FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

20172023 FORM 10-K

INDEX

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Forward-lookingForward-looking statements in filings with the Securities and Exchange Commission, including this Annual Report on Form 10-K and the accompanying Exhibits, filings incorporated by reference, reports to shareholders, and other communications that represent the Company’s beliefs, plans, objectives, goals, guidelines, expectations, anticipations, estimates, and intentions are made in good faith pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” and other similar expressions identify forward-looking statements. The following factors, among others, could cause financial performance to differ materially from that expressed in such forward-looking statements:

TheThe list of important factors is not exclusive. If one or more of the factors affecting these forward-looking statements proves incorrect, actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking statements contained in this Annual Report on Form 10-K and other reports we file with the Securities and Exchange Commission. Therefore, the Company cautions you not to place undue reliance on forward-looking information and statements.  The Company does not intend to update any forward-looking statements, whether written or oral, to reflect changes. These cautionary statements expressly qualify all forward-looking statements that apply to the Company including the risk factors presented in Part I, Item 1A of this report.

PART I

General

First Community Bancshares,Bankshares, Inc. (the(the “Company”), a financial holding company, was founded in 1989 and incorporatedreincorporated under the laws of Nevada in 1997.the Commonwealth of Virginia. The Company’s principal executive office is located at One Community Place,in Bluefield, Virginia. The Company provides commercial banking products and services to individual and commercial customers through its wholly owned subsidiary First Community Bank (the “Bank”), a Virginia-chartered banking institution founded in 1874. The Bank operates as First Community Bank in Virginia, West Virginia, and North Carolina and People’s Community Bank, a Division of First Community Bank, in Tennessee. The Bank provides insurance services through its wholly owned subsidiary First Community Insurance Services and offers wealth management and investment advice through its Trust Division and wholly owned subsidiary First Community Wealth Management. Unless the context suggests otherwise, the terms “First Community,” “Company,” “we,” “our,” and “us” in this Annual Report on Form 10-K refer to First Community Bancshares,Bankshares, Inc. and its subsidiaries as a consolidated entity.

We focus on building financial partnershipsoperate 53 branches across the states of Virginia, West Virginia, North Carolina, and creating enduring and complete relationships with businesses and individuals through a personal and local approachTennessee.  We’re committed to the passionate pursuit of excellence in community banking and financial services. We strive to bewe’ve set our sights on being the bank of choice, employer of choice, and investment of choice in the marketscommunities in which we serve by offering impeccable service and a complete line of competitive products that include:operate.

Our  mission is to:

Our operations are guided by a strategic plan that focuses on organic growth supplemented by strategic acquisitions of complementary financial institutions. For a summary of our financial performance, see Item 6, “Selected Financial Data,” in Part II of this report.

Employees and Human Capital Resources

As of December 31, 2017,2023, we had 562616 full-time equivalentemployees and 29 part-time employees. OurThe employees are not represented by a collective bargaining agreementsunit and we consider employee relationsour relationship with our employees to be excellent.good.

We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by promotion and transfer from within the organization. Continual learning and career development is advanced through ongoing performance and development conversations with employees, internally developed training programs and customized corporate training engagements.

The safety, health and wellness of our employees is a top priority.  All employees are asked not to come to work when they experience signs or symptoms of a possible communicable illness, including COVID-19. On an ongoing basis, we further promote the health and wellness of our employees by strongly encouraging work-life balance and keeping increases in the employee portion of health care premiums as small as possible and sponsoring various wellness programs.

Employee retention helps us operate efficiently and achieve one of our business objectives, which is building financial partnerships. We believe our commitment to living out our core values, actively prioritizing concern for our employees’ well-being, supporting our employees’ career goals, offering competitive wages and providing valuable fringe benefits aids in retention of our top-performing employees. In addition, nearly all of our employees are stockholders of the Company through participation in our current 401(k) plan and a former employee stock ownership plan, which aligns employee and stockholder interests by providing stock ownership on a tax-deferred basis at no investment cost to our employees.  

Market Area

As of December 31, 2017,2023, we operated 4453 branch locations in Virginia, West Virginia, North Carolina, and Tennessee through our sole operating segment, Community Banking.  Economic indicators in our market areas show relatively stable employment and business conditions. We serve a diverse base of individuals and businesses across a variety of industries such as education,education; government and health services; retail trade; construction; manufacturing; tourism; coal mining and gas extraction; retail trade; construction; manufacturing; tourism; and transportation.

Competition

The financial services industry is highly competitive and constantly evolving. We encounter strong competition in attracting and retaining deposit, loan, and other financial relationships in our market areas. We compete with other commercial banks, thrifts, savings and loan associations, credit unions, consumer finance companies, mortgage banking firms, commercial finance and leasing companies, securities firms, brokerage firms, and insurance companies. We have positioned ourselves as a regional community bank that provides an alternative to larger banks, which often place less emphasis on personal relationships, and smaller community banks, which lack the capital and resources to efficiently serve customer needs. Factors that influence our ability to remain competitive include the ability to develop, maintain, and build long-term customer relationships; the quality, variety, and pricing of products and services; the convenience of banking locations and office hours; technological developments; and industry and general economic conditions. We seek to mitigate thesecompetitive pressures with our relationship style of banking, competitive pricing, and cost efficiencies, and disciplined approach to loan underwriting.efficiencies.

Supervision and Regulation

Overview

We are subject to extensive examination, supervision, and regulation under applicable federal and state laws andby various regulatory agencies. These regulations are intended to protect consumers, depositors, borrowers, deposit insurance funds, and the stability of the financial system and are not for the protection of stockholders or creditors.

Applicable laws and regulations restrict our permissible activities and investments and impose conditions and requirements on the products and services we offer and the manner in which they are offered and sold. They also restrict our ability to repurchase stock or pay dividends, or to receive dividends from our banking subsidiary, and impose capital adequacy requirements on the Company and the Bank. The consequences of noncompliance with these laws and regulations can include substantial monetary and nonmonetary sanctions.

The following discussion summarizes significant laws and regulations applicable to the Company and the Bank. These summaries are not intended to be complete and are qualified in their entirety by reference to the applicable statute or regulation. Changes in laws and regulations may have a material effect on our business, financial condition, or results of operations.

First Community Bancshares,Bankshares, Inc.

The Company is a bank holding company registered under the Bank Holding Company Act of 1956, as amended, (“BHC Act”) and a financial holding company under the Gramm-Leach-Bliley Act of 1999 (“GLB Act”). The Company elected financial holding company status in December 2006. The Company and its subsidiaries are subject to supervision, regulation, and examination by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The BHC Act generally provides for umbrella regulation of financial holding companies, such as the Company, by the Federal Reserve, as well as functional regulation of financial holding company subsidiaries by applicable regulatory agencies. The Federal Reserve is granted the authority, in certain circumstances, to require reports of, examine, and adopt rules applicable to any bank holding company subsidiary.

The Company is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, (“(“Exchange Act”), as administered by the Securities and Exchange Commission (“SEC”). The Company’s common stock is listed on the NASDAQ Global Select Market under the trading symbol FCBC and is subject to NASDAQ’s rules for listed companies.

First Community Bank

The Bank is a Virginia state-charteredchartered bank and a member of the Federal Reserve subject to supervision, regulation, and examination by the Virginia Bureau of Financial Institutions and the Federal Reserve Bank (“FRB”) of Richmond.Board. The Bank is a member of the Federal Deposit Insurance Corporation (“FDIC”), and its deposits are insured by the FDIC to the extent provided by law. The regulations of these agencies govern most aspects of the Bank’s business, including requirements concerning the allowance for loan losses, lending and mortgage operations, interest rates received on loans and paid on deposits, the payment of dividends, loans to affiliates, mergers and acquisitions, capital, and the establishment of branches. Various consumer and compliance laws and regulations also affect the Bank’s operations.

AsAs a member bank, the Bank is required to hold stock in the FRBFederal Reserve Bank of Richmond ("FRB") in an amount equal to 6% of theirits capital stock and surplus (half paid to acquire the stock with the remainder held as a cash reserve). Member banks do not have any control over the Federal Reserve as a result of owning the stock and the stock cannot be sold or traded.

The Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) of 2010 significantly restructured the U.S. financial regulatory regime. The Dodd-Frank Act is extensive, complicated, and comprehensive legislation that impacts practically all aspects of a banking organization, including the following provisions:

Many of the provisions of the Dodd-Frank Act and other laws are subject to further rulemaking, guidance, and interpretation by applicable federal regulators. We continue to evaluate the impact of any new regulations.

Permitted Activities under the BHC Act

The BHC Act limits the activities of bank holding companies,, such as the Company, to the business of banking, managing or controlling banks and other activities the Federal Reserve determines to be closely related to banking. A bank holding company that elects treatment as a financial holding company under the GLB Act, such as the Company, may engage in a broader range of activities that are financial in nature or complementary to a financial activity and do not pose a substantial risk to the safety and soundness of depository institutions or the financial system. These activities include securities underwriting, dealing, and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and other activities that the Federal Reserve determines to be closely related to banking.

In order to maintain financial holding company status, the Company and the Bank must be well-capitalized and well-managed under applicable Federal Reserve regulations and have received at least a satisfactory rating under the Community Reinvestment Act (“CRA”). See “Prompt Corrective Action” and “Community Reinvestment Act” below. If we fail to meet these requirements, the Federal Reserve may impose corrective capital and managerial requirements and place limitations or conditions on our ability to conduct activities permissible for financial holding companies. If the deficiencies persist, the Federal Reserve may require the Company to divest the Bank or divest investments in companies engaged in activities permissible only for financial holding companies.

In July 2019, the federal bank regulators adopted final rules (the “Capital Simplification Rules”) that, among other things, eliminated the standalone prior approval requirement in the Basel III Capital Rules for any repurchase of common stock. The Company is required to give the Federal Reserve prior notice of any redemption or repurchase of its own equity securities, subject to certain exemptions, if the consideration to be paid, together with the consideration paid for any repurchases or redemptions in the preceding 12 months, is equal to 10% or more of the Company’s consolidated net worth. The Federal Reserve may oppose the transaction if it believes that the transaction would constitute an unsafe or unsound practice or would violate any law or regulation. Any redemption or repurchase of preferred stock or subordinated debt remains subject to the prior approval of the Federal Reserve Board.

The Inflation Reduction Act of 2022 (the “IRA”) imposed a new 1% excise tax on the fair market value of stock repurchased after December 31, 2022, by publicly traded U.S. corporations. With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.

The BHC Act requires that bank holding companies obtain the Federal Reserve’sReserve’s approval before acquiring direct or indirect ownership or control of more than 5% of the voting shares or all, or substantially all, of the assets of a bank. The regulatory authorities are required to consider the financial and managerial resources and future prospects of the bank holding company and the target bank, the convenience and needs of the communities to be served, and various competitive factors when approving acquisitions. The BHC Act also prohibits a bank holding company from acquiring direct or indirect control of more than 5% of the outstanding voting stock of any company engaged in a non-banking business unless the Federal Reserve determines it to be closely related to banking.

Capital Requirements

We are subject to various regulatory capital requirements administered by the Federal Reserve. The current risk-based capital requirements applicable to the Company and the Bank, parts of which are currently in the process of being phased in, are based on the December 2010 international capital standards of the Basel Committee on Banking Supervision (“Basel Committee”Reserve (the "Basel III Capital Rules"), known as Basel III..

Prior to January 1, 2015, the risk-based capital requirements that applied to the Company and the Bank were based on the 1988 capital accord of the Basel Committee, known as Basel I. Under Basel I, the Company was required to maintain a minimum Tier 1 capital ratio of 4.0%, a total capital ratio of 8.0%, and Tier 1 capital to average consolidated assets (“Tier 1 leverage ratio”) of 3.0%. Certain highly rated bank holding companies could maintain a minimum Tier 1 leverage ratio of 3.0%, but other bank holding companies were required to maintain a Tier 1 leverage ratio of 4.0% or more, depending on their condition.

On July 2, 2013, the Federal Reserve approved capital rules for U.S. banking organizations implementing Basel III (“Basel III Capital Rules”) and certain requirements of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies’ rules. Basel III Capital Rules (1) introduced a new Common Equity Tier 1 (“CET1”) capital measure, (2) specified that Tier 1 capital consist of CET1 and additional Tier 1 capital instruments meeting specified requirements, (3) defined CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (4) expanded the scope of the deductions/adjustments to capital as compared to prior regulations. The following initial minimum capital ratios became effective, subject to a phase-in period, for the Company and the Bank under Basel III Capital Rules on January 1, 2015:

Basel III Capital Rules introduced a capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer was implemented on January 1, 2016, 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). Basel III Capital Rules also provide for a countercyclical capital buffer that applies to certain covered institutions; however, the buffer does not apply to the Company or the Bank. Banking institutions with a CET1 to risk-weighted assets ratio above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, if applicable) face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

WhenSince fully phased in on January 1, 2019, Basel III Capital Rules will require the Company and the Bank to maintain an additional capital conservation buffer of 2.5% of CET1, effectively resulting in the following minimum ratios:following:

Management believesBanking institutions that fail to meet the Companyeffective minimum ratios once the capital conservation buffer is taken into account, as detailed above, will be subject to constraints on capital distributions, including dividends and share repurchases, and certain discretionary executive compensation. The severity of the constraints depends on the amount of the shortfall and the Bank would meet all capital adequacy requirements under Basel III Capital Rules on a fully phased-in basis, if such requirements wereinstitution’s “eligible retained income” (that is, the greater of (i) net income for the preceding four quarters, net of distributions and associated tax effects not reflected in effect, as of December 31, 2017.net income and (ii) average net income over the preceding four quarters).

Basel III Capital Rules and the Capital Simplification Rules provide for a number of deductions from and adjustments to CET1. These include, for example, the requirement that certain deferred tax assets and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories, in the aggregate, exceed 15%25% of CET1. Implementation of the deductions and other adjustments to CET1 began on January 1, 2015, at 40% and will be phased in over a four-year period (increasing an additional 20% each year until it reaches 100% on January 1, 2018).

Basel III Capital Rules prevent certain hybrid securities, such as trust preferred securities, as Tier 1 capital

Basel III Capital Rules prescribe a standardized approach for risk weightings that expand the risk-weighting categories from the four Basel I categories (0%, 20%, 50% and 100%) to a larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories. In November 2019, the federal banking agencies adopted a rule revising the scope of commercial real estate mortgages subject to a 150% risk weight.

Management believes that the Company and the Bank's current capital levels exceed the required capital amounts to the considered well-capitalized and also meet the fully phased-in minimum capital requirements, including the related capital conservation buffers, as required by the Basel III Capital Rules as of December 31, 2023. For additional information, see Note 20, "Regulatory Requirements and Restrictions," to the Consolidated Financial Statements in Part II, Item 8 of this report.

Prompt Corrective Action

The federal banking regulators are required to take prompt corrective action with respect to capital-deficient institutions. Agency regulations define, for each capital category, the levels at which institutions are well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, or critically undercapitalized. An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if the appropriate federal regulators determine that it is engaging in an unsafe or unsound practice or is in an unsafe or unsound condition. A bank’s capital category is determined solely for applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s financial condition or prospects for other purposes.

The Bank was classified as well-capitalized under prompt corrective action regulationregulations as of December 31, 2017.2023. In order to be considered a well-capitalized institution under Basel III Capital Rules, an organization must not be subject to any written agreement, order, capital directive, or prompt corrective action directive and must maintain the following minimum capital ratios:

Undercapitalized institutions are required to submit a capital restoration plan to federal banking regulators. Under the Federal Deposit Insurance Act, as amended (“FDIA”), in order for the capital restoration plan to be accepted by the appropriate federal banking agency, a bank holding company must provide appropriate assurances of performance and guarantee that its subsidiary bank will comply with its capital restoration plan, subject to certain limitations. Agency regulations contain broad restrictions on certain activities of undercapitalized institutions, including asset growth, acquisitions, establishing branches, and engaging in new lines of business. With certain exceptions, a depository institution is prohibited from making capital distributions, including dividends, and is prohibited from paying management fees to its parent holding company if the institution would be undercapitalized after such distribution or payment.

A significantly undercapitalized institution is subject to various requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, and ending deposits from correspondent banks. The FDIC has limited discretion in dealing with a critically undercapitalized institution and is generally required to appoint a receiver or conservator.

Safety and Soundness Standards

Guidelines adopted by federal bank regulatory agencies establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation fees and benefits.compensation. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage risksrisks and exposures. If an institution fails to meet safety and soundness standards, the regulatory agencies may require the institution to submit a written compliance plan describing the steps they would take to correct the situation and the time that such steps would be taken. If an institution fails to submit or implement an acceptable compliance plan, after being notified, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions, such as those applicable to undercapitalized institutions under the prompt corrective action provisions of the FDIA. An institution may be subject to judicial proceedings and civil money penalties if it fails to follow such an order.

Payment of Dividends

The Company is a legal entity that is separate and distinct from its subsidiaries. The Company’s principal source of cash flow is derived from dividends paid by the Bank. There are various restrictions by regulatory agencies related to dividends paid by the Bank to the Company and dividends paid by the Company to its shareholders. The payment of dividends by the Company and the Bank may be limited by certain factors, such as requirements to maintain capital above regulatory guideline minimums.

Prior FRB approval is required for thethe Bank to declare or pay a dividend to the Company if the total of all dividends declared in any given year exceed the total of the Bank’s net profits for that year and its retained profits for the preceding two years, less any required transfers to surplus or to fund the retirement of preferred stock. Dividends paid by the Company to shareholders are subject to oversight by the Federal Reserve. Federal Reserve policy states that bank holding companies generally should pay dividends on common stock only from income available over the past year if prospective earnings retention is consistent with the organization’s expected future needs, asset quality, and financial condition.

Regulatory agencies have the authority to limit or prohibit the Company and the Bank from paying dividends if the payments are deemed to constitute an unsafe or unsound practice. The appropriate regulatory authorities have stated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only from current operating earnings. In addition, the Bank may not declare or pay a dividend if, after paying the dividend, the Bank would be classified as undercapitalized. In the current financial and economic environment, the FRBFederal Reserve has discouraged payout ratios that are at maximum allowable levels, unless both asset quality and capital are very strong, and has noted that bank holding companies should carefully review their dividend policy. Bank holding companies should not maintain dividend levels that undermine their ability to be a source of strength to their banking subsidiaries.

Source of Strength

Federal Reserve policy and federal law requiresrequire the Company to act as a source of financial and managerial strength to the Bank. Under this requirement, the Company is expected to commit resources to support the Bank even when it may not be in a financial position to provide such resources. Because the Company is a legal entity separate and distinct from its subsidiaries, any capital loans it makes to the Bank are subordinate in right of payment to depositors and to certain other indebtedness of the Bank. In the event of the Company’s bankruptcy, any commitment by the Company to a federal bank regulatory agency to maintain the capital of the Bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

Transactions with Affiliates

TheThe Federal Reserve Act (“FRA”) and Federal Reserve Regulation W place restrictions on “covered transactions” between the Bank and its affiliates, including the Company. The term “covered transactions” includes making loans, purchasing assets, issuing guarantees, and other similar transactions. The Dodd-Frank Act expanded the definition of “covered transactions” to include derivative activities, repurchase agreements, and securities lending or borrowing activities. These restrictions limit the amount of transactions with affiliates, require certain levels of collateral for loans to affiliates, and require that all transactions with affiliates be on terms that are consistent with safe and sound banking practices. In addition, these transactions must be on terms that are substantially the same, or at least as favorable to the Bank, as those prevailing at the time for similar transactions with non-affiliates.

The FRA and Federal Reserve Regulation O place restrictions on loans between the Company and the Bank and their directors, executive officers, principal shareholders, affiliates, and interests of those directors, executive officers, and principal shareholders. These restrictions limit the amount of loans to one borrower and require that loans are on terms that are substantially the same as, and follow underwriting procedures that are not less stringent than, those prevailing at the time for similar loans with non-insiders. In addition, the aggregate limit of loans to all insiders, as a group, cannot exceed the Bank’s total unimpaired capital and surplus.

Deposit Insurance and Assessments

Substantially all of thethe Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC and are subject to quarterly deposit insurance assessments to maintain the DIF. FDIC depositDeposit insurance premiums are assessed using a risk-based system that places FDIC-insured institutions into one of four risk categories based on capital, supervisory ratings and other factors. The assessment rate determined by considering such information is then applied to the institution's average assets minus average tangible equity to determine the institution's insurance premium. The FDIC may change assessment rates or revise its risk-based assessment system if deemed necessary to maintain an adequate reserve ratio for the DIF. The Dodd-Frank Act required that the minimum reserve ratio for the DIF increase from 1.15% to 1.35% by September 30, 2020. Under the FDIA, the FDIC may terminate deposit insurance if it determines that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC.  The Bank’sIn October 2022, the FDIC adopted a final rule to increase the initial base deposit insurance assessments totaled $797 thousand in 2017, $1.25 million in 2016, and $1.42 million in 2015.

In addition, all FDIC-insured institutions must pay annual assessmentsassessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023. The increased assessment is expected to fund interest payments on bonds issuedimprove the likelihood that the DIF reserve ratio would reach the statutory minimum of 1.35% by the Financing Corporation (“FICO”). The FICO is a mixed-ownership government corporation that was formed to borrowstatutory deadline prescribed under the money necessary to carry out the closing and ultimate disposition of failed thrift institutions by the Resolution Trust Corporation. The Bank’s FICO assessments, which are set quarterly, totaled $113 thousand in 2017, $124 thousand in 2016, and $139 thousand in 2015.FDIC's amended restoration plan.

The Volcker Rule

TheA provision in the Dodd-Frank Act, known as the Volker Rule, amended the BHC Act to prohibit depository institutions and their affiliates from engaging in proprietary trading and from investing in, sponsoring, or having certain relationships with hedge funds or private equity funds, known as the Volcker Rule. These prohibitions are subject to a number of statutory exemptions, restrictions, and definitions. The Volcker Rule became effective on April 1, 2014, but the Federal Reserve extended the conformance period for certain requirements to July 21, 2017. Upon application of a banking entity, the Federal Reserve may provide an additional transition period of up to 5 years to conform investments in a limited class of legacy illiquid funds. The Volcker Rule, haswhich became effective in July 2015 and the implementing regulations of which were amended in 2019 and were subject to further amendment in 2020, does not had a material effect onsignificantly impact the operations of the Company and its subsidiaries, as the Company doeswe do not engagehave any engagement in the businesses prohibited by the Volcker Rule. The Company may incur costs to adopt additional policies and systems to ensure compliance with the Volcker Rule, but any such costs are not expected to be material.

Community Reinvestment Act

The CRA of 1977,, as amended, requires depository institutions to help meet the credit needs of their market areas, including low- andlow-and moderate-income individuals and communities, consistent with safe and sound banking practices. Federal banking regulators periodically examine depository institutions and assign ratings based on CRA compliance. A rating of less than satisfactory may restrict certain operating activities, delay or deny certain transactions, or result in an institution losing its financial holding company status. The Bank received a rating of satisfactory in its most recent CRA examination.

On October 24, 2023, the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency ("OCC") issued a final rule to strengthen and modernize the CRA regulations.  The final rule is intended, among other things, to adapt to changes in the banking industry, including the expanded role of mobile and online banking, and to tailor performance standards to account for differences in bank size and business models. The final rule introduces new tests under which the performance of banks with over $2 billion in assets will be assessed. The new rule also includes data collection and reporting requirements, some of which are applicable only to banks with over $10 billion in assets. The applicability date for the majority of the provisions in the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027.  An institution’s failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities. We received a “Satisfactory” CRA rating in our most recently completed federal examination.

Incentive Compensation

Federal regulatory agencies have issued comprehensive guidance intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidanceguidance is based on the key principles that a banking organization’s incentive compensation arrangements should (1) provide incentives that do not encourage risk-takingrisk taking beyond the organization’s ability to effectively identify and manage risks, (2) be compatible with effective internal controls and risk management, and (3) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

Federal banking regulators periodically examine the incentive compensation arrangements of banking organizations and incorporate any deficiencies in the organization’s supervisory ratings, which can affect certain operating activities. The FRB may initiate enforcement actions if the organization’s incentive compensation arrangements or related risk management, control, or governance processes pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies. The scope and content of the U.S. banking regulators’ policies on incentive compensation are continuing to develop. It cannot be determined at this time if or when a final rule will be adopted or if compliance with such a final rule will adversely affect the ability of the Company and its subsidiaries to hire, retain and motivate their key employees.

In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including NASDAQ, to implement listing standards that require listed companies to adopt policies mandating the recovery or “clawback” of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.  The NASDAQ's listing standards pursuant to the SEC's rule became effective on October 2, 2023. The Company adopted a compensation recovery policy pursuant to the NASDAQ listing standards on October 24, 2023. The policy is included as Exhibit 97.1 to this Form 10-K.

Anti-Tying Restrictions

The Bank and its affiliates are prohibited from tying the provision of certain services, such as extensions of credit, to other services offered by the Company.

Consumer Protection and Privacy

We are subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. These laws and regulations include the Mortgage Reform and Anti-Predatory Lending Act, the Truth in Lending Act, the Truth in Savings Act, the Home Mortgage Disclosure Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collections Practices Act, the Right to Financial Privacy Act, the Fair Housing Act, and various state law counterparts. These laws and regulations contain extensive customer privacy protection provisions that limit the ability of financial institutions to disclose non-public information about consumers to non-affiliated third parties and require financial institutions to disclose certain policies to consumers.

The CFPBConsumer Financial Protection Bureau (“CFPB”) is a federal agency with broad authority to implement, examine, and enforce compliance with federal consumer protection laws that relate to credit card, deposit, mortgage, and other consumer financial products and services. The CFPB may enforce actions to prevent and remedy unfair, deceptive, or abusive acts and practices related to consumer financial products and services. The agency has authority to impose new disclosure requirements for any consumer financial product or service. The CFPB may impose a civil penalty or injunction against an entity in violation of federal consumer financial laws. The CFPB has examination and enforcement authority over all banks with more than $10 billion in assets, as well as their affiliates.   As a bank with less than $10 billion in assets, the Bank is subject to these federal consumer financial laws, but continues to be examined for compliance by the Federal Reserve, its primary federal banking regulator, not the CFPB.

Cybersecurity

In March 2015,Various federal regulators issued two related statements about cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also addressstate laws and regulations contain extensive data privacy and cybersecurity provisions, and the risk posed by compromisedregulatory framework for data privacy and cybersecurity is rapidly evolving. The FRB, FDIC, and other bank regulatory agencies have adopted guidelines for safeguarding confidential, personal customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that ainformation. These guidelines require each financial institution,’s management is expected under the supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to create, implement, and maintain sufficient business continuity planning processesa comprehensive written information security program designed to ensure the rapid recovery, resumption,security and maintenanceconfidentiality of customer information, protect against any anticipated threats or hazards to the security or integrity of such information and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. In addition, various U.S. regulators, including the FRB and the SEC, have increased their focus on cyber security through guidance, examinations, and regulations.

At the federal level, the GLB Act requires financial institutions to implement policies and procedures regarding the disclosure of nonpublic personal information about consumers to non-affiliated third parties. In general, the statute requires explanations to consumers on policies and procedures regarding the disclosure of such nonpublic personal information and, except as otherwise required by law, prohibits disclosing such personal information except as provided in the financial institution’s policies and procedures.

In addition, in November 2021, the FRB, OCC, and FDIC adopted a new regulation that, among other things, requires a banking organization to notify its primary federal regulators within 36 hours after identifying a “computer-security incident” that the banking organization believes in good faith could materially disrupt or degrade its business or operations in a manner that would, among other things, jeopardize the viability of its operations, result in customers being unable to access their deposit and other accounts, result in a material loss of revenue, profit or franchise value, or pose a threat to the financial stability of the institution’s operations afterU.S.

In 2023, the SEC issued a cyber-attack involving destructive malware. A financial institutionfinal rule that requires disclosure of material cybersecurity incidents, as well as cybersecurity risk management, strategy and governance. Under this rule, banking organizations that are SEC registrants must generally disclose information about a material cybersecurity incident within four business days of determining it is also expectedmaterial with periodic updates as to develop appropriatethe status of the incident in subsequent filings as necessary.

See Item 1A. Risk Factors for a further discussion of risks related to cybersecurity and Item 1C. Cybersecurity for a further discussion of risk management strategies and governance processes related to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If the Bank fails to observe the regulatory guidance, the Bank could be subject to various regulatory sanctions, including financial penalties.cybersecurity.

Bank Secrecy Act and Anti-Money Laundering

The Bank is subject to the requirements of the Bank Secrecy Act and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (“USA PATRIOT Act”) of 2001. The USA PATRIOT Act broadened existing anti-money laundering legislation by imposing new compliance and due diligence obligations focused on detecting and reporting money laundering transactions. These laws and regulations require the Bank to implement policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identity of our customers. Violations can result in substantial civil and criminal sanctions. In addition, provisions of the USA PATRIOT Act require the federal financial regulatory agencies to consider the effectiveness of a financial institution's anti-money laundering activities when reviewing mergers and acquisitions.

The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the Bank Secrecy Act of 1970 (“BSA”), was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections.

OfficeOffice of Foreign Assets Control Regulation

The U.S. Department of the Treasury’s (“Treasury”) Office of Foreign Assets Control (“OFAC”) administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals, and others. OFAC publishes lists of specially designated targets and countries. We are responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them, and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious legal, financial, and reputational consequences, including causing applicable bank regulatory authorities to not approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.

Sarbanes-Oxley Act

The Sarbanes-Oxley Act (“SOXSOX Act”) of 2002 addresses a broad range of corporate governance, auditing and accounting, executive compensation, and disclosure requirements for public companies and their directors and officers. The SOX Act requires our Chief Executive Officer and Chief Financial Officer to certify the accuracy of certain information included in our quarterly and annual reports. The rules require these officers to certify that they are responsible for establishing, maintaining, and regularly evaluating the effectiveness of our financial reporting and disclosure controls and procedures; that they have made certain disclosures to the auditors and to the Audit Committee of the Board of Directors about our controls and procedures; and that they have included information in their quarterly and annual filings about their evaluation and whether there have been significant changes to the controls and procedures or other factors which would significantly impact these controls subsequent to their evaluation. Section 404 of the SOX Act requires management to undertake an assessment of the adequacy and effectiveness of our internal controls over financial reporting and requires our auditors to attest to and report on the effectiveness of these controls.

Climate-Related and Other ESG Developments

In recent years, federal, state and international lawmakers and regulators have increased their focus on financial institutions' and other companies' risk oversight, disclosures and practices in connection with climate change and other environmental, social and governance (“ESG”) matters. For example, in March 2022, the SEC issued a proposed rule on the enhancement and standardization of climate-related disclosures for investors. The proposed rule would require public issuers, including us, to significantly expand the scope of climate-related disclosures in their SEC filings. The SEC has also announced plans to propose rules to require enhanced disclosure regarding human capital management and board diversity for public issuers.

Available Information

We file annual, quarterly, and current reports; proxy statements; and other information with the SEC. You may read and copy any document we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for information about the public reference room. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information that issuers file electronically with the SEC. We maintain a website at www.firstcommunitybank.com that makes available, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other information, including any amendments to those reports as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC. You are encouraged to access these reports and other information about our business from the Investor Relations section of our website. The Investor Relations section contains information about our Board of Directors, executive officers, and corporate governance policies and principles, which include the charters of the standing committees of the Board of Directors, the Insider Trading Policy, and the Standards of Conduct governing our directors, officers, and employees. Information on our website is not incorporated by reference in this report.

The risk factors described below discuss potential events, trends, or other circumstances that could adversely affect our business, financial condition, results of operations, cash flows, liquidity, access to capital resources, and, consequently, cause the market value of our common stock to decline. These risks could cause our future results to differ materially from historical results and expectations of future financial performance. If any of the risks occur and the market price of our common stock declines significantly, individuals may lose all, or part, of their investment in our Company. Individuals should carefully consider our risk factors and information included, or incorporated by reference, in this report before making an investment decision. There may be risks and uncertainties that we have not identified or that we have deemed immaterial that could adversely affect our business; therefore, the following risk factors are not intended to be an exhaustive list of all risks we face.

Risks Related to Our Businessthe Economic Environment

The current economic environment poses significant challenges.

Our financial performance is generally highly dependent on the business environment in the markets in which we operate in and of the U.S. as a whole, which includes the ability of borrowers to pay interest, repay principal on outstanding loans, the value of collateral securing those loans, and demand for loans and other products and services we offer. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity, and investor or business confidence; limitations on the availability, or increases, in the cost of credit and capital; increases in inflation, interest rates, or interest rates;employee costs; high unemployment; natural disasters; or a combination of these or other factors.

In recent years, economic growth and business activity across a wide range of industries has been slow and uneven. There are continuing concerns related to the level of U.S. government debt, fiscal actions that may be taken to address that debt, oilenergy price volatility, global economic conditions, and significant uncertainty with respect to domestic and international fiscal and monetary policy. Economic and inflationary pressure on consumers and uncertainty about continuing economic improvement may result in changes in consumer and business spending, borrowing, and savings habits. There can be no assurance that these conditions will improve or that these conditions will not worsen. Such conditions could adversely affect the credit quality of the Bank’s loans and the Company’s business, financial condition, and results of operations.

Regulatory Risks

We operate in a highly regulated industry subject to examination, supervision, enforcement, and other legal actions by various federal and state governmental authorities, laws, and judicial and administrative decisions.

Congress and federal regulatory agencies continually review banking laws, regulations, and policies. Changes to these statutes, regulations, and regulatory policies, including changes in the interpretation or implementation, may cause substantial and unpredictable effects, require additional costs, limit the types of financial services and products offered, or allow non-banks to offer competing financial services and products. Failure to follow laws, regulations, and policies may result in sanctions by regulatory agencies and civil money penalties, which could have material adverse effects on our reputation, business, financial condition, and results of operations. We have policies and procedures designed to prevent violations; however, there is no assurance that violations will not occur. Existing and future laws, regulations, and policies yet to be adopted may make compliance more difficult or expensive; restrict our ability to originate, broker, or sell loans; further limit or restrict commissions, interest, and other charges earned on loans we originate or sell; and adversely affect our business, financial condition, and results of operations.

The Bank’sBank’s ability to pay dividends is subject to regulatory limitations that may affect the Company’s ability to pay expenses and dividends to shareholders.

The Company is a legal entity that is separate and distinct from its subsidiaries. The Company depends on the Bank and its other subsidiaries for cash, liquidity, and the payment of dividends to the Company to pay operating expenses and dividends to stockholders. There is no assurance that the Bank will have the capacity to pay dividends to the Company in the future or that the Company will not require dividends from the Bank to satisfy obligations. The Bank’s dividend payment is governed by various statutes and regulations. For additional information, see “Payment of Dividends” in Item 1 of this report. The Company may not be able to service obligations as they become due if the Bank is unable to pay dividends sufficient to satisfy the Company’s obligations, including our common stock. Consequently, the inability to receive dividends from the Bank could adversely affect the Company’s financial condition, results of operations, cash flows, and prospects.

We face strong competition from other financial institutions, financial service companies, and organizations that offer services similar to our offerings.

Our larger competitors may have substantially greater resources and lending limits, name recognition, and market presence that allow them to offer products and services that we do not offer and to price loans and deposits more aggressively than we do. The expansion of non-bank competitors, which may have fewer regulatory constraints and lower cost structures, over recent years has intensified competitive pressures on core deposit generation and retention. For additional information, see “Competition” in Item 1 of this report. Our success depends, in part, on our ability to attract and retain customers by adapting our products and services to evolving customer needs and industry and economic conditions. Failure to perform in any of these areas could weaken our competitive position, reduce deposits and loan originations, and adversely affect our financial condition, results of operations, cash flows, and prospects.

We may require additional capital in the future that may not be available when needed.

We may need to raise additional capital to strengthen our capital position, increase our liquidity, satisfy obligations, or pursue growth objectives. Our ability to raise additional capital depends on current conditions in capital markets, which are outside our control,Market and our financial performance. Certain economic conditions and declining market confidence may increase our cost of funds and limit our access to customary sources of capital, such as borrowings with other financial institutions, repurchase agreements, and availability under the FRB’s Discount Window. Events that limit access to capital markets and the inability to obtain capital may have a materially adverse effect on our business, financial condition, results of operations, and market value of common stock. We cannot provide any assurance that additional capital will be available, on acceptable terms or at all, in the future.

Liquidity risk could impair our ability to fund operations.

Liquidity is essential to our business and the inability to raise funds through deposits, borrowings, equity and debt offerings, or other sources could have a materially adverse effect on our liquidity. Company specific factors such as a decline in our credit rating, an increase in the cost of capital from financial capital markets, a decrease in business activity due to adverse regulatory action or other company specific event, or a decrease in depositor or investor confidence may impair our access to funding with acceptable terms adequate to finance our activities. General factors related to the financial services industry such as a severe disruption in financial markets, a decrease in industry expectations, or a decrease in business activity due to political or environmental events may impair our access to liquidity.Interest Rate Risk

We are subject to interest rate risk.

Interest rate risk results principally when interest-earning assets and interest-bearing liabilities reprice at differing times, when underlying rates change at different levels or in varying degrees, when there is an unequal change in the spread between two or more rates for different maturities, and when embedded options, if any, are exercised. Our earnings and cash flows are largely dependent upon net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, particularly, the Federal Reserve. Changes in monetary policy and interest rates could influence the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings. Further, such changes could also affect our ability to originate loans and obtain deposits and the fair value of our financial assets and liabilities. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income and earnings could be adversely affected. Conversely, if interest rates received on loans and other investments fall more quickly than interest rates paid on deposits and other borrowings, our net interest income and earnings could also be adversely affected.

Changes in the fair value of our investment securities may reduce stockholders’ equity and net income.

A decline in the estimated fair value of the Company's investment portfolio may result in a decline in stockholders’ equity, book value per common share, and tangible book value per common share. Unrealized losses are recorded even though the securities are not sold or held for sale. If a debt security is never sold and no credit impairment exists, the decrease is recovered at the security’s maturity. Equity securities have no stated maturity; therefore, declines in fair value may or may not be recovered over time. We conduct quarterly reviews of our securities portfolio to determine if unrealized losses are temporary or other than temporary. No assurance can be given that we will not need to recognize a credit loss for the decline in fair value in the future. Additional credit loss provision may materially affect our financial condition and earnings. For additional information, see Note 1, “Basis of Presentation and Significant Accounting Policies,” and Note 3, “Debt Securities,” to the Consolidated Financial Statements in Part II, Item 8 of this report.

The repeal of the federal prohibitions on payment of interest on demand deposits could increase our interest expense.

All federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts were repealed as part of the Dodd-Frank Act. We do not know what interest rates other institutions may offer as market interest rates begin to increase. Our interest expense will increase and net interest margin will decrease if we offer interest on demand deposits to attract additional customers or maintain current customers, which could have a material adverse effect on our business, financial condition, and results of operations.

Credit Risk

Our accounting estimates and risk management processes rely on analytical and forecasting models.

The processes we use to estimate probable loan losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depend upon analytical and forecasting models. These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If the models we use for interest rate risk and asset/liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the models used for determining probable loan losses are inadequate, the allowance for loancredit losses may not be sufficient to cover actual loan losses and an increase in the loan loss provision could materially and adversely affect our operating results. Federal regulatory agencies regularly review our loans and allowance for loancredit losses as an integral part of the examination process. There is no assurance that we will not, or that regulators will not require us to, increase our allowance in future periods, which could materially and adversely affect our earnings and profitability. If the models we use to measure the fair value of financial instruments are inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what we could realize upon the sale or settlement of such financial instruments. Any such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition, and results of operations. For additional information, see “Fair"Fair Value Measurements”Measurements" and “Allowance"Allowance for Loan Losses”Credit Losses" in the “Critical"Critical Accounting Estimates”Policies" section in Part II, Item 7 and Note 1, “Basis"Basis of Presentation and Significant Accounting Policies,”" to the Consolidated Financial Statements in Part II, Item 8 of this report.

Changes in the fair value of our investment securities may reduce stockholders’ equity and net income.

A decline in the estimated fair value of the investment portfolio may result in a decline in stockholders’ equity, book value per common share, and tangible book value per common share. Unrealized losses are recorded even though the securities are not sold or held for sale. If a debt security is never sold and no credit impairment exists, the decrease is recovered at the security’s maturity. Equity securities have no stated maturity; therefore, declines in fair value may or may not be recovered over time. We conduct quarterly reviews of our securities portfolio to determine if unrealized losses are temporary or other than temporary. No assurance can be given that we will not need to recognize other-than-temporary impairment (“OTTI”) charges in the future. Additional OTTI charges may materially affect our financial condition and earnings. For additional information, see “Investment Securities” in the “Critical Accounting Estimates” section in Part II, Item 7 and Note 1, “Basis of Presentation and Accounting Policies,” and Note 3, “Investment Securities,” to the Consolidated Financial Statements in Part II, Item 8 of this report.

We are subject to credit risk associated with the financial condition of other financial institutions.institutions

Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and investment securities. Financial institutions are interrelated as a result of trading, clearing, counterparty, and other relationships. We have exposure to different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, investment companies, and other institutional clients. Our ability to engage in routine funding transactions could be adversely affected by the failure, actions, and commercial soundness of other financial institutions. These transactions may expose us to credit risk if our counterparty or client defaults on their contractual obligation. Our credit risk may increase if the collateral we hold cannot be realized or liquidated at prices sufficient to recover the full amount of the loan or derivative exposure due to us. In the event of default, we may be required to provide collateral to secure the obligation to the counterparties. In the event of a bankruptcy or insolvency proceeding involving one of such counterparties, we may experience delays in recovering the assets posted as collateral or may incur a loss to the extent that the counterparty was holding collateral in excess of the obligation to such counterparty. Losses from routine funding transactions could have a material adverse effect on our financial condition and results of operations.

Our commercial loan portfolio may expose us to increased credit risk.

Commercial business and real estate loans generally have a higher risk of loss because loan balances are typically larger than residential real estate and consumer loans and repayment is usually dependent on cash flows from the borrower’sborrower’s business or the property securing the loan. Our commercial business loans are primarily made to small business and middle market customers. As of December 31, 2017,2023, commercial business and real estate loans totaled $1.01$1.66 billion, or 55.52%64.59%, of our total loan portfolio. As of the same date, our largest outstanding commercial business loan was $6.15$15.74 million and largest outstanding commercial real estate loan was $11.01$14.71 million. Commercial construction loans generally have a higher risk of loss due to the assumptions used to estimate the value of property at completion and the cost of the project, including interest. If the assumptions and estimates are inaccurate, the value of completed property may fall below the related loan amount. As of December 31, 2017,2023, commercial construction loans totaled $60.06$105.95 million, or 3.30% of4.12% our total loan portfolio. As of the same date, our largest outstanding commercial construction loan was $5.79$20.59 million. Losses from our commercial loan portfolio could have a material adverse effect on our financial condition and results of operations.

We are subject to environmental liability risk associated with lending activities.Operational Risks

A significant portionWe face strong competition from other financial institutions, financial service companies, and organizations that offer services similar to our offerings.

Our larger competitors may have substantially greater resources and lending limits, name recognition, and market presence that allow them to offer products and services that we do not offer and to price loans and deposits more aggressively than we do. The expansion of our loan portfolio is secured by real property. In the ordinary coursenon-bank competitors, which may have fewer regulatory constraints and lower cost structures, has intensified competitive pressures on core deposit generation and retention. For additional information, see "Competition" in Item 1 of business, we foreclosethis report. Our success depends, in part, on and take title to properties that secure certain loans. Hazardous or toxic substances could be found on properties we own. If substances are present, we may be liable for remediation costs, personal injury claims, and property damage and our ability to useattract and retain customers by adapting our products and services to evolving customer needs and industry and economic conditions. Failure to perform in any of these areas could weaken our competitive position, reduce deposits and loan originations, and adversely affect our financial condition, results of operations, cash flows, and prospects.

Liquidity risk could impair our ability to fund operations.

Liquidity is essential to our business and the inability to raise funds through deposits, borrowings, equity and debt offerings, or sellother sources could have a materially adverse effect on our liquidity. Company specific factors such as a decline in our credit rating, an increase in the property would be limited. We have policies and procedurescost of capital from financial capital markets, a decrease in place that requirebusiness activity due to adverse regulatory action or other company specific event, or a decrease in depositor or investor confidence may impair our access to funding with acceptable terms adequate to finance our activities. General factors related to the financial services industry such as a severe disruption in financial markets, a decrease in industry expectations, or a decrease in business activity due to political or environmental reviews before initiating foreclosure actions on real property; however, these reviewsevents may not detect all potential environmental hazards. Environmental laws that requireimpair our access to liquidity.  Additionally, negative news about us to incur substantial remediation costs,or the banking industry in general could negatively impact market and/or customer perceptions of our company, which could materially reduce the affected property’s value,lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits. Furthermore, as we and other liabilities associated with environmental hazardsregional banking organizations experienced in 2023, the failure of other financial institutions may cause deposit outflows as customers spread deposits among several different banks so as to maximize their amount of FDIC insurance, move deposits to banks deemed "too big to fail" or remove deposits from the banking system entirely. As of December 31, 2023, approximately 18.37% of our deposits were uninsured and we rely on these deposits for liquidity. A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operations.

Potential acquisitionsWe may disrupt require additional capital in the future that may not be available when needed.our business and dilute stockholder value.

We may seek mergerneed to raise additional capital to strengthen our capital position, increase our liquidity, satisfy obligations, or acquisition partners thatpursue growth objectives. Our ability to raise additional capital depends on current conditions in capital markets, which are culturally similar, have experienced management,outside our control, and possess either significantour financial performance. Certain economic conditions and declining market presence or the potential for improved profitability through financial management, economiesconfidence may increase our cost of scale, or expanded services. Risks inherent in acquiring other banks, businesses,funds and banking branches may include the following:

We regularly evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactionscapital, such as borrowings with other financial institutions, repurchase agreements, and financial services companies. Asavailability under the FRB’s Discount Window. Events that limit access to capital markets and the inability to obtain capital may have a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving the payment of cash or the issuance of debt or equity securities may occur at any time. Acquisitions typically involve goodwill, a purchase premium over the acquired company’s book and market values; therefore, dilution ofmaterially adverse effect on our tangible book value and net income per common share may occur. If we are unable to realize revenue increases, cost savings, geographic or product presence growth, or other projected benefits from acquisitions, ourbusiness, financial condition, and results of operations, mayand market value of common stock. We cannot provide any assurance that additional capital will be adversely affected.

Attractive acquisition opportunities may not be available, on acceptable terms or at all, in the future.

We expect banking and financial companies, which may have significantly greater resources, to compete for the acquisition of financial service businesses. This competition could increase the price of potential acquisitions that we believe are attractive. If we fail to receive proper regulatory approval, we will not be able to consummate an acquisition. Our regulators consider our capital, liquidity, profitability, regulatory compliance, level of goodwill and intangible assets, and other factors when considering acquisition and expansion proposals. Future acquisitions may be dilutive to our earnings and equity per share of our common stock.

We test goodwill for impairment annually, or more oftenfrequently if necessary,events or circumstances indicate there may be impairment, using either a quantitative or qualitative assessment. If we determine that the carrying amount of a reporting unit is greater than its fair value, a goodwill impairment charge is recognized for the difference, but limited to the amount of goodwill allocated to that reporting unit. Unfavorable or uncertain economic and qualitative factors. Impairmentmarket conditions may trigger additional impairment charges that may cause an adverse effect on our earnings and financial position. For additional information, see “Intangible Assets”“Goodwill” in the “Critical Accounting Estimates”Policies” section in Part II, Item 7 and Note 1, “Basis of Presentation and Significant Accounting Policies,” and Note 9,8, “Goodwill and Other Intangible Assets,” to the Consolidated Financial Statements in Part II, Item 8 of this report.

We are subject to certain obligations under FDIC loss share agreements that specify how to manage, service, report, and request reimbursement for losses incurred on covered assets.

Our ability to receive benefits under FDIC loss share agreements is subject to compliance with certain requirements, oversight and interpretation, and contractual term limitations. Our obligations under loss share agreements are extensive, and failure to follow any obligations could result in a specific asset, or group

We may be required to pay higher FDIC insurance premiums or special assessments.

Our deposits are insured up to applicable limits by the DIF of the FDIC and we are subject to deposit insurance assessments to maintain the DIF. For additional information, see “Deposit Insurance and Assessments” in Item 1 of this report. We are unable to predict future insurance assessment rates; however, deterioration in our risk-based capital ratios or adjustments to base assessment rates may result in higher insurance premiums or special assessments. The deterioration of banking and economic conditions and financial institution failures deplete the FDIC’s DIF and reduce the ratio of reserves to insured deposits. If the DIF is unable to meet funding requirements, increases in deposit insurance premium rates or special assessments may be required. Future assessments, increases, or required prepayments related to FDIC insurance premiums may negatively affect our financial condition and results of operations.

The repeal of the federal prohibitions on payment of interest on demand deposits could increase our interest expense.

All federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts were repealed as part of the Dodd-Frank Act. We do not know what interest rates other institutions may offer as market interest rates begin to increase. Our interest expense will increase and net interest margin will decrease if we offer interest on demand deposits to attract additional customers or maintain current customers, which could have a material adverse effect on our business, financial condition, and results of operations.

We may lose members of our management team and have difficulty attracting skilled personnel.

Our success depends, in part, on our ability to attract and retain key employees. Competition for the best people can be intense. The unexpected loss of key personnel could have a material adverse impact on our business due to the loss of certain skills, market knowledge, and industry experience and the difficulty of promptly finding qualified replacement personnel. Certain existing and proposed regulatory guidance on compensation may also negatively affect our ability to retain and attract skilled personnel.

Our operational capabilities depend on internal and third-party systems which could fail, be breached or otherwise be compromised. controls and procedures may fail or be circumvented.

We reviewrely on electronic communications and information systems, including those provided by third-party service providers, to conduct our internal controls over financial reporting quarterly and enhance controls in response to these assessments,business operations. Risks associated with our reliance on internal and external audit,third-party technology include cybersecurity incidents, operational failures and regulatory recommendations. A control system,service interruptions, misconduct by our employees or those of third parties, and reputational damages. First Community Bank cannot be certain that we will receive timely notification from our third parties of cyberattacks or other cybersecurity breaches affecting their systems. Like other financial institutions, First Community Bank experiences malicious cyber activity directed at our vendors and other service providers. There is no matter how well conceived and operated, includes certain assumptions and can only provide reasonable assuranceguarantee that the objectivesmeasures the Company takes will provide absolute security or recoverability given that the techniques used in cyberattacks are complex and frequently change and are difficult to anticipate. Our employees and third parties may expose the Company to risk as a result of human error, misconduct, malfeasance, or a failure or breach of systems and infrastructure. For example, the Company’s ability to conduct business may be adversely affected by any significant disruptions, including to third parties service providers. Our third-party service providers include large entities with significant market presence in their respective fields; therefore, their services could be difficult to replace quickly if there are operational failures or service interruptions.

We face cybersecurity risks which could result in the disclosure of confidential information, adversely affect the Company’s operations, cause reputational damage, and create significant legal and financial exposure.

First Community Bank and its customers, regulators, and other third parties, including other financial services institutions and companies engaged in data processing, have been subject to and are likely to continue to be the target of cyberattacks, such as denial of service attacks, hacking, malware or ransomware intrusion, data corruption attempts, terrorist activities, or identity theft. Cyberattacks may expose security vulnerabilities in the Company’s systems or the systems of third parties or other security measures that could result in the unauthorized gathering, monitoring, misuse, release, loss, or destruction of confidential, proprietary, or sensitive information. A cyberattack could also damage the Company’s systems by introducing material disruptions to the Company’s or the Company’s customers’ or other third parties’ network access or business operations. As cyber threats continue to evolve, the Company may be required to expend significant additional resources to continue to modify or enhance the Company’s protective measures or to investigate and remediate any information security vulnerabilities or incidents. Despite efforts to ensure the integrity of the Company’s systems and implement controls, processes, policies and other protective measures, the Company may not be able to anticipate all security breaches, nor may the Company be able to implement sufficient preventive measures against such security breaches, which may result in material losses or other adverse consequences.

Even the most advanced internal control system are met. These controlsenvironment may be circumventedvulnerable to compromise. Persistent attackers may succeed in penetrating defenses given enough resources, time, and motive. The techniques used by individual acts, collusion,cyber criminals change frequently and may not be recognized until launched or management override. Any failurewell after a breach has occurred. In addition, the existence of cyberattacks or security breaches at third-party vendors with access to the Company’s data may not be disclosed to the Company in a timely manner.

A successful penetration or circumvention relatedof system security could cause serious negative consequences, including loss of customers and business opportunities; costs associated with maintaining business relationships after an attack or breach; significant disruption to our controlsthe Company’s operations and proceduresbusiness; misappropriation, exposure or failuredestruction of the Company’s confidential information, intellectual property, funds and those of the Company’s customers; damage to follow regulations related to controlsthe Company’s or the Company’s customers’ or third parties’ computers or systems; or a violation of applicable privacy laws and proceduresother laws. This could have a material adverse effect on our business, reputation,result in litigation exposure, regulatory fines, penalties, loss of confidence in the Company’s security measures, reputational damage, reimbursement or other compensatory costs, and additional compliance costs, which could adversely impact the Company’s results of operations, liquidity, and financial condition. In addition, the Company may not have adequate insurance coverage to compensate for losses from a cybersecurity event.

We continue to encounter technological changeand must effectively anticipate and implement new technology.are subject to information security risks associated with technology.

The financial services industry continues to experience rapid technological change with the introduction of new, and increasingly complex, technology-driven products and services. The effective use of technology increases operational efficiency that enables financial service institutions to reduce costs.meet rapidly evolving customer demands. Our future success depends, in large part, on our ability to provide products and services that satisfactorily meet the financial needs of our customers, as well as to realize additional efficiencies in our operations. We may fail to use technology-driven products and services effectively to better serve our customers and increase operational efficiency or sufficiently invest in technology solutions and upgrades to ensure systems are operating properly. Further, many of our competitors have substantially greater resources to invest in technology, which may adversely affect our ability to compete.

We rely on electronic communications and information systems, including those provided by third-party vendors, to conduct our business operations. Our security risks increase as our reliance on technology increases; consequently, the expectation to safeguard information by monitoring systems for potential failures, disruptions, and breakdowns has also increased. Risks associated with technology include security breaches, operational failures and service interruptions, and reputational damages. These risks also apply to our third-party service providers. Our third-party vendors include large entities with significant market presence in their respective fields; therefore, their services could be difficult to replace quickly if there are operational failures or service interruptions.

We rely on our technology-driven systems to conduct daily business and accounting operations that include the collection, processing, and retention of confidential financial and client information. We may be vulnerable to security breaches, such as employee error, cyber-attacks, and viruses, beyond our control. In addition to security breaches, programming errors, vandalism, natural disasters, terrorist attacks, and third-party vendor disruptions may cause operational failures and service interruptions to our communication and information systems. Further, our systems may be temporarily disrupted during implementation or upgrade. Security breaches and service interruptions related to our information systems could damage our reputation, which may cause us to lose customers, subject us to regulatory scrutiny, or expose us to civil litigation and financial liability.

Our customers and employees have been, and will continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate passwords, bank account information or other personal information, or to introduce viruses or other malware through "Trojan horse" programs to our information systems and/or our customers' computers. Though we endeavor to mitigate these threats through product improvements, use of encryption and authentication technology, and customer and employee education, such cyber-attacks against us or our merchants and our third-party service providers remain a serious issue. The pervasiveness of cybersecurity incidents in general and the risks of cyber-crime are complex and continue to evolve. More generally, publicized information about security and cyber-related problems could inhibit the use or growth of electronic or web-based applications or solutions as a means of conducting commercial transactions.

While we have not experienced a significant compromise, significant data loss, or any material financial losses related to cybersecurity attacks, our systems and those of our customers and third-party service providers are under constant threat and it is possible that we could experience a significant event in the future. Although we make significant efforts to maintain the security and integrity of our information systems and have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because attempted security breaches, particularly cyber-attacks and intrusions, or disruptions will occur in the future, and because the techniques used in such attempts are constantly evolving and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is virtually impossible for us to entirely mitigate this risk. A security breach or other significant disruption of our information systems or those related to our customers, merchants and our third-party vendors, including as a result of cyber-attacks, could (1) disrupt the proper functioning of our networks and systems and therefore our operations and/or those of our customers; (2) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise valuable information of ours or our customers; (3) result in a violation of applicable privacy, data breach and other laws, subjecting us to additional regulatory scrutiny and expose us to civil litigation, governmental fines and possible financial liability; (4) require significant management attention and resources to remedy the damages that result; or (5) harm our reputation or cause a decrease in the number of customers who choose to do business with us. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

We may be subject subject to claims and litigation pertaining to intellectual property.

Banking and other financial services companies, such as the Company, rely on technology companies to provide information technology products and services necessary to support the Company’s day-to-day operations. Technology companies often enter into litigation based on allegations of patent infringement or other violations of intellectual property rights. In addition, patent holding companies seek to monetize patents they have purchased or otherwise obtained. Competitors of the Company’s vendors, or other individuals or companies, have from time to time claimed to hold intellectual property sold to the Company by its vendors. Such claims may increase in the future as the financial services sector becomes more reliant on information technology vendors. The plaintiffs in these actions often seek injunctions and substantial damages.

Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, the Company may have to engage in protracted litigation. Such litigation is often expensive, time consuming, disruptive to the Company’s operations, and distracting to management. If the Company is found to have infringed on one or more patents or other intellectual property rights, it may be required to pay substantial damages or royalties to a third party. In certain cases, the Company may consider entering into licensing agreements for disputed intellectual property, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur. These licenses may also significantly increase the Company’s operating expenses. If legal matters related to intellectual property claims were resolved against the Company or settled, the Company could be required to make payments in amounts that could have a material adverse effect on its business, financial condition, and results of operations.

Risks Related to Our Common Stock

The market price of our common stock may be volatile.

Stock price volatility may make it more difficult for our stockholders to resell their common stock when desired. Our common stock price may fluctuate significantly due to a variety of factors that include the following:

General market fluctuations;fluctuations; industry factors; political conditions; and general economic conditions and events, such as economic slowdowns, recessions, interest rate changes, or credit loss trends, could also cause our common stock price to decrease regardless of operating results.

The trading volume in our common stock is less than that of other larger financial services companies.

Although our common stock is listed for trading on the NASDAQ, the trading volume in our common stock is less than that of other, larger financial services companies. A public trading market having the desired characteristics of depth, liquidity, and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the lower trading volume of our common stock, significant sales of our common stock or the expectation of these sales could cause our stock price to fall.

We may not continue to pay dividends on our common stock in the future.

Our common stockholders are only entitled to receive dividends when declared by our Board of Directors from funds legally available for such payments. Although we have historically declared cash dividends on our common stock, we are not required to do so, and may reduce or eliminate our common stock dividend in the future. This could adversely affect the market price of our common stock. As a financial holding company, the Company’s ability to declare and pay dividends is dependent on certain federal regulatory considerations, including the guidelines of the Federal Reserve about capital adequacy and dividends. For additional information, see “Payment of Dividends” in Item 1 of this report.

General Risks

We are subject to environmental liability risk associated with lending activities.

A significant portion of our loan portfolio is secured by real property. In the ordinary course of business, we foreclose on and take title to properties that secure certain loans. Hazardous or toxic substances could be found on properties we own. If substances are present, we may be liable for remediation costs, personal injury claims, and property damage and our ability to use or sell the property would be limited. We have policies and procedures in place that require environmental reviews before initiating foreclosure actions on real property; however, these reviews may not detect all potential environmental hazards. Environmental laws that require us to incur substantial remediation costs, which could materially reduce the affected property’s value, and other liabilities associated with environmental hazards could have a material adverse effect on our financial condition and results of operations.

Potential acquisitions may disrupt our business and dilute stockholder value.

We may seek merger or acquisition partners that are culturally similar, have experienced management, and possess either significant market presence or the potential for improved profitability through financial management, economies of scale, or expanded services. Risks inherent in acquiring other banks, businesses, and banking branches may include the following:

We regularly evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions with other financial institutions and financial services companies. As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving the payment of cash or the issuance of debt or equity securities may occur at any time. Acquisitions typically involve goodwill, a purchase premium over the acquired company’s book and market values; therefore, dilution of our tangible book value and net income per common share may occur. If we are unable to realize revenue increases, cost savings, geographic or product presence growth, or other projected benefits from acquisitions, our financial condition and results of operations may be adversely affected.

Attractive acquisition opportunities may not be available in the future.

We expect banking and financial companies, which may have significantly greater resources, to compete for the acquisition of financial service businesses. This competition could increase the price of potential acquisitions that we believe are attractive. If we fail to receive proper regulatory approval, we will not be able to consummate an acquisition. Our regulators consider our capital, liquidity, profitability, regulatory compliance, level of goodwill and intangible assets, and other factors when considering acquisition and expansion proposals. Future acquisitions may be dilutive to our earnings and equity per share of our common stock.

We may lose members of our management team and have difficulty attracting skilled personnel.

Our success depends, in large part, on our ability to attract and retain key employees. Competition for the best people can be intense. The unexpected loss of key personnel could have a material adverse impact on our business due to the loss of certain skills, market knowledge, and industry experience and the difficulty of promptly finding qualified replacement personnel. Certain existing and proposed regulatory guidance on compensation may also negatively affect our ability to retain and attract skilled personnel.

Our internal controls and procedures may fail or be circumvented.

We review our internal controls over financial reporting quarterly and enhance controls in response to these assessments, internal and external audit, and regulatory recommendations. A control system, no matter how well conceived and operated, includes certain assumptions and can only provide reasonable assurance that the objectives of the control system are met. These controls may be circumvented by individual acts, collusion, or management override. Any failure or circumvention related to our controls and procedures or failure to follow regulations related to controls and procedures could have a material adverse effect on our business, reputation, results of operations, and financial condition.

We are subject to environmental, social and governance ("ESG") risks that could adversely affect the Company's results of operations, reputation, and the market price of its securities.

Certain investors have begun to consider the steps taken and resources allocated by financial institutions and other commercial organizations with respect to ESG matters when making investment decisions. Certain investors are beginning to incorporate the business risks of ESG regulation and activism and the adequacy of companies’ responses to these into their investment decisions. These shifts in investing priorities may result in adverse effects on the market price of the Company’s securities.

The U.S. Congress, state legislatures and federal and state regulatory agencies, as well as certain stock exchanges, continue to propose numerous initiatives related to ESG matters. Similar and even more expansive initiatives are expected under the current administration, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting practices, and credit portfolio concentrations management practices. The lack of empirical data surrounding the credit and other financial risks posed by ESG regulation and activism render it impossible to predict how specifically ESG matters may impact the Company’s financial condition and results of operations.

Specifically, environmental activism may adversely impact the economic viability of many of the Company’s deposit and loan customers in our West Virginia and southwestern Virginia markets. We have customers who operate in carbon-intensive industries like coal, oil and gas that are exposed to climate activism risks and those risks created by a transition to a less carbon-dependent economy, as well as customers who operate in low-carbon industries that may be subject to risks associated with new technologies. Further, the effects of climate change activism may negatively impact regional and local economic activity, which could impact the economies of the communities the Company serves and in which we operate. The Company’s business, reputation and ability to attract and retain employees and customers may also be harmed if our response to ESG activism is perceived to be excessive or insufficient.

Federal and state banking regulators and supervisory authorities, investors and other stakeholders have increasingly viewed financial institutions as a tool to effect ESG activism, both directly and with respect to their customers, which may result in financial institutions coming under increased pressure regarding the disclosure and management of ESG matters. Given that ESG matters could impose systemic risks upon the financial sector, either via disruptions in economic activity resulting from activism, the Company faces increasing focus on our resilience to ESG risks. Ongoing legislative or regulatory uncertainties and changes regarding ESG risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs.

None.None.

Cybersecurity Risk Management and Strategy

Cybersecurity risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies to facilitate and conduct financial transactions. The Company maintains a comprehensive risk-based cybersecurity program to identify, measure, manage, and disclose material cybersecurity risks. The Company utilizes the Federal Financial Institution Examination Council’s ("FFIEC") Cybersecurity Assessment Tool ("CAT") as a diagnostic test to help identify the Company’s cyber risk level and determine the maturity of our cybersecurity program. The CAT is supplemented by an annual self-assessment and external audits and reviews, the results of which drive the development and implementation of the Company’s cybersecurity strategy to ensure that cyber risk management practices are aligned with the risk profile of the Company. 

The Company uses the Center for Internet Security ("CIS") Critical Security Controls framework to balance cybersecurity risk exposure with investment in mitigation strategies. This framework provides a prescriptive, prioritized set of cybersecurity safeguards that fully align with those of the National Institute of Standards and Technology, the International Standards Organization 27000 series, and the requirements and guidance from applicable regulatory authorities, including the Federal Financial Institutions Examination Council.

The Company’s cybersecurity strategy is enabled by people, processes, and technology that provide multilayered defenses including advanced capabilities for early and rapid cyber threat identification, detection, protection, response, and recovery. The Company employs a team of dedicated, skilled talent to operationalize the cybersecurity strategy. The internal team is supported by arrangements with a third party to provide continuous endpoint monitoring and incident response. 

The Company’s entire workforce receives mandatory cybersecurity training that includes quarterly social engineering exercises and informative online courses assigned based on assessed skill gaps. The Company also provides cyber risk awareness guidance to customers and promotes customer cyber hygiene through periodic communications. The Company conducts scenario-driven test exercises simulating impacts and consequences developed through analysis of real-world cybersecurity incidents as well as known and anticipated cyber threats. These exercises are designed to assess the viability of the Company’s incident response and management programs and provide the basis for continuous improvement.

The Company actively monitors and evaluates threats, events, and the performance of its business operations and continually adapts its risk mitigation activities accordingly. To that end, the Company maintains a comprehensive vulnerability management program that includes regular internal scans of the entire network to identify and measure the severity of security vulnerabilities, a team of dedicated network engineers who are responsible for fixing identified vulnerabilities within pre-defined timeframes based on severity, and at least annual independent network penetration testing by a qualified third party.  

Cyber risk monitoring also includes the Company’s arrangements with and exposure to third party service providers. We identify the criticality of our third-party service providers, in part, by determining their use of and access to confidential customer information. We conduct comprehensive cybersecurity reviews on all third parties that have access to confidential information. Our third-party reviews make use of technology that provides significant visibility into third party organizations, in real time, to assess third party compliance with a host of globally recognized IT security standards and frameworks and the likelihood of a cyberattack on a third party.

The Company also maintains a robust firewall system and firewall management program to restrict inbound and outbound network traffic. A dedicated team of network engineers manages firewall rulesets and monitors firewall health and alerting.

The risks from cybersecurity threats have not materially affected the Company’s business strategy, results of operations, or financial condition. Although the Company has invested substantial resources to manage and reduce cybersecurity risk, it is not possible to eliminate this risk. The Company obtains insurance that protects against certain losses, expenses, and damages associated with cybersecurity risk. See Item 1A, “Risk Factors,” for additional information regarding cybersecurity risk.
 
Cybersecurity Governance

The Company’s Board of Directors devotes significant time and attention to its oversight of cybersecurity risk. Select members of the Board serve on the Information Systems Steering Committee ("ISSC"), which is responsible for approving IT strategic plans and all IT-related policies and for oversight of the information security program, among other matters. To fulfill its responsibilities, the ISSC receives periodic reports on the cybersecurity risk management program, including information security risks and incidents, emerging threats, and both internal and independent audit reports on the effectiveness of the control environment. 

Executive leadership is responsible for management of the cybersecurity program. The IT Security Director supervises daily operations of the cybersecurity program and reports directly to the Chief Risk Officer ("CRO"). The CRO chairs the Information Security Sub-Committee ("Sub-Committee"), a management committee that meets at least monthly to receive regular updates on the status of the cybersecurity risk management program and strategic cyber initiatives. The Sub-Committee’s actions and activities are reviewed by the ISSC at least quarterly. The Company has a management level Change Control Board ("CCB") which is responsible for reviewing and approving actions of the vulnerability management team, changes to hardware/software including the introduction of new hardware/software, and changes to firewall rulesets. The IT Security Director serves as a voting member of the CCB. Additionally, the Company has a Cyber Incident Response Team ("CIRT") which includes key members of management including the CRO and IT Security Director. The CIRT manages significant cyber-specific events with escalation up to executive leadership and the Board. 

We own ourour corporate headquarters located at One Community Place, Bluefield, Virginia. As of December 31, 2017,2023, the Bank provided financial services through a network of  44 branch locations in West Virginia (18(17 branches), Virginia (19(23 branches), North Carolina (5(11 branches), and Tennessee (2 branches). We own 42all of these branchesthe branch locations with the exception of two branch locations which are leased; one location in West Virginia and lease the remaining 2 branches. We also lease a loan production office and own a wealth management office and a call center location.other in North Carolina.  As of December 31, 2017,2023, there were no mortgages or liens against any properties. We believe that our properties are suitable and adequate to serve as financial services facilities. A list of all branch and ATM locations is available on our website at www.firstcommunitybank.com. Information contained on our website is not part of this report. For additional information, see Note 8,7, “Premises, Equipment, and Leases,” to the Consolidated Financial Statements in Part II, Item 8 of this report.

We are currently a defendant in various legal actions and asserted claims in the normal course of business. Although we are unable to assess the ultimate outcome of each of these matters with certainty, we are of the belief that the resolution of these actions should not have a material adverse effect on our financial position, results of operations, or cash flows.

None.None.

PARTPART II

Market Information Holders, and DividendsHolders

Our common stock is traded on the NASDAQ Global Select Market under the symbol FCBC. As of February 28, 2018,March 1, 2024, there were 2,3373,619 record holders and 16,945,75618,470,596 outstanding shares of our common stock. The following table presents the high and low stock prices and cash dividends paid per share of our common stock for the periods indicated:

			Year Ended December 31,
			2017												2016
			Sale Price								Cash Dividends per				Sale Price								Cash Dividends per
			High				Low				Common Share				High				Low				Common Share
First quarter			$	30.86			$	23.23			$	0.16			$	19.93			$	16.67			$	0.14
Second quarter				28.80				24.06				0.16				22.74				19.03				0.14
Third quarter				29.80				24.02				0.18				25.24				21.53				0.16
Fourth quarter				32.24				26.97				0.18				31.94				20.47				0.16

Common stock cash dividends totaled $11.56 million in 2017, $10.40 million in 2016, and $9.99 million in 2015. Cash dividends paid per common share totaled $0.68 in 2017, $0.60 in 2016, and $0.54 in 2015. The Company’s ability to pay dividends on its common stock is dependent on the Bank’s ability to pay dividends to the Company, which is subject to various regulatory restrictions and limitations. For additional information, see “Payment of Dividends” in Part I, Item 1 of this report.

During the first quarter of 2015, the Company notified holders of its 6% Series A Noncumulative Convertible Preferred Stock (“Series A Preferred Stock”) of its intent to redeem all of the outstanding shares. Prior to 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. As a result of the redemption, there were no shares of Series A Preferred Stock outstanding as of December 31, 2017, December 31, 2016, or December 31, 2015. Series A Preferred Stock cash dividends totaled $105 thousand in 2015.

Purchases of Equity Securities

 

We repurchased 50,118768,079 shares of our common stock in 2017, 1,182,2942023, 706,117 shares of our common stock in 2022, and 949,386 shares in 2016, and 1,238,299 shares in 2015. 2021.  

The following table provides information about purchases of our common stock made by us or on our behalf by any affiliated purchaser, as defined in Rule 10b-18(a)(3) under the Exchange Act, during the periods indicated:

 

		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of a Publicly Announced Plan				Maximum Number of Shares that May Yet be Purchased Under the Plan(1)
October 1-31, 2023			138,100			$	30.65				138,100				2,553,900
November 1-30, 2023			42,900				33.96				42,900				2,511,000
December 1-31, 2023			8,500				34.12				8,500				2,502,500
Total			189,500			$	31.55				189,500

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		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of a Publicly Announced Plan				Maximum Number of Shares that May Yet be Purchased Under the Plan(1)
October 1-31, 2017			-			$	-				-				613,071
November 1-30, 2017			-				-				-				613,071
December 1-31, 2017			-				-				-				616,447
Total			-			$	-				-

(1)

Our stockIn September 2023, the Board of Directors approved a repurchase plan as amended, authorizesto repurchase 2,700,000 shares and terminated the purchaseshare repurchase plan adopted in January, 2021.  The 2021 plan would have expired December 2023.  The timing, price, and retentionquantity of up to 5,000,000 shares. Thepurchases under the repurchase plan has no expiration dateare at the discretion of management and is currently in effect. No determination has been made to terminate the repurchase plan may be discontinued, suspended or to cease making purchases. We held 4,383,553 shares in treasury as of December 31, 2017.restarted at any time depending on the facts and circumstances.

 

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Stock Performance Graph

 

The following graph, compiled by SNL Financial LCS&P Global Market Intelligence (“SNL”S&P Global”), compares the cumulative total shareholder return on our common stock for the five years ended December 31, 2017,2023, with the cumulative total return of the S&P 500 Index, the NASDAQ Composite Index, and SNL’sS&P Global’s Asset Size & Regional Peer Group. The Asset Size & Regional Peer Group consists of 4847 bank holding companies with total assets between $1 billion and $5 billion that are located in the Southeast Region of the United States and traded on NASDAQ, the OTC Bulletin Board, and pink sheets. The cumulative returns assume that $100 was originally invested on December 31, 2012,2018, and that all dividends are reinvested.

 

 

		Year Ended December 31,																								Year Ended December 31,
		2012				2013				2014				2015				2016				2017				2018				2019				2020				2021				2022				2023
First Community Bancshares, Inc.			100.00				107.80				109.87				128.17				213.40				208.43
First Community Bankshares, Inc.																											100.00				101.42				73.86				118.56				124.63				141.73
S&P 500 Index			100.00				132.39				150.51				152.59				170.84				208.14				100.00				131.49				155.68				200.37				164.08				207.21
NASDAQ Composite Index			100.00				140.12				160.78				171.97				187.22				242.71				100.00				136.69				198.10				242.03				163.28				236.17
SNL Asset & Regional Peer Group(1)			100.00				119.35				130.28				146.71				196.01				220.52
S&P Global Asset & Regional Peer Group(1)																											100.00				120.00				96.19				137.45				130.50				128.73

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(1) Includes the following institutions: Access National Corporation; American National Bankshares Inc.; AtlanticAuburn National Bancorporation, Inc.; BankFirst Capital Bancshares, Inc.; Bear StateCorporation; BayFirst Financial Inc.Corp.; Burke & Herbert Bank & Trust Company;Financial Services Corp.; C&F Financial Corporation; Capital City Bank Group, Inc.; CapStar Financial;Financial Holdings, Inc.; CarolinaCarter Bankshares, Inc.; Chesapeake Financial Corporation; Carter Bank & Trust; Charter Financial Corporation;Shares, Inc.; Citizens Bancorp Investment, Inc.; Citizens Holding Company; City Holding Company; CNB Corporation;CoastalSouth Bancshares, Inc.; Colony Bankcorp, Inc.; Community Bankers Trust Corporation; EntegraDogwood State Bank; Eagle Financial Services, Inc.; F&M Bank Corp.; Fidelity Southern Corporation; First Bancorp; First Bancorp, Inc.; First Bancshares, Inc.; First Citizens Bancshares,FineMark Holdings, Inc.; First Community Bankshares, Inc.; First Community Corporation;  First National Corporation; First US Bancshares, Inc.; First Farmers and Merchants Corporation; Hamilton State Bancshares,Freedom Financial Holdings, Inc.; FVCBankcorp, Inc.; HomeTrust Bancshares, Inc.; Live OakJohn Marshall Bancorp, Inc.; MainStreet Bancshares, Inc.; MetroCity Bankshares, Inc.; Morris State Bancshares, Inc.; Mountain Commerce Bancorp, Inc.; MVB Financial Corp.; National Bankshares, Inc.; National Commerce Corporation; Paragon CommercialNewtekOne, Inc.; Oakworth Capital, Inc.; Old Point Financial Corporation; Peoples Bancorp of North Carolina, Inc.; PremierPrimis Financial Bancorp,Corp.; Skyline Bankshares, Inc.; Reliant Bancorp, Inc.; SmartFinancial, Inc.; Southern BancShares (N.C.),South Atlantic Bancshares, Inc.; Southern First Bancshares, Inc.;  Southern National Bancorp of Virginia,States Bancshares, Inc.; Summit Financial Group, Inc.; TGRUnited Bancorporation of Alabama, Inc.; USCB Financial Holdings, Inc.; and Wilson Bank HoldingUwharrie Capital Corp.; Virginia National Bankshares Corporation; White River Bancshares, Co.

 

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Item 6.

Selected Financial Data.

The following table presents selected consolidated financial data, derived from the audited financial statements, as of and for the five years ended December 31, 2017. This information should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8, “Financial Statements and Supplementary Data,” of this report.

		Year Ended December 31,
(Amounts in thousands, except share and per share data)		2017				2016				2015				2014				2013
Selected Balance Sheet Data
Investment securities		$	190,729			$	212,712			$	438,714			$	384,065			$	520,388
Loans			1,817,184				1,852,948				1,706,541				1,691,208				1,711,604
Allowance for loan losses			19,276				17,948				20,233				20,227				24,077
Total assets			2,388,460				2,386,398				2,462,276				2,607,936				2,602,514
Average assets			2,370,321				2,455,458				2,520,934				2,608,570				2,661,602
Deposits			1,929,891				1,841,338				1,873,259				2,000,759				1,950,742
Borrowings			80,086				178,713				219,370				229,741				300,396
Total liabilities			2,037,746				2,047,341				2,119,259				2,256,562				2,273,908
Preferred stock			-				-				-				15,151				15,251
Total stockholders' equity			350,714				339,057				343,017				351,374				328,606
Average stockholders' equity			349,701				338,475				348,199				342,619				355,611
Summary of Operations
Interest income		$	95,308			$	94,724			$	96,102			$	106,108			$	109,476
Interest expense			8,090				9,844				11,349				15,290				17,834
Net interest income			87,218				84,880				84,753				90,818				91,642
Provision for loan losses			2,771				1,255				2,191				145				8,208
Noninterest income			26,248				27,066				29,530				30,003				29,771
Noninterest expense			68,582				72,746				76,171				82,862				78,985
Income tax expense			20,628				12,819				11,381				12,324				10,908
Net income			21,485				25,126				24,540				25,490				23,312
Dividends on preferred stock			-				-				105				910				1,024
Net income available to common shareholders			21,485				25,126				24,435				24,580				22,288
Selected Share and Per Share Data
Basic earnings per common share		$	1.26			$	1.45			$	1.32			$	1.34			$	1.13
Diluted earnings per common share			1.26				1.45				1.31				1.31				1.11
Cash dividends per common share			0.68				0.60				0.54				0.50				0.48
Book value per common share at year-end(1)			20.63				19.95				18.95				18.06				16.79
Weighted average basic shares outstanding			17,002,116				17,319,689				18,531,039				18,406,363				19,792,099
Weighted average diluted shares outstanding			17,077,842				17,365,524				18,727,464				19,483,054				20,961,800
Selected Ratios
Return on average assets			0.91	%			1.02	%			0.97	%			0.94	%			0.84	%
Return on average common equity			6.14	%			7.42	%			7.08	%			7.51	%			6.57	%
Average equity to average assets			14.75	%			13.78	%			13.81	%			13.13	%			13.36	%
Dividend payout			53.81	%			41.36	%			40.95	%			37.44	%			42.62	%
Common equity Tier 1 ratio(2)			13.98	%			13.88	%			14.54	%		NA				NA
Total risk-based capital ratio			15.06	%			15.79	%			15.95	%			17.68	%			16.44	%
Tier 1 risk-based capital ratio			13.98	%			14.74	%			14.73	%			16.43	%			15.19	%
Tier 1 leverage ratio			11.06	%			11.07	%			10.62	%			10.12	%			9.95	%

(1) Book value per common share is defined as stockholders' equity divided by as-converted common shares outstanding.Reserved

(2) The common equity Tier 1 ratio became effective on January 1, 2015.

 

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Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Item7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our financial condition, changes in financial condition, and results of operations. MD&A contains forward-looking statements and should be read in conjunction with our consolidated financial statements, accompanying notes, and other financial information included in this report. Unless the context suggests otherwise, the terms “First Community,” “Company,” “we,” “our,” and “us” refer to First Community Bancshares, Inc. and its subsidiaries as a consolidated entity.

 

Executive Overview

 

First Community Bancshares,Bankshares, Inc. (the “Company”) is a financial holding company, headquartered in Bluefield, Virginia, that provides banking products and services through its wholly owned subsidiary First Community Bank (the “Bank”), a Virginia chartered bank150 year-old Virginia-chartered banking institution. Unless the context suggests otherwise, the terms “First Community,” “Company,” “we,” “our,” and “us” refer to First Community Bankshares, Inc. and its subsidiaries as a consolidated entity.  As of December 31, 2017,2023, the Bank operated 4453 branches as First Community Bank in Virginia, West Virginia, and North Carolina and as People’s Community Bank, a Division of First Community Bank, in Tennessee. Our primary source of earnings is net interest income, the difference between interest earned on assets and interest paid on liabilities, which is supplemented by fees for services, commissions on sales, and various deposit service charges. We fund our lending and investing activities primarily through the retail deposit operations of our branch banking network and, to a lesser extent,supplemented by retail and wholesale repurchase agreements and Federal Home Loan Bank (“FHLB”) borrowings. We invest our funds primarily in loans to retail and commercial customers and various investment securities.

 

The Bank offers trust management, estate administration, and investment advisory services through its Trust Division and wholly owned subsidiary First Community Wealth Management (“FCWM”). The Trust Division manages inter vivos trusts and trusts under will, develops and administers employee benefit and individual retirement plans, and manages and settles estates. Fiduciary fees for these services are charged on a schedule related to the size, nature, and complexity of the account. Revenues consist primarily of commissions on assets under management and investment advisory fees. As of December 31, 2017,2023, the Trust Division and FCWM managed $957 millionand administered $1.49 billion in combined assets under various fee-based arrangements as fiduciary or agent.

 

On April 21, 2023, the Company completed the acquisition of Surrey Bancorp.  Total assets of $466.25 million were acquired in the transaction.  In addition the Company issued 2.99 million common shares in the transaction.  The Bank offers insurance productspurchase transaction created $14.38 million in goodwill and services through its wholly owned subsidiary First Community Insurance Services (“FCIS”). FCIS provides in-branch commercial and insurance services$12.7 million in Virginia and West Virginia. Revenues are primarily derived from commissions paid by issuing companies onother intangible assets. The Company completed the sale of policies.

Ourits Emporia, Virginia branch to Benchmark Community Bank on September 16, 2022, which resulted in a gain of $1.66 million. The Company had no acquisition and divestiture activity during the three years ended December 31, 2017, includes the sale of Greenpoint Insurance Group, Inc. (“Greenpoint”) to Ascension Insurance Agency, Inc. on October 31, 2016, and the simultaneous sale of six branches to and purchase of seven branches from First Bank on July 15, 2016.2021.    For additional information, see Note 2, “Acquisitions and Divestitures,” to the Consolidated Financial Statements in Item 8 of this report.

 

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Critical Accounting EstimatesPolicies

 

Our consolidated financial statements are prepared in conformity with generally accepted accounting principles (“GAAP”) in the U.S. and prevailing practices in the banking industry. Our accounting policies, as presented in Note 1, “Basis of Presentation and Significant Accounting Policies,” to the Consolidated Financial Statements in Item 8 of this report are fundamental in understanding MD&A and the disclosures presented in Item 8, “Financial Statements and Supplementary Data,” of this report. Management may be required to make significant estimates and assumptions that have a material impact on our financial condition or operating performance. Due to the level of subjectivity and the susceptibility of such matters to change, actual results could differ significantly from management’s assumptions and estimates. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates used, we have identified fair value measurements, investment securities, the allowance for loan losses goodwill and other intangible assets, and income taxesgoodwill as the accounting areas that require the most subjective or complex judgments or are the most susceptible to change.

Fair Value Measurements

We use the fair value hierarchy to determine the fair value of certain assets and liabilities. The hierarchy consists of three levels that include valuations based on observable quoted prices in active markets; quoted prices in inactive markets or other observable inputs, such as third-party sources; and unobservable inputs. When quoted prices or third-party information is not available, management estimates valuation adjustments primarily through the use of financial modeling techniques and appraisal estimates. The assumptions and estimates used to determine fair value may be highly subjective in nature, such as cash flow estimates, risk characteristics, credit quality measurements, and interest rates; therefore, valuations may not be precise. The amounts realized or paid on the settlement or maturity of fair value instruments may be significantly different from estimates. While management believes our valuation methodologies are appropriate and consistent with other market participants, different methodologies or assumptions used to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. For additional information, see Note 17, “Fair Value,” to the Consolidated Financial Statements in Item 8 of this report.

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Investment Securities

We review our investment portfolio quarterly for indications of other-than-temporary impairment (“OTTI”). We use inputs from independent third parties to determine the fair value of investment securities, which are reviewed and corroborated by management. Unrealized losses are evaluated to determine whether the impairment is temporary or other-than-temporary in nature. For debt securities, we consider our intent to sell the securities, the evidence available to determine if it is more likely than not that we will have to sell the securities before recovery of amortized cost, and the probable credit losses. Probable credit losses are evaluated using the present value of expected future cash flows; the severity and duration of the impairment; the issuer’s financial condition and near-term prospects to service the debt; the cause of the decline, such as adverse conditions related to the issuer, the industry, or economic environment; the payment structure of the debt; the issuer’s failure to make scheduled interest or principal payments; and any change in the issuer’s credit rating by rating agencies. If the present value of expected future cash flows discounted at the security's effective yield is less than the net book value, the difference is recognized as a credit-related OTTI in noninterest income. If we do not intend to sell and if we are not likely to be required to sell the security, the OTTI is separated into an amount representing the credit loss, which is recognized as a charge to noninterest income, and the amount representing all other factors, which is recognized in other comprehensive income (“OCI”). For equity securities, we consider our intent and ability to hold the security to recovery; the severity and duration of the impairment; the issuer’s financial condition, capital strength, and near-term prospects; and any change in the issuer’s credit rating by rating agencies. If the fair value of the security is less than the net book value, the OTTI is recognized as a charge to noninterest income. For additional information, see Note 3, “Investment Securities,” to the Consolidated Financial Statements in Item 8 of this report.

 

Allowance for LoanCredit Losses or "ACL"

 

We review our allowance forThe ACL reflects management’s estimate of losses that will result from the inability of our borrowers to make required loan losses quarterlypayments. Management uses a systematic methodology to determine if it is sufficient to absorb probable loan losses inits ACL for loans held for investment and certain off-balance-sheet credit exposures. Management considers the portfolio. This determination requires management to make significant estimateseffects of past events, current conditions, and assumptions. While management uses its best judgmentreasonable and available information,supportable forecasts on the ultimate adequacycollectability of the allowance is dependent uponloan portfolio. The Company’s estimate of its ACL involves a varietyhigh degree of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates, and the view of regulatory authorities towards loan classifications. These uncertaintiesjudgment; therefore, management’s process for determining expected credit losses may result in material changesa range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded in the balance sheet reflects management’s best estimate of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. See Note 1 – "Basis of Presentation - Significant Accounting Policies" in this Annual Report on Form 10-K for further detailed descriptions of our estimation process and methodology related to the ACL. See also Note 6 — "Allowance for Credit Losses" in this Annual Report on Form 10-K, “Allowance for Credit Losses” in this MD&A. 

The Company uses a number of economic variables to estimate the allowance for loancredit losses, with the most significant driver being a forecast of the national unemployment rate. In the December 31, 2023, estimate, the Company assumed an unemployment forecast range of  4.0% to 4.3%, compared to the range of 3.9% to 4.8% utilized in the near term; however, the amount of the change cannot reasonably be estimated.

Our allowance for loan losses consists of reserves assigned to specific loans and credit relationships and general reserves assigned to loans not separately identified that have been segmented into groups with similar risk characteristics using our internal risk grades. General reserve allocations are basedDecember 31, 2022, estimate.  Based on management’s judgments of qualitative and quantitative factors about macro and micro economic conditions reflected within the loan portfolio and the economy. Factors considered in this evaluation include, but are not limited to, probable losses from loan and other credit arrangements, general economic conditions, changes in credit concentrations or pledged collateral, historical loan loss experience, and trends in portfolio volume, maturities, composition, delinquencies, and nonaccruals. Historical loss rates for each risk grade of commercial loans are adjusted by environmental factors to estimate the amount of reserve needed by segment. Individually significant loans require additionala sensitivity analysis that may include the borrower’s underlying cash flow and capacity for debt repayment, specific business conditions, and value of secondary sources of repayment; consequently, this analysis may result in the identification of weakness and a corresponding need for a specific reserve. No allowance for loan losses is carried over or established at acquisition for purchased loans acquired in business combinations. A provision for loan losses is recorded for any credit deterioration in purchased performing loans after the acquisition date. Loans acquired in business combinations that are deemed impaired at acquisition, purchased credit impaired (“PCI”) loans, are grouped into pools and evaluated separately from the non-PCI portfolio. The estimated cash flows to be collected on PCI loans are discounted at a market rate of interest. Management believed the allowance was adequate to absorb probable loan losses inherent in the loan portfolio as of December 31, 2017. For2023, an increase of 1% in the unemployment forecast would result in an increase in the allowance for credit losses of approximately 9.00%. 

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 see Note 6, “Allowance for Loan Losses,” toabout the Consolidated Financial Statementsclosing date fair values becomes available. Acquisition and divestiture activities are included in Item 8the Company’s consolidated results of this report.

Third-party collateral valuations are regularly obtained and evaluated to help management determine changes in cash flows on purchased loans acquired in business combinations, potential credit impairment, andoperations from the amount of impairment to record. Internal collateral valuations are generally performed within two to four weeks of identifying the initial potential impairment. The internal evaluation compares the original appraisal to current local real estate market conditions and considers experience and expected liquidation costs. When a third-party evaluation is received, it is reviewed for reasonableness. Once the evaluation 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 evaluations are in process and for impaired loans that continue to make some form of payment. While waiting for receiptclosing date of the third-party appraisal, we regularly review the relationship to identify any potential adverse developmentstransaction. Acquisition and begin 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 current appraised value, adjusted for liquidationdivestiture related costs and the carrying amount of the loan, less the specific reserve, is any downward adjustment to appraised value that we determine appropriate, suchare recognized in noninterest expense 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. Impaired credits move quickly through the process towards ultimate resolution except in cases involving bankruptcy and various state judicial processes, which may extend the time for ultimate resolution.incurred.

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Goodwill and Other Intangible Assets

 

We test goodwillGoodwill is tested for impairment annually, on October 31^st, 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.events or circumstances indicate there may be impairment.  We have one reporting unit, for goodwill impairment testing purposes -- Community Banking.  PriorIf we elect to October 2016,perform a qualitative assessment, we 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. We performed our annual assessment of goodwillevaluate factors such as of October 31, 2017, and concluded that our carrying value of goodwill was not impaired. Qualitative factors considered in the analysis included macroeconomic conditions, industry and market considerations, overall financial performance, changes in stock price, and our progress towards stated objectives as comparedin determining if it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If we conclude that it is more likely than not that the fair value of our reporting unit is less than its carrying amount, a quantitative test is performed; otherwise, no further testing is required. The quantitative test consists of comparing the fair value of our reporting unit to prior years. Anits carrying amount, including goodwill. If the fair value of our reporting unit is greater than its book value, no goodwill impairment exists. If the carrying amount of our reporting unit is greater than its calculated fair value, a goodwill impairment charge tois recognized for the difference. We performed a quantitative assessment for the annual test on October 31, 2023, which resulted in no goodwill and other intangible assets may be required in the future if the Company’s future earnings and cash flows decline or discount rates used in determining fair value increase.impairment. For additional information, see Note 9, “Goodwill 8, “Goodwill and Other Intangible Assets,” to the Consolidated Financial Statements in Item 8 of this report.

 

Income TaxesNon-GAAP Financial Measures

 

In addition to financial statements prepared in accordance with GAAP, we use certain non-GAAP financial measures that provide useful information for financial and operational decision making, evaluating trends, and comparing financial results to other financial institutions. The establishment of provisions for federal and state income taxes is a complex area of accounting that involves judgments and estimatesnon-GAAP financial measures presented in applying relevant tax statutes. We operate in many state tax jurisdictions, which requires the appropriate allocation of income and expense to each state basedthis report include certain financial measures presented on a varietyfully taxable equivalent (“FTE”) basis. While we believe certain non-GAAP financial measures enhance the understanding of apportionmentour business and performance, they are supplemental and not a substitute for, or allocation bases. Auditsmore important than, financial measures prepared in accordance with GAAP and may not be comparable to those reported by federal and state tax authorities may reveal liabilities that differ from our estimates and provisions. We continually evaluate our exposureother financial institutions. The reconciliations of non-GAAP to possible tax assessments arising from audits and record an estimate of possible exposure based on current facts and circumstances.GAAP measures are presented below.

 

We believe FTE basis is the preferred industry measurement of net interest income and provides better comparability between taxable and tax exempt amounts. We use this non-GAAP financial measure deferredto monitor net interest income performance and to manage the composition of our balance sheet. FTE basis adjusts for the tax assetsbenefits of income from certain tax exempt loans and liabilitiesinvestments using the enacted tax rates applicable in the periods we expect temporary differences to be realized or settled. As changes in tax laws and rates are enacted, we adjust deferred tax assets and liabilities through the provision for income taxes. When evidence indicates that it is more likely than not that some, or all, of the deferred tax asset is not recoverable, we may record a valuation allowance to reduce the carrying value of the asset. Increases or decreases in the valuation allowance result in increases or decreases to the provision for income taxes.

The Tax Cuts and Jobs Act (“Tax Reform Act”) was enacted on December 22, 2017. Among other things, the new law establishes a new, flat corporate federal statutory income tax rate of 21%; eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year; limits the deduction for. The following table reconciles net interest expense incurred by U.S. corporations; allows businesses to immediately expense the cost of new investments in certain qualified depreciable assets for tax purposes; eliminates or reduces certain deductions related to meals and entertainment expenses; modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee; and limits the deductibility of deposit insurance premiums. The Tax Reform Act also significantly changes U.S. tax law related to foreign operations, however, such changes do not currently impact us. As a result of the Tax Reform Act, we recognized income tax expense totaling $6.55 million related to the revaluation of our deferred tax balances, which includes provisional estimates primarily related to certain purchase accounting, indemnification asset, intangible, and depreciation items. We are still analyzing certain aspects of the Tax Reform Act and refining calculations, which could potentially affect the measurement of these balances. Based on current projections, we expect that our effective tax rate for 2018 will be approximately 22% to 23% under the new tax law; however, there can be no assurance to the actual amount as it is dependent upon the nature and amount of future income and expenses and transactions with discrete tax effects. For additional information, see Note 15, “Income Taxes,”margin, as presented in our consolidated statements of income, to net interest income on a FTE basis for the Consolidated Financial Statements in Item 8 of this report.periods indicated:

 

		Year Ended December 31,
		2023				2022				2021
(Amounts in thousands)
Net interest income, GAAP		$	127,684			$	112,663			$	102,474
FTE adjustment(1)			454				451				439
Net interest income, FTE		$	128,138			$	113,114			$	102,913
Net interest margin, GAAP			4.43	%			3.90	%			3.65	%
FTE adjustment(1)			0.02	%			0.02	%			0.02	%
Net interest margin, FTE			4.44	%			3.92	%			3.67	%

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(1)	FTE basis of 21%.

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Performance Overview

 

Highlights of our results of operations in 2017,2023, and financial condition as of December 31, 2017,2023, include the following:

 

●

Pre-taxAnnual net income for 2023 of $48.02 million, or $2.72 per diluted common share, was an increase of $1.36 million, or 2.91%, compared to 2022.

	●	Net interest income increased $4.17$15.02 million compared to 2022, as increases in benchmark interest rates have improved net interest margin.
	●	Interest and fees on loans increased $22.16 million from the same period of 2022 and is attributable to both an increase in yield and an increase in average balance compared to the yield and average balance of the prior year. The Company acquired Surrey Bancorp on April 21, 2023, adding approximately $239.08 million in loans.  Interest income on deposits in banks decreased $1.28 million to $2.48 million, primarily due to a significant decrease in the average balance compared to 2022.
	●	Net interest margin of 4.44% is an increase of 52 basis points over the same period of 2022.  The yield on earning assets increased 79 basis points primarily driven by increased earnings on loans.
	●	Provision for credit losses increased $1.41 million and is primarily attributable to $1.61 million in day two provision for the Surrey portfolio.
	●	Net income was negatively impacted by a $3.00 million accrual for estimated litigation expenses. In addition, $2.39 million in merger related expenses were recognized in 2023 in relation to the Surrey acquisition.

	●	Annualized return on average assets ("ROA") was 1.48% for the twelve months of 2023 compared to 1.45% for the same period of 2022. Annualized return on average common equity ("ROE") was 10.02% for the twelve months of 2023 compared to 11.04%, for the same period of 2022.
	●	The Company completed the strategic acquisition of Surrey Bancorp, on April 21, 2023.  Total assets of $466.25 million were acquired in the transaction increasing the Company's consolidated assets to $3.39 billion.   In addition, the Company issued 2.99 million common shares in the purchase resulting in an increase in capital of $71.35 million.  The purchase transaction created $14.38 million in goodwill and $12.70 million in other intangible assets.  Other major balance sheet components increased in the transaction with $239.08 million acquired in loans and $403.64 million in deposits.
	●	The Company’s loan portfolio increased by $172.10 million, or 10.98%7.17%, from December 31, 2022.  Excluding the Surrey transaction, the loan portfolio decreased approximately $66.98 million, or 2.79%.
	●	Deposits increased $43.51 million, or 1.62%, from year-end 2022.  Excluding the Surrey transaction, deposits decreased approximately $360.13 million, or 13.44%, from December 31, 2022.

	●	Non-performing loans to $42.11total loans increased to 0.76% of total loans when compared to year-end 2022.  Net charge-offs for the year ended December 31, 2023, were $4.81 million, or 0.19% of annualized average loans, compared to net charge-offs of $3.87 million, or 0.17% of annualized average loans, for the same period in 2022.
	●	The allowance for credit losses to total loans was 1.41% at December 31, 2023, compared to 1.27% for the same period of 2022.
	●	The accumulated other comprehensive loss of $10.95 million at December 31, 2023, decreased $4.77 million compared to the accumulated other comprehensive loss of $15.71 million at December 31, 2022.
	●	The Company repurchased 768,079 common shares during 2023 for a total cost of $23.04 million. The Company recently announced a new 2.7 million share repurchase program that replaced the remainder of the prior year. program.

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●

Net income decreased $3.64 million, or 14.49%, and diluted earningsBook value per share decreased $0.19 to $1.26 compared to the prior year. Excluding the impact of the $6.55 million tax expense related to the Tax Reform Act, net income increased $2.91 million, or 11.59% to $28.04 million compared to the prior year.

●

The GAAP efficiency ratio improved to 60.44%, from 64.98%, and the non-GAAP efficiency ratio improved to 58.07%, from 61.75%, compared to the prior year.

●

Net interest margin increased 22 basis points to 4.23% and normalized net interest margin increased 18 basis points to 3.97% compared to the prior year.

●

Net charge-offs decreased $2.10 million, or 59.23%, to $1.44 million compared to the prior year.

●

Tangible book value per common share increased $0.75 to $14.64 compared to the prior year. The Company and the Bank both significantly exceed regulatory “well capitalized” targets as ofat December 31, 2017.2023, was $27.20, an increase of $1.19 from year-end 2022.

Results of Operations

Net Income

 

The following table presents the changes in net income and related information for the periods indicated:

 

														2017 Compared to 2016								2016 Compared to 2015
		Year Ended December 31,												Increase				%				Increase				%																2023 Compared to 2022								2022 Compared to 2021
		2017				2016				2015				(Decrease)				Change				(Decrease)				Change				Year Ended December 31,												Increase				%				Increase				%
(Amounts in thousands, except per share data)																														2023				2022				2021				(Decrease)				Change				(Decrease)				Change
Net income		$	21,485			$	25,126			$	24,540			$	(3,641	)			-14.49	%		$	586				2.39	%		$	48,020			$	46,662			$	51,168			$	1,358				2.91	%		$	(4,506	)			(8.81	)%
Net income available to common shareholders			21,485				25,126				24,435				(3,641	)			-14.49	%			691				2.83	%
Basic earnings per common share			1.26				1.45				1.32				(0.19	)			-13.10	%			0.13				9.85	%			2.67				2.82				2.95				(0.15	)			(5.32	)%			(0.13	)			(4.41	)%
Diluted earnings per common share			1.26				1.45				1.31				(0.19	)			-13.10	%			0.14				10.69	%			2.72				2.82				2.94				(0.10	)			(3.55	)%			(0.12	)			(4.08	)%
Return on average assets			0.91	%			1.02	%			0.97	%			-0.11	%			-10.93	%			0.05	%			5.57	%			1.48	%			1.45	%			1.63	%			0.03	%			2.07	%			(0.18	)%			(11.04	)%
Return on average common equity			6.14	%			7.42	%			7.08	%			-1.28	%			-17.24	%			0.34	%			4.80	%			10.02	%			11.04	%			11.96	%			(1.02	)%			(9.24	)%			(0.92	)%			(7.69	)%

 

20172023 Compared to 20162022.  Pre-tax income increased $1.82 million compared to 2022.  The increase was primarily attributable to an increase in net interest income of $15.02 million.  Net interest income decreasedtotaled $127.68 million compared to $112.66 million in 2017 due to increases2022.  The increase in net interest income tax expense, drivenwas offset by tax expense related to the Tax Reform Act, andan increase in the provision for loancredit losses of $1.41 million and decreasean increase in noninterest income. These changesexpense of $12.06 million.  The increase in provision for credit losses was primarily due to $1.61 million recorded for the day two provision for the acquisition of the Surrey loan portfolio.  The increase in noninterest expense included a $3.00 million accrual for estimated litigation expenses, an increase in salaries and benefits costs of $2.70 million, and an increase of $1.80 million in merger expenses.  Both the merger expense and the increase in salaries and benefits were primarily due to the acquisition of Surrey Bancorp. 

2022 Compared to 2021.   Pre-tax income decreased $6.37 million, or 9.58%, primarily due  to an increase of $15.04 million in provision for credit losses offset by an increase in net interest income and a decreaseof $10.19 million.  The increase in noninterest expense.

2016 Compared to 2015. Net income increased in 2016 due to decreases in noninterest expense and in the provision for loancredit losses of $15.04 million was attributable to a return to normalized provisions that include forecasts for higher unemployment rates and anweaker macroeconomic trends as compared with prior year recoveries of pandemic-related provisioning.  The increase in net interest income. These changesincome of $10.19 million was primarily due to increases in both interest on securities and interest and fees on loans.  The increases were offsetprimarily driven by a decreasesignificant growth in noninterest incomeboth portfolios.  Interest on deposits in banks increased as well and increasewas primarily driven by rate increases in income tax expense.the FOMC's target federal funds rate throughout 2022.

 

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Net Interest Income

 

Net interest income,, our largest contributor to earnings, is analyzed on a fully taxable equivalent (“FTE”) basis, a non-GAAP financial measure. For additional information, see “Non-GAAP Financial Measures” below.above. The following table presents the consolidated average balance sheets and net interest analysis on a FTE basis for the dates indicated:

 

		Year Ended December 31,																																				Year Ended December 31,
		2017												2016												2015												2023												2022												2021
(Amounts in thousands)		Average Balance				Interest(1)				Average Yield/ Rate(1)				Average Balance				Interest(1)				Average Yield/ Rate(1)				Average Balance				Interest(1)				Average Yield/ Rate(1)				Average Balance				Interest(1)				Average Yield/ Rate(1)				Average Balance				Interest(1)				Average Yield/ Rate(1)				Average Balance				Interest(1)				Average Yield/ Rate(1)
Assets
Earning assets
Loans(2)(3)		$	1,837,092			$	90,032				4.90	%		$	1,793,618			$	87,848				4.90	%		$	1,680,021			$	87,768				5.22	%		$	2,538,361			$	127,019				5.00	%		$	2,298,503			$	104,830				4.56	%		$	2,153,099			$	102,996				4.78	%
Securities available for sale			164,489				5,695				3.46	%			287,332				8,047				2.80	%			363,359				9,575				2.64	%			298,389				8,115				2.72	%			256,221				6,172				2.41	%			81,049				2,008				2.48	%
Securities held to maturity			32,954				487				1.48	%			71,069				757				1.07	%			70,987				770				1.08	%
Interest-bearing deposits			73,405				1,008				1.37	%			18,864				153				0.81	%			98,639				267				0.27	%			46,601				2,485				5.33	%			330,785				3,767				1.14	%			570,040				745				0.13	%
Total earning assets			2,107,940			$	97,222				4.61	%			2,170,883			$	96,805				4.46	%			2,213,006			$	98,380				4.44	%			2,883,351			$	137,619				4.77	%			2,885,509			$	114,769				3.98	%			2,804,188			$	105,749				3.77	%
Other assets			262,381												284,575												307,928												369,700												328,635												330,640
Total assets		$	2,370,321											$	2,455,458											$	2,520,934											$	3,253,051											$	3,214,144											$	3,134,828
Liabilities
Liabilities and stockholders' equity
Interest-bearing deposits
Demand deposits		$	401,092			$	412				0.10	%		$	342,169			$	250				0.07	%		$	343,036			$	203				0.06	%		$	686,534			$	405				0.06	%		$	683,502			$	112				0.02	%		$	646,999			$	127				0.02	%
Savings deposits			520,430				148				0.03	%			531,050				248				0.05	%			532,221				367				0.07	%			847,397				6,781				0.80	%			880,171				306				0.03	%			816,845				281				0.03	%
Time deposits			510,411				4,427				0.87	%			525,162				3,981				0.76	%			631,654				5,308				0.84	%			267,957				2,155				0.80	%			322,158				1,235				0.38	%			387,249				2,427				0.63	%
Total interest-bearing deposits			1,431,933				4,987				0.35	%			1,398,381				4,479				0.32	%			1,506,911				5,878				0.39	%			1,801,888				9,341				0.52	%			1,885,831				1,653				0.09	%			1,851,093				2,835				0.15	%
Borrowings
Federal funds purchased			1				-				0.00	%			4,058				26				0.64	%			535				2				0.37	%			2,715				139				5.12	%			—				—				—				—				—				—
Retail repurchase agreements			47,716				32				0.07	%			68,701				49				0.07	%			71,262				68				0.10	%			1,528				1				0.06	%			2,239				2				0.07	%			1,194				1				0.07	%
Wholesale repurchase agreements			25,000				806				3.22	%			49,727				1,874				3.77	%			50,000				1,878				3.76	%
FHLB advances and other borrowings			55,502				2,265				4.08	%			116,602				3,416				2.93	%			89,400				3,523				3.94	%
Total borrowings			128,219				3,103				2.42	%			239,088				5,365				2.24	%			211,197				5,471				2.59	%			4,243				140				3.30	%			2,239				2				0.07	%			1,194				1				0.07	%
Total interest-bearing liabilities			1,560,152				8,090				0.52	%			1,637,469				9,844				0.60	%			1,718,108				11,349				0.66	%			1,806,131				9,481				0.52	%			1,888,070				1,655				0.09	%			1,852,287				2,836				0.15	%
Noninterest-bearing demand deposits			438,513												456,474												433,936												926,378												864,224												816,638
Other liabilities			21,955												23,040												20,691												41,477												39,363												38,151
Total liabilities			2,020,620												2,116,983												2,172,735												2,773,986												2,791,657												2,707,076
Stockholders' equity			349,701												338,475												348,199												479,065												422,487												427,752
Total liabilities and equity		$	2,370,321											$	2,455,458											$	2,520,934											$	3,253,051											$	3,214,144											$	3,134,828
Net interest income, FTE						$	89,132											$	86,961											$	87,031
Net interest rate spread, FTE											4.09	%											3.86	%											3.78	%
Net interest margin, FTE											4.23	%											4.01	%											3.93	%
Net interest income, FTE(1)																																										$	128,138											$	113,114											$	102,913
Net interest rate spread, FTE(1)																																															4.25	%											3.89	%											3.62	%
Net interest margin, FTE(1)																																															4.44	%											3.92	%											3.67	%

 

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(1)	Fully taxable equivalent ("FTE")FTE basis based on the federal statutory rate of 35%21%.
(2)	Nonaccrual loans are included in average balances; however, no related interest income is recognized during the period of nonaccrual.
(3)	Interest on loans include non-cash purchase accounting accretion of $2.74 million in 2023, $2.62 million in 2022, and $4.66 million in 2021.

 

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The following table presents the impact to net interest income on a FTE basis due to changes in volume (average volume times the prior year’s average rate), rate (average rate times the prior year’s average volume), and rate/volume (average volume times the change in average rate), for the periods indicated:

 

		Year Ended																Year Ended																Year Ended																Year Ended
		December 31, 2017 Compared to 2016																December 31, 2016 Compared to 2015																December 31, 2023 Compared to 2022																December 31, 2022 Compared to 2021
		Dollar Increase (Decrease) due to																Dollar Increase (Decrease) due to																Dollar Increase (Decrease) due to																Dollar Increase (Decrease) due to
										Rate/																Rate/																Rate/																Rate/
(Amounts in thousands)		Volume				Rate				Volume				Total				Volume				Rate				Volume				Total				Volume				Rate				Volume				Total				Volume				Rate				Volume				Total
Interest earned on(1):
Interest earned on(1):
Loans(2)		$	2,130			$	-			$	54			$	2,184			$	5,930			$	(5,376	)		$	(474	)		$	80			$	10,939			$	10,187			$	1,063			$	22,189			$	6,956			$	(4,798	)		$	(324	)		$	1,834
Securities available for sale			(3,440	)			1,896				(808	)			(2,352	)			(2,007	)			581				(102	)			(1,528	)			1,016				796				131				1,943				4,340				(56	)			(120	)			4,164
Securities held to maturity			(408	)			291				(153	)			(270	)			1				(7	)			(7	)			(13	)
Interest-bearing deposits with other banks			442				106				307				855				(215	)			533				(432	)			(114	)			(3,236	)			13,872				(11,918	)			(1,282	)			(313	)			5,747				(2,412	)			3,022
Total interest-earning assets			(1,276	)			2,293				(600	)			417				3,709				(4,269	)			(1,015	)			(1,575	)			8,719				24,855				(10,724	)			22,850				10,983				893				(2,856	)			9,020
Interest paid on(1):
Interest paid on(1):
Demand deposits			41				103				18				162				(1	)			34				14				47				—				291				2				293				7				(21	)			(1	)			(15	)
Savings deposits			(5	)			(106	)			11				(100	)			(1	)			(106	)			(12	)			(119	)			(11	)			6,737				(251	)			6,475				22				3				—				25
Time deposits			(112	)			578				(20	)			446				(895	)			(505	)			73				(1,327	)			(208	)			1,356				(228	)			920				(408	)			(942	)			158				(1,192	)
Federal funds purchased			(26	)			(26	)			26				(26	)			13				1				10				24				—				—				139				139				—				—				—				—
Retail repurchase agreements			(15	)			-				(2	)			(17	)			(3	)			(21	)			5				(19	)			—				(1	)			—				(1	)			—				—				1				1
Wholesale repurchase agreements			(932	)			(273	)			137				(1,068	)			(10	)			5				1				(4	)
FHLB advances and other Borrowings			(1,790	)			1,341				(702	)			(1,151	)			1,072				(903	)			(276	)			(107	)
Total interest-bearing liabilities			(2,839	)			1,617				(532	)			(1,754	)			175				(1,495	)			(185	)			(1,505	)			(219	)			8,383				(338	)			7,826				(379	)			(960	)			158				(1,181	)
Change in net interest income,
FTE		$	1,563			$	676			$	(68	)		$	2,171			$	3,534			$	(2,774	)		$	(830	)		$	(70	)
Change in net interest income(1)																																		$	8,938			$	16,472			$	(10,386	)		$	15,024			$	11,362			$	1,853			$	(3,014	)		$	10,201

 

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(1)	FTE basis based on the federal statutory rate of 35%21%.
(2)	Nonaccrual loans are included in average balances; however, no related interest income is recognized during the period of nonaccrual.

 

The following table presents the net interest analysis on a FTE basis excluding the impact of non-cash purchase accounting accretion from acquired loan portfolios for the periods indicated:

		Year Ended December 31,
		2017								2016								2015
(Amounts in thousands)		Interest(1)				Average Yield/ Rate(1)				Interest(1)				Average Yield/ Rate(1)				Interest(1)				Average Yield/ Rate(1)
Earning assets
Loans(2)		$	90,032				4.90	%		$	87,848				4.90	%		$	87,768				5.22	%
Accretion income			7,863								7,690								11,258
Less: cash accretion income			2,446								2,924								4,149
Non-cash accretion income			5,417								4,766								7,109
Loans, normalized(3)			84,615				4.61	%			83,082				4.63	%			80,659				4.80	%
Other earning assets			7,190				2.65	%			8,957				2.37	%			10,612				1.99	%
Total earning assets			91,805				4.36	%			92,039				4.24	%			91,271				4.12	%
Total interest-bearing liabilities			8,090				0.52	%			9,844				0.60	%			11,349				0.66	%
Net interest income, normalized(3)		$	83,715							$	82,195							$	79,922
Net interest rate spread, normalized(3)							3.84	%							3.64	%							3.46	%
Net interest margin, normalized(3)							3.97	%							3.79	%							3.61	%

(1)	FTE basis based on the federal statutory rate of 35%
(2)	Nonaccrual loans are included in average balances; however, no related interest income is recorded during the period of nonaccrual.
(3)	Normalized totals are non-GAAP financial measures that exclude non-cash loan interest accretion related to PCI loans.

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20172023 Compared to 20162022. Net interest income comprised 76.87%77.32% of total net interest and noninterest income in 20172023 compared to 75.82%75.19% in 2016.2022.  Net interest income on a GAAP basis increased $2.34$15.02 million, or 2.75%13.33%, and net interest incomeincreased $15.02 million, or 13.28%, on a FTE basis increased $2.17 million, or 2.50%. Normalized net interest income on abasis. The FTE basis is a non-GAAP measure that excludes non-cash loan accretion income related to PCI loans. For additional information, see “Non-GAAP Financial Measures” below. Normalized net interest margin increased 1852 basis points compared to an increase of 22 basis points on aand the FTE basis. Normalized net interest spread increased 2036 basis points.  The increase was primarily driven by increases in both average balances and rates for loans and securities available for sale.  The average balance for loans increased $239.86 million, while the yield increased 44 basis points resulting in a tax effected increase in interest on loans of $22.19 million compared to an increase of 232022.  The average balance for securities available for sale increased $42.17 million and the yield increased 31 basis points resulting in a tax effected increase to interest on a FTE basis.securities available for sale of $1.94 million compared to 2022.

 

Average earning assets decreased $62.94$2.16 million, or 2.90%0.07%, primarily due to decreasesa decrease in investment securitiesinterest-bearing deposits with banks of $284.18 million, or 85.91%.  This decrease was offset by an increase in interest-bearing depositsaverage loans and loan growth.average securities available for sale as noted above.  The normalized yield on earning assets increased 1279 basis points, or 19.85%, primarily due to significant increase in benchmark rates as compared to an increasethe same period of 15 basis points on a GAAP basis. Average loans increased $43.47 million, or 2.42%, and the2022.  The average loan to deposit ratio increased to 98.22%93.04% from 96.70%.83.58% in 2022.  Non-cash accretion increased  $125 thousand, or 4.77% to $2.74 million.  The normalized yieldimpact of non-cash purchase accounting accretion income on loans decreased 2the FTE net interest margin was 9 basis points while remaining constant on a GAAP basis. Non-cash accretion income increased $651 thousand, or 13.66%.for both 2023 and 2022.

 

Average interest-bearing liabilities, which consist of interest-bearing deposits and borrowings, decreased $77.32$81.94 million, or 4.72%4.34%, primarily due to a declinedecrease in average borrowings.deposits.  Time deposits decreased $54.20 million, or 16.82%, and savings deposits decreased $32.77 million, or 3.72%. Interest-bearing demand deposits increased $3.03 million or 0.44%.  The yield on interest-bearinginterest-bearings liabilities decreased 8increased 43 basis points largely driven by a decrease in the average balance of borrowings. Average borrowings decreased $110.87 million, or 46.37%, largelyand is primarily due to a $61.10 million, or 52.40%, decreaseincreases in average FHLB advancesbenchmark rates throughout 2022 and other borrowings, a $24.73 million, or 49.73%, decrease in average wholesale repurchase agreements, a $20.99 million, or 30.55%, decrease in average retail repurchase agreements, and a $4.06 million, or 99.98%, decrease in average federal funds purchased. Average interest-bearing deposits increased $33.55 million, or 2.40%, which was driven by a $58.92 million, or 17.22%, increase in average interest-bearing demand deposits offset by a $14.75 million, or 2.81%, decrease in average time deposits, and a $10.62 million, or 2.00%, decrease in average savings deposits, which include money market and savings accounts.2023.

20162022 Compared to 20152021. Net interest income comprised 75.82%75.19% of total net interest and noninterest income in 20162022 compared to 74.16%74.92% in 2015.2021.  Net interest income on a GAAP basis increased $127 thousand,$10.19 million, or 0.15%9.94%, and net interest income on a FTE basis decreased $70 thousand,increased $10.20 million, or 0.08%. Normalized net interest income on a FTE basis is a non-GAAP measure that excludes non-cash loan accretion income related to PCI loans. For additional information, see “Non-GAAP Financial Measures” below. Normalized net interest margin increased 18 basis points compared to an increase of 8 basis points9.91%, on a FTE basis. The normalizedFTE net interest margin increased 25 basis points and the FTE net interest spread increased 1827 basis points.  The increase in net interest margin was primarily driven by an increase in yield on earning assets of 21 basis points, specifically, interest on deposits in banks. The increased yield on interest on deposits in banks was primarily driven by rate increases in the FOMC's target federal funds rate throughout 2022.

 

Average earning assets decreased $42.12increased $81.32 million, or 1.90%2.90%, primarily due to decreasesan increase in average securities available for sale of $175.17 million, or 216.13%, and average loans of $145.40 million, or 6.75%.  The increases were offset by a decrease in average interest-bearing deposits offset by loan growth.in banks of $239.26 million, or 41.97%. The normalized yield on earning assets increased 1221 basis points comparedprimarily due to an increase in yield on interest on deposits in banks of 2101 basis points on a GAAP basis. Average loans increased $113.60 million, or 6.76%, andto 1.14% compared to 0.13% in 2021.   The increase in yield was primarily driven by rate increases in the FOMC's target federal funds rate throughout 2022.  The average loan to deposit ratio increased to 96.70%83.58% from 86.56%. The normalized yield on80.71% in 2022.  Non-cash accretion income related to PCD loans decreased 17$2.04 million, or 43.77%, to $2.62 million due to reduced balances in the PCD portfolios. The impact of non-cash purchase accounting accretion income on the FTE net interest margin was 9 basis points compared to a decrease of 3217 basis points on a GAAP basis. Non-cash accretion income decreased $2.34 million, or 32.96%, as the effect of accretion income continued to decline from acquired portfolio attrition.in 2021.

 

Average interest-bearing liabilities, which consist of interest-bearing deposits and borrowings, decreased $80.64increased $35.78 million, or 4.69%1.93%, primarily due to a declinean increase in average interest-bearing time deposit balances.deposits. The yield on interest-bearing liabilities decreased 6 basis points, which was comprised of a 7 basis point decrease in the rate on interest-bearing deposits and a 1 basis point increase in the rate on borrowings.points.  Average interest-bearing deposits decreased $108.53increased $34.74 million, or 7.20%1.88%, which was drivenwith increases of $63.33 million, or 7.75%, in average savings deposits, $36.50 million, or 5.64%, in average interest-bearing demand deposits, offset by a $106.49decrease of $65.09 million, or 16.86%16.81%, decrease in average time deposits, a $1.17 million, or 0.22%, decrease in savings deposits, which include money market and savings accounts, and an $867 thousand, or 0.25%, decrease in interest-bearing demand deposits. Average borrowings increased $27.89 million, or 13.21%, largely due to a $27.20 million, or 30.43%, increase in average FHLB advances and other borrowings.

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Provision for LoanCredit Losses

 

20172023 Compared to 20162022.  The provision charged to operations increased $1.52$1.41 million compared to $2.77the prior year.  The provision expense of $7.99 million which included a $1.49was comprised of $8.44 million increase in the non-PCIrelated to provision to $2.78 millionexpense for loans and a $30 thousand increase in the PCI provision to a recovery of $12 thousand.provision of $450 thousand for unfunded loan commitments.  Provision for credit losses for loans of $8.44 million was recorded compared to the provision of $6.57 million recorded in 2022.  The increase in provision is commensurate with changes in economic forecasts and growth in the loan portfolio associated with the acquisition of Surrey Bancorp on April 21, 2023.  $1.61 million of the provision is attributable to day two provision for the Surrey portfolio.  As noted above a recovery of provision for loan commitments was recorded in 2023 of $450 thousand and was recorded in provision for credit losses.   A provision expense of $518 thousand was recorded for unfunded loan commitments in 2022 and was recorded in other operating expense.

20162022 Compared to 20152021.  The provision charged to operations decreased $936 thousandincreased $15.04 million, or 177.58%.  The increase was attributable to $1.26 million, which included an $870 thousand decrease in the non-PCI provision to $1.30 million and a $66 thousand decrease in the PCI provision to a recovery of $41 thousand. The provision charged to operations included a $1 thousand benefit attributed to the FDIC indemnification asset to reflect the indemnified portiongrowth of the post-acquisition exposure.loan portfolio throughout 2022 and an economic forecast that projects higher unemployment rates and weaker macroeconomic trends.  The reduction in the non-PCI provision was partially due to the reversalprior year included recoveries of loan loss reserves totaling $1.35 million attributed to loans divested in the First Bank transaction.pandemic-related provisioning.

 

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Noninterest Income

 

TheThe following table presents the components of, and changes in, noninterest income for the periods indicated:

 

														2017 Compared to 2016								2016 Compared to 2015																				2023 Compared to 2022								2022 Compared to 2021
		Year Ended December 31,												Increase				%				Increase				%				Year Ended December 31,												Increase				%				Increase				%
		2017				2016				2015				(Decrease)				Change				(Decrease)				Change				2023				2022				2021				(Decrease)				Change				(Decrease)				Change
(Amounts in thousands)
Wealth management		$	3,150			$	2,828			$	2,975			$	322				11.39	%		$	(147	)			-4.94	%		$	4,179			$	3,855			$	3,853			$	324				8.40	%		$	2				0.05	%
Service charges on deposits			13,803				13,588				13,717				215				1.58	%			(129	)			-0.94	%			13,996				14,213				13,446				(217	)			-1.53	%			767				5.70	%
Other service charges and fees			8,624				8,102				8,045				522				6.44	%			57				0.71	%			13,647				12,308				12,422				1,339				10.88	%			(114	)			-0.92	%
Insurance commissions			1,347				5,442				6,899				(4,095	)			-75.25	%			(1,457	)			-21.12	%
Net impairment loss			-				(4,646	)			-				4,646				-100.00	%			(4,646	)			-
Net (loss) gain on sale of securities			(661	)			335				144				(996	)			-297.31	%			191				132.64	%
Net gain on sale of securities																															(21	)			-				-				(21	)			—				—				-
Net FDIC indemnification asset amortization			(3,517	)			(5,474	)			(6,379	)			1,957				-35.75	%			905				-14.19	%			-				-				(1,226	)			—				—				1,226				-100.00	%
Net gain on divestitures			-				3,682				-				(3,682	)			-100.00	%			3,682				-
Gain on divestiture																															-				1,658				-				(1,658	)			-100.00	%			1,658				—
Other operating income			3,502				3,209				4,129				293				9.13	%			(920	)			-22.28	%			5,651				5,148				5,806				503				9.77	%			(658	)			-11.33	%
Total noninterest income		$	26,248			$	27,066			$	29,530			$	(818	)			-3.02	%		$	(2,464	)			-8.34	%		$	37,452			$	37,182			$	34,301			$	270				0.73	%		$	2,881				8.40	%

20172023 Compared to 20162022. Noninterest income comprised 23.13%22.68% of total net interest and noninterest income in 20172023 compared to 24.18%24.81% in 2016.2022.  Noninterest income decreased $818increased $270 thousand, or 3.02%, primarily due to a decrease in insurance commissions and the associated net gain related to the Greenpoint divestiture in the fourth quarter of 2016 and divestiture of six bank branches to First Bank in the third quarter of 2016.0.73%.  The decrease was largely offset by the absence of net impairment losses and the decrease in net negative amortization related to the FDIC indemnification asset as loss share coverage on commercial loans expired on June 30, 2017. We recognized a net loss of $661 thousand on the sale of securities related primarily to certain single issue trust preferred securities. See Note 3, “Investment Securities,” to the Consolidated Financial Statements in Item 1 of this report. Excluding the impact from impairment losses, sales of securities and branches, net FDIC indemnification asset amortization, the net gain on divestitures, and bank owned life insurance proceeds, noninterest income decreased $2.76 million, or 8.44%, to $29.97 million in 2017, from $32.73 million in 2016. The decreaseincrease was primarily due to the $4.10 million decreaseresult of an increase in insurance commissions resulting from the Greenpoint divestiture offset by increases in wealth management income,other service charges and fees andof $1.34 million, or 10.88%.  The increase in other operatingservices charges was primarily driven by an increase in interchange income. Wealth management income increased $324 thousand, or 8.40%.  These increases to noninterest income were offset by the 2022 gain recorded for the divestiture of the Emporia, Virginia branch of $1.66 million.

 

20162022 Compared to 20152021. Noninterest income comprised 24.18%24.81% of total net interest and noninterest income in 20162022 compared to 25.84%25.08% in 2015.2021. Noninterest income decreased $2.46increased $2.88 million, or 8.34%8.40%, in 2016 primarily due to net impairment losses offset by a net gain on divestitures and a decrease in insurance commissions. We realized net impairment losses of $4.64 million on certain debt securities and $11 thousand on certain equity securities. We realized a net gain of $3.68 million on the divestiture of Greenpoint and six bank branches. Insurance commissions decreased largely due to the Greenpoint divestiture. Other operating income decreased primarily due to the absence of a $1.14$1.66 million net death benefitgain recognized from the maturity of a life insurance policy recognized in 2015 offset by a $381 thousand gain on the sale of closed branches and $474 thousandthe Company's Emporia, Virginia, branch to Benchmark Community Bank in legal settlements. Net negative amortization relatedthe third quarter of 2022.   Also contributing to the FDIC indemnification asset decreased as the expiration of the loss share agreement for commercial loans approaches. We recognized a net gain of $335 thousand on the sale of securities related primarily to certain Agency mortgage-backed securities. Excluding the impact from impairment losses, sales of securities and branches,increase was $1.23 million in net FDIC indemnification asset amortization recognized in 2021, as the net gainasset became fully amortized in 2021.  Service charges on divestitures,deposits increased $767 thousand, or 5.70%, and net death benefits, noninterestis attributable to increased customer activity compared to the activity levels experienced during the pandemic lock-downs.  Other operating income decreased $1.89$658 thousand, or 11.33%, and is primarily attributable to the 2021 recovered amount of $1.00 million or 5.47%,of an acquired loan from a failed bank acquisition that had been written down prior to $32.73 million in 2016 from $34.62 million in 2015.acquisition.

 

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Noninterest Expense

 

The following table presents the components of, and changes in, noninterest expense for the periods indicated:

 

														2017 Compared to 2016								2016 Compared to 2015																				2023 Compared to 2022								2022 Compared to 2021
		Year Ended December 31,												Increase				%				Increase				%				Year Ended December 31,												Increase				%				Increase				%
		2017				2016				2015				(Decrease)				Change				(Decrease)				Change				2023				2022				2021				(Decrease)				Change				(Decrease)				Change
(Amounts in thousands)
Salaries and employee benefits		$	36,317			$	39,912			$	39,625			$	(3,595	)			-9.01	%		$	287				0.72	%		$	49,887			$	47,183				44,239			$	2,704				5.73	%		$	2,944				6.65	%
Occupancy expense			4,775				5,297				5,817				(522	)			-9.85	%			(520	)			-8.94	%			4,967				4,818				4,913				149				3.09	%			(95	)			-1.93	%
Furniture and equipment expense			4,425				4,341				5,199				84				1.94	%			(858	)			-16.50	%			5,878				6,001				5,627				(123	)			-2.05	%			374				6.65	%
Service fees																															8,908				7,606				6,324				1,302				17.12	%			1,282				20.27	%
Advertising and public relations																															3,300				2,409				2,076				891				36.99	%			333				16.04	%
Professional fees																															1,567				1,303				1,524				264				20.26	%			(221	)			-14.50	%
Amortization of intangibles			1,056				1,136				1,118				(80	)			-7.04	%			18				1.61	%			1,731				1,446				1,446				285				19.71	%			—				0.00	%
FDIC premiums and assessments			910				1,383				1,513				(473	)			-34.20	%			(130	)			-8.59	%			1,511				1,126				832				385				34.19	%			294				35.34	%
FHLB debt prepayment fees			-				-				1,702				-				-				(1,702	)			-100.00	%
Merger, acquisition, and divestiture expense			-				730				86				(730	)			-100.00	%			644				748.84	%
Merger expense																															2,393				596				-				1,797				301.51	%			596				—
Divestiture expense																															—				153				—				(153	)			-100.00	%			153				—
Litigation expense																															3,000				—				—				3,000				—				—				—
Other operating expense			21,099				19,947				21,111				1,152				5.78	%			(1,164	)			-5.51	%			12,035				10,475				11,737				1,560				14.89	%			(1,262	)			-10.75	%
Total noninterest expense		$	68,582			$	72,746			$	76,171			$	(4,164	)			-5.72	%		$	(3,425	)			-4.50	%		$	95,177			$	83,116			$	78,718			$	12,061				14.51	%		$	4,398				5.59	%

 

20172023 Compared to 20162022.  NoninterestNon interest expense decreased $4.16increased $12.06 million, or 5.72%14.51%, in 2017 compared to 2016, which was largely due to a decrease2022.  The Company recorded $3.00 million in estimated litigation expenses in the fourth quarter of 2023.  Other increases occurred in salaries and employee benefits coupled withof $2.70 million, or 5.73%, other operating expense of $1.56 million, or 14.89%, service fees of $1.30 million or 17.12%, and advertising and public relations of  $891 thousand, or 36.99%.  In addition, the absenceCompany recorded merger expenses of merger, acquisition,$2.39 million in 2023 related to the Surrey Bancorp acquisition.  The related cost for the addition of Surrey branches and divestiturestaff was a primary driver in the increase to noninterest expense.

2022 Compared to 2021. Noninterest expense and decreasesincreased $4.40 million, or 5.59%.  The increase was primarily due to an increase in occupancy, furniture, and equipment expense, FDIC premiums and assessments, and intangible amortization. Salariessalaries and employee benefits decreased as full-time equivalent employees, calculated using the number of hours worked, decreased to 562 as$2.94 million, or 6.65%, and service fees of December 31, 2017, from 580 as of December 31, 2016.$1.28 million, or 20.27%.  The increase in other operating expensesalaries and benefits is due to wage increases implemented in the first quarter of 2022 as part of the Company's strategic initiative to enhance Human Capital Management, which included a $759 thousandan increased minimum wage.  Service fees increased due to an increase in legal feescore processing expense.  In addition, the Company recorded merger and write-downs on certain long-term investments in land and buildings totaling $552 thousand, which were offset by a $218 thousand decrease in the net loss on sales anddivestiture expenses related to other real estate owned (“OREO”)the announced Surrey Bancorp acquisition and the divestiture of the Company's Emporia Virginia branch of $596 thousand and $153 thousand, respectively.  These increases to $1.20 million from $1.42 million in 2016.

2016 Compared to 2015. Noninterest expense decreased $3.43 million, or 4.50%, in 2016 compared to 2015, which was largely due to the absence of FHLB prepayment penalties andwere offset primarily by a decrease in operating expenses. The decrease in other operating expense was primarily due to a $1.02of $1.26 million, decrease in the net loss on sales and expenses related to OREO to $1.42 million from $2.44 million in 2015.or 10.75%.  The decrease was offset by a $535 thousand increase in consulting fees and a $425 thousand increase in legal fees. We incurred expenses totaling $730 thousand relatedis primarily attributable to the First Bank branch exchange and divestiture2021 write-down of Greenpoint. Occupancy, furniture, and equipment expense decreased $1.38 million, or 12.51%, due to branch closures and divestitures. Full-time equivalent employees decreased to 580 asbank property of December 31, 2016, from 673 as of December 31, 2015, primarily due to personnel restructuring as a result of the First Bank and Greenpoint transactions.$781 thousand.

 

Income Tax Expense

 

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. 

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72023 Compared to 20162022. Income tax expense increased $7.81 million,$459 thousand, or 60.92%,3.40% and was primarily due to the increase in pre-tax income.  The effective tax rate increased slightly to 48.98%22.51% in 2023 compared to 33.78%22.43% in the prior year. The increase was largely attributed to tax expense of $6.55 million related to the revaluation of our net deferred tax asset in accordance with the Tax Reform Act. Excluding the impact of the revaluation, income tax expense increased $1.26 million, or 9.81%, and the effective rate decreased 36 basis points to 33.42% largely from a decrease in taxable revenues as a percent of operating earnings. For additional information, see Note 15, “Income Taxes,” to the Consolidated Financial Statements in Item 8 of this report.

2022. 

2016

2022 Compared to 20152021. Income tax expense increased $1.44decreased $1.87 million or 12.64%12.14%, and is primarily attributable to the decrease in pre-tax net income.  The effective tax rate increased 210 basis pointsdecreased to 33.78%. The increase22.43% in the effective tax rate was largely due2022 compared to an increase23.09% in taxable revenues as a percent of operating earnings and non-deductible goodwill related to the Greenpoint divestiture.

Non-GAAP Financial Measures

In addition to financial statements prepared in accordance with GAAP, we use certain non-GAAP financial measures that management believes provide investors with important information useful in understanding our operational performance and comparing our financial measures with other financial institutions. The non-GAAP financial measures presented in this report include net interest income on a FTE basis and normalized net interest income on a FTE basis. While we believe these non-GAAP financial measures enhance understanding of our business and performance, they are supplemental and not a substitute for, or more important than, financial measures prepared on a GAAP basis. Our non-GAAP financial measures may not be comparable to those reported by other financial institutions. The reconciliations of these measures to GAAP measures are presented below.2021.

 

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We believe FTE basis is the preferred industry measurement of net interest income and provides better comparability between taxable and tax exempt amounts. We use this non-GAAP financial measure to monitor net interest income performance and to manage the composition of our balance sheet. The FTE basis adjusts for the tax benefits of income from certain tax exempt loans and investments using the federal statutory rate of 35%. Normalized net interest income on a FTE basis is a non-GAAP measure that excludes non-cash loan accretion income related to PCI loans.

The following table reconciles net interest income and margin, as presented in our consolidated statements of income, to net interest income on a FTE basis for the periods indicated:

		Year Ended December 31,
		2017				2016				2015
(Amounts in thousands)
Net interest income, GAAP		$	87,218			$	84,880			$	84,753
FTE adjustment(1)			1,914				2,081				2,278
Net interest income, FTE			89,132				86,961				87,031
Less: non-cash accretion income(2)			5,417				4,766				7,109
Net interest income, normalized		$	83,715			$	82,195			$	79,922
Net interest margin, GAAP			4.14	%			3.91	%			3.83	%
FTE adjustment(1)			0.09	%			0.10	%			0.10	%
Net interest margin, FTE			4.23	%			4.01	%			3.93	%
Less: non-cash accretion income(2)			0.26	%			0.22	%			0.32	%
Net interest margin, normalized			3.97	%			3.79	%			3.61	%

(1)	FTE basis based on the federal statutory rate of 35%
(2)	Includes non-cash purchase accounting accretion income from acquired loan portfolios

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We believe the efficiency ratio provides investors with important information about our operating expense control and efficiency of operations. Management also believes this non-GAAP measure focuses attention on our core operating performance over time. The following table reconciles the GAAP-based efficiency ratio to the non-GAAP efficiency ratio for the periods indicated:

		Year Ended December 31,
(Amounts in thousands)		2017				2016				2015
GAAP efficiency ratio
Noninterest expense		$	68,582			$	72,746			$	76,171
Net interest income			87,218				84,880				84,753
Noninterest income			26,248				27,066				29,530
Net interest income plus noninterest income			113,466				111,946				114,283
GAAP efficiency ratio			60.44	%			64.98	%			66.65	%
Non-GAAP efficiency ratio
Noninterest expense, GAAP		$	68,582			$	72,746			$	76,171
Non-GAAP adjustments
Merger, acquisition, and divestiture expense			-				(730	)			(86	)
FHLB debt prepayment fees			-				-				(1,702	)
OREO expense and net loss			(1,202	)			(1,420	)			(2,438	)
Other non-core items			(391	)			(364	)			(259	)
Total non-GAAP adjustments			(1,593	)			(2,514	)			(4,485	)
Adjusted noninterest expense			66,989				70,232				71,686
Net interest income plus noninterest income, GAAP			113,466				111,946				114,283
Non-GAAP adjustments
Tax equivalency adjustment			1,914				2,081				2,950
Net impairment losses			-				4,646				-
Net loss (gain) on sale of securities			661				(335	)			(144	)
Net gain on divestitures			-				(3,682	)			-
Other non-core items			(689	)			(918	)			(1,263	)
Total non-GAAP adjustments			1,886				1,792				1,543
Adjusted net interest income plus noninterest income			115,352				113,738				115,826
Non-GAAP efficiency ratio(1)			58.07	%			61.75	%			61.89	%

(1)	A non-GAAP financial measure computed by dividing adjusted noninterest expense by the sum of tax equivalent net interest income and adjusted noninterest income

Financial Condition

 

Total assets as of December 31, 2017,2023, increased $2.06$132.97 million, or 0.09%4.24%, to $2.39$3.27 billion from $2.39$3.14 billion as of December 31, 2016.2022. Total liabilities as of December 31, 2017, decreased $9.60increased $51.66 million, or 0.47%1.90%, to $2.04 billion from $2.05 billion asand stockholders' equity increased $81.31 million, or 19.27%.  The primary driver for the change in the balance sheet components was the acquisition of December 31, 2016.Surrey Bancorp on April 21, 2023.  Total assets of $466.25 million were acquired in the transaction.  In addition, the Company issued 2.99 million common shares in the purchase resulting in an increase in capital of $71.35 million.  The purchase transaction created $14.38 million in goodwill and $12.7 million in other intangible assets.

 

Investment Securities

 

Our investment securities are used to generate interest income through the employmentdeployment of excess funds, to provide liquidity, to fund loan demand or deposit liquidation, and to pledge as collateral where required.required, and to make selective investments for Community Reinvestment Act purposes. The composition of our investment portfolio changes from time to time as we consider our liquidity needs, interest rate expectations, asset/liability management strategies, and capital requirements.

Available-for-sale debt securities as of December 31, 2017, remained relatively constant2023, decreased $19.39 million, or 6.46%, compared to December 31, 2016,2022. The decrease was  due to $83.59 million in maturities, prepayments, and calls, as well as sales of $38.98 million in securities available for sale.  Included in the sale of securities was the entire portfolio of Surrey with a change in composition resulting from the purchasean acquired fair value of $20.93 million comprised primarily of U.S. Treasury securitiessecurities.  A loss of $28 thousand was recognized in the sale of the portfolio.  The decreases were offset by purchases of $74.10 million and $20.93 million in investments acquired in the maturity andSurrey acquisition.  The market value of debt securities available for sale as a percentage of municipal, single-issue trust preferred, and mortgage-backed Agency securities. Held-to-maturityamortized cost was 95.23% as of December 31, 2023, compared to 93.82% as of December 31, 2022. There were no held-to-maturity debt securities as of December 31, 2017, decreased $21.98 million,2023, or 46.64%, compared to December 31, 2016, primarily due to the maturity of U.S. Agency securities.2022. 

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The following table presents the amortized cost and fair value of investment securities as of the dates indicated:

		December 31,
		2017								2016								2015
		Amortized				Fair				Amortized				Fair				Amortized				Fair
(Amounts in thousands)		Cost				Value				Cost				Value				Cost				Value
Available for Sale
U.S. Agency securities		$	11,289			$	11,296			$	1,342			$	1,345			$	31,414			$	30,702
U.S. Treasury securities			19,987				19,971				-				-				-				-
Municipal securities			101,552				103,648				111,659				113,331				124,880				128,678
Single issue trust preferred securites			9,367				8,884				22,104				19,939				55,882				47,832
Corporate securities			-				-				-				-				70,571				70,333
Certificates of deposit			-				-				-				-				5,000				5,000
Mortgage-backed Agency securities			22,095				21,726				31,290				30,891				84,576				83,556
Equity securities			55				55				55				73				66				72
Total securities available for sale		$	164,345			$	165,580			$	166,450			$	165,579			$	372,389			$	366,173
Fair value to amortized cost							100.75	%							99.48	%							98.33	%
Held to Maturity
U.S. Agency securities		$	17,937			$	17,888			$	36,741			$	36,865			$	61,863			$	61,832
Municipal securities			-				-				-				-				190				193
Corporate securities			7,212				7,196				10,392				10,401				10,488				10,465
Total securities held to maturity		$	25,149			$	25,084			$	47,133			$	47,266			$	72,541			$	72,490
Fair value to amortized cost							99.74	%							100.28	%							99.93	%

 

The following table provides information about our investment portfolio as of the dates indicated:

 

		December 31,
		2017												2016												December 31,
		Available for Sale				Held to Maturity				Total				Available for Sale				Held to Maturity				Total				2023				2022
(Amounts in years)
Average life			5.44				1.11				4.87				7.75				1.30				6.32				4.33				4.61
Average duration			4.74				1.09				4.26				6.66				1.26				5.47				2.36				2.84

 

ThereThere were no holdings of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of our total consolidated shareholders’ equity as of December 31, 20172023 or 2016.2022.

 

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The following tables presentManagement evaluates securities for impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and weighted-average yieldmore frequently when economic or market concerns warrant such evaluation. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby Management compares the present value of available-for-saleexpected cash flows with the amortized cost basis of the security.  The credit loss component would be recognized through the provision for credit losses and held-to-maturitythe creation of an allowance for credit losses. Consideration is given to (1) the financial condition and near-term prospects of the issuer including looking at default and delinquency rates, (2) the outlook for receiving the contractual cash flows of the investments, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third party guarantees, and (8) collateral values. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition, and the issuer’s anticipated ability to pay the contractual maturity,cash flows of the investments. All of the U.S. Treasury and Agency-Backed Securities have the full faith and credit backing of the United State Government or one of its agencies. Municipal securities and all other securities that do not have a zero expected credit loss are evaluated quarterly to determine whether there is a credit loss associated with a decline in fair value. Based on the application of the new standard, and that all debt securities available for sale in an unrealized loss position as of December 31, 2017. Actual maturities could differ from contractual maturities because issuers may have the right2023, continue to call or prepay obligations with or without penalties.

		Available-for-Sale Securities
(Amounts in thousands)		U.S. Agency Securities				U.S. Treasury Securities				Municipal Securities				Corporate Notes				Total				Tax Equivalent Purchase Yield(1)
Amortized cost maturity:
One year or less		$	10,065			$	19,987			$	-			$	-			$	30,052				1.17	%
After one year through five years			-				-				7,193				-				7,193				4.57	%
After five years through ten years			1,224				-				90,062				9,367				100,653				4.15	%
After ten years			-				-				4,297				-				4,297				4.43	%
Amortized cost		$	11,289			$	19,987			$	101,552			$	9,367				142,195
Mortgage-backed securities																			22,095				2.18	%
Equity securities																			55				0.00	%
Total amortized cost																		$	164,345
Tax equivalent purchase yield(1)			1.46	%			1.13	%			4.39	%			2.08	%			3.55	%
Average contractual maturity (in years)			1.37				0.25				7.48				9.08				6.09
Fair value maturity:
One year or less		$	10,055			$	19,971			$	-			$	-			$	30,026
After one year through five years			-				-				7,308				-				7,308
After five years through ten years			1,241				-				91,886				8,884				102,011
After ten years			-				-				4,454				-				4,454
Fair value		$	11,296			$	19,971			$	103,648			$	8,884				143,799
Mortgage-backed securities																			21,726
Equity securities																			55
Total fair value																		$	165,580

(1)	FTE basis based on the federal statutory rate of 35%

		Held-to-Maturity Securities
(Amounts in thousands)		U.S. Agency Securities				Corporate Notes				Total				Tax Equivalent Purchase Yield(1)
Amortized cost maturity:
One year or less		$	-			$	-			$	-				0.00	%
After one year through five years			17,937				7,212				25,149				1.67	%
After five years through ten years			-				-				-				0.00	%
After ten years			-				-				-				0.00	%
Total amortized cost		$	17,937			$	7,212			$	25,149
Tax equivalent purchase yield(1)			1.59	%			1.84	%			1.67	%
Average contractual maturity (in years)			1.14				1.06				1.11
Fair value maturity:
One year or less		$	-			$	-			$	-
After one year through five years			17,888				7,196				25,084
After five years through ten years			-				-				-
After ten years			-				-				-
Total fair value		$	17,888			$	7,196			$	25,084

(1)	FTE basis based on the federal statutory rate of 35%

Investment securities are reviewed quarterly perform as scheduled, we do not believe that a provision for possible other-than-temporary impairment (“OTTI”) charges.credit losses is necessary in 2023. We recognized no OTTIimpairment charges in earnings associated with debt securities in 2017 or 2015. We recognized OTTI charges in earnings associated with debt securities of $4.64 million in 2016 due to our change in intent to hold certain trust preferred securities in our portfolio to recovery. These specific securities were sold to reduce credit concentrations with two issuers, which increased cash reserves and reduced exposure to the financial industry. We recognized no OTTI charges in earnings associated with equity securities in 2017 or 2015. We recognized OTTI charges in earnings associated with certain equity securities of $11 thousand in 2016.2022. For additional information, see “Investment Securities” in the “CriticalNote 1, “Basis of Presentation and Significant Accounting Estimates” section abovePolicies,” and Note 3, “Investment“Debt Securities,” to the Consolidated Financial Statements in Item 8, of this report.

 

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Loans Held for Investment

 

Loans held for investment, our largest component of interest income, are grouped into commercial, consumer real estate, and consumer and other loan segments. Each segment is divided into various loan classes based on collateral or purpose. Certain loans acquired in FDIC-assisted transactions are covered under loss share agreements (“covered loans”). The general characteristics of each loan segment are as follows:

 

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Commercial loans – This segment consists of loans to small and mid-size industrial, commercial, and service companies that include, but are not limited to, natural gas producers, retail merchants, and wholesale merchants.companies. Commercial real estate projects represent a variety of sectors of the commercial real estate market, including single family and apartment lessors, commercial real estate lessors, and hotel/motel operators. Commercial loan underwriting guidelines require that comprehensive reviews and independent evaluations be performed on credits exceeding predefined size limits. Updates to these loan reviews are done periodically or annually depending on the size of the loan relationship.

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Consumer real estate loans – This segment consists of largely of loans to individuals within our market footprint for home equity loans and lines of credit and for the purchase or constructionpurpose of owner occupied homes.financing residential properties. Residential real estate loan underwriting guidelines require that borrowers meet certain credit, income, and collateral standards at origination.

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Consumer and other loans – This segment consists of loans to individuals within our market footprint that include, but are not limited to, automobile, credit cards, personal lines of credit, credit cards, and the purchase of automobiles, boats, mobile homes, and other consumer goods. Consumer loan underwriting guidelines require that borrowers meet certain credit, income, and collateral standards at origination.

 

Total loans held for investment, net of unearned income, as of December 31, 2017, decreased $35.762023, increased $172.10 million, or 1.93%7.17%, compared to December 31, 2016,2022. primarily due to a $29.05the Surrey acquisition with loans acquired totaling $239.08 million.  The largest components of Surrey's portfolio included approximately $98.89 million or 50.96%, decrease in coverednon-farm, non-residential loans, due to the expiration of the$61.47 million commercial loss share agreement on June 30, 2017, and continued loan runoffindustrial loans, and $23.03 million in the remaining portfolio. Non-covered loans decreased $6.72 million, or 0.37%, which was driven by declines in residential real estate.non-owner occupied single family loans.  We had no foreign loans or loan concentrations to any single borrower or industry, which are not otherwise disclosed as a category of loans that represented 10% or more of outstanding loans, as of December 31, 20172023 or 2016.2022. For additional information, see Note 4, “Loans,” to the Consolidated Financial Statements in Item 8 of this report.

 

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The following table presents loans, net of unearned income and by loan class, as of the dates indicated:

		December 31,
(Amounts in thousands)		2017				2016				2015				2014				2013
Non-covered loans held for investment
Commercial loans
Construction, development, and other land		$	60,017			$	56,948			$	48,896			$	41,271			$	35,255
Commercial and industrial			92,188				92,204				88,903				83,099				95,455
Multi-family residential			125,202				134,228				95,026				97,480				70,197
Single family non-owner occupied			141,670				142,965				149,351				135,171				135,559
Non-farm, non-residential			616,633				598,674				485,460				473,906				475,911
Agricultural			7,035				6,003				2,911				1,599				2,324
Farmland			25,649				31,729				27,540				29,517				32,614
Total commercial loans			1,068,394				1,062,751				898,087				862,043				847,315
Consumer real estate loans
Home equity lines			103,205				106,361				107,367				110,957				111,770
Single family owner occupied			502,686				500,891				495,209				485,475				496,012
Owner occupied construction			39,178				44,535				43,505				32,799				28,703
Total consumer real estate loans			645,069				651,787				646,081				629,231				636,485
Consumer and other loans
Consumer loans			70,772				77,445				72,000				69,347				71,313
Other			5,001				3,971				7,338				6,555				3,926
Total consumer and other loans			75,773				81,416				79,338				75,902				75,239
Total non-covered loans			1,789,236				1,795,954				1,623,506				1,567,176				1,559,039
Total covered loans			27,948				56,994				83,035				122,240				151,682
Total loans held for investment, net of unearned income			1,817,184				1,852,948				1,706,541				1,689,416				1,710,721
Less: allowance for loan losses			19,276				17,948				20,233				20,227				24,077
Total loans held for investment, net of unearned income and allowance		$	1,797,908			$	1,835,000			$	1,686,308			$	1,669,189			$	1,686,644
Loans held for sale		$	-			$	-			$	-			$	1,792			$	883

The following table presents covered loans, by loan class, as of the dates indicated:

		December 31,
(Amounts in thousands)		2017				2016				2015				2014				2013
Commercial loans
Construction, development, and other land		$	39			$	4,570			$	6,303			$	13,100			$	15,865
Commercial and industrial			-				895				1,170				2,662				3,325
Multi-family residential			-				8				640				1,584				1,933
Single family non-owner occupied			284				962				2,674				5,918				7,449
Non-farm, non-residential			9				7,512				14,065				25,317				34,646
Agricultural			-				25				34				43				164
Farmland			-				397				643				716				873
Total commercial loans			332				14,369				25,529				49,340				64,255
Consumer real estate loans
Home equity lines			23,720				35,817				48,565				60,391				69,206
Single family owner occupied			3,896				6,729				8,595				11,968				16,919
Owner occupied construction			-				-				262				453				1,184
Total consumer real estate loans			27,616				42,546				57,422				72,812				87,309
Consumer and other loans
Consumer loans			-				79				84				88				118
Total covered loans		$	27,948			$	56,994			$	83,035			$	122,240			$	151,682

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The following table presents the percentage of loans to total loans in the non-covered portfolio, by loan class, as of the dates indicated:

		December 31,
		2017				2016				2015				2014				2013
Commercial loans
Construction, development, and other land			3.36	%			3.17	%			3.01	%			2.64	%			2.26	%
Commercial and industrial			5.15	%			5.13	%			5.48	%			5.30	%			6.12	%
Multi-family residential			7.00	%			7.47	%			5.85	%			6.22	%			4.50	%
Single family non-owner occupied			7.92	%			7.96	%			9.20	%			8.63	%			8.70	%
Non-farm, non-residential			34.46	%			33.34	%			29.90	%			30.24	%			30.53	%
Agricultural			0.39	%			0.34	%			0.18	%			0.10	%			0.15	%
Farmland			1.43	%			1.77	%			1.70	%			1.88	%			2.09	%
Total commercial loans			59.71	%			59.18	%			55.32	%			55.01	%			54.35	%
Consumer real estate loans
Home equity lines			5.77	%			5.92	%			6.62	%			7.08	%			7.17	%
Single family owner occupied			28.09	%			27.89	%			30.50	%			30.98	%			31.82	%
Owner occupied construction			2.19	%			2.48	%			2.68	%			2.09	%			1.84	%
Total consumer real estate loans			36.05	%			36.29	%			39.80	%			40.15	%			40.83	%
Consumer and other loans
Consumer loans			3.96	%			4.31	%			4.43	%			4.42	%			4.57	%
Other			0.28	%			0.22	%			0.45	%			0.42	%			0.25	%
Total consumer and other loans			4.24	%			4.53	%			4.88	%			4.84	%			4.82	%
Total non-covered loans			100.00	%			100.00	%			100.00	%			100.00	%			100.00	%

The following table presents the percentage of loans to total loans in the covered portfolio, by loan class, as of the dates indicated:

		December 31,
		2017				2016				2015				2014				2013
Commercial loans
Construction, development, and other land			0.14	%			8.02	%			7.59	%			10.72	%			10.46	%
Commercial and industrial			0.00	%			1.57	%			1.41	%			2.18	%			2.19	%
Multi-family residential			0.00	%			0.01	%			0.77	%			1.30	%			1.27	%
Single family non-owner occupied			1.02	%			1.69	%			3.22	%			4.84	%			4.91	%
Non-farm, non-residential			0.03	%			13.18	%			16.94	%			20.71	%			22.84	%
Agricultural			0.00	%			0.04	%			0.04	%			0.03	%			0.11	%
Farmland			0.00	%			0.70	%			0.77	%			0.59	%			0.58	%
Total commercial loans			1.19	%			25.21	%			30.74	%			40.37	%			42.36	%
Consumer real estate loans
Home equity lines			84.87	%			62.84	%			58.49	%			49.40	%			45.63	%
Single family owner occupied			13.94	%			11.81	%			10.35	%			9.79	%			11.15	%
Owner occupied construction			0.00	%			0.00	%			0.32	%			0.37	%			0.78	%
Total consumer real estate loans			98.81	%			74.65	%			69.16	%			59.56	%			57.56	%
Consumer and other loans
Consumer loans			0.00	%			0.14	%			0.10	%			0.07	%			0.08	%
Total covered loans			100.00	%			100.00	%			100.00	%			100.00	%			100.00	%

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The following table presents the maturities and rate sensitivities of the non-covered loan portfolio as of December 31, 2017:2023:

 

		Due in One Year or Less				Due After One Year Through Five Years				Due After Five Years				Total
(Amounts in thousands)																		Due in One Year or Less				Due After One Year Through Five Years				Due After Five Through Fifteen Years				Due After Fifteen Years				Total
Commercial loans
Construction, development, and other land(1)		$	17,946			$	15,243			$	26,828			$	60,017
Construction, development, and other land(1)																		$	13,206			$	10,955			$	56,076			$	25,708			$	105,945
Commercial and industrial			27,305				52,747				12,136				92,188				34,664				94,828				61,173				21,185				211,850
Multi-family residential			14,606				27,819				82,777				125,202				4,496				37,060				97,772				49,054				188,382
Single family non-owner occupied			15,515				28,653				97,502				141,670				4,556				13,712				79,076				127,551				224,895
Non-farm, non-residential			41,040				197,139				378,454				616,633				22,487				128,724				379,376				363,963				894,550
Agricultural			741				5,534				760				7,035				1,126				9,878				9,675				990				21,669
Farmland			5,227				9,193				11,229				25,649				1,258				1,811				8,850				2,283				14,202
Total commercial loans			122,380				336,328				609,686				1,068,394				81,793				296,968				691,998				590,734				1,661,493
Consumer real estate loans
Home equity lines			6,164				15,754				81,287				103,205				4,097				12,437				64,023				7,069				87,626
Single family owner occupied			3,701				33,301				465,684				502,686				964				17,367				163,912				513,897				696,140
Owner occupied construction			2,547				1,275				35,356				39,178				278				44				1,093				7,030				8,445
Total consumer real estate loans			12,412				50,330				582,327				645,069				5,339				29,848				229,028				527,996				792,211
Consumer and other loans
Consumer loans			13,046				55,820				1,906				70,772				4,299				91,825				19,145				1,822				117,091
Other			1,827				1,369				1,805				5,001				1,503				—				—				—				1,503
Total consumer and other loans			14,873				57,189				3,711				75,773				5,802				91,825				19,145				1,822				118,594
Total non-covered loans		$	149,665			$	443,847			$	1,195,724			$	1,789,236
Total loans																		$	92,934			$	418,641			$	940,171			$	1,120,552			$	2,572,298
Rate sensitivities
Predetermined interest rate		$	92,442			$	395,966			$	391,264			$	879,672			$	46,214			$	359,624			$	577,336			$	657,642			$	1,640,816
Floating or adjustable interest rate			57,223				47,881				804,460				909,564				46,720				59,017				362,835				462,910				931,482
Total non-covered loans		$	149,665			$	443,847			$	1,195,724			$	1,789,236
Total loans																		$	92,934			$	418,641			$	940,171			$	1,120,552			$	2,572,298

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(1)		Construction loans with maturities due after five years include construction to permanent loans that have not yet converted to principal and interest payments.

 

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The following table presents the maturities and rate sensitivities of the covered loan portfolio as of December 31, 2017:

(Amounts in thousands)		Due in One Year or Less				Due After One Year Through Five Years				Due After Five Years				Total
Commercial loans
Construction, development, and other land		$	1			$	38			$	-			$	39
Single family non-owner occupied			-				258				26				284
Non-farm, non-residential			-				9				-				9
Total commercial loans			1				305				26				332
Consumer real estate loans
Home equity lines			395				11,774				11,551				23,720
Single family owner occupied			18				754				3,124				3,896
Total consumer real estate loans			413				12,528				14,675				27,616
Total covered loans		$	414			$	12,833			$	14,701			$	27,948
Rate sensitivities
Predetermined interest rate		$	6			$	989			$	3,033			$	4,028
Floating or adjustable interest rate			408				11,844				11,668				23,920
Total covered loans		$	414			$	12,833			$	14,701			$	27,948

Risk Elements

 

We seek to mitigate credit risk by following specific underwriting practices and by ongoing monitoring of our loan portfolio. Our underwriting practices include the analysis of borrowers’ prior credit histories, financial statements, tax returns, and cash flow projections; valuation of collateral based on independent appraisers’ reports; and verification of liquid assets. We believe our underwriting criteria are appropriate for the various loan types we offer; however, losses may occur that exceed the reserves established in our allowance for loan losses. We track certain credit quality indicators that include: trends related to the risk rating of commercial loans, the level of classified commercial loans, net charge-offs, nonperforming loans, and general economic conditions. The Company’sCompany has a loan review function generally analyzes all commercialindependent of credit administration that performs a risk-based review of a sample of loans and loan relationships greater than $4.0 million annuallyin the Company's commercial portfolio, and at various times duringconducts analytical review of credit quality on the year. Smaller commercial and retail loans are sampled for review during the year.Company's non-commercial portfolios.

 

Nonperforming assets consist of nonaccrual loans, accrual loans contractually past due 90 days or more, modified loans past due 90 days or more, and other real estate owned ("OREO"). Prior to the adoption of ASU 2022-02, unseasoned troubled debt restructurings (“TDRs”("TDRs"), and OREO. were included in nonperforming assets.  Ongoing activity in the classification and categories of nonperforming loans include collections on delinquencies, foreclosures, loan restructurings, and movements into or out of the nonperforming classification due to changing economic conditions, borrower financial capacity, or resolution efforts.  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. For additional information, see Note 5, “Credit Quality,” to the Consolidated Financial Statements in Item 8 of this report.

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The following table presents the components of nonperforming assets and related information as of the periods indicated:

 

		December 31,																				December 31,
(Amounts in thousands)		2017				2016				2015				2014				2013				2023				2022				2021				2020				2019
Non-covered nonperforming
Nonperforming
Nonaccrual loans		$	18,997			$	15,854			$	17,847			$	10,556			$	19,161			$	19,356			$	15,208			$	20,768			$	22,003			$	16,357
Accruing loans past due 90 days or more			1				-				-				-				-				104				142				87				295				144
TDRs(1)			120				114				73				2,726				1,311
Modified loans past due 90 days or more (1)																							—				—				—				—				—
TDRs'(2)(3)																							—				1,346				1,367				187				720
Total non-covered nonperforming loans			19,118				15,968				17,920				13,282				20,472				19,460				16,696				22,222				22,485				17,221
Non-covered OREO			2,409				5,109				4,873				6,638				7,318
Total non-covered nonperforming assets		$	21,527			$	21,077			$	22,793			$	19,920			$	27,790
Covered nonperforming
Nonaccrual loans		$	342			$	608			$	647			$	2,438			$	3,353
Accruing loans past due 90 days or more			-				-				-				-				86
Total covered nonperforming loans			342				608				647				2,438				3,439
Covered OREO			105				276				4,034				6,324				7,541
Total covered nonperforming assets		$	447			$	884			$	4,681			$	8,762			$	10,980
Total nonperforming
Nonaccrual loans		$	19,339			$	16,462			$	18,494			$	12,994			$	22,514
Accruing loans past due 90 days or more			1				-				-				-				86
TDRs(1)			120				114				73				2,726				1,311
Total nonperforming loans			19,460				16,576				18,567				15,720				23,911
OREO			2,514				5,385				8,907				12,962				14,859				192				703				1,015				2,083				3,969
Total nonperforming assets		$	21,974			$	21,961			$	27,474			$	28,682			$	38,770			$	19,652			$	17,399			$	23,237			$	24,568			$	21,190
Additional Information
Performing TDRs(2)		$	7,614			$	12,838			$	13,889			$	11,808			$	10,900
Total TDRs(3)			7,734				12,952				13,962				14,534				12,211
Total modified loans (1)																						$	2,046			$	—			$	—			$	—			$	—
Total Accruing TDRs (3)																							—				7,112				8,652				10,248				6,575
Gross interest income that would have been recorded under the original terms of restructured and nonperforming loans			1,217				1,414				1,645				1,171				1,548				969				883				1,129				1,586				1,068
Actual interest income recorded on restructured and nonperforming loans			222				424				608				597				511				6				388				422				473				277
Non-covered ratios
Nonperforming loans to total loans			1.07	%			0.89	%			1.10	%			0.85	%			1.31	%
Nonperforming assets to total assets			0.91	%			0.90	%			0.96	%			0.80	%			1.14	%
Non-PCI allowance to nonperforming loans			100.83	%			112.32	%			112.61	%			151.85	%			113.92	%
Non-PCI allowance to total loans			1.08	%			1.00	%			1.24	%			1.29	%			1.50	%
Total ratios
Nonperforming loans to total loans			1.07	%			0.89	%			1.09	%			0.93	%			1.40	%			0.76	%			0.70	%			1.03	%			1.03	%			0.81	%
Nonperforming assets to total assets			0.92	%			0.92	%			1.12	%			1.10	%			1.49	%			0.60	%			0.55	%			0.73	%			0.82	%			0.76	%
Allowance for loan losses to nonperforming loans			99.05	%			108.28	%			108.97	%			128.67	%			100.69	%
Allowance for loan losses to total loans			1.06	%			0.97	%			1.19	%			1.20	%			1.41	%
Allowance for credit losses to nonperforming loans																							185.97	%			183.01	%			125.36	%			116.44	%			106.99	%
Allowance for credit losses to total loans																							1.41	%			1.27	%			1.29	%			1.20	%			0.87	%

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(1)		ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.  ASU adopted effective January 1, 2023.
(1)(2)		TDRs restructured within the past six months and nonperforming TDRs exclude nonaccrual TDRs of $169 thousand, $224 thousand, $923 thousand, $306 thousand,$1.22 million, $1.80 million, $1.18 million, and $734$95 thousand for the fivefour years ended December 31, 2017.
(2)	TDRs with six months or more2022.  They were included in nonaccrual loans as reported prior to the adoption of satisfactory payment performance exclude TDRs of $1.76 million, $1.06 million, $416 thousand, $248 thousand, and $1.47 million for the five years ended December 31, 2017.ASU 2022-02.
(3)		Total accruing TDRs exclude nonaccrual TDRs of  $1.93$1.32 million, $1.28$2.52 million, $1.34$1.81 million, $554 thousand, and $2.20$2.34 million for the fivefour years ended December 31, 2017.2022.  They were included in nonaccrual loans as reported prior to the adoption of ASU 2022-02.

 

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Non-covered nonperforming

Nonperforming assets as of December 31, 2017,2023, increased $450 thousand,$2.25 million, or 2.14%12.95%, from December 31, 2016, primarily2022, with the largest increase due to an increase due to an increase in non-covered nonaccrual loans. Non-covered nonaccrual loans as of $4.15 million.  The increase was offset by a decrease of $1.35 million in nonaccrual TDRs that was reported in December 31, 2017, increased $3.14 million,2022.  The adoption of ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures, on January 1, 2023, eliminated the accounting guidance for troubled debt restructurings by creditors as provided in ASC 310-40, Receivables - Troubled Debt Restructuring by Creditors.  Therefore, the guidance applied prior to January 1, 2023, is no longer applicable.  OREO decreased $511 thousand, or 19.82%,72.69% and accruing loans past due 90 days or more decreased $38 thousand from December 31, 2016.2022.  As of December 31, 2017, non-covered2023, nonaccrual loans were largely attributed to single family owner occupied (69.00%(48.38%) and, non-farm, non-residential (12.89%real estate (12.63%) loans. As of December 31, 2017, approximately $673 thousand, or 3.54%, of non-covered nonaccrualand consumer loans were attributed to performing loans acquired in business combinations.(9.85%).  Certain loans included in the nonaccrual category have been written down to estimated realizable value or assigned specific reserves in the allowance for loancredit losses based on management’smanagement's estimate of loss at ultimate resolution.

 

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Non-covered delinquentDelinquent loans, comprised of loans 30 days or more past due and nonaccrual loans, totaled $30.71$33.93 million as of December 31, 2017, an2023, a increase of $5.70$4.25 million, or 22.77%14.32%, compared to $25.02$29.68 million as of December 31, 2016. Non-covered delinquent2022. Delinquent loans as a percent of total non-covered loans totaled 1.71%1.32% as of December 31, 2017,2023, which includes past due loans (0.65%)0.57% and nonaccrual loans (1.06%).0.75%, compared to 1.24%  as of December 31, 2022.

 

When restructuring loans for borrowers experiencing financial difficulty, we generally make concessions in interest rates, loan terms, or amortization terms.  Certain TDRs are classified As noted above, ASU 2022-02, eliminated and replaced the accounting guidance for borrowers experiencing financial difficulties previously applied under ASC 310-40, Receivables - Troubled Debt Restructurings by Creditors.  ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures, discloses loans for borrowers experiencing financial difficulty as nonperforming when modified and are returned to performing status after six months of satisfactory payment performance; however, theseloans.  Total loans remain identified as impaired until full payment or other satisfaction of the obligation occurs. Accruing TDRsmodified as of December 31, 2017, decreased $5.22 million, or 40.29%, to $7.73 million from December 31, 2016. Nonperforming accruing TDRs as of December 31, 2017, increased $6 thousand, or 5.26%, to $120 thousand from December 31, 2016. Nonperforming accruing TDRs as a percent of total accruing TDRs totaled 1.55% as of December 31, 2017, compared to 0.88% as of December 31, 2016. Specific reserves on TDRs totaled $642 thousand as of December 31, 2017, compared to $670 thousand as of December 31, 2016.2023, were $2.05 million.  

 

Non-covered OREO, which is carried at the lesser of estimated net realizable value or cost, decreased $2.70 million, or 52.85%, as of December 31, 2017, compared to December 31, 2016. Non-covered OREO consisted of 166 properties with an average holding period of 1210 months as of December 31, 2017.2023. The net loss on the sale of OREO totaled $937was  $84 thousand in 2017, $1.15 million2023, $453 thousand in 2016,2022, and $1.85 million$231 thousand in 2015.2021. The following table presents the changes in OREO during the periods indicated:

 

		Year Ended December 31,
		2017												2016												Year Ended December 31,
		Non-covered				Covered				Total				Non-covered				Covered				Total				2023				2022
(Amounts in thousands)
Beginning balance		$	5,109			$	276			$	5,385			$	4,873			$	4,034			$	8,907			$	703			$	1,015
Additions			2,204				79				2,283				3,962				1,200				5,162				391				705
Disposals			(4,165	)			(218	)			(4,383	)			(2,887	)			(4,405	)			(7,292	)			(798	)			(533	)
Valuation adjustments			(739	)			(32	)			(771	)			(839	)			(553	)			(1,392	)			(104	)			(484	)
Ending balance		$	2,409			$	105			$	2,514			$	5,109			$	276			$	5,385			$	192			$	703

 

Allowance for CreditLoan Losses (ACL)

 

The ACL reflects management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. Management uses a systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded in the balance sheet reflects management’s best estimate of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. The Company’s measurement of credit losses policy adheres to GAAP as well as interagency guidance. The Company's ACL is calculated using collectively evaluated and individually evaluated loans.

For collectively evaluated loans, the Company in general uses two modeling approaches to estimate expected credit losses. The Company projects the contractual run-off of its portfolio at the segment level and incorporates a prepayment assumption in order to estimate exposure at default. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and that the repayment terms were not considered to be unique to the asset.

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In addition to its own loss experience, management also includes peer bank historical loss experience in its assessment of expected credit losses to determine the ACL. The Company utilized call report data to measure historical credit loss experience with similar risk characteristics within the segments. For the majority of segment models for collectively evaluated loans, the Company incorporated at least one macroeconomic driver either using a statistical regression modeling methodology or simple loss rate modeling methodology.

Included in its systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures, management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process. These qualitative adjustments either increase or decrease the quantitative model estimation (i.e. formulaic model results). Each period, the Company considers qualitative factors that are relevant within the qualitative framework.  For further discussion of our Allowance for Credit Losses - See Note 1 - "Basis of Presentation - Significant Accounting Policies".

With the adoption of ASU 2016-13 effective January 1, 2021, the Company changed its method for calculating it allowance for loan losses is maintained atfrom an incurred loss method to a level management deems sufficient to absorb probablelife of loan losses inherent in the loan portfolio. The allowance is increased by the provisionmethod. See Note 1 – "Basis of Presentation and Significant Accounting Policies" for loan losses and recoveries of prior loan charge-offs and decreased by loans charged off. The provision for loan losses is calculated and charged to expense to bring the allowance to an appropriate level using a systematic process of measurement that requires significant judgments and estimates.further details. As of December 31, 2017, our qualitative risk factors reflect2023,  the balance of the ACL for loans was $36.19 million, or 1.41% of total loans. The ACL at December 31, 2023, increased $5.63 million from the balance of $30.56 million recorded December 31, 2022. This increase included a stable riskprovision of loan losses due$7.99 million and net charge-offs for the twelve months of $4.81 million. The increase in provision for the twelve months ended December 31, 2023, included a day two provision of $1.61 million for Surrey loans.  In addition, $2.01 million was added to consistent asset quality metrics and relatively stable business and economic conditions in our primary market areas. The loan portfolio is continually monitoredthe reserve for deterioration inSurrey's purchased credit which may result indeteriorated loans.

At December 31, 2023, the need to increase theCompany also had an allowance for loanunfunded commitments of $746 thousand which was recorded in Other Liabilities on the Balance Sheet.  During 2023, there was a recovery of provision for credit losses on unfunded commitments of $450 thousand which was recorded in future periods. provision expense on the Statement of Income. During 2022, the provision for credit losses on unfunded commitments was $518 thousand and was recorded in other expense on the Statement of Income.  

Management considered the allowance adequate as of December 31, 2017;2023; however, no assurance can be made that additions to the allowance will not be required in future periods. For additional information, see “Allowance for Loan Losses”Credit Losses or ("ACL")” in the “Critical Accounting Estimates”Policies” section above and Note 6, “Allowance for Loan Losses,” to the Consolidated Financial Statements in Item 8 of this report.

 

The allowance forfollowing table presents net charge-offs, by loan losses as of December 31, 2017, increased $1.33 million, or 7.40%, from December 31, 2016. The increase was largely attributedclass, and the ratio to a $1.74 million increase in specific reserves on impairedaverage loans combined with a $700 thousand increase in unallocated reserves. The non-PCI allowance as a percent of non-covered loans totaled 1.08% as of December 31, 2017, compared to 1.00% as of December 31, 2016. PCI loans were aggregated into five loan pools as of December 31, 2017 and 2016; Waccamaw commercial, Waccamaw serviced home equity lines, Waccamaw residential, Peoples Bank of Virginia (“Peoples”) commercial, and Peoples residential. The cash flow analysis identified no impaired PCI loan pools as of December 31, 2017, compared to one impaired PCI loan pool with a cumulative impairment of $12 thousand as of December 31, 2016. Net charge-offs decreased $2.10 million, or 59.23%, in 2017 compared to 2016, largely due to an overall reduction in charge-offs for commercial real estate loans.during the periods indicated:

		December 31,
		2023												2022												2021
(Amounts in thousands)		Net (charge-offs) recoveries				Average Loans				Ratio of Net (charge-offs) recoveries to average loans				Net (charge-offs) recoveries				Average Loans				Ratio of Net (charge-offs) recoveries to average loans				Net (charge-offs) recoveries				Average Loans				Ratio of Net (charge-offs) recoveries to average loans
Commercial loans
Construction, development, and other land		$	511			$	108,437				0.47	%		$	56			$	88,204				0.06	%		$	(108	)		$	47,285				-0.23	%
Commercial and industrial			(8	)			216,618				0.00	%			844				169,101				0.50	%			(639	)			173,206				-0.37	%
Multi-family residential			9				163,797				0.01	%			105				124,229				0.08	%			302				102,175				0.30	%
Single family non-owner occupied			13				220,316				0.01	%			186				193,455				0.10	%			58				185,752				0.03	%
Non-farm, non-residential			443				863,078				0.05	%			848				754,518				0.11	%			(696	)			724,444				-0.10	%
Agricultural			(30	)			18,982				-0.16	%			(70	)			10,407				-0.67	%			(157	)			9,441				-1.66	%
Farmland			30				13,856				0.21	%			38				12,290				0.31	%			(56	)			16,799				-0.33	%
Total commercial loans			968				1,605,084				0.06	%			2,007				1,352,204				0.15	%			(1,296	)			1,259,102				-0.10	%
Consumer real estate loans
Home equity lines			123				77,348				0.16	%			67				72,511				0.09	%			397				82,861				0.48	%
Single family owner occupied			(15	)			704,217				0.00	%			13				702,384				0.00	%			132				657,741				0.02	%
Owner occupied construction			—				16,778				0.00	%			—				23,898				0.00	%			—				27,529				0.00	%
Total consumer real estate loans			108				798,343				0.01	%			80				798,793				0.01	%			529				768,131				0.07	%
Consumer and other loans
Consumer loans			(5,889	)			134,934				-4.36	%			(5,960	)			147,506				-4.04	%			(2,193	)			125,866				-1.74	%
Total		$	(4,813	)		$	2,538,361				-0.19	%		$	(3,873	)		$	2,298,503				-0.17	%		$	(2,960	)		$	2,153,099				0.14	%

 

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The following table presentsthe changes in the allowance for loan losses, by loan class, during the periods indicated:

		Year Ended December 31,
		2017				2016				2015				2014				2013
(Amounts in thousands)
Beginning balance		$	17,948			$	20,233			$	20,227			$	24,077			$	25,770
Removal of loans transferred(1)			-				-				-				(682	)			-
Provision for loan losses charged to operations, non-PCI loans			2,783				1,296				2,166				420				7,912
(Recovery of) provision for loan losses charged to operations, PCI loans			(12	)			(41	)			25				(275	)			296
(Recovery of) provision for loan losses recorded through the FDIC indemnification asset			-				(1	)			(29	)			(422	)			451
Charge-offs
Commercial loans
Construction, development, and other land			427				254				256				1,238				2,738
Commercial and industrial			224				144				93				459				720
Multi-family residential			9				64				-				35				17
Single family non-owner occupied			52				237				87				488				2,618
Non-farm, non-residential			142				1,684				773				832				1,613
Agricultural			-				-				-				-				17
Farmland			68				9				73				-				20
Consumer real estate loans
Home equity lines			13				1,073				92				451				1,873
Single family owner occupied			675				508				812				988				947
Owner occupied construction			11				31				2				305				295
Consumer and other loans
Consumer loans			658				457				461				659				491
Other			664				715				1,096				1,026				1,178
Total charge-offs			2,943				5,176				3,745				6,481				12,527
Recoveries
Commercial loans
Construction, development, and other land			306				282				135				84				510
Commercial and industrial(2)			160				484				173				1,736				98
Multi-family residential			9				15				-				10				16
Single family non-owner occupied			180				79				92				331				158
Non-farm, non-residential			146				59				74				239				119
Agricultural			-				-				-				-				22
Farmland			-				-				-				-				8
Consumer real estate loans
Home equity lines			201				137				402				514				273
Single family owner occupied			108				182				258				76				169
Owner occupied construction			105				39				18				-				-
Consumer and other
Consumer loans			137				123				101				121				107
Other			148				237				336				479				695
Total recoveries			1,500				1,637				1,589				3,590				2,175
Net charge-offs			1,443				3,539				2,156				2,891				10,352
Ending balance		$	19,276			$	17,948			$	20,233			$	20,227			$	24,077
Net charge-offs to average non-covered loans			0.08	%			0.21	%			0.14	%			0.18	%			0.68	%
Net charge-offs to average total loans			0.08	%			0.20	%			0.13	%			0.17	%			0.61	%

(1)	Includes a $682 thousand removal in 2014 due to loans transferred in branch divestitures
(2)	Includes a $1.60 million recovery in 2014 related to the positive resolution of a sizable problem credit

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The following table presents the allowance for loan losses, excluding PCI loans, by loan class, as of the dates indicated:

 

																						December 31,
		December 31,																				2023								2022
(Amounts in thousands)		2017				2016				2015				2014				2013				Balance				Percentage of Total Allowance				Balance				Percentage of Total Allowance
Commercial loans
Construction, development, and other land		$	830			$	889			$	1,119			$	1,151			$	1,141			$	3,549				4.12	%		$	3,197				4.88	%
Commercial and industrial			762				495				504				689				5,215				3,997				8.24	%			2,561				6.27	%
Multi-family residential			1,094				1,157				1,535				1,917				1,211				1,191				7.32	%			853				6.17	%
Single family non-owner occupied			1,976				2,752				3,369				3,228				3,549				2,581				8.74	%			2,169				8.59	%
Non-farm, non-residential			6,597				6,185				6,393				5,805				4,650				9,837				34.78	%			8,117				32.82	%
Agricultural			51				43				22				13				23				570				0.84	%			198				0.50	%
Farmland			362				169				190				206				301				125				0.55	%			118				0.49	%
Consumer real estate loans
Home equity lines			803				895				1,091				1,330				1,361				1,588				3.41	%			1,053				3.15	%
Single family owner occupied			5,710				4,364				4,969				4,935				5,030				7,989				27.06	%			7,744				30.61	%
Owner occupied construction			297				228				297				225				206				116				0.33	%			134				0.43	%
Consumer and other loans
Consumer loans			794				759				690				670				635				4,646				4.61	%			4,412				6.09	%
Total allowance, excluding PCI loans		$	19,276			$	17,936			$	20,179			$	20,169			$	23,322
Total allowance																						$	36,189				100.00	%		$	30,556				100.00	%

The following table presents the PCI allowance for loan losses, by loan pool, as of the dates indicated:

		December 31,
(Amounts in thousands)		2017				2016				2015				2014				2013
Commercial loans
Waccamaw commercial		$	-			$	-			$	-			$	37			$	-
Peoples commercial			-				-				-				-				69
Other			-				-				-				-				8
Consumer real estate loans
Waccamaw serviced home equity lines			-				-				-				-				277
Waccamaw residential			-				-				1				-				217
Peoples residential			-				12				53				21				184
Total PCI allowance		$	-			$	12			$	54			$	58			$	755

Deposits

 

Total deposits as of December 31, 2017,2023, increased $88.55$43.51 million, or 4.81%1.62%, compared to December 31, 2016. Noninterest-bearing2022.  The increase was primarily attributable to the acquisition of Surrey Bancorp.  The Company acquired $403.64 million in deposits increased $26.44in the transaction: acquiring $158.39 million in demand accounts, $99.32 million in interest-bearing demand, $102.70 million in savings, and $43.23 million in time deposit accounts.  Excluding the Surrey acquisition, deposits decreased $360.13 million with decreases occurring in savings of $103.35 million, demand deposits of $98.64 million, interest-bearing deposits increased $87.07demand of $84.95 million, while savings deposits, which include money market accounts and savings accounts, decreased $10.47 million; and time deposits which include certificates of deposit$73,18 million.  Deposit attrition related to Surrey post-merger totaled $70.77 million, with attrition of $36.97 million in interest-bearing demand, $13.65 million in time deposits, $13.18 million in demand, and individual retirement accounts, decreased $14.49 as of December 31, 2017, compared to December 31, 2016.$6.96 million in savings. We had no material deposit concentrations to any single customer or industry that represented 10% or more of outstanding deposits as of December 31, 20172023 or 2016.2022.

 

The following schedule presents the contractual maturities of time deposits of $100$250 thousand or more as of December 31, 2017:2023:

 

(Amounts in thousands)
Three months or less		$	15,401
Over three through six months			13,188
Over six through twelve months			22,441
Over twelve months			147,090
		$	198,120

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(Amounts in thousands)
Three months or less		$	4,069
Over three through six months			874
Over six through twelve months			2,643
Over twelve months			11,006
		$	18,592

 

Borrowings

 

Total borrowings as of December 31, 2017,2023, decreased $98.63 million,$755 thousand, or 55.19%40.29%, compared to December 31, 2016, primarily due to moving certain cash management accounts into interest-bearing deposit products. Short-term2022. Total borrowings consistedfor 2023 were comprised entirely of short-term borrowings, which consist of retail repurchase agreements, which decreased $67.92 million, or 93.03%, as of December 31, 2017, compared to December 31, 2016.agreements.  The following table presents the balances and weighted average rates paid on short-term borrowings for the periods indicated:

		Year Ended December 31,
		2017								2016								2015
		Amount				Rate				Amount				Rate				Amount				Rate
(Amounts in thousands)
Year-end balance		$	5,086				0.11	%		$	73,005				0.07	%		$	88,614				0.19	%
Average annual balance(1)			47,717				0.07	%			108,620				0.21	%			72,691				0.10	%
Maximum month-end balance(1)			90,968								182,554								122,693

(1)	Average annual and month-end balances include federal funds purchased and short-term FHLB advances that were repaid prior to year end.

Long-term borrowings consisted of a wholesale repurchase agreement and a convertible FHLB advance as of December 31, 2017. The wholesale repurchase agreement totaled $25.00 million with a weighted average rate of 3.18%0.06% as of December 31, 2017 and 2016. Long-term FHLB borrowings2023, decreased $15.00 million, or 23.08%, to $50.00 million andone basis point from the weighted average rate decreased 4 basis points to 4.00%of 0.07% as of  December 31, 2017, compared to December 31, 2016. The decrease was due to a $15.00 million convertible advance with a 4.15% rate that matured on May 4, 2017. The Company redeemed all2022.

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Table of its trust preferred securities on January 9, 2017, resulting in a decrease of $15.46 million in subordinated debt.

Contents

 

Liquidity and Capital Resources

 

Liquidity

 

Liquidity is a measure of our ability to convert assets tomeet current and future cash or raise cashflow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities. The ability of a financial obligations. We believe that liquidity management should encompass an overallinstitution to meet its current financial obligations is a function of its balance sheet approachstructure that draws together all sources and uses of liquidity. The objective of our liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund our operations and to meet obligations and other commitments on a timely basis and at a reasonable cost. We seek to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which includes managing the mix and time to maturity of financial assets and financial liabilities on our balance sheet.

Poor or inadequate liquidity risk management may result in a funding deficit that could have a material impact on our operations. We maintain a liquidity risk management policy and contingency funding policy (“Liquidity Plan”) to detect potential liquidity issues and protect our depositors, creditors, and shareholders. The Liquidity Plan includes various internal and external indicators that are reviewed on a recurring basis by our Asset/Liability Management Committee (“ALCO”) of the Board of Directors. ALCO reviews liquidity risk exposure and policies related to liquidity management; ensures that systems and internal controls are consistent with liquidity policies; and provides accurate reports about liquidity needs, sources, and compliance. The Liquidity Plan involves ongoing monitoring and estimation of potentially credit sensitive liabilities and the sources and amounts of balance sheet and external liquidity available to replace outflows during a funding crisis. The liquidity model incorporates various funding crisis scenarios and a specific action plan is formulated, and activated, when a financial shock that affects our normal funding activities is identified. Generally, the plan will reflect a strategy of replacing liability outflows with alternative liabilities, rather than balance sheet asset liquidity, to the extent that significant premiums can be avoided. If alternative liabilities are not available, outflows will be met through liquidation of balance sheet assets, including unpledged securities. As of December 31, 2023, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on the Company.

In the ordinary course of business we have entered into contractual obligations and have made other commitments to make future payments. Refer to the accompanying notes to the Consolidated Financial Statements in Item 8 of this report for the expected timing of such payments as of December 31, 2023. These include payments related to (i) operating leases (Note - 7 Premises, Equipment, and Leases ), (ii) time deposits with stated maturity dates (Note 9 - Deposits), and (iii) commitments to extend credit and standby letters of credit (Note - 19 Litigation, Commitments, and Contingencies).

 

As a financial holding company, the Company’sCompany’s primary source of liquidity is dividends received from the Bank, which are subject to certain regulatory limitations. Other sources of liquidity include cash, investment securities, and borrowings. As of December 31, 2017,2023, the Company’s cash reserves and short-term investment securities totaled $19.22$14.68 million and availability on an unsecured, committed line of credit with an unrelated financial institution totaled $15.00 million. There was no outstanding balance on the line of credit as of December 31, 2017.$22.47 million, respectively.  The Company’s cash reserves and investments provide adequate working capital to meet obligations and projected dividends to shareholders and anticipated debt repayments for the next twelve months.

 

In addition to cash on hand and deposits with other financial institutions, we rely on customer deposits, cash flows from loans and investment securities, and lines of credit from the FHLB and the Federal Reserve Bank (“FRB”)FRB Discount Window to meet potential liquidity demands. These sources of liquidity are immediately available to satisfy deposit withdrawals, customer credit needs, and our operations. Secondary sources of liquidity include approved lines of credit with correspondent banks and unpledged available-for-sale securities. As of December 31, 2017,2023, our unencumbered cash totaled $157.95$116.42 million, unused borrowing capacity from the FHLB totaled $411.20$342.81 million, available credit from the FRB Discount Window totaled $6.15$123.81 million, available lines from correspondent banks totaled $90.00$100.00 million, and unpledged available-for-sale securities totaled $114.24$135.88 million.

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Cash Flows

The following table summarizes the components of cash flow for the periods indicated:

		Year Ended December 31,
		2017				2016				2015
(Amounts in thousands)
Net cash provided by operating activities		$	39,009			$	43,088			$	58,519
Net cash provided by (used in) investing activities			65,157				110,210				(70,785	)
Net cash used in financing activities			(22,522	)			(128,778	)			(173,607	)
Net increase (decrease) in cash and cash equivalents			81,644				24,520				(185,873	)
Cash and cash equivalents, beginning balance			76,307				51,787				237,660
Cash and cash equivalents, ending balance		$	157,951			$	76,307			$	51,787

2017 Compared to 2016. Cash and cash equivalents increased $81.64 million compared to an increase of $24.52 million in the prior year. The increase was primarily due to a $106.26 million reduction in net cash used in financing activities as we increased deposit accounts and significantly reduced FHLB and other borrowings. Net cash provided by investing activities decreased $45.05 million largely due to a decrease in proceeds from sales and maturities of investment securities, which were partially offset by less loan origination activity. Net cash provided by operating activities experienced a slight decrease of $4.08 million.

2016 Compared to 2015. Cash and cash equivalents increased $24.52 million compared to a decrease of $185.87 million in the prior year primarily due to a $181.00 million increase in net cash provided by investing activities. The increase was largely the result of an increase in proceeds from sales and maturities of investment securities, an increase in proceeds from acquisition and divestiture activities, and a reduction in the purchase of investment securities offset by an increase in loan originations. Net cash used in financing activities decreased $44.83 million primarily due to a decrease in interest-bearing deposits offset by an increase in the repayment of long-term debt. Net cash provided by operating activities decreased $15.43 million.

  

Capital Resources

 

We are committed to effectively managing our capital to protect our depositors, creditors, and shareholders. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on our operations. Total stockholders’stockholders’ equity as of December 31, 2017,2023, increased $11.66$81.31 million, or 3.44%19.27%, to $350.71$503.29 million from $339.06$421.99 million as of December 31, 2016.2022.  The change in stockholders’stockholders' equity was largely due to net incomethe acquisition of $21.49Surrey Bancorp.  The Company issued 2.99 million shares of common stock in the transaction resulting in an increase to capital of $71.35 million.  In addition, the Company earned $48.02 million, which was offset by repurchasing 768,079 shares of our common stock totaling $23.04 million and dividends declared on our common stock of $11.56 million. In accordance with current regulatory guidelines, accumulated other comprehensive income/(loss) is largely excluded from stockholders' equity in the calculation of our capital ratios. Accumulated other comprehensive loss was reduced by $1.42 million, or 70.36%, to $596 thousand as of December 31, 2017, compared to December 31, 2016, primarily due to net unrealized gains on securities. We repurchased 50,118 shares of our common stock in 2017 totaling $1.26$21.09 million. Our book value per common share increased $0.68, or 3.41%,$1.19 to $20.63$27.20 as of December 31, 2017,2023, from $19.95$26.01 as of December 31, 2016.2022.

Capital Adequacy Requirements

 

Risk-based capital guidelines, issued by state and federal banking agencies, include balance sheet assets and off-balance sheet arrangements weighted by the risks inherent in the specific asset type. Our current risk-based capital requirements are based on the international capital standards known as Basel III, became effective on January 1, 2015, subject to a four-year phase-in period. Basel III’s capital conservation buffer became effective on January 1, 2016, 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). A description of the Basel III capital rules is included in Part I, Item 1 of the 2016 Form 10-K.III.  Our current minimum required capital ratios are as follows:

 

●

4.5% Common Equity Tier 1 capital to risk-weighted assets (effectively 5.75%7.00% including the capital conservation buffer)

●

6.0% Tier 1 capital to risk-weighted assets (effectively 7.25%8.50% including the capital conservation buffer)

●

8.0% Total capital to risk-weighted assets (effectively 9.25%10.50% including the capital conservation buffer)

●

4.0% Tier 1 capital to average consolidated assets (“Tier 1 capital to average consolidated assets (“Tier 1 leverage ratio”)

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The following table presents our capital ratios as of the dates indicated:

 

		December 31,												December 31,
		2017				2016				2015				2023				2022				2021
The Company
Common equity Tier 1 ratio			13.98%				13.88%				14.54%				14.69	%			13.37	%			14.39	%
Tier 1 risk-based capital ratio			13.98%				14.74%				14.73%				14.69	%			13.37	%			14.39	%
Total risk-based capital ratio			15.06%				15.79%				15.95%				15.94	%			14.62	%			15.65	%
Tier 1 leverage ratio			11.06%				11.07%				10.62%				11.52	%			10.17	%			9.65	%
The Bank
Common equity Tier 1 ratio			12.47%				12.93%				13.60%				12.97	%			11.69	%			13.37	%
Tier 1 risk-based capital ratio			12.47%				12.93%				13.60%				12.97	%			11.69	%			13.37	%
Total risk-based capital ratio			13.55%				13.98%				14.82%				14.22	%			12.94	%			14.62	%
Tier 1 leverage ratio			9.84%				9.71%				9.77%				10.07	%			8.79	%			8.94	%

 

As of December 31, 2017,2023, we continued to meet all capital adequacy requirements and were classified as well-capitalized under the regulatory framework for prompt corrective action. Management believes there have been no conditions or events since those notifications that would change the Bank’s classification. Additionally, our capital ratios were in excess of the minimum standards under the Basel III capital rules on a fully phased-in basis, if such requirements were in effect, as of December 31, 2017. Our risk-based capital ratios as of December 31, 2017, decreased from December 31, 2016, due to an increase in risk-weighted assets.2023. For additional information, see “Capital Requirements” in Part I, Item 1 and Note 21,20, “Regulatory Requirements and Restrictions,” to the Consolidated Financial Statements in Item 8 of this report.

Commitments, Contingencies, and Off-Balance Sheet Arrangements

Contractual Obligations

We enter into certain contractual obligations that require future cash payments. Management believes we have adequate resources to fund our outstanding commitments and the ability to adjust rates on certificates of deposit, in a changing interest rate environment; attract new deposits; and replace deposits with FHLB advances or other fund providers, if cost effective. The following table presents our contractual cash obligations, by payment date, as of December 31, 2017:

		Less Than				One to				Three to				More than
		One Year				Three Years				Five Years				Five Years				Total
(Amounts in thousands)
Deposits without a stated maturity(1)		$	1,453,281			$	-			$	-			$	-			$	1,453,281
Certificates of deposit(2)(3)			222,058				191,284				93,637				1,794				508,773
Securities sold under agreements to repurchase			5,881				25,122				-				-				31,003
Long-term borrowings(2)(3)			2,000				4,000				50,033				-				56,033
Operating leases			237				208				194				694				1,333
Total contractual cash obligations		$	1,683,457			$	220,614			$	143,864			$	2,488			$	2,050,423

(1)	Excludes interest
(2)	Includes interest on fixed and variable rate obligations (changes in market interest rates may materially affect the variable rate obligation to be paid, which is reflected using the rates in effect as of December 31, 2017)
(3)	Excludes unamortized premiums and discounts

Off-Balance Sheet Arrangements

We extend contractual commitments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. Our exposure to credit loss in the event of nonperformance by other parties to financial instruments is the same as the contractual amount of the instrument.

 

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The following table presents our off-balance sheet arrangements, by commitment expiration, as of December 31, 2017:

		Less than				One to				Three to				More than
		One Year(1)				Three Years				Five Years				Five Years				Total
(Amounts in thousands)
Commitments to extend credit		$	93,513			$	32,507			$	22,142			$	94,985			$	243,147
Financial letters of credit			240				-				-				10				250
Performance letters of credit(2)			34,360				96,927				50				-				131,337
Total off-balance sheet risk		$	128,113			$	129,434			$	22,192			$	94,995			$	374,734

(1)	Lines of credit with no stated maturity date are included in the less than one year expiration category.
(2)	Includes FHLB letters of credit

The reserve for the risk inherent in unfunded lending commitments totaled $66 thousand as of December 31, 2017, and $326 thousand as of December 31, 2016. For additional information, see Note 20, “Litigation, Commitments, and Contingencies,” to the Consolidated Financial Statements in Item 8 of this report.

 

Market Risk and Interest Rate Sensitivity

 

Market risk represents the risk of loss due to adverse changes in current and future cash flows, fair values, earnings, or capital due to movements in interest rates and other factors. Our profitability is largely dependent upon net interest income, which is subject to variation due to changes in the interest rate environment and unbalanced repricing opportunities. We are subject to interest rate risk when interest-earning assets and interest-bearing liabilities reprice at differing times, when underlying rates change at different levels or in varying degrees, when there is an unequal change in the spread between two or more rates for different maturities, and when embedded options, if any, are exercised. ALCO reviews our mix of assets and liabilities with the goal of limiting exposure to interest rate risk, ensuring adequate liquidity, and coordinating sources and uses of funds while maintaining an acceptable level of net interest income given the current interest rate environment. ALCO is also responsible for overseeing the formulation and implementation of policies and strategies to improve balance sheet positioning and mitigate the effect of interest rate changes.

 

In order to manage our exposure to interest rate risk, we periodically review third-partyinternal and internalthird-party simulation models that project net interest income at risk, which measures the impact of different interest rate scenarios on net interest income, and the economic value of equity at risk, which measures potential long-term risk in the balance sheet by valuing our assets and liabilities at fair value under different interest rate scenarios. Simulation results show the existence and severity of interest rate risk in each scenario based on our current balance sheet position, assumptions about changes in the volume and mix of interest-earning assets and interest-bearing liabilities, and estimated yields earned on assets and rates paid on liabilities. The simulation model provides the best tool available to us and the industry for managing interest rate risk; however, the model cannot precisely predict the impact of fluctuations in interest rates on net interest income due to the use of significant estimates and assumptions. Actual results will differ from simulated results due to the timing, magnitude, and frequency of interest rate changes; changes in market conditions and customer behavior; and changes in our strategies that management might undertake in response to a sudden and sustained rate shock.

 

OnAt December 13, 2017,31, 2023, the Federal Open Market Committee raisedset the benchmark federal funds rate toat a range of 125 to 1505.25% - 5.50% basis points. The following table presents the sensitivity of net interest income from immediate and sustained rate shocks in various interest rate scenarios over a twelve-month period for the periods indicated.  Due toIn the current targetdownward rate we do not reflectshock presented, benchmark interest rates were assumed at levels with floors near 0%.  The following table presents the sensitivity of net interest income from immediate and sustained rate shocks in various interest rate scenarios over a decrease of more than 100 basis points from current rates in our analysis.twelve-month period for the periods indicated.

 

			Year Ended December 31,
			2017								2016								December 31,
			Change in				Percent				Change in				Percent				2023								2022
Increase (Decrease) in Basis Points			Net Interest Income				Change				Net Interest Income				Change				Change in Net Interest Income				Percent Change				Change in Net Interest Income				Percent Change
(Dollars in thousands)
400																			$	3,285				2.6	%			1,043				0.8	%
300			$	3,759				4.3	%		$	526				0.6	%			2,446				1.9	%			631				0.5	%
200				2,756				3.2	%			438				0.5	%			1,606				1.3	%			214				0.2	%
100				1,535				1.8	%			183				0.2	%			757				0.6	%			79				0.6	%
(100)				(4,405	)			-5.1	%			(2,616	)			-3.1	%			(3,858	)			-3.0	%			(5,644	)			-4.5	%
(200)																				(9,527	)			-7.5	%			(12,849	)			-10.4	%

 

We have established policy limits for tolerance of interest rate risk in various interest rate scenarios and exposure limits to changes in the economic value of equity. As of December 31, 2017,2023, we feel our exposure to interest rate risk was within our defined policy limits.

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The Company primarily uses derivative instruments to manage exposure to market risk and meet customer financing needs. As of December 31, 2017, we maintained interest rate swap agreements with notional amounts totaling $5.81 million to modify our exposure to interest rate risk caused by changes inadequately mitigated for the LIBOR curve in relation to certain designated fixed rate loans. The fair value of the swap agreements, which are accounted for as fair value hedges and recorded as derivative liabilities, totaled $90 thousand as of December 31, 2017, and $167 thousand as of December 31, 2016. For additional information, see Note 12, “Derivative Instruments and Hedging Activities,” to the Consolidated Financial Statements in Item 8 of this report.

Inflation and Changing Prices

Our consolidated financial statements and related notes are presented in accordance with GAAP, which requires the measurement of results of operations and financial position in historical dollars. Inflation may cause a rise in price levels and changes in the relative purchasing power of money. These inflationary effects are not reflected in historical dollar measurements. The primary effect of inflation on our operations is increased operating costs. In management’s opinion, interest rates have a greater impact on our financial performance than inflation. Interest rates do not necessarily fluctuate in the same direction, or to the same extent, as the price of goods and services; therefore, the effect of inflation on businesses with large investments in property, plant, and inventory is generally more significant than the effect on financial institutions. The U.S. inflation rate continues to be relatively stable, and management believes that any changes in inflation will not be material to our financial performance.scenarios presented.

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk.

 

The informationinformation required in this item is incorporated by reference to “Market Risk and Interest Rate Sensitivity” in Item 7 of this report.

 

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Item 8.

Item8.     Financial Statements and Supplementary Data.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX

	Page
Consolidated Balance Sheets as of December 31, 2023 and 2022	39
Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021	40
Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022, and 2021	41
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023, 2022, and 2021	42
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021	43
Notes to Consolidated Financial Statements	44
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements and on Management’s Assessment of Internal Control on Financial Reporting	88
Management’s Assessment of Internal Control Over Financial Reporting	93

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FIRST COMMUNITY BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

 

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
		Page
Consolidated Balance Sheets as of December 31, 2017 and 2016		50
Consolidated Statements of Income for the years ended December 31, 2017, 2016, and 2015		51
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016, and 2015		52
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2017, 2016, and 2015		53
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015		54
Notes to Consolidated Financial Statements		55
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements		104
Management’s Assessment of Internal Control Over Financial Reporting		105
Report of Independent Registered Public Accounting Firm on Management’s Assessment of Internal Control Over Financial Reporting		106

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		December 31,
(Amounts in thousands, except share and per share data)		2023				2022
Assets
Cash and due from banks		$	77,563			$	63,044
Federal funds sold			37,312				105,636
Interest-bearing deposits in banks			1,545				2,166
Total cash and cash equivalents			116,420				170,846
Debt securities available for sale, at fair value			280,961				300,349
Loans held for investment, net of unearned income			2,572,298				2,400,197
Allowance for credit losses			(36,189	)			(30,556	)
Loans held for investment, net			2,536,109				2,369,641
Premises and equipment, net			50,680				47,340
Other real estate owned			192				703
Interest receivable			10,881				9,279
Goodwill			143,946				129,565
Other intangible assets			15,145				4,176
Other assets			114,211				103,673
Total assets		$	3,268,545			$	3,135,572
Liabilities
Noninterest-bearing deposits		$	931,920			$	872,168
Interest-bearing deposits			1,790,405				1,806,647
Total deposits			2,722,325				2,678,815
Securities sold under agreements to repurchase			1,119				1,874
Interest, taxes, and other liabilities			41,807				32,898
Total liabilities			2,765,251				2,713,587
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; 27,522,547 issued and 18,502,396 outstanding at December 31, 2023; 24,477,471 shares issued and 16,225,399 shares outstanding at December 31, 2022			18,502				16,225
Additional paid-in capital			175,841				128,508
Retained earnings			319,902				292,971
Accumulated other comprehensive loss			(10,951	)			(15,719	)
Total stockholders' equity			503,294				421,985
Total liabilities and stockholders' equity		$	3,268,545			$	3,135,572

 

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

		December 31,
(Amounts in thousands, except share and per share data)		2017				2016
Assets
Cash and due from banks		$	37,115			$	36,645
Federal funds sold			119,891				38,717
Interest-bearing deposits in banks			945				945
Total cash and cash equivalents			157,951				76,307
Securities available for sale			165,580				165,579
Securities held to maturity			25,149				47,133
Loans held for investment, net of unearned income
Non-covered			1,789,236				1,795,954
Covered			27,948				56,994
Allowance for loan losses			(19,276	)			(17,948	)
Loans held for investment, net			1,797,908				1,835,000
FDIC indemnification asset			7,161				12,173
Premises and equipment, net			48,126				50,085
Other real estate owned, non-covered			2,409				5,109
Other real estate owned, covered			105				276
Interest receivable			5,778				5,553
Goodwill			95,779				95,779
Other intangible assets			6,151				7,207
Other assets			76,363				86,197
Total assets		$	2,388,460			$	2,386,398
Liabilities
Deposits
Noninterest-bearing		$	454,143			$	427,705
Interest-bearing			1,475,748				1,413,633
Total deposits			1,929,891				1,841,338
Securities sold under agreements to repurchase			30,086				98,005
FHLB borrowings			50,000				65,000
Other borrowings			-				15,708
Interest, taxes, and other liabilities			27,769				27,290
Total liabilities			2,037,746				2,047,341
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, 2017 and 2016; 4,383,553 and 4,387,571 shares in treasury at December 31, 2017 and 2016, respectively			21,382				21,382
Additional paid-in capital			228,750				228,142
Retained earnings			180,543				170,377
Treasury stock			(79,121	)			(78,833	)
Accumulated other comprehensive loss			(840	)			(2,011	)
Total stockholders' equity			350,714				339,057
Total liabilities and stockholders' equity		$	2,388,460			$	2,386,398

See Notes to Consolidated Financial Statements. 50 Table of Contents FIRST COMMUNITY BANCSHARES,

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FIRST COMMUNITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

 

		Year Ended December 31,												Year Ended December 31,
(Amounts in thousands, except share and per share data)		2017				2016				2015				2023				2022				2021
Interest income
Interest and fees on loans		$	89,749			$	87,718			$	87,632			$	126,727			$	104,570			$	102,832
Interest on securities -- taxable			1,522				3,229				4,225				7,345				5,271				700
Interest on securities -- tax-exempt			3,029				3,624				3,978				611				715				1,037
Interest on deposits in banks			1,008				153				267				2,482				3,763				741
Total interest income			95,308				94,724				96,102				137,165				114,319				105,310
Interest expense
Interest on deposits			4,987				4,479				5,878				9,341				1,654				2,835
Interest on short-term borrowings			850				2,101				1,952				140				2				1
Interest on long-term debt			2,253				3,264				3,519
Total interest expense			8,090				9,844				11,349				9,481				1,656				2,836
Net interest income			87,218				84,880				84,753				127,684				112,663				102,474
Provision for loan losses			2,771				1,255				2,191
Provision for (recovery of) credit losses															7,985				6,572				(8,471	)
Net interest income after provision for loan losses			84,447				83,625				82,562				119,699				106,091				110,945
Noninterest income
Wealth management			3,150				2,828				2,975				4,179				3,855				3,853
Service charges on deposits			13,803				13,588				13,717				13,996				14,213				13,446
Other service charges and fees			8,624				8,102				8,045				13,647				12,308				12,422
Insurance commissions			1,347				5,442				6,899
Impairment losses on securities			-				(4,646	)			-
Portion of loss recognized in other comprehensive income			-				-				-
Net impairment losses recognized in earnings			-				(4,646	)			-
Net (loss) gain on sale of securities			(661	)			335				144
Net loss on sale of securities															(21	)			—				—
Net FDIC indemnification asset amortization			(3,517	)			(5,474	)			(6,379	)			—				—				(1,226	)
Net gain on divestitures			-				3,682				-
Gain on divestitures															—				1,658				—
Other operating income			3,502				3,209				4,129				5,651				5,148				5,806
Total noninterest income			26,248				27,066				29,530				37,452				37,182				34,301
Noninterest expense
Salaries and employee benefits			36,317				39,912				39,625				49,887				47,183				44,239
Occupancy expense			4,775				5,297				5,817				4,967				4,818				4,913
Furniture and equipment expense			4,425				4,341				5,199				5,878				6,001				5,627
Service fees															8,908				7,606				6,324
Advertising and public relations															3,300				2,409				2,076
Professional fees															1,567				1,303				1,524
Amortization of intangibles			1,056				1,136				1,118				1,731				1,446				1,446
FDIC premiums and assessments			910				1,383				1,513				1,511				1,126				832
FHLB debt prepayment fees			-				-				1,702
Merger, acquisition, and divestiture expense			-				730				86
Merger expense															2,393				596				—
Divestiture expense															—				153				—
Litigation expense															3,000				—				—
Other operating expense			21,099				19,947				21,111				12,035				10,475				11,737
Total noninterest expense			68,582				72,746				76,171				95,177				83,116				78,718
Income before income taxes			42,113				37,945				35,921				61,974				60,157				66,528
Income tax expense			20,628				12,819				11,381				13,954				13,495				15,360
Net income			21,485				25,126				24,540			$	48,020			$	46,662			$	51,168
Dividends on preferred stock			-				-				105
Net income available to common shareholders		$	21,485			$	25,126			$	24,435
Earnings per common share
Basic		$	1.26			$	1.45			$	1.32			$	2.67			$	2.82			$	2.95
Diluted			1.26				1.45				1.31				2.72				2.82				2.94
Cash dividends per common share			0.68				0.60				0.54				1.16				1.12				1.04
Weighted average shares outstanding
Basic			17,002,116				17,319,689				18,531,039				17,996,373				16,519,848				17,335,615
Diluted			17,077,842				17,365,524				18,727,464				18,027,151				16,562,257				17,402,936

 

See Notes to Consolidated Financial Statements.

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

		Year Ended December 31,
		2017				2016				2015
(Amounts in thousands)
Net income		$	21,485			$	25,126			$	24,540
Other comprehensive income, before tax
Available-for-sale securities
Change in net unrealized gains on securities without other-than-temporary impairment			1,445				1,035				755
Reclassification adjustment for net loss (gain) recognized in net income			661				(335	)			(144	)
Reclassification adjustment for other-than-temporary impairment losses recognized in net income			-				4,646				-
Net unrealized gains on available-for-sale securities			2,106				5,346				611
Employee benefit plans
Net actuarial loss			48				(367	)			(363	)
Plan change			(258	)			(69	)			-
Reclassification adjustment for amortization of prior service cost and net actuarial loss recognized in net income			259				273				326
Net unrealized gains (losses) on employee benefit plans			49				(163	)			(37	)
Other comprehensive income, before tax			2,155				5,183				574
Income tax expense			(740	)			(1,947	)			(216	)
Other comprehensive income, net of tax			1,415				3,236				358
Total comprehensive income		$	22,900			$	28,362			$	24,898

		Year Ended December 31,
		2023				2022				2021
(Amounts in thousands)
Net income		$	48,020			$	46,662			$	51,168
Other comprehensive income, before tax
Available-for-sale debt securities:
Net unrealized gains (losses) on securities			5,669				(19,793	)			(1,381	)
Reclassification adjustment for net loss recognized in net income			21				—				—
Net unrealized gains on available-for-sale debt securities			5,690				(19,793	)			(1,381	)
Employee benefit plans:
Net actuarial gain			306				1,718				1,472
Reclassification adjustment for amortization of prior service cost and net actuarial loss recognized in net income			38				135				386
Net unrealized gains on employee benefit plans			344				1,853				1,858
Other comprehensive income (loss), before tax			6,034				(17,940	)			477
Income tax (expense) benefit			(1,266	)			3,767				(100	)
Other comprehensive income (loss), net of tax			4,768				(14,173	)			377
Total comprehensive income		$	52,788			$	32,489			$	51,545

 

See Notes to Consolidated Financial Statements.

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’STOCKHOLDERS’ EQUITY

 

																						Accumulated
										Additional												Other
		Preferred				Common				Paid-in				Retained				Treasury				Comprehensive
(Amounts in thousands,		Stock				Stock				Capital				Earnings				Stock				Income (Loss)				Total
except share and per share data)
Balance January 1, 2015		$	15,151			$	20,500			$	215,873			$	141,206			$	(35,751	)		$	(5,605	)		$	351,374
Net income			-				-				-				24,540				-				-				24,540
Other comprehensive income			-				-				-				-				-				358				358
Common dividends declared – $0.54 per share			-				-				-				(9,994	)			-				-				(9,994	)
Preferred dividends declared – $15.00 per share			-				-				-				(105	)			-				-				(105	)
Preferred stock converted to common stock -- 882,096 shares			(12,784	)			882				11,902				-				-				-				-
Redemption of preferred stock – 2,367 shares			(2,367	)			-				-				-				-				-				(2,367	)
Equity-based compensation expense			-				-				110				-				-				-				110
Common stock options exercised – 4,323 shares			-				-				(11	)			-				74				-				63
Restricted stock awards – 23,057 shares			-				-				(191	)			-				391				-				200
Issuance of treasury stock to 401(k) plan – 20,745 shares			-				-				9				-				354				-				363
Purchase of treasury shares – 1,238,299 shares at $17.35 per share			-				-				-				-				(21,525	)			-				(21,525	)
Balance December 31, 2015		$	-			$	21,382			$	227,692			$	155,647			$	(56,457	)		$	(5,247	)		$	343,017
Balance January 1, 2016		$	-			$	21,382			$	227,692			$	155,647			$	(56,457	)		$	(5,247	)		$	343,017
Net income			-				-				-				25,126				-				-				25,126
Other comprehensive income			-				-				-				-				-				3,236				3,236
Common dividends declared – $0.60 per share			-				-				-				(10,396	)			-				-				(10,396	)
Equity-based compensation expense			-				-				209				-				-				-				209
Common stock options exercised – 43,463 shares			-				-				146				-				775				-				921
Restricted stock awards -- 16,680 shares			-				-				32				-				290				-				322
Issuance of treasury stock to 401(k) plan – 18,218 shares			-				-				63				-				321				-				384
Purchase of treasury shares – 1,182,294 shares at $20.06 per share			-				-				-				-				(23,762	)			-				(23,762	)
Balance December 31, 2016		$	-			$	21,382			$	228,142			$	170,377			$	(78,833	)		$	(2,011	)		$	339,057
Balance January 1, 2017		$	-			$	21,382			$	228,142			$	170,377			$	(78,833	)		$	(2,011	)		$	339,057
Net income			-				-				-				21,485				-				-				21,485
Other comprehensive income			-				-				-				-				-				1,415				1,415
Reclassification of certain tax effects			-				-				-				244				-				(244	)			-
Common dividends declared – $0.68 per share			-				-				-				(11,563	)			-				-				(11,563	)
Equity-based compensation expense			-				-				430				-				-				-				430
Common stock options exercised – 16,185 shares			-				-				86				-				292				-				378
Restricted stock awards – 22,697 shares			-				-				(48	)			-				408				-				360
Issuance of treasury stock to 401(k) plan – 15,254 shares			-				-				140				-				275				-				415
Purchase of treasury shares – 50,118 shares at $25.16 per share			-				-				-				-				(1,263	)			-				(1,263	)
Balance December 31, 2017		$	-			$	21,382			$	228,750			$	180,543			$	(79,121	)		$	(840	)		$	350,714

																										Accumulated
		Preferred								Common								Additional								Other
		Stock				Preferred				Stock				Common				Paid-in				Retained				Comprehensive
(Amounts in thousands, except share and per share data)		Outstanding				Stock				Outstanding				Stock				Capital				Earnings				Income (Loss)				Total
Balance January 1, 2021			—			$	—				17,722,507			$	17,723			$	173,345			$	237,585			$	(1,923	)		$	426,730
Cumulative effect of adoption of ASU 2016-13			—				—				-				—				—				(5,870	)			—				(5,870	)
Net income			—				—				-				—				—				51,168				—				51,168
Other comprehensive income			—				—				-				—				—				—				377				377
Common dividends declared -- $1.04 per share			—				—				-				—				—				(18,059	)			—				(18,059	)
Equity-based compensation expense			—				—				48,388				48				1,233				—				—				1,281
Common stock options exercised			—				—				39,995				40				498				—				—				538
Issuance of stock to 401(k) plan			—				—				16,716				16				476				—				—				492
Repurchase of common shares -- at $30.42 per share			—				—				(949,386	)			(949	)			(27,933	)			—				—				(28,882	)
Balance December 31, 2021			—			$	—				16,878,220			$	16,878			$	147,619			$	264,824			$	(1,546	)		$	427,775
Balance January 1, 2022			—			$	—				16,878,220			$	16,878			$	147,619			$	264,824			$	(1,546	)		$	427,775
Net income			—				—				-				—				—				46,662				—				46,662
Other comprehensive loss			—				—				-				—				—				—				(14,173	)			(14,173	)
Common dividends declared -- $1.12 per share			—				—				-				—				—				(18,515	)			—				(18,515	)
Equity-based compensation expense			—				—				25,137				25				693				—				—				718
Common stock options exercised			—				—				7,575				8				164				—				—				172
Issuance of stock to 401(k) plan			—				—				20,584				20				637				—				—				657
Repurchase of common shares -- at $30.18 per share			—				—				(706,117	)			(706	)			(20,605	)			—				—				(21,311	)
Balance December 31, 2022			—			$	—				16,225,399			$	16,225			$	128,508			$	292,971			$	(15,719	)		$	421,985
Balance January 1, 2023			—			$	—				16,225,399			$	16,225			$	128,508			$	292,971			$	(15,719	)		$	421,985
Issuance of common stock pursuant to acquisition			—				—				2,996,786				2,997				68,357			$	—			$	—				71,354
Net income			—				—				-				—				—				48,020				—				48,020
Other comprehensive income			—				—				-				—				—				—				4,768				4,768
Common dividends declared -- $1.16 per share			—				—				-				—				—				(21,089	)			—				(21,089	)
Equity-based compensation expense			—				—				24,312				25				572				—				—				597
Common stock options exercised			—				—				4,288				4				87				—				—				91
Issuance of stock to 401(k) plan			—				—				19,690				20				586				—				—				606
Repurchase of common shares -- at $29.99 per share			—				—				(768,079	)			(769	)			(22,269	)			—				—				(23,038	)
Balance December 31, 2023			—			$	—				18,502,396			$	18,502			$	175,841			$	319,902			$	(10,951	)		$	503,294

 

See Notes to Consolidated Financial Statements.

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWSConsolidated Statements of Cash Flows

 

		Year Ended December 31,
(Amounts in thousands)		2017				2016				2015
Operating activities
Net income		$	21,485			$	25,126			$	24,540
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses			2,771				1,255				2,191
Depreciation and amortization of property, plant, and equipment			3,560				3,563				4,135
Amortization of premiums on investments, net			172				1,066				1,375
Amortization of FDIC indemnification asset, net			3,517				5,474				6,379
Amortization of intangible assets			1,056				1,136				1,118
Accretion on acquired loans			(5,417	)			(4,766	)			(7,109	)
Gain on divestiture, net			-				(3,682	)			-
Gain on sale of loans, net			-				-				(501	)
Equity-based compensation expense			430				209				110
Restricted stock awards			360				322				200
Issuance of treasury stock to 401(k) plan			415				384				363
(Gain) loss on sale of property, plant, and equipment, net			(1	)			238				23
Loss on sale of other real estate			791				1,495				3,002
Loss (gain) on sale of securities			661				(335	)			(144	)
Net impairment losses recognized in earnings			-				4,646				-
FHLB debt prepayment fees			-				-				1,702
Proceeds from sale of mortgage loans			-				-				21,993
Originations of mortgage loans			-				-				(19,700	)
Decrease in other operating activities			9,209				6,957				18,842
Net cash provided by operating activities			39,009				43,088				58,519
Investing activities
Proceeds from sale of securities available for sale			13,664				104,928				10,999
Proceeds from maturities, prepayments, and calls of securities available for sale			37,155				99,906				29,931
Proceeds from maturities and calls of securities held to maturity			21,840				25,190				190
Payments to acquire securities available for sale			(49,406	)			(1,174	)			(81,540	)
Payments to acquire securities held to maturity			-				-				(15,003	)
Repayments of (originations of) loans, net			37,455				(159,243	)			(24,719	)
Redemptions of FHLB stock, net			694				130				1,279
Cash proceeds from (paid in) mergers, acquisitions, and divestitures, net (See Note 2)			-				29,716				(88	)
Proceeds from the FDIC			1,689				4,403				2,683
Payments to acquire property, plant, and equipment, net			(2,297	)			(793	)			(1,239	)
Proceeds from sale of other real estate			4,363				7,147				6,722
Net cash provided by (used in) investing activities			65,157				110,210				(70,785	)
Financing activities
Increase (decrease) in noninterest-bearing deposits, net			26,438				(17,482	)			33,782
Increase (decrease) in interest-bearing deposits, net			62,115				(37,576	)			(161,282	)
(Repayments of) proceeds from securities sold under agreements to repurchase, net			(67,919	)			(40,609	)			16,872
Repayments of FHLB and other borrowings, net			(30,708	)			(48	)			(28,945	)
Redemption of preferred stock			-				-				(2,367	)
Proceeds from stock options exercised			378				921				63
Excess tax benefit from equity-based compensation			-				174				8
Payments for repurchase of treasury stock			(1,263	)			(23,762	)			(21,525	)
Payments of common dividends			(11,563	)			(10,396	)			(9,994	)
Payments of preferred dividends			-				-				(219	)
Net cash used in financing activities			(22,522	)			(128,778	)			(173,607	)
Net increase (decrease) in cash and cash equivalents			81,644				24,520				(185,873	)
Cash and cash equivalents at beginning of period			76,307				51,787				237,660
Cash and cash equivalents at end of period		$	157,951			$	76,307			$	51,787
Supplemental disclosure – cash flow information
Cash paid for interest		$	8,267			$	9,845			$	11,757
Cash paid for income taxes			15,852				6,588				6,900
Supplemental transactions – noncash items
Transfer of loans to other real estate			2,283				5,162				6,317
Loans originated to finance other real estate			-				57				649
Increase in accumulated other comprehensive income			1,171				3,236				358

		Year Ended December 31,
(Amounts in thousands)		2023				2022				2021
Operating activities
Net income		$	48,020			$	46,662			$	51,168
Adjustments to reconcile net income to net cash provided by operating activities
Provision for (recovery of) credit losses			7,985				6,572				(8,471	)
Depreciation and amortization of premises and equipment			3,954				4,154				4,471
(Accretion)/amortization of discounts/premiums on investments, net			(2,471	)			(261	)			454
Amortization of intangible assets			1,731				1,446				1,446
Accretion on acquired loans			(2,743	)			(2,618	)			(4,656	)
Gain on divestiture			—				(1,658	)			—
Equity-based compensation expense			597				718				1,281
Issuance of common stock to 401(k) plan			606				657				492
(Gain) loss on sale of premises and equipment, net			(189	)			(772	)			499
Provision expense and loss on sale of other real estate owned			84				453				231
Loss on sale of securities			21				—				—
Decrease in other operating activities			4,233				3,671				1,300
Net cash provided by operating activities			61,828				59,024				48,215
Investing activities
Proceeds from sale of available for sale securities			38,979				—				370
Proceeds from maturities, prepayments, and calls of securities available for sale			83,586				25,748				27,256
Payments to acquire securities available for sale			(74,103	)			(269,337	)			(22,394	)
Proceeds from repayments (originations of) loans, net			64,538				(236,620	)			27,467
Proceeds from bank owned life insurance			—				1,763				—
(Payments for) redemption of FHLB stock, net			(877	)			(240	)			1,012
Net cash provided by (used in) acquisitions and divestitures			176,684				(59,039	)			—
Proceeds from sale of premises and equipment			1,827				1,542				2,616
Payments to acquire premises and equipment			(2,770	)			(1,160	)			(3,038	)
Proceeds from sale of other real estate owned			798				564				2,061
Net cash provided by (used in) investing activities			288,662				(536,779	)			35,350
Financing activities
(Decrease) increase in noninterest-bearing deposits, net			(98,637	)			47,769				69,988
(Decrease) increase in interest-bearing deposits, net			(261,488	)			(37,291	)			113,156
(Payments for) proceeds from in securities sold under agreements to repurchase, net			(755	)			—				572
Repayments of FHLB and other borrowings, net			—				338				—
Proceeds from stock options exercised			91				172				538
Payments for repurchase of common stock			(23,038	)			(21,311	)			(28,882	)
Payments of common stock dividends			(21,089	)			(18,515	)			(18,059	)
Net cash (used in) provided by financing activities			(404,916	)			(28,838	)			137,313
Net (decrease) increase in cash and cash equivalents			(54,426	)			(506,593	)			220,878
Cash and cash equivalents at beginning of period			170,846				677,439				456,561
Cash and cash equivalents at end of period		$	116,420			$	170,846			$	677,439
Supplemental disclosure -- cash flow information
Cash paid for interest		$	9,084			$	2,114			$	3,141
Cash paid for income taxes			11,783				7,590				14,399
Supplemental transactions -- non-cash items
Transfer of loans to other real estate			391				705				1,283
Loans originated to finance other real estate			20				—				59
Change in accumulated other comprehensive income/(loss)			4,768				(14,173	)			377
Acquisitions:
Fair value of assets acquired			466,247				—				—
Fair value of liabilities assumed			409,258				—				—
Net assets acquired			71,370				—				—
Common stock issued in acquisition			71,354				—				—

 

See Notes to Consolidated Financial Statements.

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 1. Basis of Presentation and Significant Accounting Policies

 

Basis of Presentation

 

First Community Bancshares,Bankshares, Inc. (the “Company”) is a financial holding company headquarteredincorporated under the laws of the Commonwealth of Virginia. The Company’s principal executive office is located in Bluefield, Virginia thatVirginia. The Company provides banking products and services to individualsindividual and commercial customers through its wholly owned subsidiary First Community Bank (the “Bank”)., a Virginia-chartered banking institution founded in 1874. The Bank offers insurance products and services through First Community Insurance Services (“FCIS”) and trust and wealth management servicesand investment advice through its Trust Division and wholly owned subsidiary First Community Wealth Management.Management (“FCWM”). Unless the context suggests otherwise, the term “Company” refersterms “First Community,” “Company,” “we,” “our,” and “us” refer to First Community Bancshares,Bankshares, Inc. and its subsidiaries as a consolidated entity.

 

Principles of Consolidation

 

The Company’sCompany’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, and wealth management, and insurance services.management.

 

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’syear’s presentation. These reclassifications had no effect on the Company’s results of operations, financial position, or net cash flow.

Use of Estimates

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

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, knowledgeable, able to transact, and willing to transact.

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

 

The Company uses fair value measurements to 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. Methodologies used to determine fair value might be highly subjective and judgmental in nature; therefore, valuations may not be precise. 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.

 

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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”("FHLB"), the Federal Reserve Bank (“FRB”of Richmond ("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.for a variety of reasons. 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 are amortized to first call date and discounts are amortized or accreted over the life of a security into interest income. Nonmarketable equity investments are reported

Management evaluates securities for impairment where there has been a decline in other assets. The Company performs quarterly reviewsfair value below the amortized cost basis of held-to-maturity and available-for-sale securitiesa security to determine if unrealizedwhether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Credit losses are temporary or othercalculated individually, rather than temporary. Ifcollectively, using a discounted cash flow method, whereby Management compares the security is deemed to have other-than-temporary impairment (“OTTI”),present value of expected cash flows with the amount representingamortized cost basis of the security.  The credit loss iscomponent would be recognized as a charge to noninterest incomethrough the provision for credit losses and the amount representing all other factorscreation of an allowance for credit losses. Consideration is recognized in other comprehensive income (“OCI”given to (1).

Nonmarketable Equity Investments

As a the financial 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, management considers publicly available information about the profitability and asset qualitynear-term prospects of the issuer dividend payment history,including looking at default and redemption experience in determiningdelinquency rates, (2) the recoverabilityoutlook for receiving the contractual cash flows of the investment. The totalinvestments, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain its investment in FHLBthe issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third party guarantees, and FRB stock, which(8) collateral values. The Company evaluates impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is includeda credit loss associated with the decline in fair value.  The nature of the collateral is considered along with potential future changes in collateral values, default rates, delinquency rates, third-party guarantees, credit ratings, interest rate changes since purchase, volatility of the security’s fair value and historical loss information for financial assets secured with similar collateral among other assets,factors.  Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby management compares the present value of expected cash flows with the amortized cost basis of the security.  The credit loss component would be recognized through the provision for credit losses in the Statement of Income and establish an allowance for credit losses on the Balance Sheet.

The Company excludes the accrued interest receivable from the amortized cost basis in measuring expected credit losses on the investment securities.  Nor does the Company record an allowance for credit losses on accrued interest receivable.  As of   December 31, 2023, the accrued interest receivable for investment securities available for sale was $9.90 1.25  million compared to $1.34 million as of  December 31, 2017, 2022and $10.60 million as of December 31, 2016..

Other Investments

As a condition of membership in the FHLB and the Federal Reserve, the Company is required to hold a minimum level of stock in the FHLB of Atlanta and the FRB of Richmond. These securities are carried at cost and periodically reviewed for impairment. The total investment in FHLB and FRB stock, which is included in other assets, was $13.04 million as of December 31, 2023, and $10.02 million as of December 31, 2022.

The Company hasowns certain long-term equity investments that are considered VIEs,without readily determinable fair values, including 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. These investments are accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. 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, 2017, or December 31, 2016. Thetotal carrying value and maximum potential loss exposure of VIEsin these investments, which is included other assets, totaled $823 thousand as of December 31, 2017, and $1.14$3.70 million as of December 31, 2016.2023, and $3.78 million as of December 31, 2022.

 

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 ImpairedDeteriorated Loans” and “Intangible Assets” below.

 

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 or premium is accreted or amortized, as the case may be, 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 ImpairedDeteriorated (“PCI”PCD”) Loans. When purchasedPurchased credit-deteriorated, otherwise referred to herein as PCD, assets are defined as acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The Company records acquired PCD loans exhibit evidenceby adding the expected credit losses (i.e. allowance for credit losses) to the purchase price of the financial assets rather than recording through the provision for credit deterioration afterlosses in the income statement. The expected credit loss, as of the acquisition date, of a PCD loan is added to the allowance for credit losses. The non-credit discount or premium is the difference between the fair value and it is probable at acquisition the Company will not collect all contractually required principal and interest payments, the loans are referred toamortized cost basis as PCI loans. PCI loans are accounted for using Topic 310-30 of the FASB ASC. PCIacquisition date. Subsequent to the acquisition date, the change in the ACL on PCD 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 inthrough the provision for credit losses. The non-credit discount or premium is accreted or amortized, respectively, into interest income over the remaining liveslife of thosethe PCD loan on a level-yield basis. In accordance with the transition requirements within the standard, the Company’s acquired purchased credit impaired loans or pools of loans when there is a reasonable expectation about the amount and timing of such cash flows.were treated as PCD loans.

 

ImpairedIndividually Evaluated 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 $250no 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 bylonger shares similar risk characteristics with its segment, the asset is assessed to determine whether it should be included in another pool or should be individually evaluated. The Company currently maintains a net book balance threshold of $500,000 for individually-evaluated loans. Generally, individually-evaluated loans are reviewed quarterlyon nonaccrual status. Based on the threshold above, consumer loans will generally remain in pools unless they meet the dollar threshold and foreclosure is probable. The expected credit losses on individually-evaluated loans will be estimated based on discounted cash flow analysis unless the loan meets the criteria for use of the fair value of collateral, either by management. Interestvirtue of an expected foreclosure or through meeting the definition of collateral-dependent. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and that the repayment terms were not considered to be unique to the asset.  The Company follows its nonaccrual policy by reversing contractual interest income realizedin the income statement when the Company places a loan on impaired loansnonaccrual status. Therefore, Management excludes the accrued interest receivable balance from the amortized cost basis in nonaccrual status, if any, is recognized upon receipt.measuring expected credit losses on the portfolio and does not record an allowance for credit losses on accrued interest receivable.  The accrual of interest, which is based on the daily amount of principal outstanding, on impairedindividually evaluated 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’sCompany’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 loancredit 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.

 

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seriously delinquent loans are evaluated for loss mitigation options. Closed-end retail loans are generally charged off against the allowance for loancredit 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 loancredit 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 loancredit losses in the period received.

 

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Effective January 1, 2023, the Company adopted Financial Accounting Standards Board issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.  The allowance for credit losses incorporates an estimate of Contents

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSlifetime credit losses and is recorded on each asset upon origination.  The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty.  The Company uses a probability of default/loss given default model to determine the allowance for credit losses.  An assessment of whether a borrower is experiencing financial difficulty is made at the the time of the modification.

 

Loans are considered troubled debt restructurings (“TDRs”) whenBecause the Company grants concessions, for legal or economic reasons,effect of most modifications made to borrowers experiencing financial difficulty that wouldis already included in the allowance for credit losses, a change to the allowance for credit losses is generally not otherwiserecorded upon modification.  Occasionally, the Company modifies loans by providing principal forgiveness that is deemed to be considered. Theuncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.  Additionally, the Company generally makes concessions inmay allow a loan to go interest rates, loan terms, and/or amortization terms. All TDRs $250 thousand or greater are evaluatedonly 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 datespecified period 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.time.

 

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 loancredit losses. Operating expenses, gains, and losses on the sale of OREO are included in other noninterest expense in the Company’sCompany’s consolidated statements of income after any fair value write-downs are recorded as valuation adjustments.

 

Allowance for LoanCredit Losses (ACL)

 

Management performs quarterly assessments of theThe Company reviews our allowance for loan losses. The allowancecredit losses quarterly to determine if it 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 neededsufficient to absorb probableexpected credit losses in the portfolio. This determination requires management to make significant estimates and assumptions. While the Company uses its best judgment and available information, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates, and the view of regulatory authorities towards loan classifications. These uncertainties may result in material changes to the allowance for credit losses in the near term; however, the amount of the change cannot reasonably be estimated.

The ACL is an estimate of losses that will result from the inability of borrowers to make required loan payments.  The Company established the incremental increase in the ACL at the adoption through retained earnings and subsequent adjustments will be made through a provision for credit losses charged to earnings.  Loans charged off are recorded against the ACL and subsequent recoveries increase the ACL when they are recognized.

A systematic methodology is used to determine ACL for loans held for investment and certain off-balance sheet credit exposures.  The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio.  The Company considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio.  The Company’s allowanceestimate of its ACL involves a high degree of judgement and reflects management’s best estimate within the range of expected credit losses.  The Company recognizes in net income the amount needed to adjust the ACL for loan lossesmanagement’s current estimate of expected credit losses.  The Company’s ACL is segmented into commercial, consumer real estate,calculated using collectively evaluated 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 onloans.

The Company collectively evaluates loans that share similar risk characteristics.  AIn general, loans are segmented by loan purpose.  The Company collectively evaluates loans within the following consumer and commercial segments:  Loans secured by 1-4 Family Properties, Home Equity Lines of Credit (“HELOC”), Owner Occupied Construction Loans, Consumer Loans, Commercial and Industrial, Multi-family, Non-farm/Non-residential Property, Commercial Construction/A&D/other Land Loans, Agricultural Loans, Credit Card Loans, Loans Secured by Farmland, and Other Consumer Loans (Overdrafts).

Risk characteristics of residential real estate loans which include loans secured by Single family properties, HELOC, and Owner occupied construction loans are dependent upon individual borrowers who are affected by changes in general economic conditions, real estate valuations, and the demand for housing.  Commercial and Industrial, Multi-family residential, Non-farm/non-residential, Agricultural, and Loans secured by Farmland are similar in that becomes adversely classified or graded is moved intothey are generally dependent upon the borrower's internal cash flow from operations to service the debt and changes in general economic conditions.  Commercial construction, Development, and other land loans, Consumer, and Other consumer loans (open pool) are similar in that they are dependent on changes in general economic conditions.

For collectively evaluated loans, the Company uses a groupcombination of adversely classified or graded loansdiscounted cash flow and open pool to estimate expected credit losses.  During 2022, the Company changed third party model providers which necessitated a change from remaining life to open pool for the portfolios noted above.  The change in method was not quantitatively significant.  In addition to its own loss experience, management also includes peer bank historical loss experience in its assessment of expected credit losses to determine the ACL.  The Company utilized call report data to measure its and its peers' historical credit losses experience with similar risk characteristics within the segments over an economic cycle.  The Company reviewed the historical loss information to appropriately adjust for evaluation. A provisiondifferences in current asset specific risk characteristics.  Also considered were further adjustments to historical loss information for loan losses is recorded for any credit deterioration in purchased performing loans after the acquisition date.

PCI loans are grouped into poolscurrent conditions and evaluated separatelyreasonable and supportable forecasts that differ 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 flowsconditions that existed 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 toperiod over which historical information was evaluated.  For the extent of prior charges and then interest income is increased using the prospective yield adjustment over the remaining lifemajority of the loan, or poolsegments of loans. Any provision established for PCIcollectively evaluated loans, covered under the FDIC loss share agreements is offset by an adjustment to the FDIC indemnification asset to reflect the indemnified portion,Company incorporated at least 80%,one 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 Assetmacroeconomic driver using a statistical regression modeling methodology.

 

The FDIC indemnification asset representsCompany considers forward-looking information in estimated expected credit losses.  The Company subscribes to a third-party service which provides summary detail of dozens of economic forecasts.  Using that information and other publicly available economic forecasts, management determines the carrying amounteconomic variables to use for the one-year reasonable and supportable forecast period.  Management has determined that the forecast period is consistent with how the Company has historically forecasted for its profitability planning and capital management.  Management has evaluated the appropriateness of the right to receive payments fromreasonable and supportable forecast for the FDIC for losses incurred on certain loans and OREO purchased fromcurrent period along with 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 embeddedinputs used in the assets or transferable shouldestimation of expected credit losses.  For the assets be disposed. Undercontractual term that extends beyond the acquisition method of accounting,reasonable and supportable forecast period, the FDIC indemnification asset is recorded at fair valueCompany reverts to historical loss information over eight quarters using projected cash flows based on expected reimbursements and applicable loss share percentages as outlined in the loss share agreements. The expected reimbursements doa straight-line approach.  Management notmay include reimbursable amounts related to future covered expenditures. The cash 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 measuredapply different reversion techniques depending on the same basiseconomic environment for the financial asset portfolio and 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. Certain expenses related to covered assets are reimbursable from the FDIC through monthly and quarterly claims. Estimated reimbursements from the FDIC are netted against covered expenses in the consolidated statements of income.current period has utilized a linear reversion technique. 

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Included in its systematic methodology to determine its ACL for loans held for investment and certain off-balance sheet credit exposures, The Company considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process.  These qualitative adjustments either increase or decrease the quantitative model estimation.  Each period the Company considers qualitative factors that are relevant within the qualitative framework that includes the following:  1) changes in lending policies and procedures, 2) changes in economic conditions, 3) changes in portfolio nature and volume, 4) changes in management, 5) changes in past due loans, 6) changes in the quality of the Company’s credit review system, 7) changes in the value of underlying collateral, 8) the effect of concentrations of credit, and 9) the effect of other external factors.

When a loan no longer shares similar risk characteristics with its segment, the asset is assessed to determine whether it should be included in another pool or should be individually evaluated. The Company currently maintains a net book balance threshold of $500,000 for individually-evaluated loans. Generally, individually-evaluated loans are on nonaccrual status. Based on the threshold above, consumer loans will generally remain in pools unless they meet the dollar threshold and foreclosure is probable. The expected credit losses on individually-evaluated loans will be estimated based on discounted cash flow analysis unless the loan meets the criteria for use of the fair value of collateral, either by virtue of an expected foreclosure or through meeting the definition of collateral-dependent. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and that the repayment terms were not considered to be unique to the asset.

When loans are acquired they are identified as either purchased credit deteriorated ("PCD") or non-PCD.  PCD loans represent assets that are acquired with evidence of more than insignificant credit quality deterioration since the origination of the loans as of the acquisition date.  The ACL for PCD assets is recognized within the business combination accounting  with no initial impact to net income.  Changes is estimates of expected credit losses on PCD loans after acquisition are recognized as provision expense (or reversal of provision expense) in subsequent periods as they arise.

Non-PCD loans acquired are generally estimated at fair value using a discounted cash flow approach with assumptions of discount rate, remaining life, prepayments, probability of default, and loss given default.  The actual cash flows on these loans could differ materially from the fair value estimates.  The amount we record as the fair values for the loans is generally less than the contractual unpaid principal balance due from the borrowers, with the difference being referred to as the "discount" on the acquired loans.  Discounts on acquired non-PCD loans are accreted to interest income over their estimated remaining lives, which may include prepayment estimates in certain circumstances.  The ACL for non-PCD assets is recognized as provision expense in the same reporting period as the business combination.  Estimated credit losses for acquired loans are determined using methodologies and applying estimates and assumptions similar to originated performing loans.

As previously noted, effective January 1, 2023, the Company adopted Financial Accounting Standards Board issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.  The allowance for credit losses incorporates an estimate of lifetime credit losses and is recorded on each asset upon origination.  The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty.  The Company uses a probability of default/loss given default model to determine the allowance for credit losses.  An assessment of whether a borrower is experiencing financial difficulty is made at the the time of the modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification.  Occasionally, the Company modifies loans by providing principal forgiveness that is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.  Additionally, the Company may allow a loan to go interest only for a specified period of time.

The Company has a variety of assets that have a component that qualifies as an off-balance sheet exposure. These primarily include undrawn portions of revolving lines of credit and standby letters of credit. The expected losses associated with these exposures within the unfunded portion of the loans will be recorded as a liability on the balance sheet with an offsetting income statement expense. The Company has determined that a majority of the Company’s off-balance-sheet credit exposures are not unconditionally cancellable. As of  December 31, 2023, the liability recorded for expected credit losses on unfunded commitments in Other Liabilities was $746 thousand compared to $1.20 million as of December 31, 2022.  The estimates are determined based on the likelihood of funding during the contractual term and an estimate of credit losses subsequent to funding. Estimated credit losses on subsequently funded balances are based on the same assumptions as used to estimate credit losses on existing funded loans. The current adjustment to the ACL for unfunded commitments is recognized through provision for credit losses in the Statement of Income. Prior to 2023, the current adjustment to the ACL for unfunded commitments was recognized through other operating expense in the Statement of Income.  For additional information, see Note 6, “Allowance for Credit Losses,” to the Consolidated Financial Statements in Item 8 of this report.  

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 computer software, hardware, and data handling equipment; and 107 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 2010 years and most contain options to renew with 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.

 

An interim analysis of Goodwill is testedperformed quarterly, and goodwill is tested for impairment annually, on October 31st, or more frequently if necessary, usingevents or circumstances indicate there may be impairment. We have one reporting unit, Community Banking.  If we elect to perform a qualitative assessment, to determinewe evaluate factors such as macroeconomic conditions, industry and market considerations, overall financial performance, changes in stock price, and progress towards stated objectives in determining if it is more likely than not that the fair value of aour reporting unit is less than its carrying amount. If the Company concludeswe conclude that it is more likely than not that the fair value of aour reporting unit is less than its carrying amount, the two-stepa quantitative goodwill impairment test is performed. Stepperformed; otherwise, 1no further testing is required. The quantitative test consists of calculating and comparing the fair value of aour reporting unit to its carrying amount, including goodwill. If the fair value of aour reporting unit is greater than its book value, no goodwill impairment exists. If the carrying amount of aour reporting unit is greater than its calculated fair value, a goodwill impairment charge is recognized for the difference. 

Management has concluded that there was no goodwill impairment for may 2023exist and  Step 22022. 

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Bank Owned Life Insurance

The Company has purchased life insurance policies on certain key executives and personnel.  The value recorded on the balance sheet is required to determine the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other changes or amounts due that are probable at settlement.

Other Comprehensive Income

Other comprehensive income includes unrealized gains and losses on securities available-for-sale and changes in the funded status of the impairment loss.nonqualified domestic, noncontributory defined benefit plans which are recognized as separate components of equity.

 

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonable estimated.  For additional information, see Note 19, “Litigation, Commitments, and Contingencies,” to the Consolidated Financial Statements in Item 8 of this report.  

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.

 

Derivative Instruments

 

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.

 

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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-MertonBlack-Scholes-Merton 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-Merton 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.

Revenue Recognition

 

Wealth management. Wealth management income represents monthly fees due from wealth management customers in consideration for managing and administrating the customers' assets. Wealth management and trust services include custody of assets, investment management, escrow services, fees for trust services and similar fiduciary activities. Revenue is recognized when the performance obligation is completed each month, which is generally the time that payment is received. Income also includes fees received from a third party broker-dealer as part of a revenue-sharing agreement for fees earned from customers that are referred to the third party. These fees are paid to the Company by the third party on a quarterly basis and recognized ratably throughout the quarter as the performance obligation is satisfied.

Service charges on deposits and other service charges and fees.

Service charges on deposits and other service charges and fees represent general service fees for account maintenance and activity and transaction-based fees that consist of transaction-based revenue, time-based revenue (service period), item-based revenue, or some other individual attribute-based revenue. Revenue is recognized when the performance obligation is completed, which is generally monthly for account maintenance services or when a transaction has been completed. Payment for such performance obligations is generally received at the time the performance obligations are satisfied. Other service charges and fees include interchange income from debit and credit card transaction fees.

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Advertising Expenses

 

Advertising costs are generally expensed as incurred. The Company may establish accruals for expectedincurred advertising expenses in the course of a fiscal year.

 

Income Taxes

 

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’sCompany’s common stock because the effect would be antidilutive.

 

Recent Accounting Standards

Standards Adopted in 2018

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU allows a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“Tax Reform Act”) and requires certain new disclosures. ASU 2018-02 will be effective for the Company for fiscal years beginning after December 15, 2018, with early adoption permitted.The update should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. The Company elected to early adopt ASU 2018-02 on a retrospective basis. The effect of the adoption of the standard was a decrease in AOCI of $244 thousand with the offset to retained earnings as recorded in the Company’s consolidated balance sheet and statement of changes in stockholders’ equity for the year ended December 31, 2017.

In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” This ASU clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. ASU 2017-09 will be effective for the Company for fiscal years beginning after December 15, 2017. The Company adopted ASU 2017-09 in the first quarter of 2018. The adoption of the standard will not have a material effect on the Company’s financial statements beginning with the Quarterly Report on Form 10-Q for the period ending March 31, 2018.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This ASU intends to improve the presentation of net periodic pension cost and net periodic postretirement benefit costs in the income statement and to narrow the amounts eligible for capitalization in assets. ASU 2017-07 will be effective for the Company for fiscal years beginning after December 15, 2017. The Company adopted ASU 2017-07 in the first quarter of 2018. The adoption of the standard will not have a material effect on the Company’s financial statements beginning with the Quarterly Report on Form 10-Q for the period ending March 31, 2018.

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 explains 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 adopted ASU 2016-18 in the first quarter of 2018. The adoption of the standard will not have a material effect on the Company’s financial statements beginning with the Quarterly Report on Form 10-Q for the period ending March 31, 2018.

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 fiscal years beginning after December 15, 2017, with early adoption permitted. The update should be applied on a retrospective basis, if practicable. The Company adopted ASU 2016-15 in the first quarter of 2018. The adoption of the standard will not have a material effect on the Company’s financial statements beginning with the Quarterly Report on Form 10-Q for the period ending March 31, 2018.

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 how entities account and disclose financial assets and liabilities. The guidance (1) requires most equity investments to be measured at fair value with changes in fair value recognized in net income; (2) simplifies the impairment assessment of equity investments without a readily determinable fair value; (3) eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet; (4) requires public business entities to use exit price notion, rather than entry prices, when measuring fair value of financial instruments for disclosure purposes; (5) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; (6) requires separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; and (7) states that a valuation allowance on deferred tax assets related to available-for-sale securities should be evaluated in combination with other deferred tax assets. 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 adopted ASU 2016-01 in the first quarter of 2018. The Company does not expect to recognize a cumulative effect adjustment to retained earnings at the beginning of the year or expect the guidance to have a material effect on its financial statements.

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. The Company adopted ASU 2014-09, and related updates, in the first quarter of 2018 using the modified retrospective method. The Company’s primary source of revenue is interest income, which is excluded from the scope of this guidance; however, the Company evaluated the impact on other income; which includes fees for services, commissions on sales, and various deposit service charges; revenue contracts; and disclosures and determined that no cumulative-effect adjustment to retained earnings was necessary. The adoption of the standard will not have a material effect on the Company’s financial statements beginning with the Quarterly Report on Form 10-Q for the period ending March 31, 2018.

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSRecent Accounting Standards

 

Standards Adopted in 2017

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. 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 elected to early adopt 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.

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. The guidance eliminates additional paid-in capital pools for equity-based awards and requires that the related income tax effects of awards be recognized in the income statement. The guidance also allows an employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The Company adopted ASU 2016-09 in the first quarter of 2017 on a prospective basis and elected to account for forfeitures of share-based awards as they occur. Excess tax benefits on share-based awards in the statements of cash flows in prior periods have not been adjusted. The adoption of the standard did not have a material effect on the Company’s financial statements.

Standards Not Yet Adopted

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” This ASU intends to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and simplify the application of hedge accounting guidance. ASU 2017-12 will be effective for the Company for fiscal years beginning after December 15, 2018.The Company expects to adopt ASU 2017-12 in the first quarter of 2019. 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 March 2017, the FASB issued ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Securities.” This ASU amends the amortization period for certain purchased callable debt securities held at a premium. ASU 2017-08 will be effective for the Company for fiscal years beginning after December 15, 2018. The Company expects to adopt ASU 2017-08 in the first quarter of 2019. 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 timelierrequires earlier recording of credit losses on loans and other financial instrumentsassets held by financial institutions and other organizations. This ASU also 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 andforecasts.  It further 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 updateASU amends the accounting for credit losses on available-for-salein investments in debt securities and purchased financial assets with credit deterioration.  ASUThe Company adopted the new standard as of 2016-13 will be effective for the Company for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018.January 1, 2021.  The Company expects to adopt ASU 2016-13 instandard was applied using the first quarter of 2020 and recognizemodified retrospective method as a cumulativecumulative-effect adjustment to retained earnings as of the beginningJanuary 1, 2021.  This adoption method is considered a change in accounting principle requiring additional disclosure of the yearnature of adoption. Theand the reasons for the change, which is solely a result of the adoption of the required standard.  This standard did not have a material impact on our investment securities portfolio at implementation.  Related to the implementation of the standard, the Company is evaluatingrecorded an additional ACL for loans of $13.11 million, deferred tax assets of $1.81 million, and additional reserve for unfunded commitments of $509 thousand and an adjustment to retained earnings, net of tax, of $5.87 million.  See the table below for the impact of ASU 2016-13 on the standard.Company’s consolidated balance sheet.

		January 1, 2021
		As Reported				Pre-				Impact of
		Under				ASU 2016-13				ASU 2016-13
		ASU 2016-13				Adoption				Adoption
Assets:
Non-covered loans held for investment
Allowance for credit losses on debt securities
Investment securities - available for sale		$	83,358			$	83,358			$	-		A
Loans
Non-acquired loans and acquired performing loans			2,146,972				2,146,972				-
Acquired purchased deteriorated loans			45,535				39,660				5,875		B
Allowance for credit losses on loans			(39,289	)			(26,182	)			(13,107	)	C
Deferred tax asset			19,306				17,493				1,813		D
Accrued interest receivable - loans			9,109				9,052				57		B
Liabilities
Allowance for credit losses on off-balance sheet
credit exposures			575				66				509		E
Equity:
Retained earnings			231,714				237,585				(5,870	)	F

A.	Per our analysis no ACL was necessary for investment securities available for sale.
B.	Accrued interest receivable from acquired credit impaired loans of $57 thousand was reclassed to other assets and was offset by the reclass of the grossed up credit discount on acquired credit impaired loans of $57 thousand that was moved to the ACL for the purchased credit deteriorated loans.
C.	Calculated adjustment to the ACL related to the adoption of ASU 2016-13.  Includes additional reserve related to purchased deteriorated loans of $5.88 million.
D.	Effect of deferred tax assets related to the adjustment to the ACL form the adoption of ASU 2016-13 using a 23.37% tax rate.
E.	Adjustment to the reserve for unfunded commitments related to the adoption of ASU 2016-13.
F.	Net adjustment to retained earnings related to the adoption of ASU 2016-13.

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

In February 2016,March 2022, the FASBFinancial Accounting Standards Board issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326).  Troubled Debt Restructurings and Vintage Disclosures.  This new accounting topic provided accounting guidance for troubled debt restructuring (TDR) and write-offs, effective January 1, 2023.  The amendments eliminated TDR accounting guidance for issuers that adopted ASU 2016-02,13, “Leases (Topiccreated a single loan modification accounting model, and clarified disclosure requirements for loan modifications and write-offs.  We adopted this standard, effective 842January 1, 2023.  ).” 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. ASUThe updated guidance had 2016-02no will be effective for the Company for 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 leases certain banking offices under lease agreements it classifies as operating leases. The Company is evaluating the impact of the standard and expects an increase in assets and liabilities and anmaterial impact on capital; however, the Company does not expect the guidance to have a material effect on its financial statements or resulting operations.our Consolidated 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.

 

 

Note 2. Acquisitions and Divestitures

On September 16, 2022, the Company completed the sale of its Emporia, Virginia branch (the "Emporia Branch Sale") to Benchmark Community Bank ("Benchmark"). The sale included the branch real estate, certain personal property, and all deposits associated with the branch. There were no loans included in the transaction. Benchmark paid a deposit premium of two percent for certain deposits. In addition, Benchmark paid $1.50 million for branch real estate and certain personal property. Total deposits acquired by Benchmark totaled $61.05 million. The deposits were composed of $18.38 million in demand, $28.46 million in interest-bearing demand, $11.52 million in savings, and $2.69 million in time deposits. The Company recognized a gain of $1.66 million from the Emporia Branch Sale.

On November 18, 2022, the Company and NC-based Surrey Bancorp ("Surrey"), parent company of Surrey Bank & Trust, jointly announced their entry into an agreement and plan of merger pursuant to which First Community would acquire Surrey and its wholly-owned bank subsidiary, Surrey Bank & Trust. Under the terms of the agreement and plan of merger, each share of Surrey common stock immediately converted into the right to receive 0.7159 shares of the Company's common stock. The transaction was consummated on April 21, 2023. The total purchase price for the transaction was $71.37 million.

The Surrey transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair value on the acquisition date. Fair values are preliminary and subject to refinement for up to a year after the closing date of the acquisition. The Company incurred a total of $2.99 million in merger expenses related to the Surrey transaction, $596 thousand was recorded in the last quarter of 2022 and $2.39 million in the firstnine months of 2023. These costs were primarily related to data conversion, investment banking fees, and legal fees.

Goodwill arising from business combinations represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the fair value of the liabilities assumed. The Surrey acquisition resulted in the Company recognizing $14.38 million in goodwill. The primary identifiable intangible asset we typically record in connection with a whole bank or bank branch acquisition is the value of the core deposit intangibles which represents the estimated value of the long-term deposit relationships acquired in the transaction. Determining the amount of identifiable intangible assets and their average lives involves multiple assumptions and estimates and is typically determined by performing a discounted cash flow analysis, which involves a combination of any or all of the following assumptions: customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates. The core deposit intangibles are amortized over the estimated useful lives of the deposit accounts based on a method that we believe reasonably approximates the anticipated benefit stream from this intangible. Core deposit intangibles for the Surrey transaction totaled $12.70 million.

When loans are acquired they are identified as either purchased credit deteriorated PCD or non-PCD. PCD loans represent assets that are acquired with evidence of more than insignificant credit quality deterioration since the origination of the loans as of the acquisition date. The ACL for PCD assets is recognized within business combination accounting with no initial impact to net income. Changes in estimates of expected credit losses on PCD loans after acquisition are recognized as provision expense (or reversal of provision expense) in subsequent periods as they arise. Non-PCD loans acquired are generally estimated at fair value using a discounted cash flow approach with assumptions of discount rate, remaining life, prepayments, probability of default, and loss given default. The actual cash flows on these loans could differ materially from the fair value estimates. The amount we record as the fair values for the loans is generally less than the contractual unpaid principal balance due from the borrowers, with the difference being referred to as the “discount” on the acquired loans. Discounts on acquired non-PCD loans are accreted to interest income over their estimated remaining lives, which may include prepayment estimates in certain circumstances. The ACL for non-PCD assets is recognized as provision expense in the same reporting period as the business combination. Estimated credit losses for acquired loans are determined using methodologies and applying estimates and assumptions similar to originated performing loans. The fair value of purchased loans with credit deterioration was $101.42 million on the date of acquisition with the gross contractual amount totaling $111.22 million. The Company estimates that $2.01 million of contractual cash flows specific to the purchased loans with credit deterioration will not be collected. Non purchased credit deteriorated loans acquired had a fair value of $137.55 million with a gross contractual value of $143.55 million.

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		As recorded by				Fair Value					As recorded by
(Amounts in thousands, except share data)		Surrey				Adjustments					the Company
Assets
Cash and cash equivalents		$	176,700			$	—				$	176,700
Securities available for sale			22,027				(1,093	)	( a )			20,934
Loans held for investment, net of allowance and mark			251,944				(12,864	)	( b )			239,080
Premises and equipment			5,501				774		( c )			6,275
Other assets			10,787				(229	)	( d ), ( e )			10,558
Intangible assets			—				12,700		( f )			12,700
Total assets		$	466,959			$	(712	)			$	466,247
LIABILITIES
Deposits:
Noninterest-bearing		$	158,389			$	—				$	158,389
Interest-bearing			246,460				(1,214	)	( g )			245,246
Total deposits			404,849				(1,214	)				403,635
Long term debt			—				—					—
Other liabilities			6,004				(381	)	( h )			5,623
Total liabilities			410,853				(1,595	)				409,258
Net identifiable assets acquired over (under) liabilities assumed			56,106				883					56,989
Goodwill			—				14,381					14,381
Net assets acquired over liabilities assumed		$	56,106			$	15,264				$	71,370
Consideration:
First Community Bankshares, Inc. common												2,996,786
Purchase price per share of the Company's common stock											$	23.81
Fair Value of Company common stock issued												71,354
Cash paid for fractional shares												16
Fair Value of total consideration transferred											$	71,370

Explanation of fair value adjustments;

(a)	Adjustment reflects the fair value adjustment based on the Company's evaluation of the acquired investment portfolio.

(b)	Adjustment reflects the fair value adjustments of $(15.80) million based on the Company's evaluation of the acquired loan portfolio and excludes the allowance for credit losses and deferred loan fees of $2.94 million as recorded  by Surrey.

(c)	Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired premises and equipment.

(d)	Adjustment reflects the fair value adjustment based on the Company's evaluation of stocks with other banks of $47 thousand.

(e)	Adjustment to record the deferred tax asset related to the fair value adjustments $(177) thousand.

(f)	Adjustment to record the core deposit intangible on the acquired deposit accounts.

(g)	Adjustment reflects the fair value adjustment based on the Company's evaluation of the time deposit portfolio.

(h)	Adjustment to reclass deferred tax asset $(99) thousand, goodwill $(282) thousand, federal income tax payable $(389) thousand, and state income tax payable $8 thousand.

Comparative and Pro Forma Financial Information for Acquisitions

 

The following table presents supplemental pro forma information as if the componentsacquisition had occurred at the beginning of net cash received in, or paid2022. The unaudited pro forma information includes adjustments for acquisitionsinterest income on loans and divestitures, an investing activity insecurities acquired, amortization of intangibles arising form the Company’s consolidated statementstransaction, depreciation and expense on property acquired, interest expense on deposits acquired, and the related income tax effects. The pro forma financial information is not necessarily indicative of cash flows, for the periods indicated. There was no acquisition or divestiture activity recorded in 2017.

		Year Ended December 31,
(Amounts in thousands)		2016				2015
Acquisitions
Fair value of assets and liabilities acquired:
Loans		$	149,122			$	-
Premises and equipment			4,829				-
Other assets			448				-
Other intangible assets			3,842				-
Deposits			(134,307	)			-
Other liabilities			(75	)			-
Purchase price in excess of net assets acquired			2,446				88
Total purchase price			26,305				88
Non-cash purchase price			-				-
Cash acquired			-				-
Net cash paid in acquisitions			26,305				88
Divestitures
Book value of assets sold			(165,742	)			389
Book value of liabilities sold			111,198				(152	)
Sales price in excess of net liabilities assumed			(3,682	)			(6	)
Total sales price			(58,226	)			231
Cash sold			-				-
Amount due remaining on books			2,205				(231	)
Net cash received in divestitures			(56,021	)			-
Net cash (received) paid in acquisitions and divestitures		$	(29,716	)		$	88

Ascension Insurance Agency, Inc.results of operations that would have occurred had the transactions been effected on the assumed dates. 

 

On October 1, 2016,No adjustments have been made to the Company completedpro formas to eliminate the salerecovery of Greenpoint Insurance Group, Inc. (“Greenpoint”) to Ascension Insurance Agency, Inc.provision for credit losses by Surrey for the period ended $7.11December 31, 2022  million, including earn-out paymentsin the amount of $2.21 million to be received over 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.$1.27 million.  The Company recorded a net gain of $617 thousand in connection with the divestiture and eliminated $6.49 million in goodwillexpects to achieve further operating cost savings and other intangible assets. The Company incurred expenses related tobusiness synergies as a result of 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.acquisition.

 

		ProForma				ProForma
		Year Ended				Year Ended
(Dollars in thousands)		December 31, 2023				December 31, 2022
Total revenues (net interest income plus noninterest income)		$	165,136			$	170,206
Net adjusted income available to the common shareholder		$	50,282			$	55,415

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.

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

First Bank

On July 15, 2016, the Company completed a 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.

Note Note 3. InvestmentDebt Securities

 

The following tables present the amortized cost and fair value of available-for-sale debt securities, including gross unrealized gains and losses, as of the dates indicated:

 

		December 31, 2017																December 31, 2023
		Amortized				Unrealized				Unrealized				Fair				Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value				Cost				Gains				Losses				Value
(Amounts in thousands)
U.S. Agency securities		$	11,289			$	17			$	(10	)		$	11,296			$	5,750			$	—			$	(1	)		$	5,749
U.S. Treasury securities			19,987				-				(16	)			19,971				146,653				16				(843	)			145,826
Municipal securities			101,552				2,203				(107	)			103,648				19,528				11				(162	)			19,377
Single issue trust preferred securities			9,367				-				(483	)			8,884
Corporate Notes																			28,566				—				(1,485	)			27,081
Mortgage-backed Agency securities			22,095				46				(415	)			21,726				94,548				2				(11,622	)			82,928
Equity securities			55				-				-				55
Total securities available for sale		$	164,345			$	2,266			$	(1,031	)		$	165,580
Total																		$	295,045			$	29			$	(14,113	)		$	280,961

 

		December 31, 2016
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
(Amounts in thousands)
U.S. Agency securities		$	1,342			$	3			$	-			$	1,345
Municipal securities			111,659				2,258				(586	)			113,331
Single issue trust preferred securities			22,104				-				(2,165	)			19,939
Mortgage-backed Agency securities			31,290				66				(465	)			30,891
Equity securities			55				18				-				73
Total securities available for sale		$	166,450			$	2,345			$	(3,216	)		$	165,579

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		December 31, 2022
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
(Amounts in thousands)
U.S. Agency securities		$	1,500			$	—			$	(15	)		$	1,485
U.S. Treasury securities			161,617				—				(4,353	)			157,264
Municipal securities			23,480				21				(192	)			23,309
Mortgage-backed Agency securities			37,046				—				(2,189	)			34,857
Total			96,480				3				(13,049	)			83,434
		$	320,123			$	24			$	(19,798	)		$	300,349

 

The following table presents the amortized cost and fair value of available-for-sale debt securities, by contractual maturity, as of December 31, 2017. 2023. 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)		U.S. Agency Securities				U.S. Treasury Securities				Municipal Securities				Corporate Notes				Total
Amortized cost maturity:
One year or less		$	10,065			$	19,987			$	-			$	-			$	30,052
After one year through five years			-				-				7,193				-				7,193
After five years through ten years			1,224				-				90,062				9,367				100,653
After ten years			-				-				4,297				-				4,297
Amortized cost		$	11,289			$	19,987			$	101,552			$	9,367				142,195
Mortgage-backed securities																			22,095
Equity securities																			55
Total amortized cost																		$	164,345
Fair value maturity:
One year or less		$	10,055			$	19,971			$	-			$	-			$	30,026
After one year through five years			-				-				7,308				-				7,308
After five years through ten years			1,241				-				91,886				8,884				102,011
After ten years			-				-				4,454				-				4,454
Fair value		$	11,296			$	19,971			$	103,648			$	8,884				143,799
Mortgage-backed securities																			21,726
Equity securities																			55
Total fair value																		$	165,580

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:

		December 31, 2017
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
(Amounts in thousands)
U.S. Agency securities		$	17,937			$	-			$	(49	)		$	17,888
Corporate securities			7,212				-				(16	)			7,196
Total securities held to maturity		$	25,149			$	-			$	(65	)		$	25,084

		December 31, 2016
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
(Amounts in thousands)
U.S. Agency securities		$	36,741			$	124			$	-			$	36,865
Corporate securities			10,392				11				(2	)			10,401
Total securities held to maturity		$	47,133			$	135			$	(2	)		$	47,266

(Amounts in thousands)		U.S. Agency Securities				U.S. Treasury Securities				Municipal Securities				Corporate Notes				Total
Amortized cost maturity:
One year or less		$	5,750			$	146,653			$	5,118			$	—			$	157,521
After one year through five years			—				—				14,410				28,566				42,976
After five years through ten years			—				—				—				—				—
After ten years			—				—				—				—				—
Amortized cost		$	5,750			$	146,653			$	19,528			$	28,566				200,497
Mortgage-backed securities																			94,548
Total amortized cost																		$	295,045
Fair value maturity:
One year or less		$	5,749			$	145,826			$	5,116			$	—			$	156,691
After one year through five years			—				—				14,261				27,081				41,342
After five years through ten years			—				—				—				—				—
After ten years			—				—				—				—				—
Fair value		$	5,749			$	145,826			$	19,377			$	27,081				198,033
Mortgage-backed securities																			82,928
Total fair value																		$	280,961

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following table presents the amortized cost and fair value of held-to-maturity securities, by contractual maturity, as of December 31, 2017. 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)		U.S. Agency Securities				Corporate Notes				Total
Amortized cost maturity:
One year or less		$	-			$	-			$	-
After one year through five years			17,937				7,212				25,149
After five years through ten years			-				-				-
After ten years			-				-				-
Total amortized cost		$	17,937			$	7,212			$	25,149
Fair value maturity:
One year or less		$	-			$	-			$	-
After one year through five years			17,888				7,196				25,084
After five years through ten years			-				-				-
After ten years			-				-				-
Total fair value		$	17,888			$	7,196			$	25,084

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.

		December 31, 2017
		Percent of Municipal Portfolio				Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value
(Amounts in thousands)
New York			10.64	%		$	10,804			$	223			$	-			$	11,027
Minnesota			10.12	%			10,280				211				(1	)			10,490
Wisconsin			8.74	%			8,913				147				-				9,060
Massachusetts			8.57	%			8,691				208				(14	)			8,885
Ohio			8.36	%			8,551				123				(13	)			8,661
Texas			7.23	%			7,388				122				(21	)			7,489
Connecticut			6.82	%			6,929				142				-				7,071
Iowa			5.27	%			5,463				30				(35	)			5,458
New Jersey			4.67	%			4,670				167				-				4,837
Other			29.59	%			29,863				830				(23	)			30,670
Total			100.00	%		$	101,552			$	2,203			$	(107	)		$	103,648

		December 31, 2016
		Percent of Municipal Portfolio				Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value
(Amounts in thousands)
New York			11.66	%		$	12,876			$	334			$	-			$	13,210
Minnesota			9.70	%			10,796				232				(40	)			10,988
Wisconsin			8.66	%			9,786				74				(42	)			9,818
Ohio			8.50	%			9,599				125				(88	)			9,636
Massachusetts			8.45	%			9,355				229				(10	)			9,574
New Jersey			7.14	%			7,891				202				-				8,093
Connecticut			6.90	%			7,628				190				-				7,818
Texas			6.55	%			7,397				130				(103	)			7,424
Iowa			5.66	%			6,467				36				(88	)			6,415
Other			26.78	%			29,864				706				(215	)			30,355
Total			100.00	%		$	111,659			$	2,258			$	(586	)		$	113,331

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the fair values and unrealized losses for available-for-sale debt securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of the dates indicated:

 

		December 31, 2017																								December 31, 2023
		Less than 12 Months								12 Months or Longer								Total								Less than 12 Months								12 Months or Longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized				Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses				Value				Losses				Value				Losses				Value				Losses
(Amounts in thousands)
U.S. Agency securities		$	10,054			$	(10	)		$	-			$	-			$	10,054			$	(10	)		$	5,749			$	(1	)		$	—			$	—			$	5,749			$	(1	)
U.S. Treasury securities			19,972				(16	)			-				-				19,972				(16	)			11,417				(14	)			129,108				(829	)			140,525				(843	)
Municipal securities			8,047				(55	)			2,314				(52	)			10,361				(107	)			4,742				(20	)			5,484				(142	)			10,226				(162	)
Single issue trust preferred securities			-				-				8,884				(483	)			8,884				(483	)
Corporate Notes																											—				—				27,081				(1,485	)			27,081				(1,485	)
Mortgage-backed Agency securities			4,276				(25	)			14,069				(390	)			18,345				(415	)			3,421				(10	)			78,319				(11,612	)			81,740				(11,622	)
Total		$	42,349			$	(106	)		$	25,267			$	(925	)		$	67,616			$	(1,031	)		$	25,329			$	(45	)		$	239,992			$	(14,068	)		$	265,321			$	(14,113	)

 

		December 31, 2016
		Less than 12 Months								12 Months or Longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
(Amounts in thousands)
Municipal securities		$	24,252			$	(527	)		$	715			$	(59	)		$	24,967			$	(586	)
Single issue trust preferred securities			-				-				19,939				(2,165	)			19,939				(2,165	)
Mortgage-backed Agency securities			12,834				(166	)			11,851				(299	)			24,685				(465	)
Total		$	37,086			$	(693	)		$	32,505			$	(2,523	)		$	69,591			$	(3,216	)

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:

		December 31, 2017
		Less than 12 Months								12 Months or Longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
(Amounts in thousands)
U.S. Agency securities		$	17,888			$	(49	)		$	-			$	-			$	17,888			$	(49	)
Corporate securities			7,196				(16	)			-				-				7,196				(16	)
Total		$	25,084			$	(65	)		$	-			$	-			$	25,084			$	(65	)

		December 31, 2016																								December 31, 2022
		Less than 12 Months								12 Months or Longer								Total								Less than 12 Months								12 Months or Longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized				Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses				Value				Losses				Value				Losses				Value				Losses
(Amounts in thousands)
Corporate securities		$	3,533			$	(2	)		$	-			$	-			$	3,533			$	(2	)
U.S. Agency securities																										$	1,485			$	(15	)		$	—			$	—			$	1,485			$	(15	)
U.S. Treasury securities																											157,264				(4,353	)			—				—				157,264				(4,353	)
Municipal securities																											12,347				(192	)			—				—				12,347				(192	)
Corporate Notes																											32,368				(2,172	)			2,489				(17	)			34,857				(2,189	)
Mortgage-backed Agency securities																											64,993				(8,824	)			18,305				(4,225	)			83,298				(13,049	)
Total		$	3,533			$	(2	)		$	-			$	-			$	3,533			$	(2	)		$	268,457			$	(15,556	)		$	20,794			$	(4,242	)		$	289,251			$	(19,798	)

 

There were 45112 individual debt securities in an unrealized loss position as of December 31, 2017, 2023, and their combined depreciation in value represented 0.57%5.02% of the investmentdebt securities portfolio. These securities included 24 securities in a continuous unrealized loss position for 12 months or longer that the Company does not intend to 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 82113 individual debt securities in an unrealized loss position as of December 31, 2016, 2022, and their combined depreciation in value represented  1.51%6.59 % of the investmentdebt securities portfolio.

 

The Company reviews its investment portfolio quarterlyApproximately $38.98 million in securities available for indicationssale have been sold in 2023.  Gross gains and gross losses were $30 thousand and $51 thousand, respectively for December 31, 2023.  There were no sales of OTTI. The initial indicator of OTTIavailable 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 no credit-related OTTI charges onsale debt securities in 20172022.  or 2015. In 2016 the Company incurred credit-related OTTI charges on debt securities of $4.64 million 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. 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. There were no OTTI charges recognized in 2017 or 2015. The Company incurred OTTI charges related to equity securities of $11 thousand in 2016.

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

		Year Ended December 31,
		2017				2016				2015
(Amounts in thousands)
Beginning balance		$	-			$	-			$	-
Additions for credit losses on securities not previously recognized			-				4,646				-
Additions for credit losses on securities previously recognized			-				-				-
Reduction for securities sold/realized losses			-				(4,646	)			-
Ending balance		$	-			$	-			$	-

The following table presents the gross realized gains and losses from the sale of available-for-sale securities for the periods indicated:

		Year Ended December 31,
		2017				2016				2015
(Amounts in thousands)
Gross realized gains		$	-			$	757			$	363
Gross realized losses			(661	)			(422	)			(219	)
Net (loss) gain on sale of securities		$	(661	)		$	335			$	144

The carrying amount of securities pledged for various purposes totaled $51.34$145.09 million as of December 31, 2017, 2023, and $139.75$22.43 million as of December 31, 2016.2022.

 

In determining whether or not a security is impaired, we consider the severity of the loss as well as our intent to hold the securities to maturity or the recovery of the cost basis.  Unrealized losses have not been recognized into income as the decline in fair value is largely due to changes in interest rates and other market conditions.  Management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery.  

U. S. Agency securities

The Company has one U.S. Agency security as of  December 31, 2023, with an amortized cost of $5.75 million.  The security is issued by the Federal Home Loan Bank.  The security is guaranteed of full and timely payments by the issuing agency.  Based on management's analysis and judgement, there was no credit loss attributable to the U.S. Agency security at December 31, 2023.

U.S. Treasury securities

U.S. Treasury securities are backed by the full faith and credit of the United States government.  At December 31, 2023, the total amortized cost of available for sale U. S. Treasury securities was $146.65 million.  Based on management's analysis and judgement, there were no credit losses attributable to U.S. Treasury securities at December 31, 2023.

Municipal securities

Municipal securities are securities issued by various municipalities in the United States.  At December 31, 2023, the total amortized cost of available for sale Municipal securities was $19.53 million.  The majority of the portfolio was rated AA or higher, with no securities rated below investment grade at year-end.  Based on management's analysis and judgement, there were no credit losses attributable to Municipal securities at December 31, 2023.

Corporate Notes

Corporate notes are debt obligations issued by public or private corporations.  As of  December 31, 2023, the total amortized cost of available for sale Corporate notes was $28.57 million.  The majority of the portfolio was rated AA or higher, with no securities rated below investment grade at year-end.  Based on management's analysis and judgement, there were no credit losses attributable to Corporate note securities at December 31, 2023.

Mortgage-backed Agency securities

Mortgage-backed Agency securities within the Company's portfolio are issued by Ginnie Mae, Fannie Mae, and Freddie Mac.  As of  December 31, 2023, the total amortized cost of available for sale mortgage-backed Agency securities was $94.55 million.  Each agency provides a guarantee of full and timely payments of principal and interest by the issuing agency.  Based on management's analysis and judgement, there were no credit losses attributable to mortgage-backed Agency securities at December 31, 2023.

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 4. Loans

 

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 $1.71$1.50 million as of December 31, 2017, 2023, and $1.41$1.80 million as of December 31, 2016. 2022. Deferred loan fees totaledwere $7.71 million as of $4.44December 31, 2023, and $8.81 million inas of 2017,December 31, 2022$3.90 million in 2016, and $3.78 million in 2015.. For information about off-balance sheet financing, see Note 20,19, “Litigation, Commitments, and Contingencies,” to the Consolidated Financial Statements of this report.

 

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In accordance with the adoption of Contents

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSASU 2016-13, the table below reflects the loan portfolio at the amortized cost basis for the periods indicated, to include net deferred loan fees of $7.71 million as of December 31, 2023, and $8.81 million as of December 31, 2022.  Additionally, included is, the unamortized discount total related to loans acquired of $15.29 million as of December 31, 2023, and $3.80 million as of December 31, 2022.  Accrued interest receivable (AIR) of $9.64 million as of December 31, 2023, and $7.94 million as of December 31, 2022 , is accounted for separately and reported in Interest Receivable on the Consolidated Balance Sheet.

 

The following table presents loans, net of unearned income with non-covered loans and by loan class, as of the dates indicated:

 

		December 31,																December 31,
		2017								2016								2023								2022
(Amounts in thousands)		Amount				Percent				Amount				Percent				Amount				Percent				Amount				Percent
Non-covered loans held for investment
Commercial loans
Construction, development, and other land		$	60,017				3.30	%		$	56,948				3.07	%		$	105,945				4.12	%		$	117,174				4.88	%
Commercial and industrial			92,188				5.07	%			92,204				4.98	%			211,850				8.24	%			150,428				6.27	%
Multi-family residential			125,202				6.89	%			134,228				7.24	%			188,382				7.32	%			148,026				6.17	%
Single family non-owner occupied			141,670				7.80	%			142,965				7.72	%			224,895				8.74	%			206,121				8.59	%
Non-farm, non-residential			616,633				33.93	%			598,674				32.31	%			894,550				34.78	%			787,703				32.82	%
Agricultural			7,035				0.39	%			6,003				0.32	%			21,669				0.84	%			12,032				0.50	%
Farmland			25,649				1.41	%			31,729				1.71	%			14,202				0.55	%			11,779				0.49	%
Total commercial loans			1,068,394				58.79	%			1,062,751				57.35	%			1,661,493				64.59	%			1,433,263				59.72	%
Consumer real estate loans
Home equity lines			103,205				5.68	%			106,361				5.74	%			87,626				3.41	%			75,642				3.15	%
Single family owner occupied			502,686				27.66	%			500,891				27.03	%			696,140				27.06	%			734,540				30.61	%
Owner occupied construction			39,178				2.16	%			44,535				2.41	%			8,445				0.33	%			10,366				0.43	%
Total consumer real estate loans			645,069				35.50	%			651,787				35.18	%			792,211				30.80	%			820,548				34.19	%
Consumer and other loans
Consumer loans			70,772				3.89	%			77,445				4.18	%			117,091				4.55	%			144,582				6.02	%
Other			5,001				0.28	%			3,971				0.21	%			1,503				0.06	%			1,804				0.07	%
Total consumer and other loans			75,773				4.17	%			81,416				4.39	%			118,594				4.61	%			146,386				6.09	%
Total non-covered loans			1,789,236				98.46	%			1,795,954				96.92	%
Total covered loans			27,948				1.54	%			56,994				3.08	%
Total loans held for investment, net of unearned income		$	1,817,184				100.00	%		$	1,852,948				100.00	%		$	2,572,298				100.00	%		$	2,400,197				100.00	%

 

The following table presents the covered loan portfolio, by loan class, as of the dates indicated. The commercial loss share agreement expired on June 30, 2017.

		December 31,
(Amounts in thousands)		2017				2016
Covered loans
Commercial loans
Construction, development, and other land		$	39			$	4,570
Commercial and industrial			-				895
Multi-family residential			-				8
Single family non-owner occupied			284				962
Non-farm, non-residential			9				7,512
Agricultural			-				25
Farmland			-				397
Total commercial loans			332				14,369
Consumer real estate loans
Home equity lines			23,720				35,817
Single family owner occupied			3,896				6,729
Total consumer real estate loans			27,616				42,546
Consumer and other loans
Consumer loans			-				79
Total covered loans		$	27,948			$	56,994

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.

 

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the recorded investment and contractual unpaid principal balance of PCI loans, by acquisition, as of the dates indicated:

 

		December 31,
		2017								2016
(Amounts in thousands)		Recorded Investment				Unpaid Principal Balance				Recorded Investment				Unpaid Principal Balance
PCI Loans, by acquisition
Peoples		$	5,278			$	8,111			$	5,576			$	9,397
Waccamaw			12,176				31,335				21,758				45,030
Other acquired			986				1,012				1,095				1,121
Total PCI Loans		$	18,440			$	40,458			$	28,429			$	55,548

The following table presents the changes in the accretable yield on PCI loans, by acquisition, during the periods indicated:

		Peoples				Waccamaw				Total
(Amounts in thousands)
Balance January 1, 2015		$	4,745			$	19,048			$	23,793
Additions			-				2				2
Accretion			(2,712	)			(6,459	)			(9,171	)
Reclassifications from nonaccretable difference(1)			1,283				6,564				7,847
Other changes, net			273				6,954				7,227
Balance December 31, 2015		$	3,589			$	26,109			$	29,698
Balance January 1, 2016		$	3,589			$	26,109			$	29,698
Accretion			(1,237	)			(5,380	)			(6,617	)
Reclassifications from nonaccretable difference(1)			287				1,620				1,907
Other changes, net			1,753				(515	)			1,238
Balance December 31, 2016		$	4,392			$	21,834			$	26,226
Balance January 1, 2017		$	4,392			$	21,834			$	26,226
Accretion			(1,379	)			(5,664	)			(7,043	)
Reclassifications from nonaccretable difference(1)			825				3,378				4,203
Other changes, net			(450	)			(83	)			(533	)
Balance December 31, 2017		$	3,388			$	19,465			$	22,853

(1)	Respresents changes attributable to expected loss assumptions

Note 5. Credit Quality

 

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.

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’smanagement’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 well definedthe 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 haveinherent in substandard loans; however, the weaknesses inherentare so severe that collection or liquidation in substandard loans; however,full is unlikely based on current facts, conditions, and values. Due to certain specific pending factors, 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.

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

●

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.

 

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.

 

		December 31, 2017																								December 31, 2023
						Special																								Special
(Amounts in thousands)		Pass				Mention				Substandard				Doubtful				Loss				Total				Pass				Mention				Substandard				Doubtful				Loss				Total
Non-covered loans
Commercial loans
Construction, development, and other land		$	57,768			$	1,367			$	882			$	-			$	-			$	60,017			$	103,573			$	1,955			$	417			$	—			$	—			$	105,945
Commercial and industrial			87,181				3,721				1,286				-				-				92,188				207,034				2,097				2,719				—				—				211,850
Multi-family residential			118,509				5,663				1,030				-				-				125,202				184,565				3,522				295				—				—				188,382
Single family non-owner occupied			130,689				7,271				3,710				-				-				141,670				215,375				2,016				7,504				—				—				224,895
Non-farm, non-residential			596,616				12,493				7,351				173				-				616,633				866,711				15,240				12,599				—				—				894,550
Agricultural			6,639				294				102				-				-				7,035				15,944				3,878				1,847				—				—				21,669
Farmland			22,875				210				2,564				-				-				25,649				12,480				484				1,238				—				—				14,202
Consumer real estate loans
Home equity lines			100,833				618				1,754				-				-				103,205				83,769				546				3,311				—				—				87,626
Single family owner occupied			471,382				5,480				25,824				-				-				502,686				669,878				2,360				23,902				—				—				696,140
Owner occupied construction			38,947				-				231				-				-				39,178				8,445				—				—				—				—				8,445
Consumer and other loans
Consumer loans			70,448				13				311				-				-				70,772				114,725				4				2,362				—				—				117,091
Other			5,001				-				-				-				-				5,001				1,503				—				—				—				—				1,503
Total non-covered loans			1,706,888				37,130				45,045				173				-				1,789,236
Covered loans
Commercial loans
Construction, development, and other land			1				38				-				-				-				39
Single family non-owner occupied			265				-				19				-				-				284
Non-farm, non-residential			-				-				9				-				-				9
Consumer real estate loans
Home equity lines			11,338				11,685				697				-				-				23,720
Single family owner occupied			2,996				411				489				-				-				3,896
Total covered loans			14,600				12,134				1,214				-				-				27,948
Total loans		$	1,721,488			$	49,264			$	46,259			$	173			$	-			$	1,817,184			$	2,484,002			$	32,102			$	56,194			$	—			$	—			$	2,572,298

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		December 31, 2022
						Special
(Amounts in thousands)		Pass				Mention				Substandard				Doubtful				Loss				Total
Commercial loans
Construction, development, and other land		$	115,972			$	853			$	349			$	—			$	—			$	117,174
Commercial and industrial			147,543				920				1,965				—				—				150,428
Multi-family residential			143,859				3,946				221				—				—				148,026
Single family non-owner occupied			195,775				2,303				8,043				—				—				206,121
Non-farm, non-residential			761,154				14,903				11,646				—				—				787,703
Agricultural			11,722				47				263				—				—				12,032
Farmland			9,868				573				1,338				—				—				11,779
Consumer real estate loans
Home equity lines			72,927				288				2,427				—				—				75,642
Single family owner occupied			706,952				1,958				25,630				—				—				734,540
Owner occupied construction			10,204				—				162				—				—				10,366
Consumer and other loans
Consumer loans			141,551				11				3,020				—				—				144,582
Other			1,804				—				—				—				—				1,804
Total loans		$	2,319,331			$	25,802			$	55,064			$	-			$	-			$	2,400,197

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

		December 31, 2016
						Special
(Amounts in thousands)		Pass				Mention				Substandard				Doubtful				Loss				Total
Non-covered loans
Commercial loans
Construction, development, and other land		$	55,188			$	980			$	780			$	-			$	-			$	56,948
Commercial and industrial			87,581				3,483				1,137				-				3				92,204
Multi-family residential			126,468				6,992				768				-				-				134,228
Single family non-owner occupied			131,934				5,466				5,565				-				-				142,965
Non-farm, non-residential			579,134				10,236				9,102				202				-				598,674
Agricultural			5,839				164				-				-				-				6,003
Farmland			28,887				1,223				1,619				-				-				31,729
Consumer real estate loans
Home equity lines			104,033				871				1,457				-				-				106,361
Single family owner occupied			475,402				4,636				20,381				472				-				500,891
Owner occupied construction			43,833				-				702				-				-				44,535
Consumer and other loans
Consumer loans			77,218				11				216				-				-				77,445
Other			3,971				-				-				-				-				3,971
Total non-covered loans			1,719,488				34,062				41,727				674				3				1,795,954
Covered loans
Commercial loans
Construction, development, and other land			2,768				803				999				-				-				4,570
Commercial and industrial			882				-				13				-				-				895
Multi-family residential			-				-				8				-				-				8
Single family non-owner occupied			796				63				103				-				-				962
Non-farm, non-residential			6,423				537				552				-				-				7,512
Agricultural			25				-				-				-				-				25
Farmland			132				-				265				-				-				397
Consumer real estate loans
Home equity lines			14,283				20,763				771				-				-				35,817
Single family owner occupied			4,601				928				1,200				-				-				6,729
Consumer and other loans
Consumer loans			79				-				-				-				-				79
Total covered loans			29,989				23,094				3,911				-				-				56,994
Total loans		$	1,749,477			$	57,156			$	45,638			$	674			$	3			$	1,852,948

The Company identifies loans for potential impairment through a varietyfollowing tables present the amortized cost basis 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.portfolio, by year of origination, loan class, and credit quality, as of the dates indicated:

(Amounts in thousands)		Term Loans Amortized Cost Basis by Origination Year
Balance at December 31, 2023		2023				2022				2021				2020				2019				Prior				Revolving				Total
Construction, development
and other land
Pass		$	12,379			$	54,752			$	23,328			$	4,121			$	2,700			$	3,874			$	2,419			$	103,573
Special Mention			1,737				-				-				139				-				79				-				1,955
Substandard			-				-				-				-				175				242				-				417
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total construction, development, and other land		$	14,116			$	54,752			$	23,328			$	4,260			$	2,875			$	4,195			$	2,419			$	105,945
Current period gross write-offs		$	-			$	-			$	-			$	-			$	13			$	-			$	-			$	13
Commercial and industrial
Pass		$	53,619			$	64,380			$	19,477			$	11,538			$	5,717			$	11,775			$	40,528			$	207,034
Special Mention			-				229				11				-				349				1,408				100				2,097
Substandard			51				744				276				86				926				636				-				2,719
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total commercial and industrial		$	53,670			$	65,353			$	19,764			$	11,624			$	6,992			$	13,819			$	40,628			$	211,850
Current period gross write-offs		$	66			$	168			$	201			$	51			$	32			$	66			$	-			$	584
Multi-family residential
Pass		$	6,753			$	67,484			$	36,621			$	30,021			$	3,280			$	36,982			$	3,424			$	184,565
Special Mention			-				-				-				-				-				3,522				-				3,522
Substandard			-				-				-				-				-				295				-				295
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total multi-family residential		$	6,753			$	67,484			$	36,621			$	30,021			$	3,280			$	40,799			$	3,424			$	188,382
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Non-farm, non-residential
Pass		$	83,420			$	234,607			$	151,433			$	114,974			$	53,466			$	217,034			$	11,777			$	866,711
Special Mention			65				583				2,590				819				-				11,132				51				15,240
Substandard			1,175				238				1,968				690				3,175				5,143				210				12,599
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total non-farm, non-residential		$	84,660			$	235,428			$	155,991			$	116,483			$	56,641			$	233,309			$	12,038			$	894,550
Current period gross write-offs		$	-			$	8			$	-			$	-			$	-			$	2			$	-			$	10
Agricultural
Pass		$	5,004			$	4,215			$	2,352			$	625			$	674			$	2,094			$	980			$	15,944
Special Mention			28				276				184				8				90				3,292				-				3,878
Substandard			157				166				50				28				1,188				258				-				1,847
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total agricultural		$	5,189			$	4,657			$	2,586			$	661			$	1,952			$	5,644			$	980			$	21,669
Current period gross write-offs		$	-			$	59			$	-			$	9			$	14			$	8			$	-			$	90
Farmland
Pass		$	1,380			$	1,237			$	1,557			$	912			$	745			$	5,766			$	883			$	12,480
Special Mention			-				-				103				-				-				381				-				484
Substandard			-				-				-				-				-				1,238				-				1,238
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total farmland		$	1,380			$	1,237			$	1,660			$	912			$	745			$	7,385			$	883			$	14,202
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-

 

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands)		Term Loans Amortized Cost Basis by Origination Year
Balance at December 31, 2023		2023				2022				2021				2020				2019				Prior				Revolving				Total
Home equity lines
Pass		$	9			$	962			$	86			$	73			$	68			$	3,800			$	78,771			$	83,769
Special Mention			-				-				-				-				-				45				501				546
Substandard			-				12				-				27				102				1,853				1,317				3,311
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total home equity lines		$	9			$	974			$	86			$	100			$	170			$	5,698			$	80,589			$	87,626
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	227			$	227
Single family Mortgage
Pass		$	50,826			$	164,974			$	221,352			$	191,156			$	44,974			$	211,540			$	431			$	885,253
Special Mention			-				-				465				98				108				3,705				-				4,376
Substandard			236				555				1,464				1,381				1,515				26,255				-				31,406
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total single family owner and non-owner occupied		$	51,062			$	165,529			$	223,281			$	192,635			$	46,597			$	241,500			$	431			$	921,035
Current period gross write-offs		$	-			$	-			$	47			$	-			$	-			$	194			$	-			$	241
Owner occupied construction
Pass		$	3,620			$	4,232			$	240			$	-			$	21			$	332			$	-			$	8,445
Special Mention			-				-				-				-				-				-				-				-
Substandard			-				-				-				-				-				-				-				-
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total owner occupied construction		$	3,620			$	4,232			$	240			$	-			$	21			$	332			$	-			$	8,445
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Consumer loans
Pass		$	31,243			$	43,675			$	20,672			$	7,710			$	3,214			$	1,026			$	8,688			$	116,228
Special Mention			-				-				3				-				-				-				1				4
Substandard			338				820				590				198				157				212				47				2,362
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total consumer loans		$	31,581			$	44,495			$	21,265			$	7,908			$	3,371			$	1,238			$	8,736			$	118,594
Current period gross write-offs		$	1,238			$	3,594			$	1,852			$	518			$	196			$	77			$	185			$	7,660

(Amounts in thousands)		Term Loans Amortized Cost Basis by Origination Year
Balance at December 31, 2023		2023				2022				2021				2020				2019				Prior				Revolving				Total
Total Loans
Pass		$	248,253			$	640,518			$	477,118			$	361,130			$	114,859			$	494,223			$	147,901			$	2,484,002
Special Mention			1,830				1,088				3,356				1,064				547				23,564				653				32,102
Substandard			1,957				2,535				4,348				2,410				7,238				36,132				1,574				56,194
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total loans		$	252,040			$	644,141			$	484,822			$	364,604			$	122,644			$	553,919			$	150,128			$	2,572,298
Current period gross write-offs		$	1,304			$	3,829			$	2,100			$	578			$	255			$	347			$	412			$	8,825

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands)		Term Loans Amortized Cost Basis by Origination Year
Balance at December 31, 2022		2022				2021				2020				2019				2018				Prior				Revolving				Total
Construction, development
and other land
Pass		$	58,770			$	39,995			$	4,602			$	3,050			$	2,485			$	5,608			$	1,462			$	115,972
Special Mention			-				225				-				-				94				534				-				853
Substandard			-				-				267				71				11				-				-				349
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total construction, development, and other land		$	58,770			$	40,220			$	4,869			$	3,121			$	2,590			$	6,142			$	1,462			$	117,174
Commercial and industrial
Pass		$	69,678			$	23,746			$	12,047			$	7,729			$	9,121			$	8,890			$	16,332			$	147,543
Special Mention			227				20				21				367				185				1				99				920
Substandard			130				112				114				620				192				797				-				1,965
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total commercial and industrial		$	70,035			$	23,878			$	12,182			$	8,716			$	9,498			$	9,688			$	16,431			$	150,428
Multi-family residential
Pass		$	45,261			$	20,881			$	31,087			$	3,733			$	1,328			$	41,063			$	506			$	143,859
Special Mention			-				-				-				-				-				3,946				-				3,946
Substandard			-				-				-				-				-				221				-				221
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total multi-family residential		$	45,261			$	20,881			$	31,087			$	3,733			$	1,328			$	45,230			$	506			$	148,026
Non-farm, non-residential
Pass		$	218,595			$	145,675			$	114,840			$	52,575			$	35,564			$	185,448			$	8,457			$	761,154
Special Mention			-				1,927				852				1,193				2,708				8,076				147				14,903
Substandard			-				1,267				675				2,509				1,531				5,664				-				11,646
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total non-farm, non-residential		$	218,595			$	148,869			$	116,367			$	56,277			$	39,803			$	199,188			$	8,604			$	787,703
Agricultural
Pass		$	6,244			$	3,225			$	1,003			$	376			$	154			$	214			$	506			$	11,722
Special Mention			-				33				14				-				-				-				-				47
Substandard			124				37				1				66				24				11				-				263
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total agricultural		$	6,368			$	3,295			$	1,018			$	442			$	178			$	225			$	506			$	12,032
Farmland
Pass		$	646			$	713			$	796			$	77			$	869			$	6,150			$	617			$	9,868
Special Mention			-				109				-				-				222				242				-				573
Substandard			-				-				12				-				253				1,073				-				1,338
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total farmland		$	646			$	822			$	808			$	77			$	1,344			$	7,465			$	617			$	11,779

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands)		Term Loans Amortized Cost Basis by Origination Year
Balance at December 31, 2022		2022				2021				2020				2019				2018				Prior				Revolving				Total
Home equity lines
Pass		$	1,960			$	198			$	241			$	-			$	24			$	7,429			$	63,075			$	72,927
Special Mention			-				-				-				-				-				117				171				288
Substandard			-				-				27				35				114				1,253				998				2,427
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total home equity lines		$	1,960			$	198			$	268			$	35			$	138			$	8,799			$	64,244			$	75,642
Single family Mortgage
Pass		$	157,890			$	237,363			$	207,480			$	48,795			$	36,678			$	214,148			$	373			$	902,727
Special Mention			-				376				90				363				262				3,170				-				4,261
Substandard			461				1,196				740				1,217				1,991				28,068				-				33,673
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total single family owner and non-owner occupied		$	158,351			$	238,935			$	208,310			$	50,375			$	38,931			$	245,386			$	373			$	940,661
Owner occupied construction
Pass		$	6,357			$	3,344			$	-			$	23			$	11			$	469			$	-			$	10,204
Special Mention			-				-				-				-				-				-				-				-
Substandard			-				-				162				-				-				-				-				162
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total owner occupied construction		$	6,357			$	3,344			$	162			$	23			$	11			$	469			$	-			$	10,366
Consumer loans
Pass		$	69,579			$	37,603			$	16,033			$	7,640			$	2,528			$	2,040			$	7,932			$	143,355
Special Mention			-				5				-				6				-				-				-				11
Substandard			881				1,002				466				416				36				159				60				3,020
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total consumer loans		$	70,460			$	38,610			$	16,499			$	8,062			$	2,564			$	2,199			$	7,992			$	146,386

(Amounts in thousands)		Term Loans Amortized Cost Basis by Origination Year
Balance at December 31, 2022		2022				2021				2020				2019				2018				Prior				Revolving				Total
Total Loans
Pass		$	634,980			$	512,743			$	388,129			$	123,998			$	88,762			$	471,459			$	99,260			$	2,319,331
Special Mention			227				2,695				977				1,929				3,471				16,086				417				25,802
Substandard			1,596				3,614				2,464				4,934				4,152				37,246				1,058				55,064
Doubtful			-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-
Total loans		$	636,803			$	519,052			$	391,570			$	130,861			$	96,385			$	524,791			$	100,735			$	2,400,197

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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:

		December 31, 2017												December 31, 2016
						Unpaid												Unpaid
		Recorded				Principal				Related				Recorded				Principal				Related
(Amounts in thousands)		Investment				Balance				Allowance				Investment				Balance				Allowance
Impaired loans with no related allowance
Commercial loans
Construction, development, and other land		$	727			$	988			$	-			$	33			$	35			$	-
Commercial and industrial			315				1,142				-				346				383				-
Multi-family residential			499				1,010				-				294				369				-
Single family non-owner occupied			2,042				3,521				-				3,084				3,334				-
Non-farm, non-residential			3,022				5,955				-				3,829				4,534				-
Agricultural			102				107				-				-				-				-
Farmland			395				414				-				1,161				1,188				-
Consumer real estate loans
Home equity lines			1,621				1,770				-				913				968				-
Single family owner occupied			16,633				18,964				-				11,779				12,630				-
Owner occupied construction			231				231				-				573				589				-
Consumer and other loans
Consumer loans			141				144				-				62				103				-
Total impaired loans with no allowance			25,728				34,246				-				22,074				24,133				-
Impaired loans with a related allowance
Commercial loans
Commercial and industrial			343				343				270				-				-				-
Single family non-owner occupied			446				446				62				351				351				31
Non-farm, non-residential			262				263				15				-				-				-
Farmland			936				974				233				430				430				18
Consumer real estate loans
Single family owner occupied			5,586				5,606				1,978				4,118				4,174				770
Total impaired loans with an allowance			7,573				7,632				2,558				4,899				4,955				819
Total impaired loans(1)		$	33,301			$	41,878			$	2,558			$	26,973			$	29,088			$	819

(1)	Includes loans totaling $20.13 million as of December 31, 2017, and $16.89 million as of December 31, 2016, that do not meet the Company's evaluation threshold for individual impairment and are therefore collectively evaluated for impairment

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the average recorded investment and interest income recognized on impaired loans, excluding PCI loans, for the periods indicated:

		Year Ended December 31,
		2017								2016								2015
(Amounts in thousands)		Interest Income Recognized				Average Recorded Investment				Interest Income Recognized				Average Recorded Investment				Interest Income Recognized				Average Recorded Investment
Impaired loans with no related allowance:
Commercial loans
Construction, development, and other land		$	56			$	455			$	22			$	344			$	5			$	481
Commercial and industrial			14				556				16				646				-				324
Multi-family residential			53				523				21				308				4				269
Single family non-owner occupied			106				3,214				178				3,076				88				2,140
Non-farm, non-residential			122				4,052				307				8,573				312				11,677
Agricultural			5				124				-				-				-				-
Farmland			17				853				55				437				16				195
Consumer real estate loans
Home equity lines			50				1,365				30				1,223				36				813
Single family owner occupied			488				15,758				343				12,330				356				12,708
Owner occupied construction			8				234				9				497				10				359
Consumer and other loans
Consumer loans			9				75				5				60				8				98
Total impaired loans with no related allowance			928				27,209				986				27,494				835				29,064
Impaired loans with a related allowance:
Commercial loans
Construction, development, and other land			-				107				-				-				-				-
Commercial and industrial			103				1,376				-				-				-				-
Single family non-owner occupied			27				479				23				518				25				575
Non-farm, non-residential			15				789				215				3,831				65				4,987
Farmland			22				442				14				108				-				-
Consumer real estate loans
Home equity lines			-				104				-				-				-				-
Single family owner occupied			161				4,805				118				4,452				26				3,731
Owner occupied construction			-				-				-				87				1				178
Total impaired loans with a related allowance			328				8,102				370				8,996				117				9,471
Total impaired loans		$	1,256			$	35,311			$	1,356			$	36,490			$	952			$	38,535

The following tables provide information on impaired PCI loan pools as of and for the dates indicated:

		December 31,
		2017				2016
(Amounts in thousands, except impaired loan pools)
Unpaid principal balance		$	-			$	1,086
Recorded investment			-				1,085
Allowance for loan losses related to PCI loan pools			-				12
Impaired PCI loan pools			-				1

		Year Ended December 31,
		2017				2016				2015
(Amounts in thousands)
Interest income recognized		$	20			$	142			$	364
Average recorded investment			528				1,929				3,309

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

 

		December 31,
		2017												2016												December 31, 2023												December 31, 2022
(Amounts in thousands)		Non-covered				Covered				Total				Non-covered				Covered				Total				No Allowance				With an Allowance				Total				No Allowance				With an Allowance				Total
Commercial loans
Construction, development, and other land		$	-			$	-			$	-			$	72			$	32			$	104			$	172			$	—			$	172			$	31			$	—			$	31
Commercial and industrial			211				-				211				332				13				345				1,438				—				1,438				438				—				438
Multi-family residential			498				-				498				294				-				294				183				—				183				220				—				220
Single family non-owner occupied			851				19				870				1,242				24				1,266				832				—				832				984				—				984
Non-farm, non-residential			2,448				-				2,448				3,295				30				3,325				1,271				1,173				2,444				1,771				—				1,771
Agricultural			102				-				102				-				-				-				1,558				—				1,558				9				—				9
Farmland			805				-				805				1,591				-				1,591				123				—				123				133				—				133
Consumer real estate loans
Home equity lines			882				306				1,188				705				400				1,105				1,335				—				1,335				400				—				400
Single family owner occupied			13,108				17				13,125				7,924				109				8,033				9,365				—				9,365				8,228				589				8,817
Owner occupied construction			-				-				-				336				-				336				—				—				—				—				—				—
Consumer and other loans
Consumer loans			92				-				92				63				-				63				1,906				—				1,906				2,405				—				2,405
Total nonaccrual loans		$	18,997			$	342			$	19,339			$	15,854			$	608			$	16,462			$	18,183			$	1,173			$	19,356			$	14,619			$	589			$	15,208

In both  2023 and 2022 nonaccrual loan interest was recognized was immaterial.

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following tables presentpresents the aging of past due loans, by loan class, as of the datesdate 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. Non-covered accruing loans contractually past due 90 days or more totaled $1 thousand as of December 31, 2017. There were no non-covered accruing loans contractually past due 90 days or more as of December 31, 2016.

 

																										December 31, 2023
		December 31, 2017																																																Amortized Cost of
		30 - 59 Days				60 - 89 Days				90+ Days				Total				Current				Total				30 - 59 Days				60 - 89 Days				90+ Days				Total				Current				Total				>90 Days Accruing
(Amounts in thousands)		Past Due				Past Due				Past Due				Past Due				Loans				Loans				Past Due				Past Due				Past Due				Past Due				Loans				Loans				No Allowance
Non-covered loans
Commercial loans
Construction, development, and other land		$	20			$	365			$	-			$	385			$	59,632			$	60,017			$	38			$	6			$	23			$	67			$	105,878			$	105,945			$	—
Commercial and industrial			232				40				142				414				91,774				92,188				1,232				766				390				2,388				209,462				211,850				—
Multi-family residential			544				-				185				729				124,473				125,202				115				68				—				183				188,199				188,382				—
Single family non-owner occupied			223				302				331				856				140,814				141,670				777				455				232				1,464				223,431				224,895				—
Non-farm, non-residential			2,433				383				1,536				4,352				612,281				616,633				617				229				382				1,228				893,322				894,550				—
Agricultural			123				-				-				123				6,912				7,035				22				56				217				295				21,374				21,669				—
Farmland			113				-				692				805				24,844				25,649				15				—				—				15				14,187				14,202				—
Consumer real estate loans
Home equity lines			226				198				485				909				102,296				103,205				639				343				534				1,516				86,110				87,626				—
Single family owner occupied			6,959				2,418				8,186				17,563				485,123				502,686				6,108				2,831				3,519				12,458				683,682				696,140				—
Owner occupied construction			326				79				-				405				38,773				39,178				—				—				—				—				8,445				8,445				—
Consumer and other loans
Consumer loans			439				97				17				553				70,219				70,772				4,390				1,440				1,087				6,917				110,174				117,091				—
Other			-				-				-				-				5,001				5,001				—				—				—				—				1,503				1,503				—
Total non-covered loans			11,638				3,882				11,574				27,094				1,762,142				1,789,236
Covered loans
Commercial loans
Construction, development, and other land			-				-				-				-				39				39
Single family non-owner occupied			-				-				-				-				284				284
Non-farm, non-residential			-				-				-				-				9				9
Consumer real estate loans
Home equity lines			402				-				173				575				23,145				23,720
Single family owner occupied			70				-				-				70				3,826				3,896
Total covered loans			472				-				173				645				27,303				27,948
Total loans		$	12,110			$	3,882			$	11,747			$	27,739			$	1,789,445			$	1,817,184			$	13,953			$	6,194			$	6,384			$	26,531			$	2,545,767			$	2,572,298			$	—

		December 31, 2022
																										Amortized Cost of
		30 - 59 Days				60 - 89 Days				90+ Days				Total				Current				Total				>90 Days Accruing
(Amounts in thousands)		Past Due				Past Due				Past Due				Past Due				Loans				Loans				No Allowance
Commercial loans
Construction, development, and other land		$	393			$	8			$	23			$	424			$	116,750			$	117,174			$	—
Commercial and industrial			756				129				217				1,102				149,326				150,428				—
Multi-family residential			—				—				83				83				147,943				148,026				—
Single family non-owner occupied			990				122				299				1,411				204,710				206,121				—
Non-farm, non-residential			646				52				548				1,246				786,457				787,703				—
Agricultural			36				135				9				180				11,852				12,032				—
Farmland			—				—				133				133				11,646				11,779				—
Consumer real estate loans
Home equity lines			519				115				262				896				74,746				75,642				—
Single family owner occupied			5,951				2,322				3,166				11,439				723,101				734,540				—
Owner occupied construction			—				—				—				—				10,366				10,366				—
Consumer and other loans
Consumer loans			4,282				1,960				1,459				7,701				136,881				144,582				—
Other			—				—				—				—				1,804				1,804				—
Total loans		$	13,573			$	4,843			$	6,199			$	24,615			$	2,375,582			$	2,400,197			$	—

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

		December 31, 2016
		30 - 59 Days				60 - 89 Days				90+ Days				Total				Current				Total
(Amounts in thousands)		Past Due				Past Due				Past Due				Past Due				Loans				Loans
Non-covered loans
Commercial loans
Construction, development, and other land		$	33			$	5			$	17			$	55			$	56,893			$	56,948
Commercial and industrial			174				30				149				353				91,851				92,204
Multi-family residential			163				-				281				444				133,784				134,228
Single family non-owner occupied			1,302				159				835				2,296				140,669				142,965
Non-farm, non-residential			1,235				332				2,169				3,736				594,938				598,674
Agricultural			-				5				-				5				5,998				6,003
Farmland			224				343				565				1,132				30,597				31,729
Consumer real estate loans
Home equity lines			78				136				658				872				105,489				106,361
Single family owner occupied			4,777				2,408				3,311				10,496				490,395				500,891
Owner occupied construction			342				336				-				678				43,857				44,535
Consumer and other loans
Consumer loans			371				90				15				476				76,969				77,445
Other			-				-				-				-				3,971				3,971
Total non-covered loans			8,699				3,844				8,000				20,543				1,775,411				1,795,954
Covered loans
Commercial loans
Construction, development, and other land			434				-				32				466				4,104				4,570
Commercial and industrial			-				-				-				-				895				895
Multi-family residential			-				-				-				-				8				8
Single family non-owner occupied			24				-				-				24				938				962
Non-farm, non-residential			32				-				-				32				7,480				7,512
Agricultural			-				-				-				-				25				25
Farmland			-				-				-				-				397				397
Consumer real estate loans
Home equity lines			108				146				62				316				35,501				35,817
Single family owner occupied			58				-				39				97				6,632				6,729
Consumer and other loans
Consumer loans			-				-				-				-				79				79
Total covered loans			656				146				133				935				56,059				56,994
Total loans		$	9,355			$	3,990			$	8,133			$	21,478			$	1,831,470			$	1,852,948

ASC 326 prescribes that when an entity determines foreclosure is probable, the expected credit loss is required to be measured based on the fair value of the collateral.  As a practical expedient, an entity may use the fair value as of the reporting date when recording the net carrying amount of the asset.  For the collateral dependent asset ("CDA") a credit loss expense is recorded for loan amounts in excess of fair value of the collateral.  The table below summarizes collateral dependent loans, where foreclosure is possible, by type of collateral, and the extent to which they are collateralized during the periods.   

		December 31, 2023												December 31, 2022
(Amounts in thousands)		Balance				Collateral Coverage				Coverage Ratio				Balance				Collateral Coverage				Coverage Ratio
Commercial Real Estate
Other		$	1,173			$	825				70.33	%		$	-			$	-				-
Consumer owner occupied			-				-								589				574				97.45	%
Total collateral dependent loans		$	1,173			$	825				70.33	%		$	589			$	574				97.45	%

 

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 excessEffective, January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.  The amendments eliminated TDR accounting guidance for issuers that adopted ASU 2015-13, created a single loan modification accounting model, and clarified disclosure requirements for loan modifications and write-offs.  Presented below are the amortized cost basis and percentage of $250 thousand are evaluatedloan class for a specific reserve based on either the collateral or net present value method, whichever is most applicable. Restructured loans under $250 thousand are subjectloan modifications made to the reserve calculation at the historical loss rate for classified loans. Certain TDRs are classifiedborrowers experiencing financial difficulty by loan class, concession type, and financial effect 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, 2017, or December 31, 2016.date indicated.

		Payment Delays
		Amortized Cost Basis				% of Total Class of
		December 31, 2023				Financing Receivable				Financial Effect
(Amounts in thousands)
Non farm, non residential property		$	662				0.07	%		Deferred six months of interest to loan maturity.
Single family owner occupied			548				0.08	%		Deferred $66 thousand in principal to loan maturity
Single family non owner occupied			89				0.04	%		Deferred 6 months of interest to Loan Maturity.
Commercial & industrial			171				0.08	%		Deferred $8 thousand in Principal to Loan Maturity.
Total		$	1,470
		Term Extensions
		Amortized Cost Basis				% of Total Class of
		December 31, 2023				Financing Receivable				Financial Effect
(Amounts in thousands)
Consumer		$	6				0.01	%		Extended term from 60 to 84 months
Total		$	6
		Principal Forgiveness
		Amortized Cost Basis				% of Total Class of
		December 31, 2023				Financing Receivable				Financial Effect
(Amounts in thousands)
Single family owner occupied		$	5				0.00	%		Reduced amortized cost basis by $13 thousand
Total		$	5
		Term Extension and Rate Reduction
		Amortized Cost Basis				% of Total Class of
		December 31, 2023				Financing Receivable				Financial Effect
(Amounts in thousands)
Single family owner occupied		$	565				0.08	%		Reduced interest income and extended time to recover principal.
Total		$	565

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off.  Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.  As of  December 31, 2023, there were no modified loans (or portions of a loan) deemed uncollectible.

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.  The following table presentsdepicts the performance of loans that have been modified in the last twelve months:

		December 31, 2023
		Payment Status (Amortized Cost Basis)
		Current				30-89 Days Past Due				90+ Days Past Due
(Amounts in thousands)
Non farm, non residential property		$	662			$	-			$	-
Single family owner occupied			864				254				-
Single family non owner occupied			89
Commercial & industrial			171
Consumer			6				-				-
Total		$	1,792			$	254			$	-

The Company did not retroactively adopt ASU 2022-02January 1, 2023, as such the periods are not comparable.  Prior to the adoption of ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures below is the presentation of loans modified as TDRs by loan class and accrual status, as of the dates indicated:

 

		December 31,																								December 31,
		2017												2016												2022
(Amounts in thousands)		Nonaccrual(1)				Accruing				Total				Nonaccrual(1)				Accruing				Total				Nonaccrual(1)				Accruing				Total
Commercial loans
Commercial and industrial																										$	—			$	374			$	374
Single family non-owner occupied		$	364			$	528			$	892			$	38			$	892			$	930				142				838				980
Non-farm, non-residential			-				295				295				-				4,160				4,160				—				747				747
Consumer real estate loans
Home equity lines			-				145				145				-				158				158				—				55				55
Single family owner occupied			1,565				6,496				8,061				905				7,503				8,408				1,182				5,073				6,255
Owner occupied construction			-				233				233				341				239				580				—				—				—
Consumer and other loans
Consumer loans			-				37				37				-				-				-				—				25				25
Total TDRs		$	1,929			$	7,734			$	9,663			$	1,284			$	12,952			$	14,236			$	1,324			$	7,112			$	8,436
Allowance for loan losses related to TDRs										$	642											$	670
Allowance for credit losses related to TDRs																																		$	—

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(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:

 

		Year Ended December 31,												Year Ended December 31,
		2017				2016				2015				2022				2021
(Amounts in thousands)
Interest income recognized		$	222			$	424			$	608			$	383			$	422

 

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,
		2017												2016												Year Ended December 31,
		Total				Pre-Modification				Post-Modification				Total				Pre-Modification				Post-Modification				2022
(Amounts in thousands)		Contracts				Recorded Investment				Recorded Investment				Contracts				Recorded Investment				Recorded Investment				Total Contracts				Pre-modification Recorded Investment				Post modification Recorded Investment(1)
Below market interest rate
Single family owner occupied																											1			$	31			$	32
Below market interest rate and extended payment term
Single family non-owner occupied																											—				—				—
Single family owner occupied			5			$	207			$	207				1			$	115			$	115				—				—				—
Consumer loans			1				36				36								-				-
Total below market interest rate and extended payment term																											—				—				—
Principal deferral
Single family non-owner occupied																											—				—				—
Single family owner occupied																											5				494				481
Total principal deferral																											5				494				481
Total			6			$	243			$	243				1			$	115			$	115				6			$	525			$	513

 

The following table presents loans modified as TDRs, by loan class, that were restructured during the previous 12 months for which there was a payment default during the periods indicated:

		Year Ended December 31,
		2017								2016
		Total				Recorded				Total				Recorded
		Contracts				Investment				Contracts				Investment
(Amounts in thousands)
Single family owner occupied			1			$	14				-			$	-
Total			1			$	14				-			$	-

(1)	Represents the loan balance immediately following modification

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

There were no payment defaults for loans restructured within the previous 12 months for December 31, 2022.

The following table provides information about OREO, which consists of properties acquired through foreclosure, as of the dates indicated:

 

		December 31,
		2017				2016				December 31, 2023				December 31, 2022
(Amounts in thousands)
Non-covered OREO		$	2,409			$	5,109
Covered OREO			105				276
Total OREO		$	2,514			$	5,385			$	192			$	703
Non-covered OREO secured by residential real estate		$	2,209			$	1,746
Residential real estate loans in the foreclosure process(1)			9,921				2,539
OREO secured by residential real estate										$	192			$	407
Residential real estate loans in the foreclosure process(1)										$	1,895			$	1,474

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(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

 

 

Note 6.6.Allowance for LoanCredit Losses

 

The following tables present the changes in the allowance for loancredit losses, by loan segment, during the periods indicated:indicated. 

		Year Ended December 31, 2023
(Amounts in thousands)		Commercial				Consumer Real Estate				Consumer and Other				Total Allowance
Total allowance
Balance at beginning of year:
Allowance for credit losses - loans		$	17,213			$	8,931			$	4,412			$	30,556
Allowance for credit losses - loan commitments			1,018				156				22				1,196
Total allowance for credit losses beginning of year			18,231				9,087				4,434				31,752
Purchased credit deteriorated -Surrey acquisition			1,452				529				30				2,011
Provision for credit losses:
Provision for (recovery of) credit losses - loans			2,217				125				6,093				8,435
Provision for (recovery of) credit losses - loan commitments			(421	)			(35	)			6				(450	)
Total provision for credit losses - loans and loan commitments			1,796				90				6,099				7,985
Charge-offs			(753	)			(412	)			(7,660	)			(8,825	)
Recoveries			1,721				520				1,771				4,012
Net (charge-offs) recoveries			968				108				(5,889	)			(4,813	)
Allowance for credit losses - loans			21,850				9,693				4,646				36,189
Allowance for credit losses - loan commitments			597				121				28				746
Ending balance		$	22,447			$	9,814			$	4,674			$	36,935

		Year Ended December 31, 2022
(Amounts in thousands)		Commercial				Consumer Real Estate				Consumer and Other				Total Allowance
Total allowance
Balance at beginning of year:
Allowance for credit losses - loans		$	14,775			$	9,972			$	3,111			$	27,858
Allowance for credit losses - loan commitments			576				88				14				678
Total allowance for credit losses beginning of year			15,351				10,060				3,125				28,536
Provision for credit losses:
Provision for (recovery of) credit losses - loans			431				(1,121	)			7,262				6,572
Provision for (recovery of) credit losses - loan commitments			442				68				8				518
Total provision for credit losses - loans and loan commitments			873				(1,053	)			7,270				7,090
Charge-offs			(633	)			(427	)			(6,743	)			(7,803	)
Recoveries			2,640				507				782				3,929
Net (charge-offs) recoveries			2,007				80				(5,961	)			(3,874	)
Allowance for credit losses - loans			17,213				8,931				4,412				30,556
Allowance for credit losses - loan commitments			1,018				156				22				1,196
Ending balance		$	18,231			$	9,087			$	4,434			$	31,752

 

		Year Ended December 31, 2017
(Amounts in thousands)		Commercial				Consumer Real Estate				Consumer and Other				Total Allowance
Allowance, excluding PCI
Beginning balance		$	11,690			$	5,487			$	759			$	17,936
Provision for loan losses charged to operations			103				1,608				1,072				2,783
Charge-offs			(922	)			(699	)			(1,322	)			(2,943	)
Recoveries			801				414				285				1,500
Net charge-offs			(121	)			(285	)			(1,037	)			(1,443	)
Ending balance		$	11,672			$	6,810			$	794			$	19,276
PCI allowance
Beginning balance		$	-			$	12			$	-			$	12
Recovery of loan losses			-				(12	)			-				(12	)
Benefit attributable to the FDIC indemnification asset			-				-				-				-
Recovery of loan losses charged to operations			-				(12	)			-				(12	)
Recovery of loan losses recorded through the FDIC indemnification asset			-				-				-				-
Ending balance		$	-			$	-			$	-			$	-
Total allowance
Beginning balance		$	11,690			$	5,499			$	759			$	17,948
Provision for loan losses			103				1,596				1,072				2,771
Benefit attributable to the FDIC
indemnification asset			-				-				-				-
Provision for loan losses charged to operations			103				1,596				1,072				2,771
Recovery of loan losses recorded through the FDIC indemnification asset			-				-				-				-
Charge-offs			(922	)			(699	)			(1,322	)			(2,943	)
Recoveries			801				414				285				1,500
Net charge-offs			(121	)			(285	)			(1,037	)			(1,443	)
Ending balance		$	11,672			$	6,810			$	794			$	19,276

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		Year Ended December 31, 2016
(Amounts in thousands)		Commercial				Consumer Real Estate				Consumer and Other				Total Allowance
Allowance, excluding PCI
Beginning balance		$	13,133			$	6,356			$	690			$	20,179
Provision for loan losses charged to operations			30				385				881				1,296
Charge-offs			(2,392	)			(1,612	)			(1,172	)			(5,176	)
Recoveries			919				358				360				1,637
Net charge-offs			(1,473	)			(1,254	)			(812	)			(3,539	)
Ending balance		$	11,690			$	5,487			$	759			$	17,936
PCI allowance
Beginning balance		$	-			$	54			$	-			$	54
Recovery of loan losses			-				(42	)			-				(42	)
Benefit attributable to the FDIC indemnification asset			-				1				-				1
Recovery of loan losses charged to operations			-				(41	)			-				(41	)
Recovery of loan losses recorded through the FDIC indemnification asset			-				(1	)			-				(1	)
Ending balance		$	-			$	12			$	-			$	12
Total allowance
Beginning balance		$	13,133			$	6,410			$	690			$	20,233
Provision for loan losses			30				343				881				1,254
Benefit attributable to the FDIC indemnification asset			-				1				-				1
Provision for loan losses charged to operations			30				344				881				1,255
Recovery of loan losses recorded through the FDIC indemnification asset			-				(1	)			-				(1	)
Charge-offs			(2,392	)			(1,612	)			(1,172	)			(5,176	)
Recoveries			919				358				360				1,637
Net charge-offs			(1,473	)			(1,254	)			(812	)			(3,539	)
Ending balance		$	11,690			$	5,499			$	759			$	17,948

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

		December 31, 2017
(Amounts in thousands)		Loans Individually Evaluated for Impairment				Allowance for Loans Individually Evaluated				Loans Collectively Evaluated for Impairment				Allowance for Loans Collectively Evaluated
Commercial loans
Construction, development, and other land		$	-			$	-			$	59,386			$	830
Commercial and industrial			343				270				91,845				492
Multi-family residential			-				-				125,202				1,094
Single family non-owner occupied			770				62				139,093				1,914
Non-farm, non-residential			1,367				15				611,477				6,582
Agricultural			-				-				7,035				51
Farmland			1,219				233				24,430				129
Total commercial loans			3,699				580				1,058,468				11,092
Consumer real estate loans
Home equity lines			-				-				115,807				803
Single family owner occupied			9,471				1,978				496,348				3,732
Owner occupied construction			-				-				39,178				297
Total consumer real estate loans			9,471				1,978				651,333				4,832
Consumer and other loans
Consumer loans			-				-				70,772				794
Other			-				-				5,001				-
Total consumer and other loans			-				-				75,773				794
Total loans, excluding PCI loans		$	13,170			$	2,558			$	1,785,574			$	16,718

		December 31, 2016
(Amounts in thousands)		Loans Individually Evaluated for Impairment				Allowance for Loans Individually Evaluated				Loans Collectively Evaluated for Impairment				Allowance for Loans Collectively Evaluated
Commercial loans
Construction, development, and other land		$	-			$	-			$	60,281			$	889
Commercial and industrial			-				-				93,099				495
Multi-family residential			281				-				133,947				1,157
Single family non-owner occupied			1,910				31				139,711				2,721
Non-farm, non-residential			1,454				-				600,915				6,185
Agricultural			-				-				6,028				43
Farmland			981				18				31,145				151
Total commercial loans			4,626				49				1,065,126				11,641
Consumer real estate loans
Home equity lines			-				-				122,000				895
Single family owner occupied			5,120				770				501,617				3,594
Owner occupied construction			336				-				44,199				228
Total consumer real estate loans			5,456				770				667,816				4,717
Consumer and other loans
Consumer loans			-				-				77,524				759
Other			-				-				3,971				-
Total consumer and other loans			-				-				81,495				759
Total loans, excluding PCI loans		$	10,082			$	819			$	1,814,437			$	17,117

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

		December 31, 2017								December 31, 2016
(Amounts in thousands)		Recorded Investment				Allowance for Loan Pools With Impairment				Recorded Investment				Allowance for Loan Pools With Impairment
Commercial loans
Waccamaw commercial		$	64			$	-			$	260			$	-
Peoples commercial			4,279				-				4,491				-
Other			986				-				1,095				-
Total commercial loans			5,329				-				5,846				-
Consumer real estate loans
Waccamaw serviced home equity lines			11,118				-				20,178				-
Waccamaw residential			994				-				1,320				-
Peoples residential			999				-				1,085				12
Total consumer real estate loans			13,111				-				22,583				12
Total PCI loans		$	18,440			$	-			$	28,429			$	12

Management believed the allowance was adequate to absorb probable loan losses inherent in the loan portfolio as of December 31, 2017.

 

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 $27.95 million of loans and $105 thousand of OREO as of December 31, 2017, compared to $56.99 million of loans and $276 thousand of OREO as of December 31, 2016. 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 expired 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:

		Year Ended December 31,
		2017				2016
(Amounts in thousands)
Beginning balance		$	12,173			$	20,844
Decrease in estimated losses on covered loans			-				(1	)
Increase in estimated losses on covered OREO			81				1,045
Reimbursable expenses from the FDIC			112				162
Net amortization			(3,517	)			(5,474	)
Reimbursements from the FDIC			(1,688	)			(4,403	)
Ending balance		$	7,161			$	12,173

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Premises, Equipment, and Leases

 

Premises and Equipment

 

The following table presents the components of premises and equipment as of the dates indicated:

 

		December 31,								December 31,
		2017				2016				2023				2022
(Amounts in thousands)
Land		$	18,921			$	18,987			$	19,497			$	19,460
Buildings and leasehold improvements			46,002				46,740				51,557				47,009
Equipment			33,336				32,519				42,810				40,552
Total premises and equipment			98,259				98,246				113,864				107,021
Accumulated depreciation and amortization			(50,133	)			(48,161	)			(63,184	)			(59,681	)
Total premises and equipment, net		$	48,126			$	50,085			$	50,680			$	47,340

 

ImpairmentThere were no impairment charges related to certain long-term investments in land and buildings totaled $677 thousand in 2017,2023 $364 thousandor in 2016,2022 and $259. Impairment charges of $781 thousand was recognized in 2015.2021. Depreciation and amortization expense for premises and equipment was $3.56$3.95 million in 2017,2023$3.56, $4.15 million in 2016,2022, and $4.14$4.47 million in 2015.2021.

 

Leases

 

Operating leases are recorded as a right of use (“ROU”) asset and operating lease liability. The ROU asset is recorded in other assets, while the lease liability is recorded in other liabilities on the condensed balance sheet beginning January 1, 2019, when the Company has entered into various noncancelable operating leases.adopted ASU 2016-02, on a prospective basis. The following schedule presentsROU asset represents the future minimumright to use an underlying asset during the lease term and the lease liability represents the obligation to make lease payments required under noncancelablearising from the lease. The ROU asset and lease liability have been recognized based on the present value of the lease payments using a discount rate that represented our incremental borrowing rate at the lease commencement date or the date of adoption of ASU 2016-02. The lease expense, which is comprised of the amortization of the ROU asset and the implicit interest accreted on the lease liability, is recognized on a straight-line basis over the lease term, and is recorded in occupancy expense in the condensed statements of income.

The Company’s current operating leases with initial or remaining terms in excess ofrelate to two existing bank branches and one year, by year,operating lease acquired in a prior bank acquisition. The acquired operating lease was for vacant land and will terminate in July of 2029.   The Company's ROU asset was $594 thousand as of  December 31, 2017:2023, compared to $648 thousand as of December 31, 2022.  The operating lease liability as of  December 31, 2023, was $620 thousand compared to $670 thousand as of December 31, 2022.  The Company’s total operating leases have remaining terms of 1 years to 5.5 years compared with 2 years to 6.5 years as of December 31, 2022. The December 31, 2023, weighted average discount was 3.24%, compared to 3.28% from December 31, 2022.

 

(Amounts in thousands)
2018			$	237
2019				111
2020				97
2021				97
2022				97
2023 and thereafter				694
Total future minimum lease payments			$	1,333

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future minimum lease payments as of the dates indicated are as follows:

Year		Amount
(Amounts in thousands)
2024		$	151
2025			109
2026			101
2027			101
2028 and thereafter			160
Total lease payments			622
Less: Interest			(2	)
Present value of lease liabilities		$	620

 

Lease expense which is included in occupancy expense on the Consolidated Statement of Income was $582$171 thousand in 2017,2023$784, $175 thousand in 2016,2022, and $862$182 thousand in 2015.2021. The Company maintained no subleases as of December 31, 2017.2023.

  

 

Note 98. Goodwill and Other Intangible Assets

 

Goodwill

 

The companyCompany 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 assessment of goodwill as of October 31, 2017, 2023, and concluded that the carrying value of goodwill was nonot impairment charge was necessary.impaired. No events have occurred after the 2017analysis to indicate potential impairment.

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

As of December 31, 2023, the Company's goodwill totaled $143.95 million.  The following table presentsSurrey acquisition resulted in the changesCompany recognizing $14.38 million in goodwill by reporting unit, duringin the periods indicated:transaction.  The balance was $129.57 million for both 2022 and 2021.

 

		Community Banking				Insurance Services				Total
(Amounts in thousands)
Balance January 1, 2015		$	91,455			$	9,267			$	100,722
Acquisitions and dispositions, net			-				(324	)			(324	)
Cash consideration paid			-				88				88
Balance December 31, 2015		$	91,455			$	9,031			$	100,486
Balance January 1, 2016		$	91,455			$	9,031			$	100,486
Acquisitions and dispositions, net			1,290				(5,997	)			(4,707	)
Other (1)			3,034				(3,034	)			-
Balance December 31, 2016		$	95,779			$	-			$	95,779
Balance January 1, 2017		$	95,779							$	95,779
Acquisitions and dispositions, net			-								-
Balance December 31, 2017		$	95,779							$	95,779

(1) Represents the transfer of goodwill after the sale of Greenpoint to one reporting unit

(Amounts in thousands)
Balance January 1, 2021		$	129,565
Acquisitions			—
Balance December 31, 2021		$	129,565
Balance January 1, 2022		$	129,565
Acquisitions			—
Balance December 31, 2022		$	129,565
Balance January 1, 2023		$	129,565
Acquisitions			14,381
Balance December 31, 2023		$	143,946

 

Other Intangible Assets

 

The Company’s other intangible assets include core deposit and other identifiable intangibles. As of December 31, 2017, 2023, the remaining lives of core deposit intangibles ranged from 51.50 years to 89 years and thewith a weighted average remaining life was 6of 8.42 years.  Other identifiable intangibles consist primarily ofThe Surrey acquisition resulted in the value assigned to contractual rights arising from insurance agency acquisitions.Company recognizing $12.70 million in core deposit intangibles. The following table presents the components of other intangible assets as of the dates indicated:

 

		December 31,								December 31,
		2017				2016				2023				2022				2021
(Amounts in thousands)
Core deposit intangibles		$	8,184			$	11,536			$	12,674			$	12,674			$	12,674
Acquisitions											12,700				—				—
Accumulated amortization			(2,161	)			(4,515	)			(10,229	)			(8,498	)			(7,052	)
Core deposit intangibles, net			6,023				7,021
Other identifiable intangibles			879				3,508
Accumulated amortization			(751	)			(3,322	)
Other identifiable intangibles, net			128				186
Total other intangible assets, net		$	6,151			$	7,207			$	15,145			$	4,176			$	5,622

 

Amortization expense for other intangible assets was $1.06$1.73 million in 2017,2023$1.14, and $1.45 million in both 2016,2022, and $1.122021 million in 2015..

The following schedule presents the estimated amortization expense for intangible assets, by year, as of December 31, 2017:2023:

 

(Amounts in thousands)
2018			$	1,044
2019				1,029
2020				1,029
2021				1,015
2022				997
2023 and thereafter				1,037
Total estimated amortization expense			$	6,151

(Amounts in thousands)
2024		$	2,126
2025			1,917
2026			1,719
2027			1,719
2028			1,719
2029 and thereafter			5,945
Total estimated amortization expense		$	15,145

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 109. Deposits

 

The following table presents the components of deposits as of the dates indicated:

 

		December 31,								December 31,
		2017				2016				2023				2022
(Amounts in thousands)
Noninterest-bearing demand deposits		$	454,143			$	427,705			$	931,920			$	872,168
Interest-bearing deposits:
Interest-bearing deposits
Interest-bearing demand deposits			465,407				378,339				693,979				679,609
Money market accounts			170,731				196,997				307,487				264,734
Savings deposits			342,064				326,263				535,566				578,974
Certificates of deposit			374,373				382,503				166,417				180,008
Individual retirement accounts			123,173				129,531				86,956				103,322
Total interest-bearing deposits			1,475,748				1,413,633				1,790,405				1,806,647
Total deposits		$	1,929,891			$	1,841,338			$	2,722,325			$	2,678,815

 

TheThe following schedule presents the contractual maturities of time deposits, defined as certificates of deposits and individual retirement accounts, by year, as of December 31, 2017:2023:

 

(Amounts in thousands)
2018		$	219,529
2019			89,780
2020			95,905
2021			44,136
2022			48,121
2023 and thereafter			75
Total contractual maturities		$	497,546

(Amounts in thousands)
2024		$	130,213
2025			65,618
2026			21,231
2027			15,617
2028			16,983
2029 and thereafter			3,711
Total contractual maturities		$	253,373

 

Time deposits of $250 thousand or more totaled $48.50$18.59 million as of December 31, 2017, 2023, and $41.55$15.21 million as of December 31, 2016. 2022. The following schedule presents the contractual maturities of time deposits of $250 thousand or more as of December 31, 2017:2023:

 

(Amounts in thousands)	(Amounts in thousands)
Three months or less	Three months or less		$	4,274			$	4,069
Over three through six months	Over three through six months			3,786				874
Over six through twelve months	Over six through twelve months			7,517				2,643
Over twelve months	Over twelve months			32,924				11,006
Total contractual maturities			$	48,501			$	18,592

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 1110. Borrowings

 

The following table presents the components of borrowings as of the dates indicated:

 

		December 31,
		2017								2016
(Amounts in thousands)		Balance				Weighted Average Rate				Balance				Weighted Average Rate
Short-term borrowings
Retail repurchase agreements		$	5,086				0.07	%		$	73,005				0.07	%
Long-term borrowings
Wholesale repurchase agreements			25,000				3.18	%			25,000				3.18	%
FHLB advances			50,000				4.00	%			65,000				4.04	%
Other borrowings
Subordinated debt			-				-				15,464				3.65	%
Other debt			-								244
Total borrowings		$	80,086							$	178,713

		December 31,
		2023								2022
(Amounts in thousands)		Balance				Weighted Average Rate				Balance				Weighted Average Rate
Retail repurchase agreements		$	1,119				0.06	%		$	1,874				0.07	%

 

The following schedule presents the contractual and weighted average maturities of long-term borrowings,Repurchase agreements are secured by year, as of December 31, 2017:

		Wholesale Repurchase Agreements				FHLB Borrowings				Total
(Amounts in thousands)
2018		$	-			$	-			$	-
2019			25,000				-				25,000
2020			-				-				-
2021			-				50,000				50,000
2022			-				-				-
2023 and thereafter			-				-				-
Total		$	25,000			$	50,000			$	75,000
Weighted average maturity (in years)			1.15				3.02				2.40

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 an FHLB advance and letters of credit totaling $917.24 million as of December 31, 2017. Unused borrowing capacity with the FHLB totaled $411.20 million, net of FHLB letters of credit of $126.58 million, as of December 31, 2017. The FHLB letters of credit provide an attractive alternative to pledging securities for public unit deposits.

Investment securities pledged to secure repurchase agreementsthat remain under the Company’sCompany’s control during the agreements’ terms.terms of the agreements. The counterparties may redeem callable repurchase agreements, which could substantially shorten the borrowings’ lives. The prepayment or early termination 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, 2017:2023:

		Overnight and Continuous				Up to 30 Days				30 - 90 Days				Greater than 90 Days				Total
(Amounts in thousands)
Municipal securities		$	63			$	-			$	-			$	-			$	63
Mortgage-backed Agency securities			1,056				—				—				—				1,056
Total		$	1,119			$	—			$	—			$	—			$	1,119

As of December 31, 2023, unused borrowing capacity with the FHLB totaled $342.81 million, net of FHLB letters of credit of $126.37 million. The Company pledged $469.18 million in qualifying loans to secure the FHLB letters of credit, which provide an attractive alternative to pledging securities for public unit deposits.

 

		U.S. Treasury Securities				U.S. Agency Securities				Municipal Securities				Mortgage-backed Agency Securities				Total
(Amounts in thousands)
Overnight and continuous		$	-			$	-			$	3,371			$	1,638			$	5,009
Up to 30 days			-				-				-				-				-
30 - 90 days			-				-				-				-				-
Greater than 90 days			9,000				4,680				-				11,397				25,077
Total		$	9,000			$	4,680			$	3,371			$	13,035			$	30,086

 

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Company issued $15.46 million of junior subordinated debentures (“Debentures”) to FCBI Capital Trust (the “Trust”), an unconsolidated subsidiary, in October 2003 with an interest rate of three-month London InterBank Offered Rate (“LIBOR”) plus 2.95% and a 30-year term ending in October 2033. 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. During the first quarter of 2017, the Company redeemed all $15.46 million of its trust preferred securities issued through the Trust.

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% that matures in April 2018. There was no outstanding balance on the line as of December 31, 2017, or December 31, 2016.

Note 1112. Derivative Instruments and Hedging Activities

 

As of December 31, 2017, 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 useshas used interest rate swap contracts to modify its exposure to interest rate risk caused by changes in the LIBOR curvebenchmark interest rates 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 rateSecured Overnight Financing Rate ("SOFR") plus a spread falls below the loan’sloan’s stated fixed rate for a given period, the Company will owe the floating rate payer the notional amount times the difference between LIBORthe floating rate and the stated fixed rate. If LIBORSOFR is above the stated rate for a given period, the Company will receive payments based on the notional amount times the difference between LIBORthe floating rate and the stated fixed rate. The Company’s

Certain of the Company's interest rate swaps qualify as fair value hedging instruments; therefore,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 swap agreements include a ten-year, $1.28 million notional swap entered into in August 2017; a fourteen-year, $1.20 million notional swap entered into in March 2015; and a fifteen-year, $4.37 million notional swap 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, 2017. 2023.

Through July 2022, the Company had certain interest rate swaps that did not qualify as fair value hedges and the fair value changes in the derivative were recognized in earnings each period. On July 26, 2022, these swaps were terminated at a cost of $72 thousand.

The following table presents the notional, or contractual, amounts and fair values of derivative instruments as of the dates indicated:

 

		December 31,																								December 31,
		2017												2016												2023												2022
(Amounts in thousands)		Notional or Contractual Amount				Derivative Assets				Derivative Liabilities				Notional or Contractual Amount				Derivative Assets				Derivative Liabilities				Notional or Contractual Amount				Derivative Assets				Derivative Liabilities				Notional or Contractual Amount				Derivative Assets				Derivative Liabilities
Derivatives designated as hedges
Interest rate swaps		$	5,813			$	-			$	90			$	4,835			$	-			$	167			$	3,557			$	136			$	—			$	3,983			$	199			$	—
Derivatives not designated as hedges
Interest rate swaps																											-				-				-				-				-				-
Total derivatives		$	5,813			$	-			$	90			$	4,835			$	-			$	167			$	3,557			$	136			$	—			$	3,983			$	199			$	—

 

The following table presents the effectinterest component of derivative and hedging activity, if applicable, on the consolidated statements of income for the periods indicated:

 

		Year Ended December 31,													Year Ended December 31,
(Amounts in thousands)		2017				2016				2015			Income Statement Location		2023				2022				2021			Income Statement Location
Derivatives designated as hedges
Interest rate swaps		$	78			$	116			$	122		Interest and fees on loans		$	(102	)		$	35			$	111		Interest and fees on loans
Total derivatives		$	78			$	116			$	122
Derivatives not designated as hedges
Interest rate swaps																-				90				217		Interest and fees on loans
Total derivative expense															$	(102	)		$	125			$	328

 

 

Note 1312. Employee Benefit Plans

 

Defined Benefit Plans

 

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’sCompany’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 SERP was frozen near the end of 70.2021; the Directors' Plan was fundamentally frozen at that time as well.   The following table presents the changes in the aggregate actuarial benefit obligation for the two plans combined during the periods indicated:

		December 31,
		2023				2022
(Amounts in thousands)
Beginning balance		$	9,488			$	11,458
Effect of curtailment			—				—
Service cost			—				—
Interest cost			451				332
Actuarial gain			(306	)			(1,718	)
Benefits paid			(583	)			(584	)
Ending balance		$	9,050			$	9,488

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following table presents the changes in the aggregate actuarial benefit obligation during the periods indicated:

		December 31,
		2017				2016
(Amounts in thousands)
Beginning balance		$	9,181			$	8,390
Plan change			258				69
Service cost			231				184
Interest cost			372				382
Actuarial (gain) loss			(48	)			367
Benefits paid			(359	)			(211	)
Ending balance		$	9,635			$	9,181

The following table presents the components of net periodic pension cost, the effect on the consolidated statements of income, and the assumed discount rate for the periods indicated:

 

		Year Ended December 31,												Year Ended December 31,
		2017				2016				2015				2023				2022				2021			Income Statement Location
(Amounts in thousands, except discount rate)
(Amounts in thousands)
Service cost		$	231			$	184			$	180			$	—			$	—			$	352		Salaries and employee benefits
Interest cost			372				382				334				451				332				315		Other expense
Effect of curtailment															—				—				289		Salaries and employee benefits
Amortization of prior service cost			228				226				260				—				—				124		Other expense
Amortization of losses			31				47				66				38				135				264		Other expense
Net periodic cost		$	862			$	839			$	840			$	489			$	467			$	1,344
Assumed discount rate			3.85	%			4.22	%			4.62	%			4.79	%			4.96	%			2.88	%

 

The following schedule presents the projected benefit payments to be paid under the Benefit Plans, by year, as of December 31, 20232017::

 

(Amounts in thousands)
2018		$	468
2019			462
2020			529
2021			581
2022			586
2023 through 2027			2,924

(Amounts in thousands)
2024		$	745
2025			743
2026			822
2027			789
2028			751
2029 through 2033			3,479

 

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. There were no accrued benefits, which are based on the present values of expected payments and estimated life expectancies, as of December 31, 2017, compared to $4582023 thousand as ofor December 31, 2016. 2022Expenses related to the. There was no deferred compensation plan totaled $11 thousandexpense in 2017,2023,  $602022 thousand in, or 2016,2021 and $60 thousand in 2015..

 

The Company maintains a deferred compensation plan, referred to as the WRAP, and is a voluntary, non-tax qualified deferred compensation plan available to certain employees, including executive officers. Under the plan, participants may defer a portion of their base and/or annual incentive compensation. The plan is intended to mirror the Corporation's qualified KSOP, and may include discretionary match that coincides with a match made to the KSOP to the extent participants cannot otherwise receive the full match in the KSOP. The balance as of December 31, 2023 and 2022 was $8.28 million and $5.14 million, respectively.

Employee Welfare Plan

 

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, 2017, 2023, stop-loss insurance coverage generally limits the Company’s risk of loss to $150$200 thousand for individual claims and $4.41$5.88 million for aggregate claims. Expenses related to the healthHealth plan totaled $3.50expenses were $4.16 million in  2017,2023$3.48, $4.04 million in 2016,2022, and $3.06$3.98 million in 2015.2021

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

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 $1.18$1.76 million in 2017,2023$1.50, $1.82 million in 2016,2022, and $1.53$1.71 million in 2015.2021. The KSOP held 387,935282,072  shares of the Company’s common stock as of December 31, 2017, 2023410,384, 309,019 shares as of December 31, 2016, 2022, and 428,785320,164 shares as of December 31, 2015. 2021Substantially 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’sCompany’s most current equity-based compensation plans include the 20122022 Omnibus Equity Compensation Plan ((the “20122022 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, 2017, 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 Planwhich authorized 600,0001,000,000 shares available for potential grants of incentive stock options, nonqualified stock options, performance awards, restricted stock, restricted stock units, stock appreciation rights, bonus stock,Non-Qualified Stock Options, Incentive Stock Options, Performance Shares, Performance Stock Units, Restricted Stock, Restricted Stock Units, 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.Performance Awards. The Company’s Compensation and Retirement Committee determines the vesting period for each grant; however, ifawards shall have a minimum vesting/exercise schedule of at least noone vesting period is specifiedyear, except that a shorter vesting/exercise schedule may apply to not more than 5% of the vesting occurs in 25% increments onshares authorized for issuance under the first2022 four anniversaries of the grant date.Plan.

 

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

 

		Year Ended December 31,												Year Ended December 31,
		2017				2016				2015				2023				2022				2021
(Amounts in thousands)
Pre-tax compensation expense		$	430			$	209			$	110			$	597			$	718			$	1,282
Excess tax benefit			17				174				8
Excess tax (benefit) expense															—				—				(633	)

 

Stock Options

 

The following table presents stock option activity and related information for the year ended December 31, 2017:2023:

 

						Weighted Average				Weighted Average				Aggregate
		Option				Exercise Price				Remaining Contractual				Intrinsic
(Amounts in thousands, except share and per share data)		Shares				Per Share				Term (Years)				Value
Outstanding, January 1, 2017			200,396			$	19.73
Granted			22,849				24.72
Exercised			(16,185	)			23.33
Canceled			(6,356	)			15.83
Outstanding, December 31, 2017			200,704			$	20.14				5.9			$	1,742
Exercisable, December 31, 2017			145,536			$	19.41				4.9			$	1,373

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(Amounts in thousands, except share and per share data)		Option Shares				Weighted Average Exercise Price Per Share				Weighted Average Remaining Contractual Term (Years)				Aggregate Intrinsic Value
Outstanding, January 1, 2023			197,303			$	29.61
Granted			—				—
Exercised			(4,288	)			21.25
Canceled/Expired			(6,751	)			31.73
Outstanding, December 31, 2023			186,264			$	29.72				6.37			$	1,375
Exercisable, December 31, 2023			144,441			$	28.77				6.13			$	1,203

 

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the totalThere were no options granted in 2023.  There were 4,288 options exercised in 2023and the weighted average assumptions used to estimate the fair value of those options during the periods indicated:

		Year Ended December 31,
		2017				2016				2015
Stock options granted			22,849				32,768				-
Grant-date fair value per share		$	5.79			$	4.01				-
Volatility			27.86	%			25.04	%			-
Risk-free rate			2.17	%			1.56	%			-
Expected dividend yield			2.99	%			3.09	%			-
Expected term (in years)			6.50				6.50				-

7,575 were exercised in 2022.  The intrinsic value of options exercised totaled $84was $58 thousand in 2017,2023$434, and $83 thousand in 2016,2022 and $20 thousand in 2015.. As of December 31, 2017, 2023, unrecognized compensation cost related to nonvested stock options was $156totaled $80 thousand with an expected weighted average recognition period of  1.100.25 years.  The actual compensation cost recognized might differ from this estimate due to various items, including new grants and changes in estimated forfeitures.

 

Restricted Stock and Stock Unit Awards

 

The following table presents restricted stock activity and related information for the year ended December 31, 2017:2023:

 

						Weighted Average				Shares/Units				Weighted Average Grant-Date Fair Value
		Shares				Grant-Date Fair Value
Nonvested, January 1, 2017			27,803			$	20.59
Nonvested, January 1, 2023											73,605			$	30.87
Granted			38,500				25.69				69,964				26.33
Vested			(22,697	)			23.66				(31,782	)			24.04
Canceled			-				-				(2,794	)			29.41
Nonvested, December 31, 2017			43,606			$	23.49
Nonvested, December 31, 2023											108,993			$	29.98

 

As of December 31, 20232017,, unrecognized compensation cost related to nonvested restricted stockstock/unit awards was $740 thousandtotaled $2.47 million with an expected weighted average recognition period of  1.471.91 years. The actual compensation cost recognized might differ from this estimate due to various items, including new awards granted and changes in estimated forfeitures.

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1413. Other Operating Income and Expense

 

The following table presents the components of other operating income and expense for the periods indicated:

 

		Year Ended December 31,												Year Ended December 31,
(Amounts in thousands)		2017				2016				2015				2023				2022				2021
Other operating income
Bank owned life insurance		$	1,365			$	955			$	1,971			$	829			$	961			$	1,183
Other(1)			2,137				2,254				2,158
Net FDIC indemnification asset amortization															-				-				(1,226	)
Other(1)															4,822				4,187				4,623
Total other operating income		$	3,502			$	3,209			$	4,129			$	5,651			$	5,148			$	4,580
Other operating expense
Service fees		$	3,348			$	3,641			$	3,401
Professional fees			2,567				1,501				1,272
Interchange			2,210				2,024				2,407
Advertising and public relations			2,206				1,532				1,309
OREO expense and net loss															129				557				330
Telephone and data communications			1,554				1,598				1,595				1,326				1,658				1,720
OREO expense and net loss			1,202				1,420				2,438
Office supplies			1,171				1,220				1,228				586				494				553
Other(1)			6,841				7,011				7,461
Other(1)															9,994				7,766				9,134
Total other operating expense		$	21,099			$	19,947			$	21,111			$	12,035			$	10,475			$	11,737

 

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(1)

Components of other operating income or expense that do not exceed 1% of total income

 

 

Note 1514. Income Taxes

The Tax Reform Act was enacted on December 22, 2017. Among other things, the new law establishes a new, flat corporate federal statutory income tax rate of 21%; eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year; limits the deduction for net interest expense incurred by U.S. corporations; allows businesses to immediately expense the cost of new investments in certain qualified depreciable assets for tax purposes; eliminates or reduces certain deductions related to meals and entertainment expenses; modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee; and limits the deductibility of deposit insurance premiums. The Tax Reform Act also significantly changes U.S. tax law related to foreign operations, however, such changes do not currently impact the Company. As a result of the Tax Reform Act, the Company recognized tax expense totaling $6.55 million related to the revaluation of its deferred tax balances, which includes provisional estimates primarily related to certain purchase accounting, indemnification asset, intangible, and depreciation items. The Company is still analyzing certain aspects of the Tax Reform Act and refining calculations, which could potentially affect the measurement of these balances. The Company expects its analysis to be completed upon the filing of its tax returns for the year ended December 31, 2017.

 

Income tax expense is comprised of current and deferred, federal and state income taxes on the Company’sCompany’s pre-tax earnings. The following table presents the components of the income tax provision for the periods indicated:

 

		Year Ended December 31,
(Amounts in thousands)		2023				2022				2021
Current tax expense:
Federal		$	11,055			$	9,883			$	8,546
State			1,553				1,648				1,563
Total current tax expense			12,608				11,531				10,109
Deferred tax expense:
Federal			1,166				1,800				4,677
State			180				164				574
Total deferred tax expense			1,346				1,964				5,251
Total income tax expense		$	13,954			$	13,495			$	15,360

		Year Ended December 31,
(Amounts in thousands)		2017				2016				2015
Current tax expense (benefit):
Federal		$	14,509			$	13,634			$	(254	)
State			926				675				581
Total current tax expense			15,435				14,309				327
Deferred tax expense (benefit):
Federal			5,205				(1,480	)			10,034
State			(12	)			(10	)			1,020
Total deferred tax expense (benefit)			5,193				(1,490	)			11,054
Total income tax expense		$	20,628			$	12,819			$	11,381

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’sCompany’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:

 

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		Year Ended December 31,
		2017								2016								2015
		Amount				Percent				Amount				Percent				Amount				Percent
(Amounts in thousands)
Federal income tax at the statutory rate		$	14,739				35.00	%		$	13,281				35.00	%		$	12,572				35.00	%
State income tax, net of federal benefit			692				1.64	%			598				1.58	%			639				1.78	%
			15,431				36.64	%			13,879				36.58	%			13,211				36.78	%
Increase (decrease) resulting from:
Tax-exempt interest income			(1,228	)			-2.92	%			(1,336	)			-3.52	%			(1,463	)			-4.07	%
Nondeductible goodwill			-				0.00	%			340				0.89	%			-				-
Bank owned life insurance			(478	)			-1.13	%			(335	)			-0.88	%			(690	)			-1.92	%
Deferred tax revaluation			6,552				15.56	%			-				0.00	%			-				0.00	%
Other items, net			351				0.83	%			271				0.71	%			323				0.89	%
Income tax at the effective tax rate		$	20,628				48.98	%		$	12,819				33.78	%		$	11,381				31.68	%

		Year Ended December 31,
		2023								2022								2021
		Amount				Percent				Amount				Percent				Amount				Percent
(Amounts in thousands)
Federal income tax at the statutory rate		$	13,014				21.00	%		$	12,633				21.00	%		$	13,971				21.00	%
State income tax, net of federal benefit			1,368				2.21	%			1,432				2.38	%			2,076				3.12	%
			14,382				23.21	%			14,065				23.38	%			16,047				24.12	%
Increase (decrease) resulting from:
Tax-exempt interest income			(348	)			(0.56	)%			(347	)			(0.58	)%			(340	)			(0.51	)%
Excess tax benefits			(25	)			(0.04	)%			(24	)			(0.04	)%			(133	)			(0.20	)%
Bank owned life insurance			(167	)			(0.27	)%			(68	)			(0.11	)%			(225	)			(0.34	)%
Other items, net			112				0.17	%			(131	)			(0.22	)%			11				0.02	%
Income tax at the effective tax rate		$	13,954				22.51	%		$	13,495				22.43	%		$	15,360				23.09	%

 

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:indicated:

 

		December 31,								December 31,
(Amounts in thousands)		2017				2016				2023				2022
Deferred tax assets
Allowance for loan losses		$	4,511			$	6,644
Allowance for credit losses										$	8,523			$	7,283
Unrealized losses on available-for-sale securities			-				326				2,958				4,153
Unrealized asset losses			722				913				420				503
Purchase accounting			3,418				5,384				—				148
FDIC assisted transactions			4,131				6,540				346				588
Intangible assets			2,616				4,062
Deferred loan fees											4,674				2,074
Deferred compensation assets			3,617				4,669				6,316				5,035
Deferred loan fees			1,221				1,979
Federal net operating loss carryforward											266				1,223
Lease liability											146				160
Accrued litigation											824				—
Other			450				825				831				707
Total deferred tax assets			20,686				31,342				25,304				21,874
Deferred tax liabilities
FDIC indemnification asset			8,525				11,927
Fixed assets			1,282				2,042				(939	)			(755	)
Unrealized gains on available-for-sale securities			259				-
Intangible assets											(4,303	)			(857	)
Odd days interest deferral			233				1,283				(4,134	)			(4,010	)
Purchase accounting											(81	)			—
Right of use asset											(140	)			(155	)
Other			819				347				(869	)			(197	)
Total deferred tax liabilities			11,118				15,599				(10,466	)			(5,974	)
Net deferred tax asset		$	9,568			$	15,743			$	14,838			$	15,900

 

TheThe Company had no unrecognized tax benefits or accrued interest or penalties as of December 31, 2017 2023or 2016.2022. The Company had no deferred tax valuation allowance recorded as of December 31, 2017 2023or 2016,2022, as management believes it is more likely than not that all of the deferred tax assets will be realized against deferred tax liabilities and projected future taxable income. The Company and its subsidiaries are subject to U.S. federal income tax of the various states.  The Company is currently openno longer subject to audit under the statute of limitationsexamination by the Internal Revenue Service and variousfederal or state tax departmentstaxing authorities for the years endedbefore 2020.

At December 31, 20142023, throughthe Company had Federal net operating loss carryforwards of approximately $1.27 million of which $796 thousand can be carried forward 2016.20 years with expiration occurring no earlier than 2036, and $470 thousand that can be carried forward indefinitely.  During 2023, the Company acquired $1.46 million of Federal net operating loss carryforwards and these will be utilized during the current year. 

The Company has analyzed the tax positions taken, or expected to be taken in its tax returns, and concluded it has no liability related to uncertain tax positions.

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   

 

Note 1615. Accumulated Other Comprehensive Income

 

The following table presents the changes in AOCI, net of tax and by component, during the periods indicated:

		Unrealized Gains (Losses) on Available-for-Sale Securities				Employee Benefit Plans				Total
(Amounts in thousands)
Balance January 1, 2015		$	(4,266	)		$	(1,339	)		$	(5,605	)
Other comprehensive income (loss) before reclassifications			471				(226	)			245
Reclassified from AOCI			(90	)			203				113
Other comprehensive income (loss), net			381				(23	)			358
Balance December 31, 2015		$	(3,885	)		$	(1,362	)		$	(5,247	)
Balance January 1, 2016		$	(3,885	)		$	(1,362	)		$	(5,247	)
Other comprehensive income (loss) before reclassifications			647				(276	)			371
Reclassified from AOCI			2,694				171				2,865
Other comprehensive income (loss), net			3,341				(105	)			3,236
Balance December 31, 2016		$	(544	)		$	(1,467	)		$	(2,011	)
Balance January 1, 2017		$	(544	)		$	(1,467	)		$	(2,011	)
Other comprehensive income (loss) before reclassifications			972				(132	)			840
Reclassified from AOCI			413				162				575
Other comprehensive income (loss), net			1,385				30				1,415
Reclassification of certain tax effects			134				(378	)			(244	)
Balance December 31, 2017		$	975			$	(1,815	)		$	(840	)

		Unrealized Gains (Losses) on Available for-Sale Securities				Employee Benefit Plans				Total
(Amounts in thousands)
Balance January 1, 2021		$	1,106			$	(3,029	)		$	(1,923	)
Other comprehensive (loss) income before reclassifications			(1,091	)			1,160				69
Reclassified from AOCI			—				308				308
Other comprehensive (loss) income, net			(1,091	)			1,468				377
Balance December 31, 2021		$	15			$	(1,561	)		$	(1,546	)
Balance January 1, 2022		$	15			$	(1,561	)		$	(1,546	)
Other comprehensive (loss) income before reclassifications			(15,636	)			1,357				(14,279	)
Reclassified from AOCI			—				106				106
Other comprehensive (loss) income, net			(15,636	)			1,463				(14,173	)
Balance December 31, 2022		$	(15,621	)		$	(98	)		$	(15,719	)
Balance January 1, 2023		$	(15,621	)		$	(98	)		$	(15,719	)
Other comprehensive income before reclassifications			4,479				242				4,721
Reclassified from AOCI			16				31				47
Other comprehensive income, net			4,495				273				4,768
Balance December 31, 2023		$	(11,126	)		$	175			$	(10,951	)

 

The following table presents reclassifications out of AOCI,, by component, during the periods indicated:

 

		Year Ended December 31,												Income Statement
(Amounts in thousands)		2017				2016				2015				Line Item Affected
Available-for-sale securities
(Gains) losses recognized		$	661			$	(335	)		$	(144	)		Net gain (loss) on sale of securities
OTTI recognized			-				4,646				-			Net impairment losses recognized in earnings
Reclassified out of AOCI, before tax			661				4,311				(144	)		Income before income taxes
Income tax (expense) benefit			(248	)			(1,617	)			54			Income tax expense
Reclassified out of AOCI, net of tax			413				2,694				(90	)		Net income
Employee benefit plans
Amortization of prior service cost			228				226				260			(1)
Amortization of net actuarial loss			31				47				66			(1)
Reclassified out of AOCI, before tax			259				273				326			Income before income taxes
Income tax expense			(97	)			(102	)			(123	)		Income tax expense
Reclassified out of AOCI, net of tax			162				171				203			Net income
Total reclassified out of AOCI, net of tax		$	575			$	2,865			$	113			Net income

(1)

Amortization is included in net periodic pension cost. See Note 13, "Employee Benefit Plans."

		Year Ended December 31,											Income Statement
(Amounts in thousands)		2023				2022				2021			Line Item Affected
Available-for-sale securities
Loss recognized		$	21			$	—			$	—		Net loss on sale of securities
Reclassified out of AOCI, before tax			21				—				—		Income before income taxes
Income tax benefit			(5	)			—				—		Income tax expense
Reclassified out of AOCI, net of tax			16				—				—		Net income
Employee benefit plans
Amortization of prior service cost			—				—				124		Other operating expense
Amortization of net actuarial loss			38				135				264		Other operating expense
Reclassified out of AOCI, before tax			38				135				388		Income before income taxes
Income tax expense			(7	)			(29	)			(80	)	Income tax expense
Reclassified out of AOCI, net of tax			31				106				308		Net income
Total reclassified out of AOCI, net of tax		$	47			$	106			$	308		Net income

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1716. 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 Debt Securities. SecuritiesDebt 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 U.S. Agency and Treasury securities, single issue trust preferred securities, corporate securities, mortgage-backedmunicipal securities, and certain equity securities that are not actively traded.mortgage-backed securities. 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 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.

 

Equity Securities. Equity securities are recorded at fair value on a recurring basis and included in other assets in the consolidated balance sheets. The Company uses Level 1 inputs to value equity securities that are traded in active markets. Equity securities that are not actively traded are classified in Level 2.

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.the exit price notion, which is derived from third-party models. 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.

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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, 2017
		Total				Fair Value Measurements Using
(Amounts in thousands)		Fair Value				Level 1				Level 2				Level 3
Available-for-sale securities
U.S. Agency securities		$	11,296			$	-			$	11,296			$	-
U.S. Treasury securities			19,971				-				19,971				-
Municipal securities			103,648				-				103,648				-
Single issue trust preferred securities			8,884				-				8,884				-
Mortgage-backed Agency securities			21,726				-				21,726				-
Equity securities			55				55				-				-
Total available-for-sale securities			165,580				55				165,525				-
Fair value loans			5,739				-				5,739				-
Deferred compensation assets			4,002				4,002				-				-
Deferred compensation liabilities			4,002				4,002				-				-
Derivative liabilities			90				-				90				-

		December 31, 2016																December 31, 2023
		Total				Fair Value Measurements Using												Total				Fair Value Measurements Using
(Amounts in thousands)		Fair Value				Level 1				Level 2				Level 3				Fair Value				Level 1				Level 2				Level 3
Available-for-sale securities
Available-for-sale debt securities
U.S. Agency securities		$	1,345			$	-			$	1,345			$	-			$	5,749			$	—			$	5,749			$	—
U.S. Treasury securities																			145,826				—				145,826				—
Municipal securities			113,331				-				113,331				-				19,377				—				19,377				—
Single issue trust preferred securities			19,939				-				19,939				-
Corporate Notes																			27,081				—				27,081				—
Mortgage-backed Agency securities			30,891				-				30,891				-				82,928				—				82,928				—
Total available-for-sale debt securities																			280,961				—				280,961				—
Equity securities			73				55				18				-				55				—				55				—
Total available-for-sale securities			165,579				55				165,524				-
Fair value loans			4,701				-				4,701				-				3,421				—				—				3,421
Derivative assets																			136				—				136				—
Deferred compensation assets			3,224				3,224				-				-				6,729				6,729				—				—
Deferred compensation liabilities			3,224				3,224				-				-				8,282				8,282				—				—
Derivative liabilities			167				-				167				-

 

		December 31, 2022
		Total				Fair Value Measurements Using
(Amounts in thousands)		Fair Value				Level 1				Level 2				Level 3
Available-for-sale debt securities
U.S. Agency securities		$	1,485			$	—			$	1,485			$	—
U.S. Treasury securities			157,264			$	—				157,264			$	—
Municipal securities			23,309				—				23,309				—
Corporate Notes			34,857				—				34,857				—
Mortgage-backed Agency securities			83,434				—				83,434				—
Total available-for-sale debt securities			300,349				—				300,349				—
Equity securities			55				—				55				—
Fair value loans			3,784				—				—				3,784
Derivative assets			199				—				199				—
Deferred compensation assets			5,142				5,142				—				—
Deferred compensation liabilities			5,142				5,142				—				—

Changes in Level No3 Fair Value Measurements

The following table presents the changes in valuation techniques orLevel 3 assets recorded at fair value on a recurring basis during the period indicated:

		Assets
(Amounts in thousands)
Balance January 1, 2022		$	13,106
Change due to termination of interest rate swaps not qualifying as fair value hedges			(8,489	)
Changes in fair value			(428	)
Changes due to principal reduction			(405	)
Balance December 31, 2022		$	3,784
Balance January 1, 2023		$	3,784
Changes in fair value			63
Changes due to principal reduction			(426	)
Balance December 31, 2023		$	3,421

No transfers into or out of Level 3 of the fair value hierarchy occurred during the yearsyear ended December 31, 31,20172023 or 2016.2022.

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Assets Measured at Fair Value on a Nonrecurring Basis

 

Impaired LoansLoans.  . ImpairedPrior to the adoption of ASU 2016-13, impaired loans arewere recorded at fair value on a nonrecurring basis when repayment is expected solely from the sale of the loan’sloan'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’sCompany’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.

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

 

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:

 

		December 31, 2023
		Total				Fair Value Measurements Using
		Fair Value				Level 1				Level 2				Level 3
(Amounts in thousands)
Collateral dependent assets with specific reserves		$	825			$	—			$	—			$	825
OREO			192				—				—				192

		December 31, 2022
		Total				Fair Value Measurements Using
		Fair Value				Level 1				Level 2				Level 3
(Amounts in thousands)
Collateral dependent assets with specific reserves		$	574			$	—			$	—			$	574
OREO			703				—				—				703

		December 31, 2017
		Total				Fair Value Measurements Using
		Fair Value				Level 1				Level 2				Level 3
(Amounts in thousands)
Impaired loans, non-covered		$	5,015			$	-			$	-			$	5,015
OREO, non-covered			2,359				-				-				2,359
OREO, covered			105				-				-				105

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		December 31, 2016
		Total				Fair Value Measurements Using
		Fair Value				Level 1				Level 2				Level 3
(Amounts in thousands)
Impaired loans, non-covered		$	4,078			$	-			$	-			$	4,078
OREO, non-covered			5,109				-				-				5,109
OREO, covered			265				-				-				265

FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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:

 

Valuation

Unobservable

Discount Range (Weighted Average)

TechniqueValuation

Unobservable

(Weighted Average)

Input

Technique

Input

December 31, 2017

December 31, 20162023

Collateral dependent assets with specific reserves

Discounted appraisals(1)

Appraisal adjustments(2)

42%

42

%

OREO

Discounted appraisals(1)

Appraisal adjustments(2)

20% to 100%

10

%

---

(1)		Fair value is generally based on appraisals of the underlying collateral.
(2)		Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments.

Discount Range

Valuation

Unobservable

(Weighted Average)

Technique

Input

December 31, 2022

Impaired loans, non-coveredCollateral dependent assets with specific reserves

Discounted appraisals(1)appraisals(1)

Appraisal adjustments(2)

3% to 3%

3

%

OREO

Discounted appraisals(1)

Appraisal adjustments(2)adjustments(2)

6%20% to 100%

to69

79% (34%)

3%

to

39% (17%)

%

OREO, non-covered

Discounted appraisals(1)

Appraisal adjustments(2)

8%

to

47% (32%)

0%

to

88% (30%)

OREO, covered

Discounted appraisals(1)

Appraisal adjustments(2)

0%

to

65% (52%)

0%

to

44% (40%)

 

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(1)		Fair value is generally based on appraisals of the underlying collateral.
(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.
(2)	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.

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2017																				December 31, 2023
		Carrying								Fair Value Measurements Using												Carrying								Fair Value Measurements Using
(Amounts in thousands)		Amount				Fair Value				Level 1				Level 2				Level 3				Amount				Fair Value				Level 1				Level 2				Level 3
Assets
Cash and cash equivalents		$	157,951			$	157,951			$	157,951			$	-			$	-			$	116,420			$	116,420			$	116,420			$	—			$	—
Securities available for sale			165,580				165,580				55				165,525				-
Securities held to maturity			25,149				25,084				-				25,084				-
Debt securities available for sale																							280,961				280,961				—				280,961				—
Equity securities																							55				55				—				55				—
Loans held for investment, net of allowance			1,797,908				1,760,606				-				5,739				1,754,867				2,536,109				2,350,071				—				—				2,350,071
FDIC indemnification asset			7,161				3,927				-				-				3,927
Interest receivable			5,778				5,778				-				5,778				-				10,881				10,881				—				1,246				9,635
Deferred compensation assets			4,002				4,002				4,002				-				-				6,729				6,729				6,729				—				—
Derivative assets																							136				136				—				136				—
Liabilities
Demand deposits			454,143				454,143				-				454,143				-
Interest-bearing demand deposits			465,407				465,407				-				465,407				-
Savings deposits			512,795				512,795				-				512,795				-
Time deposits			497,546				490,628				-				490,628				-				253,373				247,141				—				247,141				—
Securities sold under agreements to repurchase			30,086				30,449				-				30,449				-				1,119				1,119				—				1,119				—
Interest payable			1,104				1,104				-				1,104				-				556				556				—				556				—
FHLB and other borrowings			50,000				52,702				-				52,702				-
Derivative financial liabilities			90				90				-				90				-
Deferred compensation liabilities			4,002				4,002				4,002				-				-				8,282				8,282				8,282				—				—

		December 31, 2022
		Carrying								Fair Value Measurements Using
(Amounts in thousands)		Amount				Fair Value				Level 1				Level 2				Level 3
Assets
Cash and cash equivalents		$	170,846			$	170,846			$	170,846			$	—			$	—
Debt securities available for sale			300,349				300,349				—				300,349				—
Equity securities			55				55				—				55				—
Loans held for investment, net of allowance			2,369,641				2,215,243				—				—				2,215,243
Interest receivable			9,279				9,279				—				1,343				7,936
Deferred compensation assets			5,142				5,142				5,142				—				—
Derivative assets			199				199								199
Liabilities
Time deposits			283,330				281,744				—				281,744				—
Securities sold under agreements to repurchase			1,874				1,874				—				1,874				—
Interest payable			159				159				—				159				—
Deferred compensation liabilities			5,142				5,142				5,142				—				—

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

		December 31, 2016
		Carrying								Fair Value Measurements Using
(Amounts in thousands)		Amount				Fair Value				Level 1				Level 2				Level 3
Assets
Cash and cash equivalents		$	76,307			$	76,307			$	76,307			$	-			$	-
Securities available for sale			165,579				165,579				55				165,524				-
Securities held to maturity			47,133				47,266				-				47,266				-
Loans held for investment, net of allowance			1,835,000				1,805,999				-				4,701				1,801,298
FDIC indemnification asset			12,173				8,112				-				-				8,112
Interest receivable			5,553				5,553				-				5,553				-
Deferred compensation assets			3,224				3,224				3,224				-				-
Liabilities
Demand deposits			427,705				427,705				-				427,705				-
Interest-bearing demand deposits			378,339				378,339				-				378,339				-
Savings deposits			523,260				523,260				-				523,260				-
Time deposits			512,034				507,917				-				507,917				-
Securities sold under agreements to repurchase			98,005				98,879				-				98,879				-
Interest payable			1,280				1,280				-				1,280				-
FHLB and other borrowings			80,708				83,551				-				83,551				-
Derivative financial liabilities			167				167				-				167				-
Deferred compensation liabilities			3,224				3,224				3,224				-				-

 

Note 1817. Earnings per Share

 

The following table presents the calculation of basic and diluted earnings per common share for the periods indicated:

 

		Year Ended December 31,
		2017					2016					2015
(Amounts in thousands, except share and per share data)
Net income		$	21,485				$	25,126				$	24,540
Dividends on preferred stock			-					-					105
Net income available to common shareholders		$	21,485				$	25,126				$	24,435
Weighted average common shares outstanding, basic			17,002,116					17,319,689					18,531,039
Dilutive effect of potential common shares
Stock options			52,205					34,530					26,487
Restricted stock			23,521					11,305					2,996
Convertible preferred stock			-					-					166,942
Total dilutive effect of potential common shares			75,726					45,835					196,425
Weighted average common shares outstanding, diluted			17,077,842					17,365,524					18,727,464
Basic earnings per common share		$	1.26				$	1.45				$	1.32
Diluted earnings per common share			1.26					1.45					1.31
Antidilutive potential common shares
Stock options			64,081					107,592					127,882
Restricted stock			3,620					3,279					-
Total potential antidilutive shares			67,701					110,871					127,882

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.

		Year Ended December 31,
		2023				2022				2021
(Amounts in thousands, except share and per share data)
Net income		$	48,020			$	46,662			$	51,168
Adjustment to Net Income for Fair Value Changes to Restricted Stock Units (tax-effected)			1,100				-				-
Adjusted Net Income for diluted earnings per share		$	49,120			$	46,662			$	51,168
Weighted average common shares outstanding, basic			17,996,373				16,519,848				17,335,615
Dilutive effect of potential common shares
Stock options			15,856				18,784				30,854
Restricted stock and units			14,922				23,625				36,467
Total dilutive effect of potential common shares			30,778				42,409				67,321
Weighted average common shares outstanding, diluted			18,027,151				16,562,257				17,402,936
Basic earnings per common share		$	2.67			$	2.82			$	2.95
Diluted earnings per common share			2.72				2.82				2.94
Potential antidilutive common shares
Stock options			129,324				131,198				103,520
Restricted stock and units			32,706				—				630
Total potential antidilutive shares			162,030				131,198				104,150

 

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1918. Related Party Transactions

 

The Company engages in transactions with related parties in the normal course of business. Related parties includeLoans to principal officers, 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 sameaffiliates were 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:follows:

 

		Year Ended December 31,								Year Ended December 31,
		2017				2016				2023				2022
(Amounts in thousands)
Beginning balance		$	18,360			$	21,886			$	30,981			$	33,740
New loans and advances			942				559				5,215				7,768
Loan repayments			(1,566	)			(4,418	)			(6,217	)			(15,979	)
Reclassifications(1)			1,601				333
Reclassifications(1)											(15	)			5,452
Ending balance		$	19,337			$	18,360			$	29,964			$	30,981

---

(1)	Changes related to the composition of the Company's directors, executive officers, and related insiders

 

Deposits withfrom related parties totaled $7.13$15.19 million as of December 31, 2017, 2023, and $5.45$14.59 million as of December 31, 2016. 2022. Legal fees paid to related parties totaled $44$47 thousand in 2017,2023$104, $41 thousand in 2016,2022, and $88$80 thousand in 2015.2021 Lease expense. There were no lease payments paid to related parties totaled $49 thousand in 2017,2023, $952022 thousand in, or 2016,2021 and $95 thousand in 2015.. Other expense paid to related parties totaled $63$23 thousand in 2017,2023$34, $53 thousand in 2016,2022, and $21$104 thousand in 2015.2021 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 2019. Litigation, Commitments, and Contingencies

 

Litigation

 

InThe Company and its subsidiaries are currently involved in various legal proceedings in the normal course of business,business. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with all pending or threatened claims and litigation, utilizing the most recent information available. On a matter-by-matter  basis, an accrual for loss is established for those matters which the Company believes it is probable that a loss may be incurred and that the amount of such loss can be reasonably estimated. Once established, each accrual is adjusted as appropriate to reflect any subsequent developments. Accordingly, management’s estimate will change from time to time, and actual losses may be more or less than the current estimate. For matters where a loss is not probable, or the amount of the loss cannot be estimated, no accrual is established.

On June 24, 2022, the Bank was sued in a putative class action lawsuit filed by two customers of the Bank in the United States District Court for the Northern District of West Virginia. (The lawsuit was subsequently transferred to the District Court for the Southern District of West Virginia.) The plaintiffs, individually and as putative class representatives, allege that the Bank breached its deposit account agreements and was unjustly enriched by collecting overdraft fees with respect to certain debit card transactions and the assessment of multiple nonsufficient funds fees as to items presented for payment against nonsufficient funds more than one time. No class has been certified and discovery is ongoing. The Bank disputes the allegations and has actively defended itself, but it is exploring settlement opportunities. We cannot provide assurance whether a settlement will be reached, the final terms or timing of any such settlement, or the negotiated amount of any settlement with respect to this matter. 

Management currently estimates the range of reasonably possible loss with respect to this litigation matter is $1.50 to $3.50 million. As of December 31, 2023, First Community accrued a $3.00 million estimated liability related to this litigation matter. This accrual was based upon currently available information and is subject to adjustment to reflect any subsequent developments. Management is vigorously pursuing all applicable legal and factual defenses and, after consultation with legal counsel, believes that all such litigation will be resolved with no material effect on the Company’s  financial statements.

We are  currently a defendant in variousother legal actions and asserted claims. Whileclaims in the Company and its legal counselnormal course of business. Although we are unable to assess the ultimate outcome of each of these mattersmatter with certainty, the Company believeswe believe that the resolution of these actions singly or in the aggregate, should not have a material adverse effect on itsour financial condition,position, results of operations, or cash flows.

 

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies

 

The Company is a party to financial instruments with off-balance 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-balanceon balance sheet instruments.

 

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’scustomer’s performance under certain letters of credit is based on management’s credit evaluation of the customer.

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following table presents the off-balance sheet financial instruments as of the dates indicated:

 

		December 31,								December 31,
		2017				2016				2023				2022
(Amounts in thousands)
Commitments to extend credit		$	243,147			$	261,801			$	277,462			$	278,926
Standby letters of credit and financial guarantees(1)			131,587				83,900
Standby letters of credit and financial guarantees(1)											129,220				119,681
Total off-balance sheet risk			374,734				345,701				406,682				398,607
Reserve for unfunded commitments		$	66			$	326

 

---

(1)

Includes FHLB letters of credit

 

 

Note 2120. 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 (“CCB”), 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 (increasingincreased those minimum ratios by an additional 0.625% each year until it reaches 2.5% on January 1, 2019).

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following tables present actual and required capital ratios, under Basel III capital rules, as of the dates indicated:

 

		December 31, 2017																																December 31, 2023
		Actual								Minimum Basel III Requirement								Minimum Basel III Requirement - Fully Phased-In								Well Capitalized Requirement(1)								Actual								Minimum Basel III Requirement								Minimum Basel III Requirement - with CCB								Well Capitalized Requirement(1)
(Amounts in thousands)		Amount				Ratio				Amount				Ratio				Amount				Ratio				Amount				Ratio				Amount				Ratio				Amount				Ratio				Amount				Ratio				Amount				Ratio
The Company
Common equity Tier 1 ratio		$	251,052				13.98	%		$	80,816				4.50	%		$	125,713				7.00	%		N/A				N/A				$	355,157				14.69	%		$	108,761				4.50	%		$	169,184				7.00	%			N/A				N/A
Tier 1 risk-based capital ratio			251,052				13.98	%			107,754				6.00	%			152,652				8.50	%		N/A				N/A					355,157				14.69	%			145,015				6.00	%			205,438				8.50	%			N/A				N/A
Total risk-based capital ratio			270,394				15.06	%			143,672				8.00	%			188,570				10.50	%		N/A				N/A					385,369				15.94	%			193,353				8.00	%			253,776				10.50	%			N/A				N/A
Tier 1 Leverage ratio			251,052				11.06	%			90,822				4.00	%			90,822				4.00	%		N/A				N/A					355,157				11.52	%			123,278				4.00	%			N/A				N/A				N/A				N/A
The Bank
Common equity Tier 1 ratio		$	222,856				12.47	%		$	80,447				4.50	%		$	125,139				7.00	%		$	116,201				6.50	%		$	312,593				12.97	%		$	108,461				4.50	%		$	168,718				7.00	%		$	156,667				6.50	%
Tier 1 risk-based capital ratio			222,856				12.47	%			107,262				6.00	%			151,955				8.50	%			178,771				8.00	%			312,593				12.97	%			144,615				6.00	%			204,872				8.50	%			192,820				8.00	%
Total risk-based capital ratio			242,218				13.55	%			143,016				8.00	%			187,709				10.50	%			143,016				10.00	%			342,805				14.22	%			192,820				8.00	%			253,077				10.50	%			241,026				10.00	%
Tier 1 Leverage ratio			222,856				9.84	%			90,604				4.00	%			90,604				4.00	%			113,255				5.00	%			312,593				10.07	%			124,181				4.00	%			N/A				N/A				155,226				5.00	%

 

---

(1)	Based on prompt corrective action provisions

		December 31, 2022
		Actual								Minimum Basel III Requirement								Minimum Basel III Requirement - with CCB								Well Capitalized Requirement(1)
(Amounts in thousands)		Amount				Ratio				Amount				Ratio				Amount				Ratio				Amount				Ratio
The Company
Common equity Tier 1 ratio		$	303,963				13.37	%		$	102,332				4.50	%		$	159,183				7.00	%			N/A				N/A
Tier 1 risk-based capital ratio			303,963				13.37	%			136,443				6.00	%			193,294				8.50	%			N/A				N/A
Total risk-based capital ratio			332,430				14.62	%			181,924				8.00	%			238,775				10.50	%			N/A				N/A
Tier 1 Leverage ratio			303,963				10.17	%			119,499				4.00	%			N/A				N/A				N/A				N/A
The Bank
Common equity Tier 1 ratio		$	264,185				11.69	%		$	101,712				4.50	%		$	158,218				7.00	%		$	146,917				6.50	%
Tier 1 risk-based capital ratio			264,185				11.69	%			135,616				6.00	%			192,122				8.50	%			180,821				8.00	%
Total risk-based capital ratio			292,481				12.94	%			180,821				8.00	%			237,327				10.50	%			226,026				10.00	%
Tier 1 Leverage ratio			264,185				8.79	%			120,248				4.00	%			N/A				N/A				150,310				5.00	%

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(1)	Based on prompt corrective action provisions

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

		December 31, 2016
		Actual								Minimum Basel III Requirement								Minimum Basel III Requirement - Fully Phased-In								Well Capitalized Requirement(1)
(Amounts in thousands)		Amount				Ratio				Amount				Ratio				Amount				Ratio				Amount				Ratio
The Company
Common equity Tier 1 ratio		$	241,671				13.88	%		$	78,362				4.50	%		$	121,897				7.00	%		N/A				N/A
Tier 1 risk-based capital ratio			256,671				14.74	%			104,483				6.00	%			148,018				8.50	%		N/A				N/A
Total risk-based capital ratio			274,953				15.79	%			139,311				8.00	%			182,846				10.50	%		N/A				N/A
Tier 1 Leverage ratio			256,671				11.07	%			92,742				4.00	%			92,742				4.00	%		N/A				N/A
The Bank
Common equity Tier 1 ratio		$	223,944				12.93	%		$	77,956				4.50	%		$	121,264				7.00	%		$	112,603				6.50	%
Tier 1 risk-based capital ratio			223,944				12.93	%			103,941				6.00	%			147,249				8.50	%			138,588				8.00	%
Total risk-based capital ratio			242,218				13.98	%			138,588				8.00	%			181,897				10.50	%			173,235				10.00	%
Tier 1 Leverage ratio			223,944				9.71	%			92,274				4.00	%			92,274				4.00	%			115,343				5.00	%

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(1)	Based on prompt corrective action provisions

Note 2221. Parent Company Financial Information

 

The following tablestables present condensed financial information for the parent company, First Community Bancshares,Bankshares, Inc., as of and for the dates indicated:

 

		CONDENSED BALANCE SHEETS								CONDENSED BALANCE SHEETS
		December 31,								December 31,
(Amounts in thousands)		2017				2016				2023				2022
Assets
Cash and due from banks		$	19,216			$	23,561			$	14,681			$	16,988
Securities available for sale			-				17				22,468				17,313
Loans to affiliates			184				228
Investment in subsidiaries			322,595				321,389				460,731				382,286
Other assets			9,010				9,560				6,227				5,910
Total assets		$	351,005			$	354,755			$	504,107			$	422,497
Liabilities
Subordinated debt		$	-			$	15,464
Other liabilities			291				234			$	813			$	512
Total liabilities			291				15,698				813				512
Stockholders' equity
Preferred stock			-				-
Common stock			21,382				21,382				18,502				16,225
Additional paid-in capital			228,750				228,142				175,841				128,508
Retained earnings			180,543				170,377				319,902				292,971
Treasury stock			(79,121	)			(78,833	)
Accumulated other comprehensive loss			(840	)			(2,011	)			(10,951	)			(15,719	)
Total stockholders' equity			350,714				339,057				503,294				421,985
Total liabilities and stockholders' equity		$	351,005			$	354,755			$	504,107			$	422,497

		CONDENSED STATEMENTS OF INCOME
		Year Ended December 31,
		2023				2022				2021
(Amounts in thousands)
Cash dividends received from subsidiary bank		$	45,700			$	56,250			$	53,200
Other income			1,397				222				8
Other operating expense			1,524				1,052				1,086
Income before income taxes and equity in undistributed net income of subsidiaries			45,573				55,420				52,122
Income tax benefit			(41	)			(224	)			(351	)
Income before equity in undistributed net income of subsidiaries			45,614				55,644				52,473
Equity in (dividends in excess) of undistributed net income of subsidiaries			2,406				(8,982	)			(1,305	)
Net income		$	48,020			$	46,662			$	51,168

 

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FIRST COMMUNITY BANCSHARES,BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		CONDENSED STATEMENTS OF INCOME
		Year Ended December 31,
		2017				2016				2015
(Amounts in thousands)
Cash dividends received from subsidiary bank		$	22,720			$	32,000			$	22,970
Other income (expense)			352				(1,121	)			1,039
Other operating expense			2,044				2,097				2,080
Income before income taxes and equity in undistributed net income of subsidiaries			21,028				28,782				21,929
Income tax benefit			(678	)			(1,287	)			(616	)
Income before equity in undistributed net income of subsidiaries			21,706				30,069				22,545
(Dividends in excess of) equity in undistributed net income of subsidiaries			(221	)			(4,943	)			1,995
Net income			21,485				25,126				24,540
Dividends on preferred stock			-				-				105
Net income available to common shareholders		$	21,485			$	25,126			$	24,435

		CONDENSED STATEMENTS OF CASH FLOWS
		Year Ended December 31,
(Amounts in thousands)		2023				2022				2021
Operating activities
Net income		$	48,020			$	46,662			$	51,168
Adjustments to reconcile net income to net cash provided by operating activities
Net change in other operating activities			(3,275	)			8,442				253
Net cash provided by operating activities			44,745				55,104				51,421
Investing activities
Purchase of investment securities			(69,469	)			(19,372	)			—
Proceeds from maturities, calls, sales of investment securities			65,250				11,807				(9,919	)
Dividends in excess of undistributed net income of subsidiaries			—				—				1,305
Net cash (used) provided by investing activities			(4,219	)			(7,565	)			(8,614	)
Financing activities
Proceeds from issuance of common stock			91				172				—
Payments for repurchase of common stock			(23,038	)			(21,311	)			(28,882	)
Payments of common dividends			(21,089	)			(18,515	)			(18,059	)
Net change in other financing activities			1,203				1,375				1,773
Net cash (used) provided by financing activities			(42,833	)			(38,279	)			(45,168	)
Cash and cash equivalents increase (decrease)			(2,307	)			9,260				(2,361	)
Cash and cash equivalents at carrying value at beginning of period			16,988				7,728				10,089
Cash and cash equivalents at carrying value at end of period		$	14,681			$	16,988			$	7,728

 

		CONDENSED STATEMENTS OF CASH FLOWS
		Year Ended December 31,
(Amounts in thousands)		2017				2016				2015
Operating activities
Net income		$	21,485			$	25,126			$	24,540
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed net income of subsidiaries			-				-				(1,995	)
Gain on sale of securities			-				(65	)			(38	)
Net change in other operating activities			656				397				(626	)
Net cash provided by operating activities			22,141				25,458				21,881
Investing activities
Proceeds from sale of securities available for sale			-				8,660				199
Proceeds from divestitures			-				4,900				-
Return of capital from subsidiaries			-				3,654				-
Dividends in excess of undistributed net income of subsidiaries			221				4,943				-
Net change in other investing activities			-				(98	)			-
Net cash provided by investing activities			221				22,059				199
Financing activities
Repayments of other debt			-				-				(2,000	)
Repayments of long-term debt			(15,464	)			-				-
Redemption of preferred stock			-				-				(2,367	)
Proceeds from issuance of common stock			738				1,243				264
Payments for repurchase of treasury stock			(1,263	)			(23,762	)			(21,525	)
Payments of common dividends			(11,563	)			(10,396	)			(9,994	)
Payments of preferred dividends			-				-				(219	)
Net change in other financing activities			845				592				482
Net cash used in financing activities			(26,707	)			(32,323	)			(35,359	)
Net (decrease) increase in cash and cash equivalents			(4,345	)			15,194				(13,279	)
Cash and cash equivalents at beginning of period			23,561				8,367				21,646
Cash and cash equivalents at end of period		$	19,216			$	23,561			$	8,367

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FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2322. Quarterly Financial Data (Unaudited)

 

The following tablestables present selected financial data for the periods indicated:

 

		Year Ended December 31, 2017
		First				Second				Third				Fourth
		Quarter				Quarter				Quarter				Quarter
(Amounts in thousands, except share and per share data)
Interest income		$	23,192			$	24,305			$	24,049			$	23,762
Interest expense			2,051				2,011				1,999				2,029
Net interest income			21,141				22,294				22,050				21,733
Provision for loan losses			492				934				730				615
Net interest income after provision			20,649				21,360				21,320				21,118
Noninterest income, excluding net loss on sale of securities			5,691				6,132				7,135				7,951
Net loss on sale of securities			-				(657	)			-				(4	)
Noninterest expense			17,083				17,458				16,909				17,132
Income before income taxes			9,257				9,377				11,546				11,933
Income tax expense			3,055				2,959				3,894				10,720
Net income available to common shareholders		$	6,202			$	6,418			$	7,652			$	1,213
Basic earnings per common share		$	0.36			$	0.38			$	0.45			$	0.07
Diluted earnings per common share			0.36				0.38				0.45				0.07
Dividends per common share			0.16				0.16				0.18				0.18
Weighted average basic shares outstanding			16,998,125				17,012,189				17,005,654				16,992,519
Weighted average diluted shares outstanding			17,072,174				17,082,832				17,082,729				17,083,949

		Year Ended December 31, 2016																Year Ended December 31, 2023
		First				Second				Third				Fourth				First				Second				Third				Fourth
		Quarter				Quarter				Quarter				Quarter				Quarter				Quarter				Quarter				Quarter
(Amounts in thousands, except share and per share data)
Interest income		$	23,550			$	24,137			$	23,621			$	23,416			$	30,189			$	34,869			$	36,105			$	36,002
Interest expense			2,439				2,446				2,500				2,459				777				2,007				2,758				3,939
Net interest income			21,111				21,691				21,121				20,957				29,412				32,862				33,347				32,063
Provision for (recovery of) loan losses			1,187				722				(1,154	)			500
Net interest income after provision (recovery)			19,924				20,969				22,275				20,457
Noninterest income, excluding net gain (loss) on sale of securities			7,902				7,109				5,870				5,850
Net gain (loss) on sale of securities			1				(79	)			25				388
Provision for credit losses																			1,742				4,105				1,109				1,029
Net interest income after provision																			27,670				28,757				32,238				31,034
Noninterest income, excluding net loss on sale of securities																			8,583				8,785				9,622				10,462
Noninterest expense			18,814				18,722				18,557				16,653				20,813				24,671				22,913				26,780
Income before income taxes			9,013				9,277				9,613				10,042				15,440				12,871				18,947				14,716
Income tax expense			2,929				3,022				3,230				3,638				3,658				3,057				4,307				2,932
Net income available to common shareholders		$	6,084			$	6,255			$	6,383			$	6,404
Net income																		$	11,782			$	9,814			$	14,640			$	11,784
Adjustment to Net Income for Fair Value Changes to Restricted Stock Units (tax-effected)																		$	20			$	335			$	215			$	530
Adjusted Net Income for diluted earnings per share																		$	11,802			$	10,149			$	14,855			$	12,314
Basic earnings per common share		$	0.34			$	0.36			$	0.37			$	0.38			$	0.73			$	0.53			$	0.78			$	0.64
Diluted earnings per common share			0.34				0.36				0.37				0.38				0.72				0.55				0.79				0.66
Dividends per common share			0.14				0.14				0.16				0.16				0.29				0.29				0.29				0.29
Weighted average basic shares outstanding			17,859,197				17,414,320				17,031,074				16,981,010				16,228,297				18,407,078				18,786,032				18,530,114
Weighted average diluted shares outstanding			17,892,531				17,462,845				17,083,526				17,043,869				16,289,489				18,431,598				18,831,836				18,575,226

 

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FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

		Year Ended December 31, 2022
		First				Second				Third				Fourth
		Quarter				Quarter				Quarter				Quarter
(Amounts in thousands, except share and per share data)
Interest income		$	25,639			$	27,970			$	29,722			$	30,988
Interest expense			486				423				380				367
Net interest income			25,153				27,547				29,342				30,621
Recovery of credit losses			1,961				510				685				3,416
Net interest income after provision			23,192				27,037				28,657				27,205
Noninterest income, excluding net loss on sale of securities			9,194				8,854				9,950				9,184
Noninterest expense			19,986				21,255				21,145				20,730
Income before income taxes			12,400				14,636				17,462				15,659
Income tax expense			2,885				3,423				4,111				3,076
Net income		$	9,515			$	11,213			$	13,351			$	12,583
Basic earnings per common share		$	0.57			$	0.67			$	0.82			$	0.78
Diluted earnings per common share			0.56				0.67				0.81				0.77
Dividends per common share			0.27				0.27				0.29				0.29
Weighted average basic shares outstanding			16,817,284				16,662,817				16,378,022				16,229,289
Weighted average diluted shares outstanding			16,864,515				16,682,615				16,413,202				16,281,922

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Crowe LLP Independent Member Crowe Global

 

- Report of Independent Registered Public Accounting Firm -

 

Stockholders and the Board of Directors and the Stockholders

of First Community Bancshares,Bankshares, Inc. and Subsidiary

Bluefield, Virginia

 

Opinion

Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting

 

We have audited the accompanying consolidated balance sheetssheet of First Community Bancshares,Bankshares, Inc. and Subsidiary (the “Company)"Company") as of December 31, 2017 and 2016, and2023, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flowsflow for each of the three years in the periodyear ended December 31, 20172023, and the related notes (collectively referred to as the "consolidated"financial statements"). We also have audited the Company’s internal control over financial statements"reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, 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 financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting 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 audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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Definition and Limitations of Internal Control Over Financial Reporting

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.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.  The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance and Provision for Credit Losses on Loans – Discounted Cash Flow

As more fully described in Notes 1, 4, 5 and 6 of the financial statements, the allowance for credit losses (the “ACL”) is an accounting estimate of the expected credit losses in the loans held for investment portfolio over the life of an exposure (or pool of exposures). Expected credit losses are measured on a collective (pooled) basis for financial assets with similar risk characteristics. The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. For collectively evaluated loans, the Company uses a combination of discounted cash flow model, which includes the use of probability of default and loss given default assumptions, and open pool model to estimate expected credit losses. For the majority of the segments of collectively evaluated loans, the Company incorporated at least one macroeconomic driver using a statistical regression. In addition, the Company considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process.

We identified auditing the ACL’s discounted cash flow model as a critical audit matter because of the extent of auditor judgment applied and significant audit effort, with the need to use our valuation specialists, to evaluate the high degree of judgments made by management related to the determination of the probability of default and loss given default (“the significant model assumptions”) within the discounted cash flow method for certain collectively evaluated loan segments.

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The primary procedures performed to address the critical audit matter included:

Testing the effectiveness of internal controls over:

	●	The Company’s evaluation of the ACL calculation, including the reasonableness of the significant model assumptions and judgments within the discounted cash flow model.
	●	The Company’s evaluation of the relevance and reliability of data used in the discounted cash flow model of the ACL calculation.

Substantively testing management’s estimate, which included:

	●	Evaluation of the appropriateness of the ACL calculation, including the reasonableness of the significant model assumptions and the application of data within the significant model assumptions used in the discounted cash flow model, with assistance of our valuation specialists.
	●	Evaluation of the relevance and reliability of data used to develop the discounted cash flow model of the ACL calculation.

/s/ Crowe LLP

We have served as the Company's auditor since 2023.

Washington, D.C.

March 8, 2024

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of First Community Bankshares, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of First Community Bankshares, Inc. (the “Company”) as of December 31, 2022, the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016,2022, and the results of theirits operations and theirits cash flows for each of the years in the periodyear then ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We also have audited,conducted our audit in accordanceaccordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),PCAOB. Those standards require that we plan and perform the Company’s internal control overaudit to obtain reasonable assurance about whether the financial reporting asstatements are free of December 31, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued bymaterial misstatement, whether due to error or fraud. Our audit included performing procedures to assess the Committeerisks of Sponsoring Organizationsmaterial misstatement of the Treadway Commission,financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our report dated March 5, 2018, expressed an unqualified opinion thereon.audit provides a reasonable basis for our opinion.

/s/ Elliott Davis, PLLC

We served as the Company's auditor from 2022 to 2023.

Charlotte, North Carolina

February 22, 2023

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

First Community Bankshares, Inc.

Bluefield, Virginia

 

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows of First Community Bankshares, Inc. (the “Company”) for the year ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of the Company’s operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for OpinioOpinionn

These consolidated financial statements are the responsibility of the Company’sCompany’s management.  Our responsibility is to express an opinion on the Company'sCompany’s consolidated financial statements based on our audits.audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our auditsaudit in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

 

Our auditsaudit included performing procedures to assess the risks of material misstatementmisstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures includedinclude examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.  Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.  We believe that our audits provideaudit provides a reasonable basis for our opinion.

/s/ FORVIS, LLP

 

We have served as the Company’sCompany’s auditor since 2006.from 2006 to 2021.

 

/s/ Dixon Hughes Goodman LLP

Asheville,Charlotte, North Carolina

March 5, 20183, 2022

 

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- Management’s Assessment of Internal Control Control oover Financial Reporting -

 

First Community Bancshares,Bankshares, Inc. (the “Company”“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’sCompany’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, 2017.2023.

 

Dixon Hughes Goodman

Crowe, LLP, independent registered public accounting firm, has issued an attestationa report on the effectiveness of the Company’s internal control over financial reporting as of  December 31, 2017.2023. 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, 2017,2023, appears hereafter in Item 8 of this Annual Report on  Form 10-K.

 

 

Dated this 5^th8th day March of  March, 2018.2024.

 

 

/s/ William P. Stafford, II		/s/ David D. Brown
William P. Stafford, II		/s/ David D. Brown
Chief Executive OfficerWilliam P. Stafford, II		David D. Brown
Chief FinancialExecutive Officer		Chief Financial Officer

 

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- Report of Independent Registered Public Accounting Firm -

Board of Directors and the Stockholders

First Community Bancshares, Inc. and Subsidiary

Opinion on Internal Control Over Financial Reporting

We have audited First Community Bancshares, Inc. and Subsidiary (the “Company”) internal control overfinancial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, First Community Bancshares, Inc. and Subsidiary maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, 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. and Subsidiary as of December 31, 2017 and 2016, and our report, dated March 5, 2018 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internal control overfinancial 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 overfinancial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

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.

/s/ Dixon Hughes Goodman LLP

Asheville, North Carolina

March 5, 2018

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Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A.

Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

In connection with this report, we conducted an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures under the Exchange Act Rule 13a-15(b). Based upon that evaluation, the CEO and CFO concluded that, as of December 31, 2017,2023, our disclosure controls and procedures were effective.

 

Disclosure controls and procedures are our Company’sCompany’s controls and other procedures that are designed to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions about required disclosure.

 

Management, including the CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, collusion of two or more people, or management’smanagement’s override of the controls.

 

Changes in Internal Control over Financial Reporting

 

We assess the adequacy of our internal control over financial reporting quarterly and enhance our controls in response to internal control assessments and internal and external audit and regulatory recommendations. There were no changes in our internal control over financial reporting during the quarter ended December 31, 2017,2023, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Management's Report on Internal Controls over Financial Reporting

 

For additional information aboutManagement's report on the Company’sCompany's internal controls, seecontrol over financial reporting and the attestation report of Crowe, LLP,  the Company's independent registered public accounting firm, on internal control over financial reportings are under the headings “Management's Assessment of Internal Control over Financial Reporting,” and “Report of Independent Registered Public Accounting Firm,” in Item 8 of this report.report and are incorporated in this Item 9A by reference.

 

Item 9B.

Other Information.

 

NoneDuring the three months ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted, modified or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

None.

 

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PART III

  

Item 10.

Directors, Executive Officers and Corporate Governance.

Board of Directors, First Community Bancshares, Inc.

W. C. Blankenship, Jr. Retired Agent, State Farm Insurance C. William Davis Attorney at Law, Richardson & Davis, PLLC

Samuel L. Elmore Retired Chief Credit Officer and Senior Vice President, First Community Bank; Past Executive Vice President, Citizens Southern Bank, Inc.; Past President and Chief Executive Officer, Bank One; Past Vice President, Key Centurion Bancshares; Past President and Chief Operations Officer, Beckley National Bank; Director, Raleigh County Commission on Aging

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Richard S. Johnson Chairman, President, and Chief Executive Officer, The Wilton Companies; Director and Past Chairman, City of Richmond Economic Development Authority; Trustee Emeritus, University of Richmond I. Norris Kantor Of Counsel, Katz, Kantor, Stonestreet & Buckner, PLLC; Board of Governors, Bluefield State College Gary R. Mills President, First Community Bancshares, Inc.; Chief Executive Officer and President, First Community Bank		M. Adam Sarver Member/Co-Manager, Main Street Builders, LLC, Eastern Door & Glass, LLC, and Clover Leaf Properties, LLC William P. Stafford, II Chief Executive Officer, First Community Bancshares, Inc.; Attorney at Law, Brewster, Morhous, Cameron, Caruth, Moore, Kersey & Stafford, PLLC
Executive Officers, First Community Bancshares, Inc.
William P. Stafford, II Chief Executive Officer Gary R. Mills President		David D. Brown Chief Financial Officer and Secretary E. Stephen Lilly Chief Operating Officer and Executive Vice President
Board of Directors, First Community Bank
James H. Atkinson, Jr. Retired Chief Executive Officer, Peoples Bank of Virginia W. C. Blankenship, Jr. See above Robert L. Buzzo Retired Vice President and Secretary, First Community Bancshares, Inc.; Retired President Emeritus, First Community Bank Samuel D. Campbell Attorney at Law C. William Davis See above  Samuel L. Elmore See above S. Michael Feola Retired Senior Vice President – Regional President, First Community Bank T. Vernon Foster President of J. La’Verne Print Communications; Past Director, TriStone Community Bank; Executive Director: MBA Programs, Career Management & Public Relations, University of Louisville, College of Business		Richard H. Jarrell Chick-fil-A Franchise Owner; Director, Raleigh General Hospital Board of Trustees; Director, Beckley-Raleigh County Chamber of Commerce; Director, United Way of Southwest Virginia; Director, Raleigh County Board of Education Richard S. Johnson See above  I. Norris Kantor See above  Gary R. Mills See above  M. Adam Sarver See above  William P. Stafford, II See above  Frank C. Tinder President, Tinder Enterprises, Inc. and Tinco Leasing Corporation; Realtor, Premier Realty

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Additional Information

 

The followingAdditional information required in this item is incorporated by reference to our Proxy Statement for the Annual Meeting of Stockholders to be held on April 24, 201823, 2024, (“20182024 Annual Meeting”): under the headings “Proposal 1: Election of Directors,” “Director Nominees for the Class of 2026,” “Incumbent Directors,” “Non-Director Named Executive Officers,” and "Other Key Officers," and under the captions “Board Committees,” and “Delinquent Section 16(a) Reports.” 

●

Information about directors and executive officers is included under the headings “Proposal 1: Election of Directors,” “Nominees for the Class of 2021,” “Incumbent Directors,” “Non-Director Executive Officers,” and “Corporate Governance.”

●

Information about compliance with Section 16(a) of the Exchange Act is included under the heading “Section 16(a) Beneficial Ownership Reporting Compliance.”

●

Information about the Audit Committee and the Audit Committee Financial Expert is included under the heading “Board Committees.”

 

Our Standards of Conduct apply to all directors and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Standards of Conduct is available on the Investor Relations section of our website at www.firstcommunitybank.com.www.firstcommunitybank.com. There have been no waivers of the Standards of Conduct for any officer.

 

There have been no material changes to the procedures by which stockholders may recommend nominees to our Board of Directors since the disclosure in our Proxy Statement filed with the SEC on March 14, 2017.April 13, 2023.

 

Item 11.

Executive Compensation.

 

The information required in this item is incorporated by reference to our Proxy Statement for the 20182024 Annual Meeting under the headingscaption, “Board Committees,” and under the headings, “Compensation Discussion and Analysis,” “Director Compensation,” and “Pay"Pay Ratio Disclosure.”"

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table provides information about compensation plans under which our equity securities are authorized for issuance as of December 31, 2017:2023: 

 

Number of securities

Number of securities

remaining available

to be issued upon

Weighted-average

for future issuance

exercise of

exercise price of

under equity

outstanding

outstanding

compensation plans

options, warrants

options, warrants

(excluding securities

Plan category

and rights

and rights

reflected in column (a))

Number of securities to be issued upon exercise of outstanding options, warrants and rights

Weighted-average exercise price of outstanding options, warrants and rights

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(3)

(a)

(b)

(c)

(a)

(b)

(c)

Equity compensation plans approved by security holders(1)

80,903

$

18.89

386,621

(3)

Equity compensation plans not approved by security holders(2)

119,801

20.98

-

Equity compensation plans approved by security holders(1)

262,522

$

33.55

876,901

Equity compensation plans not approved by security holders(2)

32,735

$

23.58

—

Total

200,704

386,621

295,257

876,901

 

---

(1)	Includes the 2022 Omnibus Equity Compensation Plan and 2012 Omnibus Equity Compensation Plan and 2004 Omnibus
(2) Includes the 1999 Stock Option Plan
(2)	Includes the 2001 Directors' Option Plan, 1999 Stock Option Plan, and other plans related to past business combinations, which(3) Shares are expired or not available to issue new options, warrants, or rights
(3)	Shares available for future issuance are under the 20122022 Omnibus Equity Compensation Plan.

 

Additional information required in this item is incorporated by reference to our Proxy Statement for the 20182024 Annual Meeting under the headingcaption “Information on Stock Ownership.”

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

 

The informationinformation required in this item is incorporated by reference to our Proxy Statement for the 20182024 Annual Meeting under the headings “Corporate Governance”caption “Independence of Directors” and “Related Person/Party Transactions.”

 

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Item 14.

Principal Accounting Fees and Services.

 

The informationIndependent Registered Public Accounting Firm is Crowe LLP (PCAOB Firm ID No.173 ) located in Washington, District of Columbia.  The information required inby this item is incorporated by reference to our Proxy Statement for the 20182023 Annual Meeting under the heading, “Independent"Independent Registered Public Accounting Firm.”Firm".

 

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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

 

Exhibit No.

Exhibit

2.1	Agreement and Plan of Reincorporation and Merger between First Community Bancshares, Inc. and First Community Bankshares, Inc., incorporated by reference to Appendix A of the Definitive Proxy Statement on Form DEF 14A dated April 24, 2018, filed on March 13, 2018

2.2	Agreement and Plan of Merger between First Community Bankshares, Inc. and Surrey Bancorp, incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K dated and filed November 18, 2022

3.1

Articles of Incorporation of First Community Bancshares,Bankshares, Inc., as amended, incorporated by reference to Exhibit 3(i)Appendix B of the Quarterly ReportDefinitive Proxy Statement on Form 10-Q for the period ended June 30, 2010,DEF 14A dated April 24, 2018, filed on August 16, 2010March 13, 2018

3.2	Amended and Restated Bylaws of First Community Bancshares,Bankshares, Inc., incorporated by reference to Exhibit 3.13.2 of the Current Report on Form 8-K dated February 23, 2016,and filed on February 25, 2016October 2, 2018

4.1	Specimen stock certificateDescription of First Community Bancshares,Bankshares, Inc., Common Stock, incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K dated and filed October 2, 2018
4.2	Form of First Community Bankshares, Inc. Common Stock Certificate

10.1.1**

First Community Bancshares, Inc. 1999 Stock Option Plan, incorporated by reference to Exhibit 10.1 of the Annual Report on Form 10-K10-K/A for the period ended December 31, 2002,1999, filed on March 25, 2003April 13, 2000

4.2	Indenture between First Community Bancshares, Inc. and Wilmington Trust Company, 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

4.3	Amended and Restated Declaration of Trust of FCBI Capital Trust, 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

4.4	Preferred Securities Guarantee Agreement, 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

10.1.1**

First Community Bancshares, Inc. 1999 Stock Option Plan, incorporated by reference to Exhibit 10.1 of the Annual Report on Form 10-K/A for the period ended December 31, 1999, filed on April 13, 2000

10.1.2**	Amendment One to the First Community Bancshares, Inc. 1999 Stock Option Plan, incorporated by reference to Exhibit 10.1.1 of the Quarterly Report on Form 10-Q for the period ended March 31, 2004, filed on May 7, 2004
10.1.7**	First Community Bankshares Executive Incentive Compensation Plan, incorporated by reference to Exhibit 10.1 of the current Report on Form 8-K filed May 31, 2022

10.2**

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

10.3**

First Community Bancshares, Inc. 2001 Nonqualified Director Stock Option Agreement, 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

10.4**

First Community Bancshares, Inc. 2004 Omnibus Stock Option Plan, incorporated by reference to Annex B of the Definitive Proxy Statement on Form DEF 14A dated April 27, 2004, filed on March 15, 2004

10.5**

First Community Bancshares, Inc. 2004 Omnibus Stock Option Plan Stock Award Agreement, incorporated by reference to Exhibit 10.13 of the Quarterly Report on Form 10-Q for the period ended June 30, 2004,2002, filed on August 6, 200414, 2002

10.3**

First Community Bancshares, Inc. 2001 Nonqualified Director Stock Option Agreement, 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

10.6**

First Community Bancshares, Inc. 2012 Omnibus Equity Compensation Plan, incorporated by reference to Appendix B of the Definitive Proxy Statement on Form DEF 14A dated April 24, 2012, filed on March 7, 2012

10.7**

First Community Bancshares, Inc. 2012 Omnibus Equity Compensation Plan Restricted Stock Grant Agreement, incorporated by reference to Appendix BExhibit 99.1 of the Definitive Proxy StatementCurrent Report on Form DEF 14A8-K dated April 24, 2012,and filed on March 7, 2012May 28, 2013

10.7*10.8**

First Community Bancshares, Inc. 2012 Omnibus Equity CompensationLife Insurance Endorsement Method Split Dollar Plan Restricted Stock Grantand Agreement, incorporated by reference to Exhibit 99.110.5 of the CurrentAnnual Report on Form 8-K dated and10-K/A for the period ended December 31, 1999, filed May 28, 2013on April 13, 2000

10.8**

First Community Bancshares, Inc. Life Insurance Endorsement Method Split Dollar Plan and Agreement, incorporated by reference to Exhibit 10.5 of the Annual Report on Form 10-K/A for the period ended December 31, 1999, filed on April 13, 2000

10.9.1**

First Community Bancshares,Bankshares, 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 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, 20172009.

10.9.2**

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10.9.2**

Amendment #1 to the First Community Bancshares,Bankshares, Inc. and Affiliates Executive Retention Plan, incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K dated December 16, 2010, filed on December 17, 2010

10.9.3**

Amendment #2 to the First Community Bancshares,Bankshares, Inc. and Affiliates Executive Retention Plan, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated February 21, 2013, filed on February 25, 2013

10.9.4**

Amendment #3 to the First Community Bankshares, Inc. and Affiliates Executive Retention Plan, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated February 21, 2013,May 24, 2016, filed on February 25, 2013May 31, 2016

10.9.4**

Amendment #3 to the 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 May 24, 2016, filed on May 31, 2016

10.9.5**	Amendment #4 to the First Community Bancshares,Bankshares, Inc. and Affiliates Executive Retention Plan, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated and filed on February 28, 2017
10.9.6**	Amendment #5 to the First Community Bankshares, Inc. and Affiliates Executive Retention Plan, incorporated by reference to Exhibit 10.9.6 of the Annual Report on Form 10-K for the period ended December 31, 2021, filed on March 3, 2022.
10.9.7**	Amendment #6 to the First Community Bankshares, Inc. and Affiliates Executive Retention Plan, incorporated by reference to Exhibit 10.9.7 of the Annual Report on Form 10-K for the period ended December 31, 2021, filed on March 3, 2022.

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10.10**

Amended and Restated Deferred Compensation Plan for Directors of First Community Bancshares, Inc. and Affiliates, incorporated by reference to Exhibit 99.2 of the Current Report on Form 8-K dated August 22, 2006, filed on August 23, 2006

10.11.1**

First Community Bancshares, Inc. Amended and Restated Nonqualified Supplemental Cash or Deferred Retirement Plan, 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

10.11.1*10.11.2**

Amendment #2 to the First Community Bancshares, Inc. Amended and Restated Nonqualified Supplemental Cash or Deferred Retirement Plan, incorporated by reference to Exhibit 99.110.2 of the Current Report on Form 8-K dated August 22, 2006,and filed on August 23, 2006,February 28, 2017

10.12.1**

First Community Bankshares, 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 andMay 24, 2016, filed on February 28, 2017May 31, 2016

10.11.2*10.12.2**

Amendment #2 to the First Community Bankshares, Inc. Supplemental Directors Retirement Plan, as amended and restated, incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K dated May 24, 2016, filed on May 31, 2016

10.12.3**	Amendment #3 to the First Community Bankshares, Inc. Supplemental Directors Retirement Plan, as amended and restated, incorporated by reference to Exhibit 10.12.3 of the Annual Report on Form 10-K for the period ended December 31, 2021, filed on March 3, 2022.
10.12.4**	Amendment #4 to the First Community Bankshares, Inc Supplemental Directors Retirement Plan, as amended and restated, incorporated by reference to Exhibit 10.12.4 of the Annual Report on Form 10-K for the period ended December 31, 2021, filed on March 3, 2022.
10.13**	Employment Agreement between First Community Bancshares, Inc. Amended and Restated Nonqualified Supplemental Cash or Deferred Retirement Plan,David D. Brown, incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K dated and filed on April 16, 2015

10.15**

Employment Agreement between First Community Bancshares, Inc. and Gary R. Mills, incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K dated and filed on February 28, 2017April 16, 2015

10.12.1*10.16**

Employment Agreement between First Community Bancshares, Inc. Supplemental Directors Retirement Plan, as amended and restated,William P. Stafford, II, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated December 16, 2010,and filed on December 17, 2010, and Amendment #2,April 16, 2015

10.17**

First Community Bankshares, Inc. 2022 Omnibus Equity Compensation Plan incorporated by reference to Exhibit 10.299.a of the Current ReportDefinitive Proxy Statement on Form 8-KDEF 14A dated May 24, 2016,April 26, 2022, filed on May 31, 2016March 16, 2022.

10.12.2**21*

Amendment #2 to the First Community Bancshares, Inc. Supplemental Directors Retirement Plan, as amended and restated, incorporated by reference to Exhibit 10.2Subsidiaries of the Current Report on Form 8-K dated May 24, 2016, filed on May 31, 2016Registrant

10.13**

Employment Agreement between First Community Bancshares, Inc. and David D. Brown, incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K dated and filed on April 16, 2015

10.14**

Employment Agreement between First Community Bancshares, Inc. and E. Stephen Lilly, incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K dated and filed on April 16, 2015

10.15**

Employment Agreement between First Community Bancshares, Inc. and Gary R. Mills, incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K dated and filed on April 16, 2015

10.16**

Employment Agreement between First Community Bancshares, Inc. and William P. Stafford, II, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated and filed on April 16, 2015

10.17**

Employment Agreement between First Community Bank and Mark R. Evans, incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K dated April 2, 2009, filed on April 3, 2009

11	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

12*	Statement Regarding Computation of Ratios

21*	Subsidiaries of the Registrant

23*23.1*

Consent of Crowe, LLP Independent Registered Public Accounting Firm for First Community Bankshares, Inc.

23.2*

Consent of Elliott Davis, LLC former Independent Registered Public Accounting Firm for First Community Bankshares, Inc.

23.3*	Consent of FORVIS, LLP former Independent Registered Public Accounting Firm for First Community Bankshares, Inc.
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification ofand Chief Financial Officer pursuant to Section 302906 of the Sarbanes-Oxley Act of the Sarbanes-Oxley Act of 2002

97.1	First Community Bankshares, Inc. Compensation Recoupment Policy

32*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101***

InteractiveInline interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of December 31, 20172023 and 2016;2022; (ii) Consolidated Statements of Income for the years ended December 31, 2017, 2016,2023, 2022, and 2015;2021; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016,2023, 2022, and 2015;2021; (iv) Consolidated Statements of Stockholders' Equity for the years ended December 31, 2017, 2016,2023, 2022, and 2015;2021; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016,2023, 2022, and 2015;2021; and (vi) Notes to Consolidated Financial Statements

104

The cover page of First Community Bankshares, Inc. Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline XBRL (included within the Exhibit 101 attachments).

 

*

*Filed herewith

Filed herewith

**

Indicates a management contract or compensation plan or agreementagreement. These contracts, plans, or agreements were assumed by First Community Bankshares, Inc. in October 2018 in connection with First Community Bancshares, Inc., a Nevada corporation, merging with and into its wholly-owned subsidiary, First Community Bankshares, Inc., a Virginia corporation, pursuant to an Agreement and Plan of Reincorporation and Merger with First Community Bankshares, Inc. continuing as the surviving corporation.

***	Submitted electronically herewith

 

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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 5^th8th day of March, 2018.March,2024.

 

First Community Bancshares,Bankshares, Inc.

(Registrant)

 

By:	/s/ William P. Stafford, II		By:	/s/ David D. Brown
	William P. Stafford, II			David D. Brown
	Chief Executive Officer (Principal Executive Officer)			Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature		Title		Date
/s/ William P. Stafford, II		Chairman and Chief Executive Officer and Director		March 5, 2018 8, 2024
William P. Stafford, II
/s/ David D. Brown		Chief Financial Officer		March 5, 2018 8, 2024
David D. Brown
/s/ W. C. Blankenship, Jr.		Director		March 5, 2018
W. C. Blankenship, Jr.
/s/ Samuel L. Elmore		Director		March 5, 2018
Samuel L. Elmore
/s/ Richard S. Johnson		Director		March 5, 2018
Richard S. Johnson
/s/ Gary R. Mills		President and Director		March 5, 2018 8, 2024
Gary R. Mills
/s/ C. William Davis		Director		March 8, 2024
C. William Davis
/s/ Samuel L. Elmore		Director		March 8, 2024
Samuel L. Elmore
/s/ Richard S. Johnson		Director		March 8, 2024
Richard S. Johnson
/s/ Harriet B. Price		Director		March 8, 2024
Harriet B. Price
/s/ M. Adam Sarver		Director		March 5, 2018 8, 2024
M. Adam Sarver
/s/ Beth A. Taylor		Director		March 8, 2024
Beth A. Taylor

 

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