First Community Bancshares, Inc.
Annual Report 2016

Plain-text annual report

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A Amendment No. 1 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2016 Commission file number 000-19297 FIRST COMMUNITY BANCSHARES, INC. (Exact name of registrant as specified in its charter) Nevada (State or other jurisdiction of incorporation or organization) 55-0694814 (I.R.S. Employer Identification No.) P.O. Box 989 Bluefield, Virginia 24605-0989 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (276) 326-9000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, $1.00 par value Name of each exchange on which registered NASDAQ Global Select Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Non-accelerated filer ☐ (Do not check if a smaller reporting company) Accelerated filer Smaller reporting company ☒ ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No As of June 30, 2016, the aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates was $294.92 million. As of February 28, 2017, there were 16,994,616 shares outstanding of the registrant’s Common Stock, $1.00 par value. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on April 25, 2017, are incorporated by reference in Part III of this Form 10-K. Table of Contents EXPLANATORY NOTE This Amendment No. 1 on Form 10-K/A amends the Annual Report on Form 10-K of First Community Bancshares, Inc. (the “Company”) for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 3, 2017 (the “Original Form 10-K”), solely to correct the date of the Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements of Dixon Hughes Goodman LLP (the “Report”) from March 4, 2017, to March 3, 2017. The Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm on Management’s Assessment of Internal Control Over Financial Reporting with the correct date are filed with this Form 10-K/A. In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, Part II, Item 8 has been amended and restated in its entirety; however, there have been no changes to the text of such Part II, Item 8 other than the change stated in the preceding paragraph. Further, there have been no changes to the XBRL data filed in Exhibit 101 of the Original Form 10-K. As required by Rule 12b-15, this Form 10-K/A includes a new consent of the independent registered public accounting firm as Exhibit 23 and new certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1, 31.2, and 32. Except as described above, this Form 10-K/A does not amend, update, or restate the information in any other Item of the Original Form 10-K or reflect any events that have occurred after the filing of the Original Form 10-K. 2 Table of Contents Item 8. Financial Statements and Supplementary Data. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX PART II Consolidated Balance Sheets as of December 31, 2016 and 2015 Consolidated Statements of Income for the years ended December 31, 2016, 2015, and 2014 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2016, 2015, and 2014 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2016, 2015, and 2014 Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014 Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements Management’s Assessment of Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm on Management’s Assessment of Internal Control Over Financial Reporting 3 Page 4 5 6 7 8 9 69 70 71 FIRST COMMUNITY BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS Table of Contents (Amounts in thousands, except share and per share data) Assets Cash and due from banks Federal funds sold Interest-bearing deposits in banks Total cash and cash equivalents Securities available for sale Securities held to maturity Loans held for investment, net of unearned income Non-covered Covered Allowance for loan losses Loans held for investment, net FDIC indemnification asset Premises and equipment, net Other real estate owned, non-covered Other real estate owned, covered Interest receivable Goodwill Other intangible assets Other assets Total assets Liabilities Deposits Noninterest-bearing Interest-bearing Total deposits Securities sold under agreements to repurchase FHLB borrowings Other borrowings Interest, taxes, and other liabilities Total liabilities Stockholders’ equity Preferred stock, undesignated par value; 1,000,000 shares authorized; Series A Noncumulative Convertible Preferred Stock, $0.01 par value; 25,000 shares authorized; none outstanding Common stock, $1 par value; 50,000,000 shares authorized; 21,381,779 shares issued at December 31, 2016 and 2015, including 4,387,571 and 3,283,638 shares in treasury, respectively Additional paid-in capital Retained earnings Treasury stock Accumulated other comprehensive loss Total stockholders’ equity Total liabilities and stockholders’ equity See Notes to Consolidated Financial Statements. 4 $ December 31, 2016 2015 36,645 38,717 945 76,307 165,579 47,133 $ 37,383 13,498 906 51,787 366,173 72,541 1,795,954 56,994 (17,948) 1,835,000 12,173 50,085 5,109 276 5,553 95,779 7,207 86,197 $2,386,398 1,623,506 83,035 (20,233) 1,686,308 20,844 52,756 4,873 4,034 6,007 100,486 5,243 91,224 $2,462,276 $ 427,705 1,413,633 1,841,338 98,005 65,000 15,708 27,290 2,047,341 $ 451,511 1,421,748 1,873,259 138,614 65,000 15,756 26,630 2,119,259 — — 21,382 228,142 170,377 (78,833) (2,011) 339,057 $2,386,398 21,382 227,692 155,647 (56,457) (5,247) 343,017 $2,462,276 Table of Contents (Amounts in thousands, except share and per share data) Interest income Interest and fees on loans Interest on securities — taxable Interest on securities — tax-exempt Interest on deposits in banks Total interest income Interest expense Interest on deposits Interest on short-term borrowings Interest on long-term debt Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Noninterest income Wealth management Service charges on deposits Other service charges and fees Insurance commissions Impairment losses on securities Portion of loss recognized in other comprehensive income Net impairment losses recognized in earnings Net gain (loss) on sale of securities Net FDIC indemnification asset amortization Net gain on divestitures Other operating income Total noninterest income Noninterest expense Salaries and employee benefits Occupancy expense Furniture and equipment expense Amortization of intangibles FDIC premiums and assessments FHLB debt prepayment fees Merger, acquisition, and divestiture expense Other operating expense Total noninterest expense Income before income taxes Income tax expense Net income Dividends on preferred stock Net income available to common shareholders Earnings per common share Basic Diluted Cash dividends per common share Weighted average shares outstanding Basic Diluted See Notes to Consolidated Financial Statements. FIRST COMMUNITY BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME 2016 Year Ended December 31, 2015 $ $ $ 87,718 3,229 3,624 153 94,724 4,479 2,101 3,264 9,844 84,880 1,255 83,625 2,828 13,588 8,102 5,442 (4,646) — (4,646) 335 (5,474) 3,682 3,209 27,066 39,912 5,297 4,341 1,136 1,383 — 730 19,947 72,746 37,945 12,819 25,126 — 25,126 1.45 1.45 0.60 $ $ $ 87,632 4,225 3,978 267 96,102 5,878 1,952 3,519 11,349 84,753 2,191 82,562 2,975 13,717 8,045 6,899 — — — 144 (6,379) — 4,129 29,530 39,625 5,817 5,199 1,118 1,513 1,702 86 21,111 76,171 35,921 11,381 24,540 105 24,435 1.32 1.31 0.54 $ 2014 95,492 5,975 4,350 291 106,108 7,308 2,024 5,958 15,290 90,818 145 90,673 3,030 13,828 7,581 6,555 (737) — (737) (1,385) (3,979) 755 4,355 30,003 40,713 6,338 4,952 787 1,672 5,008 1,150 22,242 82,862 37,814 12,324 25,490 910 24,580 1.34 1.31 0.50 $ $ 17,319,689 17,365,524 18,531,039 18,727,464 18,406,363 19,483,054 5 Table of Contents FIRST COMMUNITY BANCSHARES, INC CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Amounts in thousands) Net income Other comprehensive income, before tax Available-for-sale securities Change in net unrealized losses on securities with other-than-temporary impairment Change in net unrealized gains on securities without other-than-temporary impairment Reclassification adjustment for net (gains) losses recognized in net income Reclassification adjustment for other-than-temporary impairment losses recognized in net income Net unrealized gains on available-for-sale securities Employee benefit plans Net actuarial loss Plan change Reclassification adjustment for amortization of prior service cost and net actuarial loss recognized in net income Net unrealized losses on employee benefit plans Other comprehensive income, before tax Income tax expense Other comprehensive income, net of tax Total comprehensive income See Notes to Consolidated Financial Statements. 6 2016 $25,126 Year Ended December 31, 2015 $24,540 2014 $25,490 — 1,035 (335) 4,646 5,346 (367) (69) 273 (163) 5,183 (1,947) 3,236 $28,362 — 755 (144) — 611 (363) — 326 (37) 574 (216) 358 $24,898 (1) 12,914 1,385 737 15,035 (642) — 260 (382) 14,653 (5,518) 9,135 $34,625 Table of Contents FIRST COMMUNITY BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Amounts in thousands, except share and per share data) Balance January 1, 2014 Net income Other comprehensive income Common dividends declared — $0.50 per share Preferred dividends declared — $60.00 per share Preferred stock converted to common stock — 6,900 shares Equity-based compensation expense Common stock options exercised — 3,854 shares Restricted stock awards — 13,933 shares Purchase of treasury shares — 132,773 shares at $16.29 per share Balance December 31, 2014 Balance January 1, 2015 Net income Other comprehensive income Common dividends declared — $0.54 per share Preferred dividends declared — $15.00 per share Preferred stock converted to common stock — 882,096 shares Redemption of preferred stock — 2,367 shares Equity-based compensation expense Common stock options exercised — 4,323 shares Restricted stock awards — 23,057 shares Issuance of treasury stock to 401(k) plan — 20,745 shares Purchase of treasury shares — 1,238,299 shares at $17.35 per share Balance December 31, 2015 Balance January 1, 2016 Net income Other comprehensive income Common dividends declared — $0.60 per share Equity-based compensation expense Common stock options exercised — 43,463 shares Restricted stock awards — 16,680 shares Issuance of treasury stock to 401(k) plan — 18,218 shares Purchase of treasury shares — 1,182,294 shares at $20.06 per share Balance December 31, 2016 See Notes to Consolidated Financial Statements. Common Stock $ 20,493 — — — — 7 — — — — $ 20,500 $ 20,500 — — — — 882 — — — — — — $ 21,382 $ 21,382 — — — — — — — — $ 21,382 Additional Paid-in Capital $ 215,663 — — — — 93 332 (13) (202) — $ 215,873 $ 215,873 — — — — 11,902 — 110 (11) (191) 9 — $ 227,692 $ 227,692 — — — 209 146 32 63 — $ 228,142 Retained Earnings $ 125,826 25,490 — (9,200) (910) — — — — — $ 141,206 $ 141,206 24,540 — (9,994) (105) — — — — — — — $ 155,647 $ 155,647 25,126 — (10,396) — — — — — $ 170,377 Treasury Stock $ (33,887) — — — — — — 66 238 (2,168) $ (35,751) $ (35,751) — — — — — — — 74 391 354 (21,525) $ (56,457) $ (56,457) — — — — 775 290 321 (23,762) $ (78,833) Preferred Stock $ 15,251 — — — — (100) — — — — $ 15,151 $ 15,151 — — — — (12,784) (2,367) — — — — — — $ $ $ — — — — — — — — — — 7 Accumulated Other Comprehensive Income (Loss) (14,740) $ — 9,135 — — — — — — — (5,605) (5,605) — 358 — — — — — — — — — (5,247) $ $ $ $ $ (5,247) — 3,236 — — — — — — (2,011) Total $328,606 25,490 9,135 (9,200) (910) — 332 53 36 (2,168) $351,374 $351,374 24,540 358 (9,994) (105) — (2,367) 110 63 200 363 (21,525) $343,017 $343,017 25,126 3,236 (10,396) 209 921 322 384 (23,762) $339,057 Table of Contents FIRST COMMUNITY BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses Depreciation and amortization of property, plant, and equipment Amortization of premiums on investments, net Amortization of FDIC indemnification asset, net Amortization of intangible assets Accretion on acquired loans Gain on divestiture, net Gain on sale of loans, net Equity-based compensation expense Restricted stock awards Issuance of treasury stock to 401(k) plan Loss (gain) on sale of property, plant, and equipment, net Loss on sale of other real estate (Gain) loss on sale of securities Net impairment losses recognized in earnings FHLB debt prepayment fees Proceeds from sale of mortgage loans Originations of mortgage loans Decrease in accrued interest receivable Decrease in other operating activities Net cash provided by operating activities Investing activities Proceeds from sale of securities available for sale Proceeds from maturities, prepayments, and calls of securities available for sale Proceeds from maturities and calls of securities held to maturity Payments to acquire securities available for sale Payments to acquire securities held to maturity Originations of loans, net Proceeds from FHLB stock, net Cash proceeds from (paid in) mergers, acquisitions, and divestitures, net (See Note 2) Proceeds from the FDIC Payments to acquire property, plant, and equipment, net Proceeds from sale of other real estate Net cash provided by (used in) investing activities Financing activities (Decrease) increase in noninterest-bearing deposits, net Decrease in interest-bearing deposits, net Decrease in federal funds purchased (Repayments of) proceeds from securities sold under agreements to repurchase, net Repayments of FHLB and other borrowings, net Redemption of preferred stock Proceeds from stock options exercised Excess tax benefit from equity-based compensation Payments for repurchase of treasury stock Payments of common dividends Payments of preferred dividends Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental disclosure — cash flow information Cash paid for interest Cash paid for income taxes Supplemental transactions — noncash items Transfer of loans to other real estate Loans originated to finance other real estate See Notes to Consolidated Financial Statements. 8 Year Ended December 31, 2015 2014 2016 $ 25,126 $ 24,540 $ 25,490 1,255 3,563 1,066 5,474 1,136 (4,766) (3,682) — 209 322 384 238 1,495 (335) 4,646 — — — 454 6,503 43,088 104,928 99,906 25,190 (1,174) — (159,243) 130 29,716 4,403 (793) 7,147 110,210 (17,482) (37,576) — (40,609) (48) — 921 174 (23,762) (10,396) — (128,778) 24,520 51,787 $ 76,307 2,191 4,135 1,375 6,379 1,118 (7,109) — (501) 110 200 363 23 3,002 (144) — 1,702 21,993 (19,700) 308 18,534 58,519 10,999 29,931 190 (81,540) (15,003) (24,719) 1,279 (88) 2,683 (1,239) 6,722 (70,785) 33,782 (161,282) — 16,872 (28,945) (2,367) 63 8 (21,525) (9,994) (219) (173,607) (185,873) 237,660 $ 51,787 145 4,405 961 3,979 787 (9,645) (755) (671) 332 36 — (113) 3,227 1,385 737 5,008 28,443 (28,681) 1,206 5,413 41,689 162,443 48,915 190 (6,047) (57,675) (64,115) 4,349 178,604 4,770 (1,098) 10,619 280,955 68,246 (121,912) (16,000) 3,432 (63,097) — 53 5 (2,168) (9,200) (910) (141,551) 181,093 56,567 $ 237,660 $ 9,845 6,588 $ 11,757 6,900 $ 15,791 12,552 5,162 57 6,317 649 12,620 671 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Presentation and Significant Accounting Policies Basis of Presentation First Community Bancshares, Inc. (the “Company”) is a financial holding company headquartered in Bluefield, Virginia that provides banking products and services to individuals and commercial customers through its wholly owned subsidiary First Community Bank (the “Bank”). The Bank offers insurance products and services through First Community Insurance Services (“FCIS”) and trust and wealth management services through its Trust Division and wholly owned subsidiary First Community Wealth Management. Unless the context suggests otherwise, the term “Company” refers to First Community Bancshares, Inc. and its subsidiaries as a consolidated entity. Principles of Consolidation The Company’s accounting and reporting policies conform with U.S. generally accepted accounting principles (“GAAP”) and prevailing practices in the banking industry. The consolidated financial statements include all accounts of the Company and its wholly owned subsidiaries and eliminate all intercompany balances and transactions. The Company operates in one business segment, Community Banking, which consists of all operations, including commercial and consumer banking, lending activities, wealth management, and insurance services. The Company maintains investments in variable interest entities (“VIEs”). VIEs are legal entities in which equity investors do not have sufficient equity at risk for the entity to independently finance its activities, or as a group, the holders of the equity investment at risk lack the power through voting or similar rights to direct the activities of the entity that most significantly impact its economic performance, or do not have the obligation to absorb the expected losses of the entity or the right to receive expected residual returns of the entity. Consolidation of a VIE is required if a reporting entity is the primary beneficiary of the VIE. The Company periodically reviews its VIEs and has determined that it is not the primary beneficiary of any VIE; therefore, the assets and liabilities of these entities are not consolidated into the financial statements. Use of Estimates Preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that require the most subjective or complex judgments relate to fair value measurements, investment securities, the allowance for loan losses, the Federal Deposit Insurance Corporation (“FDIC”) indemnification asset, goodwill and other intangible assets, and income taxes. Reclassification Certain amounts reported in prior years have been reclassified to conform to the current year’s presentation. These reclassifications had no effect on the Company’s results of operations, financial position, or cash flow. Summary of Significant Accounting Policies Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants. Market participants are buyers and sellers in the principal market that are independent, 9 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) knowledgeable, able to transact, and willing to transact. The fair value hierarchy ranks the inputs used in measuring fair value as follows: • • • Level 1 – Observable, unadjusted quoted prices in active markets Level 2 – Inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability Level 3 – Unobservable inputs with little or no market activity that require the Company to use reasonable inputs and assumptions These valuation methodologies are applied to all the Company’s assets and liabilities carried at fair value. Methodologies used to determine fair value might be highly subjective and judgmental in nature. The Company may record adjustments to certain financial assets and liabilities on a recurring basis. The Company may be required to record certain assets at fair value on a nonrecurring basis in specific circumstances, such as evidence of impairment. If the Company determines that a valuation technique change is necessary, the change is assumed to have occurred at the end of the respective reporting period. Cash and Cash Equivalents Cash and cash equivalents include cash and due from banks, federal funds sold, and interest-bearing balances on deposit with the Federal Home Loan Bank (“FHLB”), the Federal Reserve Bank (“FRB”), and correspondent banks that are available for immediate withdrawal. Investment Securities Management classifies debt and marketable equity securities as held-to-maturity or available-for-sale based on the intent and ability to hold the securities to maturity. Debt securities that the Company has the intent and ability to hold to maturity are classified as held-to-maturity securities and carried at amortized cost. Debt securities not classified as held to maturity and marketable equity securities are classified as available-for-sale securities and carried at estimated fair value. Available-for-sale securities consist of securities the Company intends to hold for indefinite periods of time including securities to be used as part of the Company’s asset/liability management strategy and securities that may be sold in response to changes in interest rates, prepayment risk, or other similar factors. Unrealized gains and losses on available-for-sale securities are included in accumulated other comprehensive income (“AOCI”), net of income taxes, in stockholders’ equity. Gains or losses on calls, maturities, or sales of investment securities are recorded based on the specific identification method and included in noninterest income. Premiums and discounts are amortized or accreted over the life of a security into interest income. Nonmarketable equity investments are reported in other assets. The Company performs extensive quarterly reviews of held-to-maturity and available-for-sale securities to determine if unrealized losses are temporary or other than temporary. If the security is deemed to have other-than-temporary impairment (“OTTI”), the amount representing the credit loss is recognized as a charge to noninterest income and the amount representing all other factors is recognized in other comprehensive income (“OCI”). Nonmarketable Equity Investments As a condition of membership in the FHLB and the FRB, the Company is required to hold a minimum level of stock in the FHLB of Atlanta and the FRB of Richmond. These nonmarketable securities are carried at cost and periodically reviewed for impairment. When evaluating these investments, managements considers publicly available information about the profitability and asset quality of the issuer, dividend payment history, and redemption experience in determining the recoverability of the investment. The investment in FHLB and FRB stock was $10.60 million as of December 31, 2016, and $10.73 million as of December 31, 2015. 10 Table of Contents Other Investments FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The Company has certain long-term investments that are considered VIEs, including its subsidiary FCBI Capital Trust (the “Trust”), certain tax credit limited partnerships, and various limited liability companies that manage real estate investments, facilitate tax credits, and provide title insurance and other related financial services. The Company uses the equity method of accounting if it is able to exercise significant influence over the entity and records its share of the entity’s earnings or losses in noninterest income. The Company uses the cost method of accounting if it is not able to exercise significant influence over the entity. There were no equity investments as of December 31, 2016, or December 31, 2015. The carrying value and maximum potential loss exposure of VIEs totaled $1.14 million as of December 31, 2016, and $934 thousand as of December 31, 2015. Business Combinations The Company accounts for business combinations using the acquisition method of accounting as outlined in using Topic 805 of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”). Under this method, all identifiable assets acquired, including purchased loans, and liabilities assumed are recorded at fair value. Any excess of the purchase price over the fair value of net assets acquired is recorded as goodwill. In instances where the price of the acquired business is less than the net assets acquired, a gain on the purchase is recorded. Fair values are assigned based on quoted prices for similar assets, if readily available, or appraisals by qualified independent parties for relevant asset and liability categories. Certain financial assets and liabilities are valued using discount models that apply current discount rates to streams of cash flow. Valuation methods require assumptions, which can result in alternate valuations, varying levels of goodwill or bargain purchase gains, or amortization expense or accretion income. Management must make estimates for the useful or economic lives of certain acquired assets and liabilities that are used to establish the amortization or accretion of some intangible assets and liabilities, such as core deposits. Fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information about the closing date fair values becomes available. Acquisition and divestiture activities are included in the Company’s consolidated results of operations from the closing date of the transaction. Acquisition and divestiture related costs are recognized in noninterest expense as incurred. For additional information, see “Purchased Credit Impaired Loans” and “Intangible Assets” below. Loans Held for Investment Loans classified as held for investment are originated with the intent to hold indefinitely, until maturity, or until pay-off. Loans held for investment are carried at the principal amount outstanding, net of unearned income and any necessary write-downs to reduce individual loans to net realizable value. Interest income on performing loans is recognized as interest income at the contractual rate of interest. Loan origination fees, including loan commitment and underwriting fees, are reduced by direct costs associated with loan processing, including salaries, legal review, and appraisal fees. Net deferred loan fees are deferred and amortized over the life of the related loan or commitment period. Purchased Performing Loans. Purchased loans that are deemed to be performing at the acquisition date are accounted for using the contractual cash flow method of accounting, which results in the loans being recorded at fair value with a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated contractual lives of the loans. No allowance for loan losses is recorded at acquisition for purchased loans because the fair values of the acquired loans incorporate credit risk assumptions. Purchased Credit Impaired (“PCI”) Loans . When purchased loans exhibit evidence of credit deterioration after the acquisition date, and it is probable at acquisition the Company will not collect all contractually required principal and interest payments, the loans are referred to as PCI loans. PCI loans are accounted for using Topic 11 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) 310-30 of the FASB ASC, formerly the American Institute of Certified Public Accountants’ Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer.” PCI loans are initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loans. Per the guidance, the Company groups PCI loans that have common risk characteristics into loan pools. Evidence of credit quality deterioration at acquisition may include measures such as nonaccrual status, credit scores, declines in collateral value, current loan to value percentages, and days past due. The Company considers expected prepayments and estimates the amount and timing of expected principal, interest, and other cash flows for each loan or pool of loans identified as credit impaired. If contractually required payments at acquisition exceed cash flows expected to be collected, the excess is the non-accretable difference, which is available to absorb credit losses on those loans or pools of loans. If the cash flows expected at acquisition exceed the estimated fair values, the excess is the accretable yield, which is recognized in interest income over the remaining lives of those loans or pools of loans when there is a reasonable expectation about the amount and timing of such cash flows. Impaired Loans and Nonperforming Assets . The Company maintains an active and robust problem credit identification system through its ongoing credit review function. When a credit is identified as exhibiting characteristics of weakening, the Company assesses the credit for potential impairment. Loans are considered impaired when, in the opinion of management and based on current information and events, the collection of principal and interest payments due under the contractual terms of the loan agreements are uncertain. The Company conducts quarterly reviews of loans with balances of $250 thousand or greater that are deemed to be impaired. Factors considered in determining impairment include, but are not limited to, the borrower’s cash flow and capacity for debt repayment, the valuation of collateral, historical loss percentages, and economic conditions. Impairment allowances allocated to individual loans, including individual credit relationships and loan pools grouped by similar risk characteristics, are reviewed quarterly by management. Interest income realized on impaired loans in nonaccrual status, if any, is recognized upon receipt. The accrual of interest, which is based on the daily amount of principal outstanding, on impaired loans is generally continued unless the loan becomes delinquent 90 days or more. Loans are considered past due when either principal or interest payments become contractually delinquent by 30 days or more. The Company’s policy is to discontinue the accrual of interest, if warranted, on loans based on the payment status, evaluation of the related collateral, and the financial strength of the borrower. Loans that are 90 days or more past due are placed on nonaccrual status. Management may elect to continue the accrual of interest when the loan is well secured and in process of collection. When interest accruals are discontinued, interest accrued and not collected in the current year is reversed from income, and interest accrued and not collected from prior years is charged to the allowance for loan losses. Nonaccrual loans may be returned to accrual status when all principal and interest amounts contractually due, including past due payments, are brought current; the ability of the borrower to repay the obligation is reasonably assured; and there is generally a period of at least six months of repayment performance by the borrower in accordance with the contractual terms. Seriously delinquent loans are evaluated for loss mitigation options, including charge-off. Closed-end retail loans are generally charged off against the allowance for loan losses when the loans become 120 days past due. Open-end retail loans and residential real estate secured loans are generally charged off when the loans become 180 days past due. Unsecured loans are generally charged off when the loans become 90 days past due. All other loans are charged off against the allowance for loan losses after collection attempts have been exhausted, which generally is within 120 days. Recoveries of loans previously charged off are credited to the allowance for loan losses in the period received. Loans are considered troubled debt restructurings (“TDRs”) when the Company grants concessions, for legal or economic reasons, to borrowers experiencing financial difficulty that would not otherwise be considered. The 12 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Company generally makes concessions in interest rates, loan terms, and/or amortization terms. All TDRs $250 thousand or greater are evaluated for a specific reserve based on either the collateral or net present value method, whichever is most applicable. TDRs under $250 thousand are subject to the reserve calculation for classified loans based primarily on the historical loss rate. At the date of modification, nonaccrual loans are classified as nonaccrual TDRs. TDRs classified as nonperforming at the date of modification are returned to performing status after six months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs. Other real estate owned (“OREO”) acquired through foreclosure, or other settlement, is carried at the lower of cost or fair value less estimated selling costs. The fair value is generally based on current third-party appraisals. When a property is transferred into OREO, any excess of the loan balance over the net realizable fair value is charged against the allowance for loan losses. Operating expenses, gains, and losses on the sale of OREO are included in other noninterest expense in the Company’s consolidated statements of income after any fair value write-downs are recorded as valuation adjustments. Allowance for Loan Losses Management performs quarterly assessments of the allowance for loan losses. The allowance is increased by provisions charged to operations and reduced by net charge-offs. The provision is calculated and charged to earnings to bring the allowance to a level that, through a systematic process of measurement, reflects the amount management estimates is needed to absorb probable losses in the portfolio. The Company’s allowance for loan losses is segmented into commercial, consumer real estate, and consumer and other loans with each segment divided into classes with similar characteristics, such as the type of loan and collateral. The allowance for loan losses includes specific allocations related to significant individual loans and credit relationships and general reserves related to loans not individually evaluated. Loans not individually evaluated are grouped into pools based on similar risk characteristics. A loan that becomes adversely classified or graded is moved into a group of adversely classified or graded loans with similar risk characteristics for evaluation. A provision for loan losses is recorded for any credit deterioration in purchased performing loans after the acquisition date. PCI loans are grouped into pools and evaluated separately from the non-PCI portfolio. The Company estimates cash flows to be collected on PCI loans and discounts those cash flows at a market rate of interest. If cash flows for PCI loans are expected to decline, generally a provision for loan losses is charged to earnings, resulting in an increase to the allowance for loan losses. If cash flows for PCI loans are expected to improve, any previously established allowance is first reversed to the extent of prior charges and then interest income is increased using the prospective yield adjustment over the remaining life of the loan, or pool of loans. Any provision established for PCI loans covered under the FDIC loss share agreements is offset by an adjustment to the FDIC indemnification asset to reflect the indemnified portion, 80%, of the post-acquisition exposure. While allocations are made to various portfolio segments, the allowance for loan losses is available for use against any loan loss management deems appropriate, excluding reserves allocated to specific loans and PCI loan pools. FDIC Indemnification Asset The FDIC indemnification asset represents the carrying amount of the right to receive payments from the FDIC for losses incurred on certain loans and OREO purchased from the FDIC that are covered by loss share agreements. The FDIC indemnification asset is measured separately from related covered assets because it is not contractually embedded in the assets or transferable should the assets be disposed. Under the acquisition method of accounting, the FDIC indemnification asset is recorded at fair value using projected cash flows based on expected reimbursements and applicable loss share percentages as outlined in the loss share agreements. The expected reimbursements do not include reimbursable amounts related to future covered expenditures. The cash 13 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) flows are discounted to reflect the timing and receipt of reimbursements from the FDIC. The discount is accreted through noninterest income over future periods. Post-acquisition adjustments to the indemnification asset are measured on the same basis as the underlying covered assets. Increases in the cash flows of covered loans reduce the FDIC indemnification asset balance, which is recognized as amortization through noninterest income over the shorter of the remaining life of the FDIC indemnification asset or the underlying loans. Decreases in the cash flows of covered loans increase the FDIC indemnification asset balance, which is recognized as accretion through noninterest income. Premises and Equipment Premises, equipment, and capital leases are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets. Useful lives range from 5 to 10 years for furniture, fixtures, and equipment; 3 to 5 years for software, hardware, and data handling equipment; and 10 to 40 years for buildings and building improvements. Land improvements are amortized over a period of 20 years and leasehold improvements are amortized over the lesser of the term of the respective leases plus the first optional renewal period, when renewal is reasonably assured, or the estimated useful lives of the improvements. The Company leases various properties within its branch network. Leases generally have initial terms of up to 20 years and most contain options to renew with reasonable increases in rent. All leases are accounted for as operating leases. Maintenance and repairs are charged to current operations while improvements that extend the economic useful life of the underlying asset are capitalized. Disposition gains and losses are reflected in current operations. Intangible Assets Intangible assets consist of goodwill, core deposit intangible assets, and other identifiable intangible assets that result from business combinations. Goodwill represents the excess of the purchase price over the fair value of net assets acquired that is allocated to the appropriate reporting unit when acquired. Core deposit intangible assets represent the future earnings potential of acquired deposit relationships that are amortized over their estimated remaining useful lives. Other identifiable intangible assets primarily represent the rights arising from contractual arrangements that are amortized using the straight-line method. Goodwill is tested annually, or more frequently if necessary, using a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the two-step quantitative goodwill impairment test is performed. Step 1 consists of calculating and comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of a reporting unit is greater than its book value, no goodwill impairment exists. If the carrying amount of a reporting unit is greater than its calculated fair value, goodwill impairment may exist and Step 2 is required to determine the amount of the impairment loss. Securities Sold Under Agreements to Repurchase Securities sold under agreements to repurchase are generally accounted for as collateralized financing transactions and recognized as short-term borrowings in the Company’s consolidated balance sheets. Securities, generally U.S. government and federal agency securities, pledged as collateral under these arrangements can be sold or repledged only if replaced by the secured party. The fair value of the collateral provided to a third party is continually monitored and additional collateral is provided as appropriate. 14 Table of Contents Derivative Instruments FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The Company primarily uses derivative instruments to protect against the risk of adverse price or interest rate movements on the value of certain assets and liabilities and on future cash flows. Derivative instruments represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another asset to the other party based on a notional amount and an underlying asset as specified in the contract such as interest rates, equity security prices, currencies, commodity prices, or credit spreads. These derivative instruments may consist of interest rate swaps, floors, caps, collars, futures, forward contracts, and written and purchased options. Derivative contracts often involve future commitments to exchange interest payment streams or currencies based on a notional or contractual amount, such as interest rate swaps or currency forwards, or to purchase or sell other financial instruments at specified terms on a specified date, such as options to buy or sell securities or currencies. Derivative instruments are subject to counterparty credit risk due to the possibility that the Company will incur a loss because a counterparty, which may be a bank, a broker-dealer or a customer, fails to meet its contractual obligations. This risk is measured as the expected positive replacement value of contracts. Derivative contracts may be executed only with exchanges or counterparties approved by the Company’s Asset/Liability Management Committee. If certain conditions are met, a derivative may be designated as a hedge related to fair value, cash flow, or foreign exposure risk. The recognition of changes in the fair value of a derivative instrument varies depending on the intended use of the derivative and the resulting designation. The Company accounts for hedges of customer loans as fair value hedges. The change in fair value of the hedging derivative and the change in fair value of the hedged exposure are recorded in earnings. Any hedge ineffectiveness is also reflected in current earnings. Changes in the fair value of derivatives not designated as hedging instruments are recognized as a gain or loss in earnings. The Company formally documents any relationships between hedging instruments and hedged items and the risk management objective and strategy for undertaking each hedged transaction. All derivative instruments are reported at fair value in the consolidated balance sheets. Equity-Based Compensation The cost of employee services received in exchange for equity instruments, including stock options and restricted stock awards , is generally measured at fair value on the grant date. The Black-Scholes valuation model is used to estimate the fair value of stock options at the grant date while the fair value of restricted stock awards is based on the market price of the Company’s common stock on the grant date. The Black-Scholes model incorporates the following assumptions: the expected volatility is based on the weekly historical volatility of the Company’s common stock price over the expected term of the option; the expected term is generally calculated using the shortcut method; the risk-free interest rate is based on the U.S. Department of the Treasury’s (“Treasury”) yield curve on the grant date with a term comparable to the grant; and the dividend yield is based on the Company’s dividend yield using the most recent dividend rate paid per share and trading price of the Company’s common stock. Compensation cost is recognized over the required service period, generally defined as the vesting period for stock option awards and as the restriction period for restricted stock awards. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Advertising Expenses Advertising costs are generally expensed as incurred. The Company may establish accruals for expected advertising expenses in the course of a fiscal year. 15 Table of Contents Income Taxes FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Income tax expense is comprised of the current and deferred tax consequences of events and transactions already recognized. The Company includes interest and penalties related to income tax liabilities in income tax expense. The effective tax rate, income tax expense as a percent of pre-tax income, may vary significantly from statutory rates due to tax credits and permanent differences. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are adjusted through the provision for income taxes as changes in tax laws or rates are enacted. Per Share Results Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of potential common stock that could be issued by the Company. Under the treasury stock method of accounting, potential common stock may be issued for stock options, non-vested restricted stock awards, performance based stock awards, and convertible preferred stock. Diluted earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding for the period plus the number of dilutive potential common shares. The calculation of diluted earnings per common share excludes potential common shares that have an exercise price greater than the average market value of the Company’s common stock because the effect would be antidilutive. Recent Accounting Standards Standards Adopted In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.” This ASU removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The update should be applied prospectively. The Company early adopted ASU 2017-04 in the first quarter of 2017. The adoption of the standard did not have an effect on the Company’s financial statements. In January 2017, the FASB issued ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings.” This ASU requires registrants to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period. In cases where a registrant cannot reasonably estimate the impact of the adoption, additional qualitative disclosures should be considered to assist the reader in assessing the significance of the standard’s impact on its financial statements. The Company adopted ASU 2017-03 in the first quarter of 2017. The adoption of the standard resulted in enhanced disclosures regarding the impact that recently issued accounting standards adopted in a future period will have on the Company’s financial statements and disclosures. See “Standards Not Yet Adopted” below. In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement Period Adjustments.” This ASU simplifies the accounting for adjustments made to provisional amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments. The Company adopted ASU 2015-16 in the first quarter of 2016. The adoption of the standard did not have an effect on the Company’s financial statements. 16 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis.” This ASU changes the analysis that an entity performs to determine whether to consolidate certain legal entities. The Company adopted ASU 2015-02 in the first quarter of 2016. The Company evaluated its investments in VIEs under the guidance and concluded that not consolidating these entities was still appropriate; therefore, the adoption of the standard did not have an effect on the Company’s financial statements. In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. An entity should apply guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period for which the service has already been rendered. The Company adopted ASU 2014-12 in the first quarter of 2016. The adoption of the standard did not have an effect on the Company’s financial statements. Standards Not Yet Adopted In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” This ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective for the Company for fiscal years beginning after December 15, 2017. The Company expects to adopt ASU 2016-18 in the first quarter of 2018. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 will be effective for the Company for the fiscal years beginning after December 15, 2017, with early adoption permitted. The update should be applied on a retrospective basis, if practicable. The Company expects to adopt ASU 2016-15 in the first quarter of 2018. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU intends to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the update amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for the Company for the fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company expects to adopt ASU 2016-13 in the first quarter of 2020 and recognize a cumulative adjustment to retained earnings as of the beginning of the year of adoption. The Company is evaluating the impact of the standard. 17 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for share-based payment award transactions including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 will be effective for the Company for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company expects to adopt ASU 2016-09 in the first quarter of 2017. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements. In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This ASU increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring more disclosures related to leasing transactions. ASU 2016-02 will be effective for the Company for the fiscal years beginning after December 15, 2018, with early adoption permitted. The Company expects to adopt ASU 2016-02 in the first quarter of 2019. The Company is evaluating the impact of the standard and expects a minimal increase in assets and liabilities; however, the Company does not expect the guidance to have a material effect on its financial statements. In January 2016, the FASB issued ASU 2016-01, “Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The new guidance also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 will be effective for the Company for fiscal years beginning after December 15, 2017, with early adoption permitted for the instrument-specific credit risk provision. The Company expects to adopt ASU 2016-01 in the first quarter of 2018. The Company is evaluating the impact of the standard and does not expect to recognize a significant cumulative effect adjustment to retained earnings at the beginning of the year of adoption or expect the guidance to have a material effect on its financial statements. The cumulative-effect adjustment will be dependent on the composition and fair value of the Company’s equity securities portfolio at the adoption date. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This ASU’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under existing guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers” deferring the effective date of ASU 2014-09 for the Company until fiscal years beginning after December 15, 2017, with early adoption permitted for fiscal years beginning after December 15, 2016. Additional revenue related standards to be adopted concurrently with ASU 2014-09 include ASU 2016-20, ASU 2016-12, ASU 2016-10, and ASU 2016-08. The Company expects to adopt ASU 2014-09, and related updates, in the first quarter of 2018 and recognize a cumulative adjustment to retained earnings as of the beginning of the year of adoption. The Company’s primary source of revenue is interest income, which is excluded from the scope of this guidance; however, the Company is evaluating the impact of the standard on other income, which includes fees for services, commissions on sales, and various deposit service charges. The Company does not expect the guidance to have a material effect on its financial statements. The Company does not expect other recent accounting standards issued by the FASB or other standards-setting bodies to have a material impact on the consolidated financial statements. 18 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Note 2. Acquisitions and Divestitures The following table presents the components of net cash received in, or paid for, acquisitions and divestitures, an investing activity in the Company’s consolidated statements of cash flows, for the periods indicated: (Amounts in thousands) Acquisitions Fair value of assets and liabilities acquired: Loans Premises and equipment Other assets Other intangible assets Deposits Other liabilities Purchase price in excess of net assets acquired Total purchase price Non-cash purchase price Cash acquired Net cash paid (received) in acquisitions Divestitures Book value of assets sold Book value of liabilities sold Sales price in excess of net liabilities assumed Total sales price Cash sold Amount due remaining on books Net cash (received) paid in divestitures Net cash (received) paid in acquisitions and divestitures Year Ended December 31, 2015 2014 2016 $ 149,122 4,829 448 3,842 (134,307) (75) 2,446 26,305 — — 26,305 (165,742) 111,198 (3,682) (58,226) — 2,205 (56,021) $ (29,716) $ — — — — — — 88 88 — — 88 389 (152) (6) 231 — (231) — $ 88 $ 140 4,547 4,563 — (318,877) (76) 1,721 (307,982) — — (307,982) (83,283) 215,268 (755) 131,230 (1,852) — 129,378 $(178,604) Ascension Insurance Agency, Inc. On October 1, 2016, the Company completed the sale of Greenpoint Insurance Group, Inc. (“Greenpoint”) to Ascension Insurance Agency, Inc. for $7.11 million, including earn-out payments of $2.21 million to be received over the next three years if certain operating targets are met. The divestiture consisted of two North Carolina offices operating as Greenpoint and two Virginia offices operating under the trade name Carr & Hyde Insurance. The Company recorded a net gain of $617 thousand in connection with the divestiture and eliminated $6.49 million in goodwill and other intangible assets. The Company incurred expenses related to the divestiture of $46 thousand in 2016. The transaction did not impact the Company’s in-branch insurance offices operating as FCIS in West Virginia and Virginia. On October 31, 2015, the Company sold one insurance agency for $372 thousand. The Company recorded a net loss of $8 thousand in connection with the sale and eliminated $385 thousand in goodwill and other intangible assets. In addition, the Company recorded additional goodwill of $88 thousand in 2015 related to contingent earn-out payments from acquisitions that occurred before 2009. 19 Table of Contents First Bank FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) On July 15, 2016, the Company completed the branch exchange with First Bank, North Carolina, pursuant to which the Bank exchanged a portion of its North Carolina branch network for First Bank’s Virginia branch network. Under the agreements, the Bank simultaneously sold six branches in the Winston-Salem and Mooresville areas of North Carolina and acquired seven branches in Southwestern Virginia. The branch acquisition complements the Company’s 2014 acquisition of seven branches from Bank of America by expanding the Company’s existing presence in Southwest Virginia and affords the opportunity to realize certain operating cost savings. In connection with the branch exchange, the Company acquired total assets of $160.69 million, including total loans of $149.12 million and goodwill and other intangibles of $6.29 million, and total liabilities of $134.38 million, including total deposits of $134.31 million. The Company did not acquire any PCI loans. The consideration transferred included the net fair value of divested assets and a purchase premium of $3.84 million. The Company divested total assets of $162.17 million, including loans of $155.54 million and goodwill and other intangibles of $2.33 million, and total liabilities of $111.05 million, including deposits of $111.02 million, and received a deposit premium of $4.07 million. In connection with the divestiture, the Company recorded a net gain of $3.07 million. The Company incurred expenses related to the First Bank transaction of $684 thousand in 2016. The estimated fair values, including identifiable intangible assets, are preliminary and subject to refinement for up to one year after the closing date of the acquisition. CresCom Bank On December 12, 2014, the Company completed the sale of thirteen branches to CresCom Bank, Charleston, South Carolina. The divestiture consisted of ten branches in the Southeastern, Coastal region of North Carolina and three branches in South Carolina, all of which were previously acquired in the FDIC-assisted acquisition of Waccamaw Bank (“Waccamaw”) on June 8, 2012. At closing, the Company divested total deposits of $215.19 million and total loans of $70.04 million. The transaction excluded loans covered under FDIC loss share agreements. The Company recorded a net gain of $755 thousand in connection with the divestiture, which included a deposit premium of $6.45 million and goodwill allocation of $6.45 million. Bank of America On October 24, 2014, the Company completed the acquisition of seven branches from Bank of America, National Association. The acquisition consisted of six branches in Southwestern Virginia and one branch in Central North Carolina. At acquisition, the Company assumed total deposits of $318.88 million for a premium of $5.79 million. No loans were included in the purchase. The Company purchased the real estate, or assumed the leases, associated with the branches. 20 Table of Contents Note 3. Investment Securities FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following tables present the amortized cost and fair value of available-for-sale securities, including gross unrealized gains and losses, as of the dates indicated: (Amounts in thousands) U.S. Agency securities Municipal securities Single issue trust preferred securities Mortgage-backed Agency securities Equity securities Total securities available for sale (Amounts in thousands) U.S. Agency securities Municipal securities Single issue trust preferred securities Corporate securities Certificates of deposit Mortgage-backed Agency securities Equity securities Total securities available for sale Amortized Cost $ 1,342 111,659 22,104 31,290 55 $166,450 Amortized Cost $ 31,414 124,880 55,882 70,571 5,000 84,576 66 $372,389 December 31, 2016 Unrealized Gains $ 3 2,258 — 66 18 $ 2,345 Unrealized Losses $ — (586) (2,165) (465) — $ (3,216) December 31, 2015 Unrealized Gains $ 39 4,155 — — — 155 6 $ 4,355 Unrealized Losses $ (751) (357) (8,050) (238) — (1,175) — $ (10,571) Fair Value $ 1,345 113,331 19,939 30,891 73 $165,579 Fair Value $ 30,702 128,678 47,832 70,333 5,000 83,556 72 $366,173 21 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following table presents the amortized cost and fair value of available-for-sale securities, by contractual maturity, as of December 31, 2016. Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties. (Amounts in thousands) Amortized cost maturity: One year or less After one year through five years After five years through ten years After ten years Amortized cost Mortgage-backed securities Equity securities Total amortized cost Fair value maturity: One year or less After one year through five years After five years through ten years After ten years Fair value Mortgage-backed securities Equity securities Total fair value U.S. Agency Securities Municipal Securities Corporate Notes Total $ $ $ $ — 1 — 1,341 1,342 $ 1,135 1,035 88,449 21,040 $111,659 — 1 — 1,344 1,345 $ 1,141 1,059 90,360 20,771 $113,331 $ $ $ $ — — — 22,104 22,104 — — — 19,939 19,939 $ 1,135 1,036 88,449 44,485 135,105 31,290 55 $166,450 $ 1,141 1,060 90,360 42,054 134,615 30,891 73 $165,579 The following tables present the amortized cost and fair value of held-to-maturity securities, including gross unrealized gains and losses, as of the dates indicated: (Amounts in thousands) U.S. Agency securities Corporate securities Total securities held to maturity (Amounts in thousands) U.S. Agency securities Municipal securities Corporate securities Total securities held to maturity December 31, 2016 Amortized Cost $ 36,741 10,392 $ 47,133 Unrealized Gains $ $ 124 11 135 Unrealized Losses $ — (2) (2) $ Fair Value $36,865 10,401 $47,266 Amortized Cost $ 61,863 190 10,488 $ 72,541 December 31, 2015 Unrealized Gains $ 75 3 — 78 $ Unrealized Losses $ (106) — (23) (129) $ Fair Value $61,832 193 10,465 $72,490 22 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following table presents the amortized cost and fair value of held-to-maturity securities, by contractual maturity, as of December 31, 2016. Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties. (Amounts in thousands) Amortized cost maturity: One year or less After one year through five years After five years through ten years After ten years Total amortized cost Fair value maturity: One year or less After one year through five years After five years through ten years After ten years Total fair value U.S. Agency Securities $ 18,756 17,985 — — $ 36,741 $ 18,768 18,097 — — $ 36,865 Corporate Notes Total $ $ $ $ 3,095 7,297 — — 10,392 3,096 7,305 — — 10,401 $21,851 25,282 — — $47,133 $21,864 25,402 — — $47,266 23 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following tables present municipal securities, by state, for the states where the largest volume of these securities are held in the Company’s portfolio. The tables also present the amortized cost and fair value of the municipal securities, including gross unrealized gains and losses, as of the dates indicated. (Amounts in thousands) New York Minnesota Wisconsin Ohio Massachusetts New Jersey Connecticut Texas Iowa Other Total (Amounts in thousands) New York Minnesota Wisconsin Ohio Connecticut New Jersey Massachusetts Texas Other Total Percent of Municipal Portfolio 11.66% 9.70% 8.66% 8.50% 8.45% 7.14% 6.90% 6.55% 5.66% 26.78% 100.00% Percent of Municipal Portfolio 11.38% 8.72% 8.69% 8.38% 7.76% 7.69% 7.60% 6.04% 5.03% 28.71% 100.00% 24 Amortized Cost 12,876 $ 10,796 9,786 9,599 9,355 7,891 7,628 7,397 6,467 29,864 111,659 $ Amortized Cost 14,062 $ 11,011 10,797 10,416 9,786 9,554 9,479 7,651 6,471 35,843 125,070 $ December 31, 2016 Unrealized Gains 334 $ 232 74 125 229 202 190 130 36 706 2,258 $ December 31, 2015 Unrealized Gains 602 $ 283 420 388 217 378 315 208 75 1,272 4,158 $ $ $ Unrealized Losses $ Unrealized Losses $ — (40) (42) (88) (10) — — (103) (88) (215) (586) — (64) (14) — (5) (22) — (75) (60) (117) (357) Fair Value $ 13,210 10,988 9,818 9,636 9,574 8,093 7,818 7,424 6,415 30,355 $113,331 Fair Value $ 14,664 11,230 11,203 10,804 9,998 9,910 9,794 7,784 6,486 36,998 $128,871 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following tables present the fair values and unrealized losses for available-for-sale securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of the dates indicated: (Amounts in thousands) Municipal securities Single issue trust preferred securities Mortgage-backed Agency securities Total (Amounts in thousands) U.S. Agency securities Municipal securities Single issue trust preferred securities Corporate securities Mortgage-backed Agency securities Total Less than 12 Months Fair Value $ 24,252 $ Losses Unrealized — 12,834 $ 37,086 $ (527) — (166) (693) December 31, 2016 12 Months or Longer Fair Value Losses Unrealized Total Unrealized Losses Fair Value 715 $ (59) $ (2,165) 19,939 11,851 (299) $ 32,505 $ (2,523) (586) $ 24,967 $ (2,165) 19,939 24,685 (465) $ 69,591 $ (3,216) Less than 12 Months Fair Value Unrealized Losses December 31, 2015 12 Months or Longer Fair Value Losses Unrealized $ 4,441 $ 8,126 — 70,333 27,050 $109,950 $ (5) (48) — (238) (253) (544) $ 23,922 $ (746) 10,393 (309) 47,832 (8,050) — — (922) 37,291 $119,438 $ (10,027) Total Unrealized Losses Fair Value $ 28,363 $ (751) 18,519 (357) 47,832 (8,050) 70,333 (238) (1,175) 64,341 $229,388 $ (10,571) The following tables present the fair values and unrealized losses for held-to-maturity securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of the dates indicated: (Amounts in thousands) Corporate securities Total (Amounts in thousands) U.S. Agency securities Corporate securities Total Unrealized Losses Less than 12 Months Fair Value $3,533 $3,533 $ $ (2) (2) December 31, 2016 12 Months or Longer Fair Unrealized Value $ — $ — — — Losses $ $ Total Fair Value $3,533 $3,533 Unrealized Losses $ $ (2) (2) Unrealized Less than 12 Months Fair Value $43,723 $ 6,851 $50,574 $ Losses (106) (23) (129) December 31, 2015 12 Months or Longer Fair Unrealized Value $ — $ — $ — $ Losses Fair Value — $43,723 $ — — $50,574 $ 6,851 Losses (106) (23) (129) Total Unrealized There were 82 individual securities in an unrealized loss position as of December 31, 2016, and their combined depreciation in value represented 1.51% of the investment securities portfolio. These securities included 15 securities in a continuous unrealized loss position for 12 months or longer that the Company does not intend to 25 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) sell, and that it has determined is not more likely than not going to be required to sell, prior to maturity or recovery. There were 107 individual securities in an unrealized loss position as of December 31, 2015, and their combined depreciation in value represented 2.44% of the investment securities portfolio. The Company reviews its investment portfolio quarterly for indications of OTTI. The initial indicator of OTTI for both debt and equity securities is a decline in fair value below book value and the severity and duration of the decline. For debt securities, the credit-related OTTI is recognized as a charge to noninterest income and the noncredit-related OTTI is recognized in OCI. The Company incurred credit-related OTTI charges on debt securities of $4.64 million in 2016 related to the Company’s change in intent to hold certain securities to recovery. The intent was changed to sell specific trust preferred securities in the Company’s investment portfolio primarily to reduce credit concentrations with two issuers. The Company incurred credit-related OTTI charges on debt securities of $705 thousand in 2014 related to a non-Agency mortgage-backed security that was sold in November 2014. Temporary impairment on debt securities is primarily related to changes in benchmark interest rates, changes in pricing in the credit markets, and other current economic factors. For equity securities, the OTTI is recognized as a charge to noninterest income. The Company incurred OTTI charges related to equity securities of $11 thousand in 2016 and $32 thousand in 2014. There were no OTTI charges recognized in 2015. The following table presents the changes in credit-related losses recognized in earnings on debt securities where a portion of the impairment was recognized in OCI during the periods indicated: (1) (Amounts in thousands) Beginning balance Additions for credit losses on securities not previously recognized Additions for credit losses on securities previously recognized Reduction for securities sold/realized losses Ending balance Year Ended December 31, 2016 $ — 4,646 — (4,646) $ — 2015 $— — — — $— 2014 $ 7,798 — 705 (8,503) $ — (1) The beginning balance includes credit-related losses included in OTTI charges recognized on debt securities in prior periods. The carrying amount of securities pledged for various purposes totaled $139.75 million as of December 31, 2016, and $236.73 million as of December 31, 2015. The following table presents the gross realized gains and losses from the sale of available-for-sale securities for the periods indicated: (Amounts in thousands) Gross realized gains Gross realized losses Net gain (loss) on sale of securities 26 Year Ended December 31, 2015 $ 363 (219) $ 144 2016 $ 757 (422) $ 335 2014 $ 2,257 (3,642) $(1,385) Table of Contents Note 4. Loans FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The Company groups loans held for investment into three segments (commercial loans, consumer real estate loans, and consumer and other loans) with each segment divided into various classes. Covered loans are those loans acquired in FDIC assisted transactions that are covered by loss share agreements. Customer overdrafts reclassified as loans totaled $1.41 million as of December 31, 2016, and $1.24 million as of December 31, 2015. Deferred loan fees totaled $3.90 million in 2016, $3.78 million in 2015, and $3.39 million in 2014. For information about off-balance sheet financing, see Note 20, “Litigation, Commitments, and Contingencies,” to the Consolidated Financial Statements of this report. The following table presents loans, net of unearned income with non-covered loans and by loan class, as of the dates indicated: (Amounts in thousands) Non-covered loans held for investment Commercial loans Construction, development, and other land Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Agricultural Farmland Total commercial loans Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Total consumer real estate loans Consumer and other loans Consumer loans Other Total consumer and other loans Total non-covered loans Total covered loans Total loans held for investment, net of unearned income December 31, 2016 2015 Amount Percent Amount Percent $ 56,948 92,204 134,228 142,965 598,674 6,003 31,729 1,062,751 3.07% 4.98% 7.24% 7.72% 32.31% 0.32% 1.71% 57.35% $ 48,896 88,903 95,026 149,351 485,460 2,911 27,540 898,087 2.86% 5.21% 5.57% 8.75% 28.45% 0.17% 1.61% 52.62% 106,361 500,891 44,535 651,787 5.74% 27.03% 2.41% 35.18% 107,367 495,209 43,505 646,081 6.29% 29.02% 2.55% 37.86% 77,445 3,971 81,416 1,795,954 56,994 $1,852,948 4.18% 0.21% 4.39% 96.92% 3.08% 100.00% 72,000 7,338 79,338 1,623,506 83,035 $1,706,541 4.22% 0.43% 4.65% 95.13% 4.87% 100.00% 27 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following table presents the covered loan portfolio, by loan class, as of the dates indicated: (Amounts in thousands) Covered loans Commercial loans Construction, development, and other land Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Agricultural Farmland Total commercial loans Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Total consumer real estate loans Consumer and other loans Consumer loans Total covered loans December 31, 2016 2015 $ 4,570 895 8 962 7,512 25 397 14,369 35,817 6,729 — 42,546 $ 6,303 1,170 640 2,674 14,065 34 643 25,529 48,565 8,595 262 57,422 79 $56,994 84 $83,035 The Company identifies certain purchased loans as impaired when fair values are established at acquisition and groups those PCI loans into loan pools with common risk characteristics. The Company estimates cash flows to be collected on PCI loans and discounts those cash flows at a market rate of interest. The following table presents the recorded investment and contractual unpaid principal balance of PCI loans, by acquisition, as of the dates indicated: (Amounts in thousands) PCI Loans, by acquisition Peoples Waccamaw Other acquired Total PCI Loans 2016 2015 Recorded Investment Unpaid Principal Balance Recorded Investment December 31, $ $ 5,576 21,758 1,095 28,429 28 $ $ 9,397 45,030 1,121 55,548 $ $ 6,681 34,707 1,254 42,642 Unpaid Principal Balance $ $ 11,249 63,151 1,297 75,697 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following table presents the changes in the accretable yield on PCI loans, by acquisition, during the periods indicated: (Amounts in thousands) Balance January 1, 2014 Additions Accretion Reclassifications from nonaccretable difference Other changes, net Balance December 31, 2014 Balance January 1, 2015 Additions Accretion Reclassifications from nonaccretable difference Other changes, net Balance December 31, 2015 Balance January 1, 2016 Accretion Reclassifications from nonaccretable difference Other changes, net Balance December 31, 2016 Note 5. Credit Quality Waccamaw Peoples $ 5,294 267 (2,147) 1,912 (581) $ 4,745 $ 4,745 — (2,712) 1,283 273 $ 3,589 $ 3,589 (1,237) 287 1,753 $ 4,392 $ 10,338 26 (6,118) 16,400 (1,598) $ 19,048 $ 19,048 2 (6,459) 6,564 6,954 $ 26,109 $ 26,109 (5,380) 1,620 (515) $ 21,834 Other $ 8 — (37) 29 — $— $— — — — — $— $— — — — $— Total $15,640 293 (8,302) 18,341 (2,179) $23,793 $23,793 2 (9,171) 7,847 7,227 $29,698 $29,698 (6,617) 1,907 1,238 $26,226 The Company uses a risk grading matrix to assign a risk grade to each loan in its portfolio. Loan risk ratings may be upgraded or downgraded to reflect current information identified during the loan review process. The general characteristics of each risk grade are as follows: • • • Pass — This grade is assigned to loans with acceptable credit quality and risk. The Company further segments this grade based on borrower characteristics that include capital strength, earnings stability, liquidity, leverage, and industry conditions. Special Mention — This grade is assigned to loans that require an above average degree of supervision and attention. These loans have the characteristics of an asset with acceptable credit quality and risk; however, adverse economic or financial conditions exist that create potential weaknesses deserving of management’s close attention. If potential weaknesses are not corrected, the prospect of repayment may worsen. Substandard — This grade is assigned to loans that have well defined weaknesses that may make payment default, or principal exposure, possible. These loans will likely be dependent on collateral liquidation, secondary repayment sources, or events outside the normal course of business to meet repayment terms. • Doubtful — This grade is assigned to loans that have the weaknesses inherent in substandard loans; however, the weaknesses are so severe that collection or liquidation in full is unlikely based on current facts, conditions, and values. Due to certain specific pending factors, the amount of loss cannot yet be determined. • Loss — This grade is assigned to loans that will be charged off or charged down when payments, including the timing and value of payments, are uncertain. This risk grade does not imply that the asset has no recovery or salvage value, but simply means that it is not practical or desirable to defer writing off, either all or a portion of, the loan balance even though partial recovery may be realized in the future. 29 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following tables present the recorded investment of the loan portfolio, by loan class and credit quality, as of the dates indicated. Losses on covered loans are generally reimbursable by the FDIC at the applicable loss share percentage, 80%; therefore, covered loans are disclosed separately. (Amounts in thousands) Non-covered loans Commercial loans Construction, development, and other land Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Agricultural Farmland Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Consumer and other loans Consumer loans Other Total non-covered loans Covered loans Commercial loans Construction, development, and other land Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Agricultural Farmland Consumer real estate loans Home equity lines Single family owner occupied Consumer and other loans Consumer loans Total covered loans Total loans December 31, 2016 Special Pass Mention Substandard Doubtful Loss Total $ 980 $ 780 $ — $— $ 55,188 $ 87,581 126,468 131,934 579,134 5,839 28,887 3,483 6,992 5,466 10,236 164 1,223 1,137 768 5,565 9,102 — 1,619 — — — 202 — — 3 — — — — — 104,033 475,402 43,833 871 4,636 — 1,457 20,381 702 — 472 — — — — 56,948 92,204 134,228 142,965 598,674 6,003 31,729 106,361 500,891 44,535 77,218 3,971 1,719,488 11 — 34,062 216 — 41,727 — — 674 — — 3 77,445 3,971 1,795,954 2,768 882 — 796 6,423 25 132 803 — — 63 537 — — 999 13 8 103 552 — 265 — — — — — — — — — — — — — — 4,570 895 8 962 7,512 25 397 14,283 4,601 20,763 928 771 1,200 — — — — 35,817 6,729 79 29,989 — 23,094 $1,749,477 $57,156 $ 30 — 3,911 45,638 $ — — 674 $ — — 79 56,994 3 $1,852,948 Table of Contents (Amounts in thousands) Non-covered loans Commercial loans FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) December 31, 2015 Special Pass Mention Substandard Doubtful Loss Total Construction, development, and other land Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Agricultural Farmland Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Consumer and other loans Consumer loans Other Total non-covered loans Covered loans Commercial loans Construction, development, and other land Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Agricultural Farmland Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Consumer and other loans Consumer loans Total covered loans Total loans $ 46,816 $ 87,223 81,168 139,680 454,906 2,886 25,855 974 $ 663 12,969 3,976 15,170 25 1,427 1,106 $ — $— $ 1,017 889 5,695 15,384 — 258 — — — — — — — — — — — — 104,897 468,155 42,783 1,083 6,686 — 1,387 20,368 722 — — — — — — 48,896 88,903 95,026 149,351 485,460 2,911 27,540 107,367 495,209 43,505 71,685 7,338 1,533,392 61 — 43,034 254 — 47,080 — — — — — — 72,000 7,338 1,623,506 3,908 1,144 460 1,808 9,192 34 364 1,261 4 — 457 2,044 — — 1,134 22 180 409 2,829 — 279 — — — — — — — — — — — — — — 17,893 5,102 112 29,823 1,963 51 849 1,530 99 — — — — — — 6,303 1,170 640 2,674 14,065 34 643 48,565 8,595 262 84 40,101 — 35,603 $1,573,493 $78,637 $ 84 — 7,331 83,035 54,411 $ — $— $1,706,541 — — — — The Company identifies loans for potential impairment through a variety of means, including, but not limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information. If the Company determines that it is probable all principal and interest amounts contractually due will not be collected, the loan is generally deemed impaired. 31 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following table presents the recorded investment, unpaid principal balance, and related allowance for loan losses for impaired loans, excluding PCI loans, as of the dates indicated: (Amounts in thousands) Impaired loans with no related allowance Commercial loans Construction, development, and other land Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Agricultural Farmland Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Consumer and other loans Consumer loans Other Total impaired loans with no allowance Impaired loans with a related allowance Commercial loans Single family non-owner occupied Non-farm, non-residential Farmland Consumer real estate loans Single family owner occupied Owner occupied construction Total impaired loans with an allowance Total impaired loans (1) December 31, 2016 December 31, 2015 Recorded Investment Unpaid Related Principal Balance Allowance Recorded Investment Unpaid Related Principal Balance Allowance $ 33 $ 346 294 3,084 3,829 — 1,161 35 $ — $ 383 369 3,334 4,534 — 1,188 — — — — — — 57 $ 16 84 2,095 10,369 — 310 57 $ — — 23 — 94 — 2,239 — 11,055 — — — 326 913 11,779 573 968 12,630 589 — — — 868 11,289 243 898 11,996 243 — — — 62 — 22,074 103 — 24,133 — — — 71 — 25,402 74 — 27,005 — — — 351 — 430 351 — 430 31 — 18 619 5,667 — 623 5,673 — 124 1,568 — 4,118 — 4,899 4,174 — 4,955 $ 26,973 $29,088 $ 672 770 7 — 2,371 819 819 $ 36,936 $38,563 $ 2,371 4,899 349 11,534 4,907 355 11,558 (1) Includes loans totaling $16.89 million as of December 31, 2016, and $14.22 million as of December 31, 2015, that do not meet the Company’s evaluation threshold for individual impairment and are therefore collectively evaluated for impairment 32 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following table presents the average recorded investment and interest income recognized on impaired loans, excluding PCI loans, for the periods indicated: (Amounts in thousands) Impaired loans with no related allowance: Commercial loans Construction, development, and other land Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Agricultural Farmland Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Consumer and other loans Consumer loans Total impaired loans with no related allowance Impaired loans with a related allowance: Commercial loans Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Farmland Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Total impaired loans with a related allowance Total impaired loans 2016 Year Ended December 31, 2015 2014 Interest Income Recognized Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Average Recorded Investment $ 22 16 21 178 307 — 55 30 343 9 5 986 — — 23 215 14 — 118 — 370 1,356 $ $ 344 646 308 3,076 8,573 — 437 1,223 12,330 497 60 27,494 — — 518 3,831 108 — 4,452 87 8,996 $ 36,490 $ $ 5 — 4 88 312 — 16 36 356 10 8 835 — — 25 65 — — 26 1 117 952 $ 481 324 269 2,140 11,677 — 195 813 12,708 359 98 29,064 — — 575 4,987 — — 3,731 178 9,471 $ 38,535 $ 8 18 21 60 353 — 6 22 404 5 5 902 47 23 2 31 — 1 48 — 152 1,054 $ $ 607 1,627 162 1,629 8,248 1 315 686 11,486 259 108 25,128 2,199 4,190 369 3,386 — 57 3,897 — 14,098 $ 39,226 The following tables provide information on impaired PCI loan pools as of and for the dates indicated: (Amounts in thousands, except impaired loan pools) Unpaid principal balance Recorded investment Allowance for loan losses related to PCI loan pools Impaired PCI loan pools (Amounts in thousands) Interest income recognized Average recorded investment 33 December 31, 2016 $1,086 1,085 12 1 2015 $3,759 2,834 54 2 Year Ended December 31, 2016 $ 142 1,929 2015 $ 364 3,309 2014 $ 3,081 30,007 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The Company generally places a loan on nonaccrual status when it is 90 days or more past due. PCI loans are generally not classified as nonaccrual due to the accrual of interest income under the accretion method of accounting. The following table presents nonaccrual loans, by loan class, as of the dates indicated: (Amounts in thousands) Commercial loans Construction, development, and other land Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Farmland Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Consumer and other loans Consumer loans Total nonaccrual loans 2016 2015 December 31, Non-covered Covered Total Non-covered Covered Total $ 72 $ 332 294 1,242 3,295 1,591 32 $ 13 — 24 30 — 104 $ 345 294 1,266 3,325 1,591 39 $ — 84 1,850 7,150 234 54 $ 16 — 29 39 — 93 16 84 1,879 7,189 234 705 7,924 336 400 109 — 1,105 8,033 336 825 7,245 349 413 96 — 1,238 7,341 349 63 — 63 $ 15,854 $ 608 $16,462 $ 71 71 — 17,847 $ 647 $18,494 34 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following tables present the aging of past due loans, by loan class, as of the dates indicated. Nonaccrual loans 30 days or more past due are included in the applicable delinquency category. Loans acquired with credit deterioration, with a discount, continue to accrue interest based on expected cash flows; therefore, PCI loans are not generally considered nonaccrual. There were no non-covered accruing loans contractually past due 90 days or more as of December 31, 2016, or December 31, 2015. (Amounts in thousands) Non-covered loans Commercial loans Construction, development, and other land Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Agricultural Farmland Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Consumer and other loans Consumer loans Other Total non-covered loans Covered loans Commercial loans Construction, development, and other land Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Agricultural Farmland Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Consumer and other loans Consumer loans Total covered loans Total loans 30 - 59 Days Past Due 60 - 89 Days Past Due 90+ Days Past Due Total Past Due Current Loans Total Loans December 31, 2016 $ 33 $ 174 163 1,302 1,235 — 224 78 4,777 342 371 — 8,699 434 — — 24 32 — — 108 58 — — 656 9,355 $ $ 35 5 $ 30 — 159 332 5 343 17 $ 149 281 835 2,169 — 565 55 $ 353 444 2,296 3,736 5 1,132 56,893 $ 91,851 133,784 140,669 594,938 5,998 30,597 136 2,408 336 658 3,311 — 872 10,496 678 105,489 490,395 43,857 56,948 92,204 134,228 142,965 598,674 6,003 31,729 106,361 500,891 44,535 90 — 3,844 15 — 8,000 476 — 20,543 76,969 3,971 1,775,411 77,445 3,971 1,795,954 — — — — — — — 146 — — 32 — — — — — — 466 — — 24 32 — — 62 39 — 316 97 — 4,104 895 8 938 7,480 25 397 35,501 6,632 — 4,570 895 8 962 7,512 25 397 35,817 6,729 — — 146 — 133 79 56,994 3,990 $ 8,133 $21,478 $1,831,470 $1,852,948 — 935 79 56,059 Table of Contents (Amounts in thousands) Non-covered loans Commercial loans FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) 30 - 59 Days Past Due 60 - 89 Days Past Due December 31, 2015 Total Past Due 90+ Days Past Due Current Loans Total Loans Construction, development, and other land Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Agricultural Farmland $ — $ 281 302 748 347 — 585 Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Consumer and other loans Consumer loans Other Total non-covered loans Covered loans Commercial loans Construction, development, and other land Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Agricultural Farmland Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Consumer and other loans Consumer loans Total covered loans Total loans 668 6,122 — 278 — 9,331 96 — — 1,422 — — — 489 274 — — 2,281 $ 11,612 $ 36 39 $ — $ 66 76 120 676 — 11 — 84 929 4,940 — 234 39 $ 347 462 1,797 5,963 — 830 48,857 $ 88,556 94,564 147,554 479,497 2,911 26,710 195 1,943 — 468 3,191 — 1,331 11,256 — 106,036 483,953 43,505 48,896 88,903 95,026 149,351 485,460 2,911 27,540 107,367 495,209 43,505 71 — 3,158 23 — 9,908 372 — 22,397 71,628 7,338 1,601,109 72,000 7,338 1,623,506 — — — — — — — 37 — — 42 16 — — 39 — — 138 16 — 1,422 39 — — 225 42 — 751 316 — 6,165 1,154 640 1,252 14,026 34 643 47,814 8,279 262 6,303 1,170 640 2,674 14,065 34 643 48,565 8,595 262 — 37 — 364 84 83,035 3,195 $10,272 $25,079 $1,681,462 $1,706,541 — 2,682 84 80,353 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The Company may make concessions in interest rates, loan terms and/or amortization terms when restructuring loans for borrowers experiencing financial difficulty. Restructured loans in excess of $250 thousand are evaluated for a specific reserve based on either the collateral or net present value method, whichever is most applicable. Restructured loans under $250 thousand are subject to the reserve calculation at the historical loss rate for classified loans. Certain TDRs are classified as nonperforming at the time of restructuring and are returned to performing status after six months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs. PCI loans are generally not considered TDRs as long as the loans remain in the assigned loan pool. No covered loans were recorded as TDRs as of December 31, 2016, or December 31, 2015. The following table presents loans modified as TDRs, by loan class and accrual status, as of the dates indicated: (Amounts in thousands) Commercial loans Single family non-owner occupied Non-farm, non-residential Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Total TDRs Allowance for loan losses related to TDRs Nonaccrual (1) 2016 Accruing Total Nonaccrual (1) 2015 Accruing Total December 31, $ $ 38 $ — 892 $ 930 $ 4,160 4,160 130 $ — 820 $ 950 4,600 4,600 — 905 341 158 7,503 239 1,284 $12,952 $14,236 $ 158 8,408 580 $ 670 127 733 349 43 8,256 243 170 8,989 592 1,339 $13,962 $15,301 590 $ (1) Nonaccrual TDRs are included in total nonaccrual loans disclosed in the nonaccrual table above. The following table presents interest income recognized on TDRs for the periods indicated: (Amounts in thousands) Interest income recognized 37 Year Ended December 31, 2016 $424 2015 $608 2014 $597 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following table presents loans modified as TDRs, by type of concession made and loan class, that were restructured during the periods indicated. The post- modification recorded investment represents the loan balance immediately following modification. Year Ended December 31, (Amounts in thousands) Below market interest rate and extended payment term Single family owner occupied Total 2016 Pre- Modification Recorded Investment Total Contracts 1 $ 1 $ 115 $ 115 $ Post- Modification Recorded Investment 115 115 Total Contracts 2015 Pre- Modification Recorded Investment 5 $ 5 $ 342 $ 342 $ Post- Modification Recorded Investment 342 342 There were no payment defaults on loans modified as TDRs that were restructured within the previous 12 months as of December 31, 2016 and 2015. The following table provides information about OREO, which consists of properties acquired through foreclosure, as of the dates indicated: December 31, (Amounts in thousands) Non-covered OREO Covered OREO Total OREO Non-covered OREO secured by residential real estate Residential real estate loans in the foreclosure process (1) 2016 276 2015 $5,109 $4,873 4,034 $5,385 $8,907 $1,746 $2,677 2,727 2,539 (1) The recorded investment in consumer mortgage loans collateralized by residential real estate that are in the process of foreclosure according to local requirements of the applicable jurisdiction. 38 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Note 6. Allowance for Loan Losses The following tables present the changes in the allowance for loan losses, by loan segment, during the periods indicated: (Amounts in thousands) Allowance, excluding PCI Beginning balance Provision for loan losses charged to operations Charge-offs Recoveries Net charge-offs Ending balance PCI allowance Beginning balance Recovery of loan losses Benefit attributable to the FDIC indemnification asset Recovery of loan losses charged to operations Recovery of loan losses recorded through the FDIC indemnification asset Ending balance Total allowance Beginning balance Provision for loan losses Benefit attributable to the FDIC indemnification asset Provision for loan losses charged to operations Recovery of loan losses recorded through the FDIC indemnification asset Charge-offs Recoveries Net charge-offs Ending balance 39 Commercial $ 13,133 30 (2,392) 919 (1,473) $ 11,690 $ $ — — — — — — $ 13,133 30 — 30 — (2,392) 919 (1,473) $ 11,690 Year Ended December 31, 2016 Consumer Real Estate Consumer and Other $ $ $ $ $ $ 6,356 385 (1,612) 358 (1,254) 5,487 54 (42) 1 (41) (1) 12 6,410 343 1 344 (1) (1,612) 358 (1,254) 5,499 $ 690 881 (1,172) 360 (812) 759 $ $ — — — — — $ — $ 690 881 — 881 — (1,172) 360 (812) 759 $ Total Allowance $ 20,179 1,296 (5,176) 1,637 (3,539) $ 17,936 $ $ 54 (42) 1 (41) (1) 12 $ 20,233 1,254 1 1,255 (1) (5,176) 1,637 (3,539) $ 17,948 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (Amounts in thousands) Allowance, excluding PCI Beginning balance Provision for loan losses charged to operations Charge-offs Recoveries Net charge-offs Ending balance PCI allowance Beginning balance (Recovery of) provision for loan losses Benefit attributable to the FDIC indemnification asset (Recovery of) provision for loan losses charged to operations Recovery of loan losses recorded through the FDIC indemnification asset Ending balance Total allowance Beginning balance Provision for loan losses Benefit attributable to the FDIC indemnification asset Provision for loan losses charged to operations Recovery of loan losses recorded through the FDIC indemnification asset Charge-offs Recoveries Net charge-offs Ending balance 40 Commercial $ 13,010 931 (1,282) 474 (808) $ 13,133 $ $ 37 (37) 29 (8) (29) — $ 13,047 894 29 923 (29) (1,282) 474 (808) $ 13,133 Year Ended December 31, 2015 Consumer Real Estate Consumer and Other Total Allowance $ $ $ $ $ $ 6,489 95 (906) 678 (228) 6,356 21 33 — 33 — 54 6,510 128 — 128 — (906) 678 (228) 6,410 $ $ $ $ $ $ 670 1,140 (1,557) 437 (1,120) 690 — — — — — — 670 1,140 — 1,140 — (1,557) 437 (1,120) 690 $ 20,169 2,166 (3,745) 1,589 (2,156) $ 20,179 $ $ 58 (4) 29 25 (29) 54 $ 20,227 2,162 29 2,191 (29) (3,745) 1,589 (2,156) $ 20,233 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following tables present the allowance for loan losses and recorded investment in loans evaluated for impairment, excluding PCI loans, by loan class, as of the dates indicated: (Amounts in thousands) Commercial loans Construction, development, and other land Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Agricultural Farmland Total commercial loans Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Total consumer real estate loans Consumer and other loans Consumer loans Other Total consumer and other loans Total loans, excluding PCI loans (Amounts in thousands) Commercial loans Construction, development, and other land Commercial and industrial Multi-family residential Single family non-owner occupied Non-farm, non-residential Agricultural Farmland Total commercial loans Consumer real estate loans Home equity lines Single family owner occupied Owner occupied construction Total consumer real estate loans Consumer and other loans Consumer loans Other Total consumer and other loans Total loans, excluding PCI loans Loans Individually Evaluated for Impairment December 31, 2016 Allowance for Loans Individually Loans Collectively Evaluated for Evaluated Impairment Allowance for Loans Collectively Evaluated $ 889 495 1,157 2,721 6,185 43 151 11,641 895 3,594 228 4,717 $ 60,281 93,099 133,947 139,711 600,915 6,028 31,145 1,065,126 122,000 501,617 44,199 667,816 77,524 3,971 81,495 $1,814,437 759 — 759 $ 17,117 $ — — 281 1,910 1,454 — 981 4,626 — 5,120 336 5,456 — — — $ 10,082 $ $ — — — 31 — — 18 49 — 770 — 770 — — — 819 December 31, 2015 Loans Individually Evaluated for Impairment Allowance for Loans Individually Evaluated Loans Collectively Evaluated for Impairment $ — — — 1,401 14,094 — — 15,495 — 6,874 349 7,223 $ — — — 124 1,568 — — 1,692 — 672 7 679 $ 53,437 89,885 95,486 147,209 478,839 2,945 28,183 895,984 126,691 495,761 43,323 665,775 Allowance for Loans Collectively Evaluated $ 1,119 504 1,535 3,245 4,825 22 190 11,440 1,091 4,297 290 5,678 — — — $ 22,718 — — — 2,371 72,084 7,338 79,422 $1,641,181 690 — 690 $ 17,808 $ 41 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following table presents the allowance for loan losses on PCI loans and recorded investment in PCI loans, by loan pool, as of the dates indicated: (Amounts in thousands) Commercial loans Waccamaw commercial Peoples commercial Other Total commercial loans Consumer real estate loans Waccamaw serviced home equity lines Waccamaw residential Peoples residential Total consumer real estate loans Total PCI loans December 31, 2016 December 31, 2015 Recorded Investment $ 260 4,491 1,095 5,846 20,178 1,320 1,085 22,583 $ 28,429 Allowance for Loan Pools With Impairment $ $ — — — — — — 12 12 12 Recorded Investment $ 3,788 5,525 1,254 10,567 29,241 1,678 1,156 32,075 $ 42,642 Allowance for Loan Pools With Impairment $ $ — — — — — 1 53 54 54 Management believed the allowance was adequate to absorb probable loan losses inherent in the loan portfolio as of December 31, 2016. Note 7. FDIC Indemnification Asset In connection with the FDIC-assisted acquisition of Waccamaw in 2012, the Company entered into loss share agreements with the FDIC that covered $56.99 million of loans and $276 thousand of OREO as of December 31, 2016, compared to $83.04 million of loans and $4.03 million of OREO as of December 31, 2015. Under the loss share agreements, the FDIC agrees to cover 80% of most loan and foreclosed real estate losses and reimburse certain expenses incurred in relation to these covered assets. Loss share coverage will expire June 30, 2017, for commercial loans, with recoveries continuing until June 30, 2019. Loss share coverage will expire June 30, 2022, for single family loans. The Company’s consolidated statements of income include the expense on covered assets net of estimated reimbursements. The following table presents the changes in the FDIC indemnification asset during the periods indicated: (Amounts in thousands) Beginning balance Decrease in estimated losses on covered loans Increase in estimated losses on covered OREO Reimbursable expenses from the FDIC Net amortization Reimbursements from the FDIC Ending balance 42 Year Ended December 31, 2016 $ 20,844 (1) 1,045 162 (5,474) (4,403) $ 12,173 2015 $ 27,900 (28) 1,489 545 (6,379) (2,683) $ 20,844 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Note 8. Premises, Equipment, and Leases Premises and Equipment The following table presents the components of premises and equipment as of the dates indicated: (Amounts in thousands) Land Buildings and leasehold improvements Equipment Total premises and equipment Accumulated depreciation and amortization Total premises and equipment, net December 31, 2016 $ 18,987 46,740 32,519 98,246 (48,161) $ 50,085 2015 $ 19,155 50,776 36,709 106,640 (53,884) $ 52,756 Impairment charges related to certain long-term investments in land and buildings totaled $364 thousand in 2016, $259 thousand in 2015, and $935 thousand in 2014. Depreciation and amortization expense for premises and equipment was $3.56 million in 2016, $4.14 million in 2015, and $4.41 million in 2014. Leases The Company enters into various noncancelable operating leases. The following schedule presents the future minimum lease payments required under noncancelable operating leases, with initial or remaining terms in excess of one year, by year, as of December 31, 2016: (Amounts in thousands) 2017 2018 2019 2020 2021 2022 and thereafter $ 341 199 110 97 97 791 $1,635 Lease expense was $784 thousand in 2016, $862 thousand in 2015, and $1.06 million in 2014. Certain portions of the Company’s leases have been sublet to third parties for properties not currently being used by the Company. Future minimum lease payments to be received under noncancelable subleases totaled $1 thousand as of December 31, 2016. Note 9. Goodwill and Other Intangible Assets Goodwill The company has one reporting unit for goodwill impairment testing purposes – Community Banking. Prior to October 2016, the Company maintained two reporting units — Community Banking and Insurance Services. The Insurance Services reporting unit consisted of the Company’s wholly owned subsidiary Greenpoint, which was sold in October 2016. The Company performed its annual qualitative assessment of goodwill as of October 31, 2016, and concluded that no impairment charge was necessary. No events have occurred after the 2016 analysis to indicate potential impairment. 43 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following table presents the changes in goodwill, by reporting unit, during the periods indicated: (Amounts in thousands) Balance January 1, 2014 Acquisitions and dispositions, net Cash consideration paid Balance December 31, 2014 Balance January 1, 2015 Acquisitions and dispositions, net Cash consideration paid Balance December 31, 2015 Balance January 1, 2016 Acquisitions and dispositions, net Other Balance December 31, 2016 (1) Community Banking $ 96,541 (6,454) 1,368 $ 91,455 $ 91,455 — — $ 91,455 $ 91,455 1,290 3,034 $ 95,779 Insurance Services $ 8,914 — 353 $ 9,267 $ 9,267 (324) 88 $ 9,031 $ 9,031 (5,997) (3,034) $ — Total $105,455 (6,454) 1,721 $100,722 $100,722 (324) 88 $100,486 $100,486 (4,707) — $ 95,779 (1) Represents the transfer of goodwill after the sale of Greenpoint to one reporting unit Other Intangible Assets The Company’s other intangible assets include core deposit and other identifiable intangibles. As of December 31, 2016, the remaining lives of core deposit intangibles ranged from 6 years to 9 years and the weighted average remaining life was 7 years. Other identifiable intangibles consist primarily of the value assigned to contractual rights arising from insurance agency acquisitions. The following table presents the components of other intangible assets, by reporting unit, as of the dates indicated: (Amounts in thousands) Core deposit intangibles Accumulated amortization Core deposit intangibles, net Other identifiable intangibles Accumulated amortization Other identifiable intangibles, net Total other intangible assets, net 2016 Total $11,536 (4,515) 7,021 3,508 (3,322) 186 $ 7,207 December 31, Community Banking $ 12,282 (7,958) 4,324 535 (464) 71 4,395 $ 2015 Insurance Services $ — — — 3,711 (2,863) 848 848 $ Total $12,282 (7,958) 4,324 4,246 (3,327) 919 $ 5,243 44 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Amortization expense for other intangible assets was $1.14 million in 2016, $1.12 million in 2015, and $787 thousand in 2014. The following schedule presents the estimated amortization expense for intangible assets, by year, as of December 31, 2016: (Amounts in thousands) 2017 2018 2019 2020 2021 2022 and thereafter Note 10. Deposits The following table presents the components of deposits as of the dates indicated: (Amounts in thousands) Noninterest-bearing demand deposits Interest-bearing deposits: Interest-bearing demand deposits Money market accounts Savings deposits Certificates of deposit Individual retirement accounts Total interest-bearing deposits Total deposits The following schedule presents the contractual maturities of time deposits, by year, as of December 31, 2016: (Amounts in thousands) 2017 2018 2019 2020 2021 2022 and thereafter 45 $1,029 1,029 1,029 1,029 1,015 2,034 $7,165 December 31, 2016 $ 427,705 2015 $ 451,511 378,339 196,997 326,263 382,503 129,531 1,413,633 $1,841,338 347,705 213,982 316,603 408,519 134,939 1,421,748 $1,873,259 $254,738 88,596 53,400 68,644 44,968 1,688 $512,034 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Time deposits of $250 thousand or more totaled $41.55 million as of December 31, 2016, and $41.35 million as of December 31, 2015. The following schedule presents the contractual maturities of time deposits of $250 thousand or more as of December 31, 2016: (Amounts in thousands) Three months or less Over three through six months Over six through twelve months Over twelve months $ 6,274 2,687 10,890 21,698 $41,549 Note 11. Borrowings The following table presents the components of borrowings as of the dates indicated: (Amounts in thousands) Short-term borrowings Retail repurchase agreements Long-term borrowings Wholesale repurchase agreements Long-term FHLB advances Other borrowings Subordinated debt Other debt Total borrowings December 31, 2016 2015 Balance Weighted Average Rate Balance Weighted Average Rate $ 73,005 0.07% $ 88,614 25,000 65,000 15,464 244 $178,713 3.18% 4.04% 3.65% 50,000 65,000 15,464 292 $219,370 0.10% 3.71% 4.04% 3.23% The following schedule presents the contractual and weighted average maturities of long-term borrowings, by year, as of December 31, 2016: (Amounts in thousands) 2017 2018 2019 2020 2021 2022 and thereafter Weighted average maturity (in years) Wholesale Repurchase Agreements $ $ — — 25,000 — — — 25,000 2.15 FHLB Borrowings $ 15,000 — — — 50,000 — $ 65,000 3.17 Total $15,000 — 25,000 — 50,000 — $90,000 2.89 The FHLB may redeem callable advances at quarterly intervals, which could substantially shorten the advances’ lives. If called, the advance may be paid in full or converted into another FHLB credit product. Prepayment of an advance may result in substantial penalties based on the differential between the contractual note and current advance rate for similar maturities. The Company pledged certain loans to secure FHLB advances and letters of 46 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) credit totaling $1.03 billion as of December 31, 2016. Unused borrowing capacity with the FHLB totaled $558.75 million, net of FHLB letters of credit $75.72 million, as of December 31, 2016. The FHLB letters of credit provide an attractive alternative to pledging securities for public unit deposits. Investment securities pledged to secure repurchase agreements remain under the Company’s control during the agreements’ terms. The counterparties may redeem callable repurchase agreements, which could substantially shorten the borrowings’ lives. The prepayment or unwind of a repurchase agreement may result in substantial penalties based on market conditions. The following schedule presents the contractual maturities of repurchase agreements, by type of collateral pledged, as of December 31, 2016: (Amounts in thousands) Overnight and continuous Up to 30 days 30 — 90 days Greater than 90 days U.S. Agency Securities $18,680 — — — $18,680 Municipal Securities 44,414 $ — — 1,204 45,618 $ Mortgage-backed Agency Securities 7,821 $ — — 25,886 33,707 $ Total $70,915 — — 27,090 $98,005 Subordinated debt consists of $15.46 million of junior subordinated debentures (“Debentures”) the Company issued to the Trust in October 2003 with an interest rate of three-month London InterBank Offered Rate (“LIBOR”) plus 2.95%. The Debentures mature on October 8, 2033, and are callable quarterly. The Trust purchased the Debentures through the issuance of trust preferred securities, which had substantially identical terms as the Debentures. Net proceeds from the offering were contributed as capital to the Bank to support further growth. The Company’s obligations under the Debentures and other relevant Trust agreements, in aggregate, constitute a full and unconditional guarantee of the Trust’s obligations. The preferred securities issued by the Trust are not included in the consolidated balance sheets; however, these securities qualify as Tier 1 capital for regulatory purposes, subject to guidelines issued by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Federal Reserve’s quantitative limits did not prevent the Company from including all $15.46 million in trust preferred securities outstanding in Tier 1 capital as of December 31, 2016 and 2015. On January 9, 2017, the Company redeemed all of its trust preferred securities. In addition, the Company maintains a $15.00 million unsecured, committed line of credit with an unrelated financial institution with an interest rate of one-month LIBOR plus 2.00% and an April 2017 maturity. There was no outstanding balance on the line as of December 31, 2016, or December 31, 2015. Note 12. Derivative Instruments and Hedging Activities As of December 31, 2016, the Company’s derivative instruments consisted of interest rate swaps. Generally, derivative instruments help the Company manage exposure to market risk and meet customer financing needs. Market risk represents the possibility that fluctuations in external factors such as interest rates, market- driven loan rates, prices, or other economic factors will adversely affect economic value or net interest income. The Company uses interest rate swap contracts to modify its exposure to interest rate risk caused by changes in the LIBOR curve in relation to certain designated fixed rate loans. These instruments are used to convert these fixed rate loans to an effective floating rate. If the LIBOR rate falls below the loan’s stated fixed rate for a given period, the Company will owe the floating rate payer the notional amount times the difference between LIBOR 47 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) and the stated fixed rate. If LIBOR is above the stated rate for a given period, the Company will receive payments based on the notional amount times the difference between LIBOR and the stated fixed rate. The Company’s interest rate swaps qualify as fair value hedging instruments; therefore, fair value changes in the derivative and hedged item attributable to the hedged risk are recognized in earnings in the same period. The Company’s interest rate swaps include a fourteen-year, $1.20 million notional interest rate swap agreement entered into in March 2015 and a fifteen-year, $4.37 million notional interest rate swap agreement entered into in February 2014. The swap agreements, which are accounted for as fair value hedges, and the loans hedged by the agreements are recorded at fair value. The fair value hedges were effective as of December 31, 2016. The following table presents the notional, or contractual, amounts and fair values of derivative instruments as of the dates indicated: (Amounts in thousands) Derivatives designated as hedges Interest rate swaps Total derivatives 2016 2015 December 31, Notional or Contractual Amount Derivative Assets Derivative Liabilities Notional or Contractual Amount Derivative Assets Derivative Liabilities $ $ 4,835 4,835 $ — $ — $ $ 167 167 $ $ 5,151 5,151 $ — $ — $ $ 251 251 The following table presents the effect of derivative and hedging activity, if applicable, on the consolidated statements of income for the periods indicated: (Amounts in thousands) Derivatives designated as hedges Interest rate swaps Total derivatives Year Ended December 31, 2015 2016 2014 $ 116 $ 116 $ 122 $ 122 $ 162 $ 162 48 Income Statement Location Interest and fees on loans Table of Contents Note 13. Employee Benefit Plans Defined Benefit Plans FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The Company maintains two nonqualified domestic, noncontributory defined benefit plans (the “Benefit Plans”) for key members of senior management and non-management directors. The Company’s unfunded Benefit Plans include the Supplemental Executive Retention Plan (“SERP”) and the Directors’ Supplemental Retirement Plan (“Directors’ Plan”). The SERP provides for a defined benefit, at normal retirement age, targeted at 35% of the participant’s projected final average compensation, subject to a defined maximum annual benefit. Benefits under the SERP generally become payable at age 62. The Directors’ Plan provides for a defined benefit, at normal retirement age, up to 100% of the participant’s highest consecutive three-year average compensation. Benefits under the Directors’ Plan generally become payable at age 70. The following table presents the changes in the aggregate actuarial benefit obligation during the periods indicated: (Amounts in thousands) Beginning balance Plan change Service cost Interest cost Actuarial loss Benefits paid Ending balance December 31, 2016 $8,390 69 184 382 367 (211) $9,181 2015 $7,631 — 180 334 363 (118) $8,390 The following table presents the components of net periodic pension cost and the assumed discount rate for the periods indicated: (Amounts in thousands, except discount rate) Service cost Interest cost Amortization of prior service cost Amortization of losses Net periodic cost Assumed discount rate Year Ended December 31, 2015 $ 180 334 260 66 $ 840 4.62% 2016 $ 184 382 226 47 $ 839 4.22% 2014 $ 128 336 260 — $ 724 4.41% The following schedule presents the projected benefit payments to be paid under the Benefit Plans, by year, as of December 31, 2016: (Amounts in thousands) 2017 2018 2019 2020 2021 2022 through 2026 49 $ 465 462 458 529 587 2,937 Table of Contents Employee Welfare Plan FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The Company provides various medical, dental, vision, life, accidental death and dismemberment, and long-term disability insurance benefits to all full-time employees who elect coverage under this program. A third-party administrator manages the health plan. Monthly employer and employee contributions are made to a tax-exempt employee benefits trust where the third-party administrator processes and pays claims. As of December 31, 2016, stop-loss insurance coverage generally limits the Company’s risk of loss to $125 thousand for individual claims and $3.92 million for aggregate claims. Expenses related to the health plan totaled $3.48 million in 2016, $3.06 million in 2015, and $2.88 million in 2014. Deferred Compensation Plan The Company maintains deferred compensation agreements with certain current and former officers that provide benefit payments, over various periods, commencing at retirement or death. Accrued benefits are based on the present values of expected payments and estimated life expectancies and totaled $458 thousand as of December 31, 2016 and 2015. Expenses related to the deferred compensation plan totaled $60 thousand in each of the three years ended December 31, 2016. Employee Stock Ownership and Savings Plan The Company maintains the Employee Stock Ownership and Savings Plan (“KSOP”) that consists of a 401(k) savings feature that covers all employees that meet minimum eligibility requirements. The Company matches employee contributions at levels determined by the Board of Directors annually. These contributions are made in the first quarter following each plan year and employees must be employed on the last day of the plan year to be eligible. Matching contributions to qualified deferrals under the 401(k) savings component of the KSOP totaled $1.50 million in 2016, $1.53 million in 2015, and $1.58 million in 2014. The KSOP held 410,384 shares of the Company’s common stock as of December 31, 2016, 428,785 shares as of December 31, 2015, and 457,765 shares as of December 31, 2014. Substantially all plan assets are invested in the Company’s common stock. Equity-Based Compensation Plans The Company maintains equity-based compensation plans to promote the long-term success of the Company by encouraging officers, employees, directors, and other individuals performing services for the Company to focus on critical long-range objectives. The Company’s equity-based compensation plans include the 2012 Omnibus Equity Compensation Plan (“2012 Plan”), 2004 Omnibus Stock Option Plan, 2001 Director’s Option Plan, 1999 Stock Option Plan, and various other plans obtained through acquisitions. As of December 31, 2016, the 2012 Plan was the only plan available for the issuance of future grants. All plans issued or obtained before the 2012 Plan are frozen and no new grants may be issued; however, any options or awards unexercised and outstanding under those plans remain in effect per their respective terms. The 2012 Plan authorized 600,000 shares available for potential grants of incentive stock options, nonqualified stock options, performance awards, restricted stock, restricted stock units, stock appreciation rights, bonus stock, and stock awards. Grants issued under the 2012 Plan state the period of time the grant may be exercised, not to exceed more than ten years from the date granted. The Company’s Compensation and Retirement Committee determines the vesting period for each grant; however, if no vesting period is specified the vesting occurs in 25% increments on the first four anniversaries of the grant date. 50 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following table presents the pre-tax compensation expense and excess tax benefit recognized in earnings for all equity-based compensation plans for the periods indicated: (Amounts in thousands) Pre-tax compensation expense Excess tax benefit Stock Options Year Ended December 31, 2016 $ 209 174 2015 $ 110 8 2014 $ 332 5 The following table presents stock option activity and related information for the year ended December 31, 2016: (Amounts in thousands, except share and per share data) Outstanding, January 1, 2016 Granted Exercised Canceled Outstanding, December 31, 2016 Exercisable, December 31, 2016 Option Shares 236,404 32,768 (43,463) (25,313) 200,396 167,628 Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value $ $ $ 20.17 20.15 17.26 28.56 19.73 19.65 6.1 5.5 $ 2,123 $ 1,790 The following table presents the total options granted and the weighted average assumptions used to estimate the fair value of those options during the periods indicated: Stock options granted Grant-date fair value per share Volatility Risk-free rate Expected dividend yield Expected term (in years) Year Ended December 31, 2016 $32,768 10.16 25.04% 1.56% 3.09% 6.50 2015 $— — — — — — 2014 $— — — — — — The intrinsic value of options exercised totaled $434 thousand in 2016, $20 thousand in 2015, and $13 thousand in 2014. As of December 31, 2016, unrecognized compensation cost related to nonvested stock options was $101 thousand with an expected weighted average recognition period of 1.11 years. The actual compensation cost recognized might differ from this estimate due to various items, including new grants and changes in estimated forfeitures. 51 Table of Contents Restricted Stock Awards FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following table presents restricted stock activity and related information for the year ended December 31, 2016: Nonvested, January 1, 2016 Granted Vested Canceled Nonvested, December 31, 2016 Shares 5,327 46,033 (21,533) (2,024) 27,803 Weighted Average Grant-Date Fair Value $ $ 16.85 19.97 17.90 19.27 20.59 As of December 31, 2016, unrecognized compensation cost related to nonvested restricted stock awards was $447 thousand with an expected weighted average recognition period of 2.03 years. The actual compensation cost recognized might differ from this estimate due to various items, including new awards granted and changes in estimated forfeitures. Performance Stock Awards Performance stock awards represent restricted stock that may be issuable in the future if specific performance criteria are met. The following table presents performance stock activity and related information for the year ended December 31, 2016: Nonvested, January 1, 2016 Granted Vested Canceled Nonvested, December 31, 2016 Shares 9,848 — (9,848) — — Weighted Average Grant-Date Fair Value $ $ 15.83 — 15.83 — — As of December 31, 2016, there was no unrecognized compensation cost related to nonvested performance stock awards. The actual compensation cost recognized might differ from this estimate due to various items, including new awards granted, changes in estimated forfeitures, and resolution of performance contingencies. 52 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Note 14. Other Operating Income and Expense The following table presents the components of other operating income and expense for the periods indicated: (Amounts in thousands) Other operating income Bank owned life insurance Other (1) Total other operating income Other operating expense Service fees ATM processing expenses Telephone and data communications Advertising and public relations Professional fees OREO expense and net loss Office supplies Other (1) Total other operating expense Year Ended December 31, 2015 2014 2016 $ 955 2,254 $ 3,209 $ 1,971 2,158 $ 4,129 $ 3,641 2,024 1,598 1,532 1,501 1,420 1,220 7,011 $19,947 $ 3,401 2,407 1,595 1,309 1,272 2,438 1,228 7,461 $21,111 $ 1,587 2,768 $ 4,355 $ 3,856 2,102 1,715 1,001 1,436 2,094 1,514 8,524 $22,242 (1) Other components of other operating income or expense that do not exceed 1% of total income. Note 15. Income Taxes Income tax expense is comprised of current and deferred, federal and state income taxes on the Company’s pre-tax earnings. The following table presents the components of the income tax provision for the periods indicated: (Amounts in thousands) Current tax expense (benefit): Federal State Total current tax expense Deferred tax expense (benefit): Federal State Total deferred tax expense (benefit) Total income tax expense 53 Year Ended December 31, 2015 2014 2016 $13,634 675 14,309 $ (254) 581 327 $ 7,234 1,325 8,559 (1,480) (10) (1,490) $12,819 10,034 1,020 11,054 $11,381 2,971 794 3,765 $12,324 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The Company’s effective tax rate, income tax as a percent of pre-tax income, may vary significantly from the statutory rate due to permanent differences and available tax credits. Permanent differences are income and expense items excluded by law in the calculation of taxable income. The Company’s most significant permanent differences generally include interest income on municipal securities and increases in the cash surrender value of life insurance policies. The following table reconciles the Company’s income tax expense to the amount computed by applying the federal statutory tax rate to pre-tax income for the periods indicated: (Amounts in thousands) Income tax at the federal statutory rate State income taxes, net of federal benefit Increase (decrease) resulting from: Tax-exempt interest income Nondeductible goodwill Bank owned life insurance Other items, net Income tax at the effective tax rate 2016 Year Ended December 31, 2015 2014 Amount $13,281 598 13,878 Amount Percent 35.00% $12,572 639 1.58% 13,212 36.58% Amount Percent 35.00% $13,235 1,006 1.78% 14,241 36.78% Percent 35.00% 2.66% 37.66% (1,336) 340 (335) 271 $12,819 (1,463) -3.52% — 0.89% (690) -0.88% 0.71% 322 33.78% $11,381 (1,645) -4.07% — — (555) -1.92% 0.89% 283 31.68% $12,324 -4.35% — -1.47% 0.75% 32.59% Deferred taxes derived from continuing operations reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for tax purposes. The following table presents the significant components of the net deferred tax asset as of the dates indicated: (Amounts in thousands) Deferred tax assets Allowance for loan losses Unrealized losses on available-for-sale securities Unrealized asset losses Purchase accounting FDIC assisted transactions Intangible assets Deferred compensation assets Deferred loan fees Other deferred tax assets Total deferred tax assets Deferred tax liabilities FDIC indemnification asset Fixed assets Odd days interest deferral Other Total deferred tax liabilities Net deferred tax asset December 31, 2016 2015 $ 6,644 326 913 5,384 6,540 4,062 4,669 1,979 825 31,342 11,927 2,042 1,283 347 15,599 $15,743 $ 7,741 2,331 1,506 5,014 6,551 4,082 4,529 1,402 1,181 34,337 13,162 2,658 1,975 347 18,142 $16,195 The Company had no unrecognized tax benefits or accrued interest and penalties as of December 31, 2016 or 2015. 54 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Note 16. Accumulated Other Comprehensive Income The following table presents the changes in AOCI, net of tax and by component, during the periods indicated: (Amounts in thousands) Balance January 1, 2014 Other comprehensive income (loss) before reclassifications Reclassified from AOCI Other comprehensive income (loss), net Balance December 31, 2014 Balance January 1, 2015 Other comprehensive income (loss) before reclassifications Reclassified from AOCI Other comprehensive income (loss), net Balance December 31, 2015 Balance January 1, 2016 Other comprehensive income (loss) before reclassifications Reclassified from AOCI Other comprehensive income (loss), net Balance December 31, 2016 Unrealized Gains (Losses) on Available-for-Sale Securities $ $ $ $ $ $ 55 (13,640) 8,051 1,323 9,374 (4,266) (4,266) 471 (90) 381 (3,885) (3,885) 647 2,694 3,341 (544) Employee Benefit Plans $ (1,100) (401) 162 (239) $ (1,339) $ (1,339) (226) 203 (23) $ (1,362) $ (1,362) (276) 171 (105) $ (1,467) Total $ (14,740) 7,650 1,485 9,135 $ (5,605) $ (5,605) 245 113 358 $ (5,247) $ (5,247) 371 2,865 3,236 $ (2,011) Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following table presents reclassifications out of AOCI, by component, during the periods indicated: (Amounts in thousands) Available-for-sale securities (Gains) losses recognized OTTI recognized Reclassified out of AOCI, before tax Income tax (expense) benefit Reclassified out of AOCI, net of tax Employee benefit plans Amortization of prior service cost Amortization of net actuarial loss Reclassified out of AOCI, before tax Income tax expense Reclassified out of AOCI, net of tax Total reclassified out of AOCI, net of tax Year Ended December 31, 2016 2015 2014 Income Statement Line Item Affected (335) (144) 1,385 Net gain (loss) on sale of securities 737 Net impairment losses recognized in earnings 4,646 — 4,311 (144) 2,122 Income before income taxes (1,617) 2,694 54 (90) 1,323 Net income (799) Income tax expense 260 (1) 66 — (1) 226 260 47 273 326 (102) (123) 171 203 260 Income before income taxes (98) Income tax expense 162 Net income $ 2,865 $ 113 $1,485 Net income (1) Amortization is included in net periodic pension cost. See Note 13, “Employee Benefit Plans” Note 17. Fair Value Financial Instruments Measured at Fair Value The following discussion describes the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments under the valuation hierarchy. Assets and Liabilities Reported at Fair Value on a Recurring Basis Available-for-Sale Securities . Securities available for sale are reported at fair value on a recurring basis. The fair value of Level 1 securities is based on quoted market prices in active markets, if available. The Company also uses Level 1 inputs to value equity securities that are traded in active markets. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are primarily derived from or corroborated by observable market data. Level 2 securities use fair value measurements from independent pricing services obtained by the Company. These fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and bond terms and conditions. The Company’s Level 2 securities include Treasury securities, single issue trust preferred securities, corporate securities, mortgage-backed securities, and certain equity securities that are not actively traded. Securities are based on Level 3 inputs when there is limited activity or less transparency to the valuation inputs. In the absence of observable or corroborated market data, internally developed estimates that incorporate market-based assumptions are used when such information is available. Fair value models may be required when trading activity has declined significantly or does not exist, prices are not current, or pricing variations are significant. For Level 3 securities, the Company obtains the cash flow of 56 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) specific securities from third parties that use modeling software to determine cash flows based on market participant data and knowledge of the structures of each individual security. The fair values of Level 3 securities are determined by applying proper market observable discount rates to the cash flow derived from third- party models. Discount rates are developed by determining credit spreads above a benchmark rate, such as LIBOR, and adding premiums for illiquidity, which are based on a comparison of initial issuance spread to LIBOR versus a financial sector curve for recently issued debt to LIBOR. Securities with increased uncertainty about the receipt of cash flows are discounted at higher rates due to the addition of a deal specific credit premium based on assumptions about the performance of the underlying collateral. Finally, internal fair value model pricing and external pricing observations are combined by assigning weights to each pricing observation. Pricing is reviewed for reasonableness based on the direction of specific markets and the general economic indicators. Loans Held for Investment . Loans held for investment are reported at fair value using discounted future cash flows that apply current interest rates for loans with similar terms and borrower credit quality. Loans related to fair value hedges are recorded at fair value on a recurring basis. Deferred Compensation Assets and Liabilities . Securities held for trading purposes are recorded at fair value on a recurring basis and included in other assets in the consolidated balance sheets. These securities include assets related to employee deferred compensation plans, which are generally invested in Level 1 equity securities. The liability associated with these deferred compensation plans is carried at the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets. Derivative Assets and Liabilities . Derivatives are recorded at fair value on a recurring basis. The Company obtains dealer quotes, Level 2 inputs, based on observable data to value derivatives. The following tables summarize financial assets and liabilities recorded at fair value on a recurring basis, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated: December 31, 2016 (Amounts in thousands) Available-for-sale securities U.S. Agency securities Municipal securities Single issue trust preferred securities Mortgage-backed Agency securities Equity securities Total available-for-sale securities Fair value loans Deferred compensation assets Deferred compensation liabilities Derivative liabilities Total Fair Value $ 1,345 113,331 19,939 30,891 73 165,579 4,701 3,224 3,224 167 57 Fair Value Measurements Using Level 2 Level 1 Level 3 $ — — — — 55 55 — 3,224 3,224 — $ 1,345 113,331 19,939 30,891 18 165,524 4,701 — — 167 $ — — — — — — — — — — Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (Amounts in thousands) Available-for-sale securities U.S. Agency securities Municipal securities Single issue trust preferred securities Corporate securities Certificates of deposit Mortgage-backed Agency securities Equity securities Total available-for-sale securities Fair value loans Deferred compensation assets Deferred compensation liabilities Derivative liabilities December 31, 2015 Total Fair Value Fair Value Measurements Using Level 1 Level 2 Level 3 $ 30,702 128,678 47,832 70,333 5,000 83,556 72 366,173 4,886 3,464 3,464 251 $ — — — — — — 54 54 — 3,464 3,464 — $ 30,702 128,678 47,832 70,333 5,000 83,556 18 366,119 4,886 — — 251 $ — — — — — — — — — — — — No changes in valuation techniques or transfers into or out of Level 3 of the fair value hierarchy occurred during the years ended December 31, 2016 or 2015. Assets Measured at Fair Value on a Nonrecurring Basis Impaired Loans . Impaired loans are recorded at fair value on a nonrecurring basis when repayment is expected solely from the sale of the loan’s collateral. Fair value is based on appraised value adjusted for customized discounting criteria, Level 3 inputs. The Company maintains an active and robust problem credit identification system. The impairment review includes obtaining third-party collateral valuations to help management identify potential credit impairment and determine the amount of impairment to record. The Company’s Special Assets staff manages and monitors all impaired loans. Internal collateral valuations are generally performed within two to four weeks of identifying the initial potential impairment. The internal valuation compares the original appraisal to current local real estate market conditions and considers experience and expected liquidation costs. The Company typically receives a third-party valuation within thirty to forty-five days of completing the internal valuation. When a third-party valuation is received, it is reviewed for reasonableness. Once the valuation is reviewed and accepted, discounts are applied to fair market value, based on, but not limited to, our historical liquidation experience for like collateral, resulting in an estimated net realizable value. The estimated net realizable value is compared to the outstanding loan balance to determine the appropriate amount of specific impairment reserve. Specific reserves are generally recorded for impaired loans while third-party valuations are in process and for impaired loans that continue to make some form of payment. While waiting to receive the third-party appraisal, the Company regularly reviews the relationship to identify any potential adverse developments and begins the tasks necessary to gain control of the collateral and prepare it for liquidation, including, but not limited to, engagement of counsel, inspection of collateral, and continued communication with the borrower. Generally, the only difference between the current appraised value, less liquidation costs, and the carrying amount of the loan, less the specific reserve, is any downward adjustment to the appraised value that the Company deems appropriate, such as the costs to sell the property. Impaired loans that do not meet certain criteria and do not have a specific reserve have typically been written down through partial charge-offs to net realizable value. Based on prior experience, the Company rarely returns loans to performing status after they have been partially charged off. Credits identified as impaired move quickly through the process towards ultimate resolution, except in cases involving bankruptcy and various state judicial processes that may extend the time for ultimate resolution. 58 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) OREO . OREO is recorded at fair value on a nonrecurring basis using Level 3 inputs. The Company calculates the fair value of OREO from current or prior appraisals that have been adjusted for valuation declines, estimated selling costs, and other proprietary qualitative adjustments that are deemed necessary. The following tables present assets measured at fair value on a nonrecurring basis, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated: (Amounts in thousands) Impaired loans, non-covered OREO, non-covered OREO, covered (Amounts in thousands) Impaired loans, non-covered OREO, non-covered OREO, covered Total Fair Value $4,078 5,109 265 Total Fair Value $9,164 4,819 4,034 December 31, 2016 Fair Value Measurements Using Level 1 $ — — — Level 2 $ — — — Level 3 $ 4,078 5,109 265 December 31, 2015 Fair Value Measurements Using Level 1 Level 2 Level 3 $ — — — $ — — — $ 9,164 4,819 4,034 Quantitative Information about Level 3 Fair Value Measurements The following table provides quantitative information for assets measured at fair value on a nonrecurring basis using Level 3 valuation inputs as of the dates indicated: Impaired loans, non-covered OREO, non-covered OREO, covered Valuation Technique Discounted appraisals Discounted appraisals Discounted appraisals (1) (1) (1) Unobservable Input Appraisal adjustments Appraisal adjustments Appraisal adjustments (2) (2) (2) Discount Range (Weighted Average) December 31, 2016 December 31, 2015 3% to 39% (17%) 1% to 39% (21%) 0% to 88% (30%) 1% to 100% (33%) 0% to 44% (40%) 21% to 65% (46%) (1) (2) Fair value is generally based on appraisals of the underlying collateral. Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments. Fair Value of Financial Instruments The Company uses various methodologies and assumptions to estimate the fair value of certain financial instruments. A description of valuation methodologies used for instruments not previously discussed is as follows: Cash and Cash Equivalents . Cash and cash equivalents are reported at their carrying amount, which is considered a reasonable estimate due to the short-term nature of these instruments. Held-to-Maturity Securities . Securities held to maturity are reported at fair value using quoted market prices or dealer quotes. 59 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) FDIC Indemnification Asset . The FDIC indemnification asset is reported at fair value using discounted future cash flows that apply current discount rates. Accrued Interest Receivable/Payable . Accrued interest receivable/payable is reported at their carrying amount, which is considered a reasonable estimate due to the short-term nature of these instruments. Deposits and Securities Sold Under Agreements to Repurchase . Deposits without a stated maturity, such as demand, interest-bearing demand, and savings, are reported at their carrying amount, the amount payable on demand as of the reporting date, which is considered a reasonable estimate of fair value. Deposits and repurchase agreements with fixed maturities and rates are reported at fair value using discounted future cash flows that apply interest rates available in the market for instruments with similar characteristics and maturities. FHLB and Other Borrowings . FHLB and other borrowings are reported at fair value using discounted future cash flows that apply interest rates available to the Company for borrowings with similar characteristics and maturities. Trust preferred obligations are reported at fair value using current credit spreads in the market for similar issues. Off-Balance Sheet Instruments . The Company believes that fair values of unfunded commitments to extend credit, standby letters of credit, and financial guarantees are not meaningful; therefore, off-balance sheet instruments are not addressed in the fair value disclosures. The Company believes it is not feasible or practical to accurately disclose the fair values of off-balance sheet instruments due to the uncertainty and difficulty in assessing the likelihood and timing of advancing available proceeds, the lack of an established market for these instruments, and the diversity in fee structures. For additional information about the unfunded, contractual value of off-balance sheet financial instruments, see Note 20, “Litigation, Commitments, and Contingencies,” to the Consolidated Financial Statements of this report. The following tables present the carrying amounts and fair values of financial instruments, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated: December 31, 2016 (Amounts in thousands) Assets Cash and cash equivalents Securities available for sale Securities held to maturity Loans held for investment, net of allowance FDIC indemnification asset Interest receivable Deferred compensation assets Liabilities Demand deposits Interest-bearing demand deposits Savings deposits Time deposits Securities sold under agreements to repurchase Interest payable FHLB and other borrowings Derivative financial liabilities Deferred compensation liabilities Carrying Amount $ 76,307 165,579 47,133 1,835,000 12,173 5,553 3,224 427,705 378,339 523,260 512,034 98,005 1,280 80,708 167 3,224 Fair Value $ 76,307 165,579 47,266 1,805,999 8,112 5,553 3,224 427,705 378,339 523,260 507,917 98,879 1,280 83,551 167 3,224 60 Fair Value Measurements Using Level 2 Level 3 Level 1 $76,307 55 — — — — 3,224 — — — — — — — — 3,224 $ — 165,524 47,266 4,701 — 5,553 — 427,705 378,339 523,260 507,917 98,879 1,280 83,551 167 — $ — — — 1,801,298 8,112 — — — — — — — — — — — Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) December 31, 2015 (Amounts in thousands) Assets Cash and cash equivalents Securities available for sale Securities held to maturity Loans held for investment, net of allowance FDIC indemnification asset Interest receivable Deferred compensation assets Liabilities Demand deposits Interest-bearing demand deposits Savings deposits Time deposits Securities sold under agreements to repurchase Interest payable FHLB and other borrowings Derivative financial liabilities Deferred compensation liabilities Note 18. Earnings per Share Carrying Amount $ 51,787 366,173 72,541 1,686,308 20,844 6,007 3,464 451,511 347,705 530,585 543,458 138,614 1,260 80,756 251 3,464 Fair Value $ 51,787 366,173 72,490 1,685,061 10,753 6,007 3,464 451,511 347,705 530,585 541,059 140,880 1,260 85,774 251 3,464 Fair Value Measurements Using Level 2 Level 3 Level 1 $51,787 54 — — — — 3,464 — — — — — — — — 3,464 $ — 366,119 72,490 4,886 — 6,007 — 451,511 347,705 530,585 541,059 140,880 1,260 85,774 251 — $ — — — 1,680,175 10,753 — — — — — — — — — — — The following table presents the calculation of basic and diluted earnings per common share for the periods indicated: (Amounts in thousands, except share and per share data) Net income Dividends on preferred stock Net income available to common shareholders Weighted average common shares outstanding, basic Dilutive effect of potential common shares Stock options Restricted stock Convertible preferred stock Contingently issuable shares Total dilutive effect of potential common shares Weighted average common shares outstanding, diluted Basic earnings per common share Diluted earnings per common share Antidilutive potential common shares Stock options Restricted stock Total potential antidilutive shares 61 2016 $ 25,126 — $ 25,126 17,319,689 34,530 11,305 — — 45,835 17,365,524 1.45 $ 1.45 107,592 3,279 110,871 Year Ended December 31, 2015 $ 24,540 105 $ 24,435 18,531,039 26,487 2,996 166,942 — 196,425 18,727,464 1.32 $ 1.31 127,882 — 127,882 2014 25,490 910 24,580 $ $ 18,406,363 18,607 461 1,046,175 11,448 1,076,691 19,483,054 $ 1.34 1.31 222,651 — 222,651 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The Company redeemed all outstanding shares of its 6% Series A Noncumulative Convertible Preferred Stock (“Series A Preferred Stock”) in 2015. Before redemption, holders converted 12,784 shares of Series A Preferred Stock with each share convertible into 69 shares of the Company’s common stock. The Company redeemed the remaining 2,367 shares for $2.37 million along with accrued and unpaid dividends of $9 thousand. Note 19. Related Party Transactions The Company engages in transactions with related parties in the normal course of business. Related parties include directors, executive officers, and principal shareholders and their immediate family members, business interests, and affiliates. All related party transactions are made on terms that are substantially the same as those prevailing at the time for similar transactions with unrelated parties, including interest rates and collateral. The following table presents the changes in loans with related parties during the periods indicated: (Amounts in thousands) Beginning balance New loans and advances Loan repayments Reclassifications Ending balance (1) Year Ended December 31, 2016 $ 21,886 559 (4,418) 333 $ 18,360 2015 $ 22,826 1,066 (2,006) — $ 21,886 (1) Changes related to the composition of the Company’s directors and executive officers Deposits with related parties totaled $5.45 million as of December 31, 2016, and $6.55 million as of December 31, 2015. Legal fees paid to related parties totaled $104 thousand in 2016, $88 thousand in 2015, and $27 thousand in 2014. Lease expense paid to related parties totaled $95 thousand in 2016, $95 thousand in 2015, and $92 thousand in 2014. Other expense paid to related parties totaled $34 thousand in 2016 and $21 thousand in 2015. In addition, the Company repurchased 200,000 shares of its common stock from a related party in 2016 for $4.20 million, which represented the stock’s fair market value as of the date of the transaction. Note 20. Litigation, Commitments, and Contingencies Litigation In the normal course of business, the Company is a defendant in various legal actions and asserted claims. While the Company and its legal counsel are unable to assess the ultimate outcome of each of these matters with certainty, the Company believes the resolution of these actions, singly or in the aggregate, should not have a material adverse effect on its financial condition, results of operations, or cash flows. Commitments and Contingencies The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest rate risk beyond the amount recognized in the consolidated balance sheets. The contractual amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments. If the other party to a financial instrument does not perform, the Company’s credit loss exposure is the same as the contractual amount of the instrument. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. 62 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments are expected to expire without being drawn on, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of each customer on a case-by-case basis. Collateral may include accounts receivable, inventory, property, plant and equipment, and income producing commercial properties. The Company maintains a reserve for the risk inherent in unfunded lending commitments, which is included in other liabilities in the consolidated balance sheets. Standby letters of credit and financial guarantees are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending credit to customers. The amount of collateral obtained, if deemed necessary, to secure the customer’s performance under certain letters of credit is based on management’s credit evaluation of the customer. The following table presents the off-balance sheet financial instruments as of the dates indicated: (Amounts in thousands) Commitments to extend credit Standby letters of credit and financial guarantees Total off-balance sheet risk Reserve for unfunded commitments December 31, 2016 $261,801 8,180 269,981 326 $ 2015 $235,302 7,765 243,067 $ 326 In connection with the private placement of $15.46 million of trust preferred securities through the Trust, the Company irrevocably and unconditionally guarantees the following payments or distributions to holders of the trust preferred securities, to the extent the Trust has not made such payments or distributions and the Company has the funds available: accrued and unpaid distributions, the redemption price, and, upon dissolution or termination of the Trust, the lesser of the liquidation amount and all accrued and unpaid distributions and the amount of assets of the Trust remaining available for distribution. Note 21. Regulatory Requirements and Restrictions The Company and the Bank are subject to various regulatory capital requirements administered by state and federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, which applies only to the Bank, the Bank must meet specific capital guidelines that involve quantitative measures of the entity’s balance sheet assets and off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. In addition, the Company and the Bank are subject to various regulatory restrictions related to the payment of dividends, including requirements to maintain capital at or above regulatory minimums. The current risk-based capital requirements, based on the international capital standards known as Basel III, requires the Company and the Bank to maintain minimum amounts and ratios of Common Equity Tier 1 capital, Tier 1 capital, and total capital to risk-weighted assets, and of Tier 1 capital to average consolidated assets (“Tier 1 leverage ratio”), as defined in the regulations. On January 1, 2016, Basel III’s capital conservation buffer, 63 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) which is intended to absorb losses during periods of economic stress, became effective at 0.625%, and will be phased in over a four-year period (increasing by an additional 0.625% each year until it reaches 2.5% on January 1, 2019). As of December 31, 2016, the capital conservation buffer was 5.29% for the Company and 3.48% for the Bank, which exceeds the required capital conservation buffer on a fully phased-in basis. The following tables present actual and required capital ratios, under Basel III capital rules, as of the dates indicated: (Amounts in thousands) The Company Common equity Tier 1 ratio Tier 1 risk-based capital ratio Total risk-based capital ratio Tier 1 Leverage ratio The Bank Common equity Tier 1 ratio Tier 1 risk-based capital ratio Total risk-based capital ratio Tier 1 Leverage ratio (1) Based on prompt corrective action provisions (Amounts in thousands) The Company Common equity Tier 1 ratio Tier 1 risk-based capital ratio Total risk-based capital ratio Tier 1 Leverage ratio The Bank Common equity Tier 1 ratio Tier 1 risk-based capital ratio Total risk-based capital ratio Tier 1 Leverage ratio Actual Minimum Basel III Requirement Minimum Basel III Requirement - Fully Phased-In Well Capitalized (1) Requirement Amount Ratio Amount Ratio Amount Ratio Amount Ratio December 31, 2016 $241,671 256,671 274,953 256,671 13.88% $ 78,362 104,483 14.74% 139,311 15.79% 92,742 11.07% 4.50% $121,897 148,018 6.00% 182,846 8.00% 92,742 4.00% 7.00% 8.50% 10.50% 4.00% N/A N/A N/A N/A N/A N/A N/A N/A $223,944 223,944 242,218 223,944 12.93% $ 77,956 103,941 12.93% 138,588 13.98% 92,274 9.71% 4.50% $121,264 147,249 6.00% 181,897 8.00% 92,274 4.00% 7.00% $112,603 138,588 8.50% 173,235 10.50% 115,343 4.00% 6.50% 8.00% 10.00% 5.00% Actual Minimum Basel III Requirement Minimum Basel III Requirement - Fully Phased-In Well Capitalized (1) Requirement Amount Ratio Amount Ratio Amount Ratio Amount Ratio December 31, 2015 $246,237 249,436 269,998 249,436 14.54% $ 76,196 101,595 14.73% 135,459 15.95% 93,935 10.62% 4.50% $118,527 143,926 6.00% 177,791 8.00% 93,935 4.00% 7.00% 8.50% 10.50% 4.00% N/A N/A N/A N/A N/A N/A N/A N/A $228,669 228,669 249,228 228,669 13.60% $ 75,682 100,910 13.60% 134,546 14.82% 93,616 9.77% 4.50% $117,728 142,955 6.00% 176,592 8.00% 93,616 4.00% 7.00% $109,319 134,546 8.50% 168,183 10.50% 117,020 4.00% 6.50% 8.00% 10.00% 5.00% (1) Based on prompt corrective action provisions 64 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Note 22. Parent Company Financial Information The following tables present condensed financial information for the parent company, First Community Bancshares, Inc., as of and for the dates indicated: (Amounts in thousands) Assets Cash and due from banks Securities available for sale Loans to affiliates Investment in subsidiaries Other assets Total assets Liabilities Subordinated debt Other liabilities Total liabilities Stockholders’ equity Preferred stock Common stock Additional paid-in capital Retained earnings Treasury stock Accumulated other comprehensive loss Total stockholders’ equity Total liabilities and stockholders’ equity CONDENSED BALANCE SHEETS December 31, 2016 2015 $ $ $ $ 23,561 17 228 321,389 9,560 354,755 15,464 234 15,698 — 21,382 228,142 170,377 (78,833) (2,011) 339,057 354,755 $ $ $ $ 8,367 8,459 — 336,311 5,489 358,626 15,464 145 15,609 — 21,382 227,692 154,550 (56,457) (4,150) 343,017 358,626 65 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (Amounts in thousands) Cash dividends received from subsidiary bank Other income Other operating expense Income before income taxes and equity in undistributed net (loss) income of subsidiaries Income tax benefit Income before equity in undistributed net income of subsidiaries (Dividends in excess of) equity in undistributed net income of subsidiaries Net income Dividends on preferred stock Net income available to common shareholders 66 CONDENSED STATEMENTS OF INCOME Year Ended December 31, 2015 $ 22,970 1,039 2,080 2014 14,148 $ 515 1,793 2016 $ 32,000 (1,121) 2,097 28,782 (1,287) 30,069 (4,943) 25,126 — 25,126 $ 21,929 (616) 22,545 1,995 24,540 105 24,435 $ 12,870 (511) 13,381 12,109 25,490 910 24,580 $ Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31, 2015 2016 2014 (Amounts in thousands) Operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Equity in undistributed net income of subsidiaries (Gain) loss on sale of securities Net change in other operating activities Net cash provided by operating activities Investing activities Proceeds from sale of securities available for sale Proceeds from divestitures Return of capital from (investment in) subsidiaries Dividends in excess of undistributed net income of subsidiaries Net change in other investing activities Net cash provided by investing activities Financing activities (Repayments of) proceeds from other debt Redemption of preferred stock Proceeds from issuance of common stock Payments for repurchase of treasury stock Payments of common dividends Payments of preferred dividends Net change in other financing activities Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period $ 25,126 $ 24,540 $ 25,490 — (65) 397 25,458 8,660 4,900 3,654 4,943 (98) 22,059 — — 1,243 (23,762) (10,396) — 592 (32,323) 15,194 8,367 23,561 (1,995) (38) (626) 21,881 199 — — — — 199 (2,000) (2,367) 264 (21,525) (9,994) (219) 482 (35,359) (13,279) 21,646 8,367 $ (12,109) 2 4,212 17,595 5,030 — (2,000) — — 3,030 2,000 — 89 (2,168) (9,200) (910) 338 (9,851) 10,774 10,872 21,646 $ $ 67 Table of Contents FIRST COMMUNITY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Note 23. Quarterly Financial Data (Unaudited) The following tables present selected financial data for the periods indicated: (Amounts in thousands, except share and per share data) Interest income Interest expense Net interest income Provision for (recovery of) loan losses Net interest income after provision (recovery) Noninterest income, excluding net gain (loss) on sale of securities Net gain (loss) on sale of securities Noninterest expense Income before income taxes Income tax expense Net income available to common shareholders Basic earnings per common share Diluted earnings per common share Dividend per common share Weighted average basic shares outstanding Weighted average diluted shares outstanding (Amounts in thousands, except share and per share data) Interest income Interest expense Net interest income Provision for loan losses Net interest income after provision Noninterest income, excluding net (loss) gain on sale of securities Net (loss) gain on sale of securities Noninterest expense Income before income taxes Income tax expense Net income Dividends on preferred stock Net income available to common shareholders Basic earnings per common share Diluted earnings per common share Dividend per common share Weighted average basic shares outstanding Weighted average diluted shares outstanding 68 First Quarter Year Ended December 31, 2016 Third Second Quarter Quarter Fourth Quarter $ 23,550 2,439 21,111 1,187 19,924 7,902 1 18,814 9,013 2,929 6,084 0.34 0.34 0.14 17,859,197 17,892,531 $ $ $ 24,137 2,446 21,691 722 20,969 7,109 (79) 18,722 9,277 3,022 6,255 0.36 0.36 0.14 17,414,320 17,462,845 $ $ $ 23,621 2,500 21,121 (1,154) 22,275 5,870 25 18,557 9,613 3,230 6,383 0.37 0.37 0.16 17,031,074 17,083,526 $ $ First Quarter Year Ended December 31, 2015 Third Second Quarter Quarter $ 24,098 3,259 20,839 1,100 19,739 6,859 (23) 17,780 8,795 2,837 5,958 105 5,853 0.31 0.31 0.13 18,633,574 19,344,443 $ $ $ 23,979 2,909 21,070 276 20,794 7,924 213 20,289 8,642 2,467 6,175 — 6,175 0.33 0.33 0.13 18,831,742 18,860,119 $ $ $ 24,348 2,679 21,669 381 21,288 7,113 (39) 19,019 9,343 3,084 6,259 — 6,259 0.34 0.34 0.14 18,470,348 18,500,975 $ $ $ $ 23,416 2,459 20,957 500 20,457 5,850 388 16,653 10,042 3,638 6,404 $ 0.38 0.38 0.16 16,981,010 17,043,869 Fourth Quarter $ $ 23,677 2,502 21,175 434 20,741 7,490 (7) 19,083 9,141 2,993 6,148 — 6,148 $ 0.34 0.34 0.14 18,193,824 18,226,719 Table of Contents Audit Committee of the Board of Directors and the Stockholders First Community Bancshares, Inc. - Report of Independent Registered Public Accounting Firm - We have audited the accompanying consolidated balance sheets of First Community Bancshares, Inc. and Subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Community Bancshares, Inc. and its Subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 3, 2017 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. /s/ Dixon Hughes Goodman LLP Asheville, North Carolina March 3, 2017 69 Table of Contents - Management ’ s Assessment of Internal Control over Financial Reporting - First Community Bancshares, Inc. (the “Company”) is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this Annual Report on Form 10-K. The consolidated financial statements and notes included in this Annual Report on Form 10-K have been prepared in conformity with U.S. generally accepted accounting principles and necessarily include some amounts that are based on management’s best estimates and judgments. We, as management of the Company, are responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with U.S. generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation. Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that its system of internal control over financial reporting was effective as of December 31, 2016. Dixon Hughes Goodman LLP, independent registered public accounting firm, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. The Report of Independent Registered Public Accounting Firm, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016, appears hereafter in Item 8 of this Annual Report on Form 10-K. Dated this 3 day of March, 2017. rd /s/ William P. Stafford, II William P. Stafford, II Chief Executive Officer /s/ David D. Brown David D. Brown Chief Financial Officer 70 Table of Contents Audit Committee of the Board of Directors and the Stockholders First Community Bancshares, Inc. - Report of Independent Registered Public Accounting Firm - We have audited First Community Bancshares, Inc. and Subsidiaries (the “Company”) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, First Community Bancshares, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of First Community Bancshares, Inc. as of and for the year ended December 31, 2016, and our report, dated March 3, 2017 expressed an unqualified opinion on those consolidated financial statements. /s/ Dixon Hughes Goodman LLP Asheville, North Carolina March 3, 2017 71 Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules. (a) Documents Filed as Part of this Report (1) Financial Statements The financial statements required in this item are incorporated by reference to Item 8, “Financial Statements and Supplementary Data,” in Part II of this report. (2) Financial Statement Schedules The schedules required in this item are omitted because they are not applicable or the required information is included in the consolidated financial statements or related notes. (3) Exhibits The exhibits required in this item are incorporated by reference to the Exhibit Index of this report. 72 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 7th day of March, 2017. By: /s/ William P. Stafford, II William P. Stafford, II Chief Executive Officer (Principal Executive Officer) First Community Bancshares, Inc. (Registrant) By: /s/ David D. Brown David D. Brown Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 73 Table of Contents Exhibit No. 2.1 2.2 3.1 3.2 4.1 4.2 4.3 4.4 10.1** 10.2** 10.3** 10.4** 10.5** EXHIBIT INDEX Exhibit Purchase and Assumption Agreement between First Community Bank and First Bank, incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K dated March 3, 2016, filed on March 4, 2016 Purchase and Assumption Agreement between First Bank and First Community Bank, incorporated by reference to Exhibit 2.2 of the Current Report on Form 8-K dated March 3, 2016, filed on March 4, 2016 Articles of Incorporation of First Community Bancshares, Inc., as amended, incorporated by reference to Exhibit 3(i) of the Quarterly Report on Form 10-Q for the period ended June 30, 2010, filed on August 16, 2010 Amended and Restated Bylaws of First Community Bancshares, Inc., incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K dated February 23, 2016, filed on February 25, 2016 Specimen stock certificate of First Community Bancshares, Inc., incorporated by reference to Exhibit 4.1 of the Annual Report on Form 10-K for the period ended December 31, 2002, filed on March 25, 2003, amended on June 30, 2003 Indenture Agreement dated September 25, 2003, incorporated by reference to Exhibit 4.2 of the Quarterly Report on Form 10-Q for the period ended September 30, 2003, filed on November 10, 2003 Declaration of Trust of FCBI Capital Trust dated September 25, 2003, as amended and restated, incorporated by reference to Exhibit 4.3 of the Quarterly Report on Form 10-Q for the period ended September 30, 2003, filed on November 10, 2003 Preferred Securities Guarantee Agreement dated September 25, 2003, incorporated by reference to Exhibit 4.4 of the Quarterly Report on Form 10-Q for the period ended September 30, 2003, filed on November 10, 2003 First Community Bancshares, Inc. 1999 Stock Option Plan, incorporated by reference to Exhibit 10.1 of the Annual Report on Form 10-K for the period ended December 31, 1999, filed on March 30, 2000, amended on April 13, 2000, and Amendment One, incorporated by reference to Exhibit 10.1.1 of the Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed on May 7, 2004 First Community Bancshares, Inc. 1999 Stock Option Agreement, incorporated by reference to Exhibit 10.5 of the Quarterly Report on Form 10-Q for the period ended June 30, 2002, filed on August 14, 2002 First Community Bancshares, Inc. 2001 Nonqualified Director Stock Option Plan, incorporated by reference to Exhibit 10.4 of the Quarterly Report on Form 10-Q for the period ended June 30, 2002, filed on August 14, 2002 Employment Agreement between First Community Bancshares, Inc. and John M. Mendez dated December 16, 2008, as amended and restated, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated and filed on December 16, 2008, and Waiver Agreement, incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K dated December 16, 2010, filed on December 17, 2010 First Community Bancshares, Inc. and Affiliates Executive Retention Plan, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated December 30, 2008, filed on January 5, 2009; Amendment #1, incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K 74 Table of Contents Exhibit No. 10.6** 10.7** 10.8** 10.9** 10.10** 10.11** 10.12** 10.13** 10.14** 10.15** 10.16** 10.17** Exhibit dated December 16, 2010, filed on December 17, 2010; Amendment #2, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated February 21, 2013, filed on February 25, 2013; Amendment #3, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated May 24, 2016, filed on May 27, 2016; and Amendment #4, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated and filed on February 28, 2017 First Community Bancshares, Inc. Split Dollar Plan and Agreement, incorporated by reference to Exhibit 10.5 of the Annual Report on Form 10-K for the period ended December 31, 1999, filed on March 30, 2000, amended on April 13, 2000 First Community Bancshares, Inc. Supplemental Directors Retirement Plan, as amended and restated, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated December 16, 2010, filed on December 17, 2010, and Amendment #2, incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K dated May 24, 2016, filed on May 31, 2016 First Community Bancshares, Inc. Nonqualified Supplemental Cash or Deferred Retirement Plan, as amended and restated, incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K dated August 22, 2006, filed on August 23, 2006, and Amendment #2, incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K dated and filed on February 28, 2017 First Community Bancshares, Inc. 2004 Omnibus Stock Option Plan, incorporated by reference to Annex B to the 2004 First Community Bancshares, Inc. Definitive Proxy Statement filed on March 15, 2004, and Stock Award Agreement, incorporated by reference to Exhibit 10.13 of the Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed on August 6, 2004 First Community Bancshares, Inc. 2012 Omnibus Equity Compensation Plan, incorporated by reference to the 2012 First Community Bancshares, Inc. Definitive Proxy Statement filed on March 7, 2012 First Community Bancshares, Inc. Directors Deferred Compensation Plan, as amended and restated, incorporated by reference to Exhibit 99.2 of the Current Report on Form 8-K dated August 22, 2006, filed on August 23, 2006 Employment Agreement between First Community Bancshares, Inc. and David D. Brown dated April 16, 2015, incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K dated and filed on April 16, 2015 Employment Agreement between First Community Bancshares, Inc. and E. Stephen Lilly dated April 16, 2015, incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K dated and filed on April 16, 2015 Employment Agreement between First Community Bancshares, Inc. and Gary R. Mills dated April 16, 2015, incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K dated and filed on April 16, 2015 Employment Agreement between First Community Bancshares, Inc. and Martyn A. Pell dated April 16, 2015, incorporated by reference to Exhibit 10.4 of the Current Report on Form 8-K dated and filed on April 16, 2015, and Amendment #1 dated May 27, 2016, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated May 24, 2016, filed on May 27, 2016 Employment Agreement between First Community Bank and Robert L. Schumacher dated April 16, 2015, incorporated by reference to the Current Report on Form 8-K dated and filed on April 16, 2015 Employment Agreement between First Community Bancshares, Inc. and William P. Stafford, II dated April 16, 2015, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated and filed on April 16, 2015 75 Table of Contents Exhibit No. 10.18** 10.19** 10.20** 11 12*** 21*** 23* 31.1* 31.2* 32* 101*** Exhibit Employment Agreement between First Community Bank and Mark R. Evans dated July 31, 2009, incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K dated April 2, 2009, filed on April 3, 2009 Form of Restricted Stock Grant Agreement under First Community Bancshares, Inc. 2012 Omnibus Equity Compensation Plan, incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K dated and filed May 28, 2013 Separation Agreement and Release between First Community Bancshares, Inc. and John M. Mendez dated August 28, 2013, incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K/A dated August 12, 2013, filed on September 3, 2013 Statement Regarding Computation of Earnings per Share, incorporated by reference to Note 18 of the Notes to Condensed Consolidated Financial Statements in Part II, Item 8 of this report Statement Regarding Computation of Ratios Subsidiaries of the Registrant Consent of Independent Public Accounting Firm Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of December 31, 2016 and 2015; (ii) Consolidated Statements of Income for the years ended December 31, 2016, 2015, and 2014; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015, and 2014; (iv) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016, 2015, and 2014; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014; and (vi) Notes to Consolidated Financial Statements * ** *** Filed herewith Indicates a management contract or compensation plan or agreement Previously filed with the Annual Report on Form 10-K for the year ended December 31, 2016, on March 3, 2017 76 - Consent of Independent Registered Public Accounting Firm - Exhibit 23 Audit Committee of the Board of Directors and the Stockholders First Community Bancshares, Inc. We consent to the incorporation by reference in the registration statements pertaining to the 2012 Omnibus Equity Compensation Plan (Form S-8, No. 333-183057); the 2011 Convertible Preferred Shares (Form S-3, No. 333-175262); the 2004 Omnibus Stock Option Plan (Form S-8, No. 333-120376); the 2001 Directors Stock Option Plan (Form S-8, No. 333-75222); the 1999 Stock Option Plan (Form S-8, 333-31338); the Employee Stock Ownership and Savings Plan (Form S-8, No. 333-63865); and the TriStone Community Bank Employee and Director Stock Option Plans (Form S-8, No. 333-161473) of First Community Bancshares, Inc. and Subsidiaries (the “Company”) of our reports dated March 3, 2017, with respect to the consolidated financial statements of the Company and the effectiveness of internal control over financial reporting, which reports appear in the Company’s 2016 Annual Report on Form 10-K/A. /s/ Dixon Hughes Goodman LLP Asheville, North Carolina March 7, 2017 Exhibit 31.1 I, William P. Stafford, II, certify that: CERTIFICATION 1. 2. 3. 4. I have reviewed this Annual Report on Form 10-K/A of First Community Bancshares, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) b) c) d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: a) b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 7, 2017 /s/ William P. Stafford, II William P. Stafford, II Chief Executive Officer Exhibit 31.2 I, David D. Brown, certify that: CERTIFICATION 1. 2. 3. 4. I have reviewed this Annual Report on Form 10-K/A of First Community Bancshares, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) b) c) d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: a) b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 7, 2017 /s/ David D. Brown David D. Brown Chief Financial Officer CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32 The undersigned certify, to their best knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. 2. The Annual Report on Form 10-K/A of First Community Bancshares, Inc. (the “Company”) for the period ended December 31, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 7, 2017 By: /s/ William P. Stafford, II William P. Stafford, II Chief Executive Officer By: /s/ David D. Brown David D. Brown Chief Financial Officer 

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