last three years: $1.24 in 2023, $1.20 in 2024, and $1.16 in 2025. This downward trend occurred even as common shares outstanding significantly increased from approximately 18.3 million in 2024 to 27.6 million in 2025. This substantial increase in shares, often a result of acquisitions or capital raises, dilutes value for existing shareholders by spreading total earnings across a much larger pool. The EPS decline points to either a challenging operating environment or the impact of the increased share count on per-share profitability.

Risk Factors Several key risks could impact FIRST COMMUNITY BANKSHARES INC /VA/'s stock price and operations:

• Regulatory Intervention: The bank's status under "prompt corrective action provisions" represents a severe regulatory designation. This indicates significant issues with the bank's financial condition, such as insufficient capital levels or asset quality problems. Being under PCA typically imposes restrictions on the bank's operations, including limitations on growth, dividend payments, and executive compensation, and requires specific actions to restore financial health. This introduces considerable regulatory risk and uncertainty.
• Declining Profitability: The consistent three-year drop in EPS signals underlying operational or market challenges that could persist.
• Share Dilution: The significant increase in outstanding shares means future earnings will spread thinner, potentially limiting per-share growth even if total profits improve.
• Reduced Flexibility from Pledged Assets: The increase in Assets Pledged as Collateral from $0 in 2024 to $10 million in 2025 means the bank has pledged a portion of its assets to secure loans or other commitments. This could constrain the bank's ability to use those assets for other strategic initiatives or to meet unexpected liquidity needs.
• Economic and Market Conditions: As a financial institution, the bank faces inherent risks from interest rate fluctuations, credit quality deterioration, and general economic downturns. These factors can impact loan demand, asset values, and profitability.

Management Discussion (MD&A Highlights) Management's discussion highlights several key areas reflecting the bank's actions and the financial environment:

• Profitability and Share Count: The decline in EPS and the significant increase in common shares outstanding were central to the year's performance, indicating challenges in generating sufficient earnings relative to the expanded share base.
• Balance Sheet Management: The bank successfully reduced "Other Liabilities" from $46 million in 2024 to $24 million in 2025, a positive step in managing its financial obligations. However, "Assets Pledged as Collateral" increased from $0 in 2024 to $10 million in 2025, which could impact financial flexibility.
• Strategic Shifts in Investment Portfolio: The bank significantly adjusted its investment portfolio. It substantially increased holdings in US Treasury Securities, rising from $1.95 million to $3.15 million, and made a substantial move into Corporate Debt Securities, increasing from $2 million to $60 million. Concurrently, the bank drastically reduced its investment in Mortgage-Backed Securities (MBS) from $84 million to just $2 million. This shift suggests a deliberate move away from mortgage-related assets, possibly due to concerns about interest rate risk or credit quality. Instead, the bank moved towards what it perceives as more stable or potentially higher-yielding corporate debt and government securities. This re-allocation could aim to de-risk the portfolio or optimize returns in the current economic climate.
• Leadership and Governance: The filing indicates "Changes related to the composition of the Company's directors, executive officers, and related insiders." Such shifts in leadership can signal new strategic directions, responses to performance issues, or efforts to strengthen governance.
• Accounting Changes: The bank adopted a new accounting standard, ASU 2023-09, effective January 1, 2025, which impacts how tax credits are reported. This is a factor to consider in future financial comparisons.

Financial Health The bank's financial health faces significant scrutiny due to its status under "prompt corrective action provisions." This regulatory designation typically implies that the bank's capital levels fall below regulatory minimums or that regulators have identified other serious financial deficiencies. This situation directly impacts the bank's capital adequacy and overall stability. On the balance sheet, the bank reduced "Other Liabilities" from $46 million to $24 million, a positive indicator of managing certain obligations. However, the increase in "Assets Pledged as Collateral" from $0 to $10 million means the bank has encumbered a portion of its assets, potentially affecting its liquidity and flexibility to deploy capital.

Considering these factors, investors should carefully weigh the significant challenges, particularly the regulatory status and declining per-share profitability, against any potential long-term strategic adjustments by management.