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
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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.
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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
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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
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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
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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.
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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.
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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.
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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.
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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.
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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
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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
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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