Edgar Filing: FIRST COMMUNITY BANCSHARES INC /NV/

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Smaller reporting company

Form 10-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

Commission file number 000-19297

FIRST COMMUNITY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Nevada

55-0694814

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

P.O. Box 989

Bluefield, Virginia 24605-0989

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (276) 326-9000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
Common Stock, $1.00 par value		NASDAQ Global Select

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No

As of June 30, 2016, the aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates was $294.92 million.

As of February 28, 2017, there were 16,994,616 shares outstanding of the registrant’s Common Stock, $1.00 par value.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on April 25, 2017, are incorporated by reference in Part III of this Form 10-K.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A amends the Annual Report on Form 10-K of First Community Bancshares, Inc. (the “Company”) for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 3, 2017 (the “Original Form 10-K”), solely to correct the date of the Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements of Dixon Hughes Goodman LLP (the “Report”) from March 4, 2017, to March 3, 2017. The Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm on Management’s Assessment of Internal Control Over Financial Reporting with the correct date are filed with this Form 10-K/A.

In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, Part II, Item 8 has been amended and restated in its entirety; however, there have been no changes to the text of such Part II, Item 8 other than the change stated in the preceding paragraph. Further, there have been no changes to the XBRL data filed in Exhibit 101 of the Original Form 10-K. As required by Rule 12b-15, this Form 10-K/A includes a new consent of the independent registered public accounting firm as Exhibit 23 and new certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1, 31.2, and 32.

Except as described above, this Form 10-K/A does not amend, update, or restate the information in any other Item of the Original Form 10-K or reflect any events that have occurred after the filing of the Original Form 10-K.

PART II

Item 8.

Financial Statements and Supplementary Data.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX


	Page
Consolidated Balance Sheets as of December 31, 2016 and 2015		4
Consolidated Statements of Income for the years ended December 31, 2016, 2015, and 2014		5
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2016, 2015, and 2014		6
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2016, 2015, and 2014		7
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014		8
Notes to Consolidated Financial Statements		9
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements		69
Management’s Assessment of Internal Control Over Financial Reporting		70
Report of Independent Registered Public Accounting Firm on Management’s Assessment of Internal Control Over Financial Reporting		71

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS


	December 31,
(Amounts in thousands, except share and per share data)	2016			2015
Assets
Cash and due from banks	$	36,645		$	37,383
Federal funds sold		38,717			13,498
Interest-bearing deposits in banks		945			906

Total cash and cash equivalents		76,307			51,787
Securities available for sale		165,579			366,173
Securities held to maturity		47,133			72,541
Loans held for investment, net of unearned income
Non-covered		1,795,954			1,623,506
Covered		56,994			83,035
Allowance for loan losses		(17,948	)		(20,233	)

Loans held for investment, net		1,835,000			1,686,308
FDIC indemnification asset		12,173			20,844
Premises and equipment, net		50,085			52,756
Other real estate owned, non-covered		5,109			4,873
Other real estate owned, covered		276			4,034
Interest receivable		5,553			6,007
Goodwill		95,779			100,486
Other intangible assets		7,207			5,243
Other assets		86,197			91,224

Total assets	$	2,386,398		$	2,462,276

Liabilities
Deposits
Noninterest-bearing	$	427,705		$	451,511
Interest-bearing		1,413,633			1,421,748

Total deposits		1,841,338			1,873,259
Securities sold under agreements to repurchase		98,005			138,614
FHLB borrowings		65,000			65,000
Other borrowings		15,708			15,756
Interest, taxes, and other liabilities		27,290			26,630

Total liabilities		2,047,341			2,119,259
Stockholders’ equity
Preferred stock, undesignated par value; 1,000,000 shares authorized; Series A Noncumulative Convertible Preferred Stock, $0.01 par value; 25,000 shares authorized; none outstanding		—			—
Common stock, $1 par value; 50,000,000 shares authorized; 21,381,779 shares issued at December 31, 2016 and 2015, including 4,387,571 and 3,283,638 shares in treasury, respectively		21,382			21,382
Additional paid-in capital		228,142			227,692
Retained earnings		170,377			155,647
Treasury stock		(78,833	)		(56,457	)
Accumulated other comprehensive loss		(2,011	)		(5,247	)

Total stockholders’ equity		339,057			343,017

Total liabilities and stockholders’ equity	$	2,386,398		$	2,462,276

See Notes to Consolidated Financial Statements.

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME


	Year Ended December 31,
(Amounts in thousands, except share and per share data)	2016			2015			2014
Interest income
Interest and fees on loans	$	87,718		$	87,632		$	95,492
Interest on securities — taxable		3,229			4,225			5,975
Interest on securities — tax-exempt		3,624			3,978			4,350
Interest on deposits in banks		153			267			291

Total interest income		94,724			96,102			106,108
Interest expense
Interest on deposits		4,479			5,878			7,308
Interest on short-term borrowings		2,101			1,952			2,024
Interest on long-term debt		3,264			3,519			5,958

Total interest expense		9,844			11,349			15,290

Net interest income		84,880			84,753			90,818
Provision for loan losses		1,255			2,191			145

Net interest income after provision for loan losses		83,625			82,562			90,673
Noninterest income
Wealth management		2,828			2,975			3,030
Service charges on deposits		13,588			13,717			13,828
Other service charges and fees		8,102			8,045			7,581
Insurance commissions		5,442			6,899			6,555
Impairment losses on securities		(4,646	)		—			(737	)
Portion of loss recognized in other comprehensive income		—			—			—

Net impairment losses recognized in earnings		(4,646	)		—			(737	)
Net gain (loss) on sale of securities		335			144			(1,385	)
Net FDIC indemnification asset amortization		(5,474	)		(6,379	)		(3,979	)
Net gain on divestitures		3,682			—			755
Other operating income		3,209			4,129			4,355

Total noninterest income		27,066			29,530			30,003
Noninterest expense
Salaries and employee benefits		39,912			39,625			40,713
Occupancy expense		5,297			5,817			6,338
Furniture and equipment expense		4,341			5,199			4,952
Amortization of intangibles		1,136			1,118			787
FDIC premiums and assessments		1,383			1,513			1,672
FHLB debt prepayment fees		—			1,702			5,008
Merger, acquisition, and divestiture expense		730			86			1,150
Other operating expense		19,947			21,111			22,242

Total noninterest expense		72,746			76,171			82,862

Income before income taxes		37,945			35,921			37,814
Income tax expense		12,819			11,381			12,324

Net income		25,126			24,540			25,490
Dividends on preferred stock		—			105			910

Net income available to common shareholders	$	25,126		$	24,435		$	24,580

Earnings per common share
Basic	$	1.45		$	1.32		$	1.34
Diluted		1.45			1.31			1.31
Cash dividends per common share		0.60			0.54			0.50
Weighted average shares outstanding
Basic		17,319,689			18,531,039			18,406,363
Diluted		17,365,524			18,727,464			19,483,054

See Notes to Consolidated Financial Statements.

FIRST COMMUNITY BANCSHARES, INC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


	Year Ended December 31,
(Amounts in thousands)	2016			2015			2014
Net income	$	25,126		$	24,540		$	25,490
Other comprehensive income, before tax
Available-for-sale securities
Change in net unrealized losses on securities with other-than-temporary impairment		—			—			(1	)
Change in net unrealized gains on securities without other-than-temporary impairment		1,035			755			12,914
Reclassification adjustment for net (gains) losses recognized in net income		(335	)		(144	)		1,385
Reclassification adjustment for other-than-temporary impairment losses recognized in net income		4,646			—			737

Net unrealized gains on available-for-sale securities		5,346			611			15,035
Employee benefit plans
Net actuarial loss		(367	)		(363	)		(642	)
Plan change		(69	)		—			—
Reclassification adjustment for amortization of prior service cost and net actuarial loss recognized in net income		273			326			260

Net unrealized losses on employee benefit plans		(163	)		(37	)		(382	)

Other comprehensive income, before tax		5,183			574			14,653
Income tax expense		(1,947	)		(216	)		(5,518	)

Other comprehensive income, net of tax		3,236			358			9,135

Total comprehensive income	$	28,362		$	24,898		$	34,625

See Notes to Consolidated Financial Statements.

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


(Amounts in thousands, except share and per share data)	Preferred Stock			Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balance January 1, 2014	$	15,251		$	20,493	$	215,663		$	125,826		$	(33,887	)	$	(14,740	)	$	328,606
Net income		—			—		—			25,490			—			—			25,490
Other comprehensive income		—			—		—			—			—			9,135			9,135
Common dividends declared — $0.50 per share		—			—		—			(9,200	)		—			—			(9,200	)
Preferred dividends declared — $60.00 per share		—			—		—			(910	)		—			—			(910	)
Preferred stock converted to common stock — 6,900 shares		(100	)		7		93			—			—			—			—
Equity-based compensation expense		—			—		332			—			—			—			332
Common stock options exercised — 3,854 shares		—			—		(13	)		—			66			—			53
Restricted stock awards — 13,933 shares		—			—		(202	)		—			238			—			36
Purchase of treasury shares — 132,773 shares at $16.29 per share		—			—		—			—			(2,168	)		—			(2,168	)

Balance December 31, 2014	$	15,151		$	20,500	$	215,873		$	141,206		$	(35,751	)	$	(5,605	)	$	351,374

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

See Notes to Consolidated Financial Statements.

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
(Amounts in thousands)	2016			2015			2014
Operating activities
Net income	$	25,126		$	24,540		$	25,490
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		1,255			2,191			145
Depreciation and amortization of property, plant, and equipment		3,563			4,135			4,405
Amortization of premiums on investments, net		1,066			1,375			961
Amortization of FDIC indemnification asset, net		5,474			6,379			3,979
Amortization of intangible assets		1,136			1,118			787
Accretion on acquired loans		(4,766	)		(7,109	)		(9,645	)
Gain on divestiture, net		(3,682	)		—			(755	)
Gain on sale of loans, net		—			(501	)		(671	)
Equity-based compensation expense		209			110			332
Restricted stock awards		322			200			36
Issuance of treasury stock to 401(k) plan		384			363			—
Loss (gain) on sale of property, plant, and equipment, net		238			23			(113	)
Loss on sale of other real estate		1,495			3,002			3,227
(Gain) loss on sale of securities		(335	)		(144	)		1,385
Net impairment losses recognized in earnings		4,646			—			737
FHLB debt prepayment fees		—			1,702			5,008
Proceeds from sale of mortgage loans		—			21,993			28,443
Originations of mortgage loans		—			(19,700	)		(28,681	)
Decrease in accrued interest receivable		454			308			1,206
Decrease in other operating activities		6,503			18,534			5,413

Net cash provided by operating activities		43,088			58,519			41,689
Investing activities
Proceeds from sale of securities available for sale		104,928			10,999			162,443
Proceeds from maturities, prepayments, and calls of securities available for sale		99,906			29,931			48,915
Proceeds from maturities and calls of securities held to maturity		25,190			190			190
Payments to acquire securities available for sale		(1,174	)		(81,540	)		(6,047	)
Payments to acquire securities held to maturity		—			(15,003	)		(57,675	)
Originations of loans, net		(159,243	)		(24,719	)		(64,115	)
Proceeds from FHLB stock, net		130			1,279			4,349
Cash proceeds from (paid in) mergers, acquisitions, and divestitures, net (See Note 2)		29,716			(88	)		178,604
Proceeds from the FDIC		4,403			2,683			4,770
Payments to acquire property, plant, and equipment, net		(793	)		(1,239	)		(1,098	)
Proceeds from sale of other real estate		7,147			6,722			10,619

Net cash provided by (used in) investing activities		110,210			(70,785	)		280,955
Financing activities
(Decrease) increase in noninterest-bearing deposits, net		(17,482	)		33,782			68,246
Decrease in interest-bearing deposits, net		(37,576	)		(161,282	)		(121,912	)
Decrease in federal funds purchased		—			—			(16,000	)
(Repayments of) proceeds from securities sold under agreements to repurchase, net		(40,609	)		16,872			3,432
Repayments of FHLB and other borrowings, net		(48	)		(28,945	)		(63,097	)
Redemption of preferred stock		—			(2,367	)		—
Proceeds from stock options exercised		921			63			53
Excess tax benefit from equity-based compensation		174			8			5
Payments for repurchase of treasury stock		(23,762	)		(21,525	)		(2,168	)
Payments of common dividends		(10,396	)		(9,994	)		(9,200	)
Payments of preferred dividends		—			(219	)		(910	)

Net cash used in financing activities		(128,778	)		(173,607	)		(141,551	)

Net increase (decrease) in cash and cash equivalents		24,520			(185,873	)		181,093
Cash and cash equivalents at beginning of period		51,787			237,660			56,567

Cash and cash equivalents at end of period	$	76,307		$	51,787		$	237,660

Supplemental disclosure — cash flow information
Cash paid for interest	$	9,845		$	11,757		$	15,791
Cash paid for income taxes		6,588			6,900			12,552

Supplemental transactions — noncash items
Transfer of loans to other real estate		5,162			6,317			12,620
Loans originated to finance other real estate		57			649			671

See Notes to Consolidated Financial Statements.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.

Basis of Presentation and Significant Accounting Policies

Basis of Presentation

First Community Bancshares, Inc. (the “Company”) is a financial holding company headquartered in Bluefield, Virginia that provides banking products and services to individuals and commercial customers through its wholly owned subsidiary First Community Bank (the “Bank”). The Bank offers insurance products and services through First Community Insurance Services (“FCIS”) and trust and wealth management services through its Trust Division and wholly owned subsidiary First Community Wealth Management. Unless the context suggests otherwise, the term “Company” refers to First Community Bancshares, Inc. and its subsidiaries as a consolidated entity.

Principles of Consolidation

The Company’s accounting and reporting policies conform with U.S. generally accepted accounting principles (“GAAP”) and prevailing practices in the banking industry. The consolidated financial statements include all accounts of the Company and its wholly owned subsidiaries and eliminate all intercompany balances and transactions. The Company operates in one business segment, Community Banking, which consists of all operations, including commercial and consumer banking, lending activities, wealth management, and insurance services.

The Company maintains investments in variable interest entities (“VIEs”). VIEs are legal entities in which equity investors do not have sufficient equity at risk for the entity to independently finance its activities, or as a group, the holders of the equity investment at risk lack the power through voting or similar rights to direct the activities of the entity that most significantly impact its economic performance, or do not have the obligation to absorb the expected losses of the entity or the right to receive expected residual returns of the entity. Consolidation of a VIE is required if a reporting entity is the primary beneficiary of the VIE. The Company periodically reviews its VIEs and has determined that it is not the primary beneficiary of any VIE; therefore, the assets and liabilities of these entities are not consolidated into the financial statements.

Use of Estimates

Preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that require the most subjective or complex judgments relate to fair value measurements, investment securities, the allowance for loan losses, the Federal Deposit Insurance Corporation (“FDIC”) indemnification asset, goodwill and other intangible assets, and income taxes.

Reclassification

Certain amounts reported in prior years have been reclassified to conform to the current year’s presentation. These reclassifications had no effect on the Company’s results of operations, financial position, or cash flow.

Summary of Significant Accounting Policies

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants. Market participants are buyers and sellers in the principal market that are independent,

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

knowledgeable, able to transact, and willing to transact. The fair value hierarchy ranks the inputs used in measuring fair value as follows:

•

Level 1 – Observable, unadjusted quoted prices in active markets

•

Level 2 – Inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability

•

Level 3 – Unobservable inputs with little or no market activity that require the Company to use reasonable inputs and assumptions

These valuation methodologies are applied to all the Company’s assets and liabilities carried at fair value. Methodologies used to determine fair value might be highly subjective and judgmental in nature. The Company may record adjustments to certain financial assets and liabilities on a recurring basis. The Company may be required to record certain assets at fair value on a nonrecurring basis in specific circumstances, such as evidence of impairment. If the Company determines that a valuation technique change is necessary, the change is assumed to have occurred at the end of the respective reporting period.

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks, federal funds sold, and interest-bearing balances on deposit with the Federal Home Loan Bank (“FHLB”), the Federal Reserve Bank (“FRB”), and correspondent banks that are available for immediate withdrawal.

Investment Securities

Management classifies debt and marketable equity securities as held-to-maturity or available-for-sale based on the intent and ability to hold the securities to maturity. Debt securities that the Company has the intent and ability to hold to maturity are classified as held-to-maturity securities and carried at amortized cost. Debt securities not classified as held to maturity and marketable equity securities are classified as available-for-sale securities and carried at estimated fair value. Available-for-sale securities consist of securities the Company intends to hold for indefinite periods of time including securities to be used as part of the Company’s asset/liability management strategy and securities that may be sold in response to changes in interest rates, prepayment risk, or other similar factors. Unrealized gains and losses on available-for-sale securities are included in accumulated other comprehensive income (“AOCI”), net of income taxes, in stockholders’ equity. Gains or losses on calls, maturities, or sales of investment securities are recorded based on the specific identification method and included in noninterest income. Premiums and discounts are amortized or accreted over the life of a security into interest income. Nonmarketable equity investments are reported in other assets. The Company performs extensive quarterly reviews of held-to-maturity and available-for-sale securities to determine if unrealized losses are temporary or other than temporary. If the security is deemed to have other-than-temporary impairment (“OTTI”), the amount representing the credit loss is recognized as a charge to noninterest income and the amount representing all other factors is recognized in other comprehensive income (“OCI”).

Nonmarketable Equity Investments

As a condition of membership in the FHLB and the FRB, the Company is required to hold a minimum level of stock in the FHLB of Atlanta and the FRB of Richmond. These nonmarketable securities are carried at cost and periodically reviewed for impairment. When evaluating these investments, managements considers publicly available information about the profitability and asset quality of the issuer, dividend payment history, and redemption experience in determining the recoverability of the investment. The investment in FHLB and FRB stock was $10.60 million as of December 31, 2016, and $10.73 million as of December 31, 2015.

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Other Investments

The Company has certain long-term investments that are considered VIEs, including its subsidiary FCBI Capital Trust (the “Trust”), certain tax credit limited partnerships, and various limited liability companies that manage real estate investments, facilitate tax credits, and provide title insurance and other related financial services. The Company uses the equity method of accounting if it is able to exercise significant influence over the entity and records its share of the entity’s earnings or losses in noninterest income. The Company uses the cost method of accounting if it is not able to exercise significant influence over the entity. There were no equity investments as of December 31, 2016, or December 31, 2015. The carrying value and maximum potential loss exposure of VIEs totaled $1.14 million as of December 31, 2016, and $934 thousand as of December 31, 2015.

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting as outlined in using Topic 805 of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”). Under this method, all identifiable assets acquired, including purchased loans, and liabilities assumed are recorded at fair value. Any excess of the purchase price over the fair value of net assets acquired is recorded as goodwill. In instances where the price of the acquired business is less than the net assets acquired, a gain on the purchase is recorded. Fair values are assigned based on quoted prices for similar assets, if readily available, or appraisals by qualified independent parties for relevant asset and liability categories. Certain financial assets and liabilities are valued using discount models that apply current discount rates to streams of cash flow. Valuation methods require assumptions, which can result in alternate valuations, varying levels of goodwill or bargain purchase gains, or amortization expense or accretion income. Management must make estimates for the useful or economic lives of certain acquired assets and liabilities that are used to establish the amortization or accretion of some intangible assets and liabilities, such as core deposits. Fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information about the closing date fair values becomes available. Acquisition and divestiture activities are included in the Company’s consolidated results of operations from the closing date of the transaction. Acquisition and divestiture related costs are recognized in noninterest expense as incurred. For additional information, see “Purchased Credit Impaired Loans” and “Intangible Assets” below.

Loans Held for Investment

Loans classified as held for investment are originated with the intent to hold indefinitely, until maturity, or until pay-off. Loans held for investment are carried at the principal amount outstanding, net of unearned income and any necessary write-downs to reduce individual loans to net realizable value. Interest income on performing loans is recognized as interest income at the contractual rate of interest. Loan origination fees, including loan commitment and underwriting fees, are reduced by direct costs associated with loan processing, including salaries, legal review, and appraisal fees. Net deferred loan fees are deferred and amortized over the life of the related loan or commitment period.

Purchased Performing Loans. Purchased loans that are deemed to be performing at the acquisition date are accounted for using the contractual cash flow method of accounting, which results in the loans being recorded at fair value with a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated contractual lives of the loans. No allowance for loan losses is recorded at acquisition for purchased loans because the fair values of the acquired loans incorporate credit risk assumptions.

Purchased Credit Impaired (“PCI”) Loans. When purchased loans exhibit evidence of credit deterioration after the acquisition date, and it is probable at acquisition the Company will not collect all contractually required principal and interest payments, the loans are referred to as PCI loans. PCI loans are accounted for using Topic

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310-30 of the FASB ASC, formerly the American Institute of Certified Public Accountants’ Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer.” PCI loans are initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loans. Per the guidance, the Company groups PCI loans that have common risk characteristics into loan pools. Evidence of credit quality deterioration at acquisition may include measures such as nonaccrual status, credit scores, declines in collateral value, current loan to value percentages, and days past due. The Company considers expected prepayments and estimates the amount and timing of expected principal, interest, and other cash flows for each loan or pool of loans identified as credit impaired. If contractually required payments at acquisition exceed cash flows expected to be collected, the excess is the non-accretable difference, which is available to absorb credit losses on those loans or pools of loans. If the cash flows expected at acquisition exceed the estimated fair values, the excess is the accretable yield, which is recognized in interest income over the remaining lives of those loans or pools of loans when there is a reasonable expectation about the amount and timing of such cash flows.

Impaired Loans and Nonperforming Assets. The Company maintains an active and robust problem credit identification system through its ongoing credit review function. When a credit is identified as exhibiting characteristics of weakening, the Company assesses the credit for potential impairment. Loans are considered impaired when, in the opinion of management and based on current information and events, the collection of principal and interest payments due under the contractual terms of the loan agreements are uncertain. The Company conducts quarterly reviews of loans with balances of $250 thousand or greater that are deemed to be impaired. Factors considered in determining impairment include, but are not limited to, the borrower’s cash flow and capacity for debt repayment, the valuation of collateral, historical loss percentages, and economic conditions. Impairment allowances allocated to individual loans, including individual credit relationships and loan pools grouped by similar risk characteristics, are reviewed quarterly by management. Interest income realized on impaired loans in nonaccrual status, if any, is recognized upon receipt. The accrual of interest, which is based on the daily amount of principal outstanding, on impaired loans is generally continued unless the loan becomes delinquent 90 days or more.

Loans are considered past due when either principal or interest payments become contractually delinquent by 30 days or more. The Company’s policy is to discontinue the accrual of interest, if warranted, on loans based on the payment status, evaluation of the related collateral, and the financial strength of the borrower. Loans that are 90 days or more past due are placed on nonaccrual status. Management may elect to continue the accrual of interest when the loan is well secured and in process of collection. When interest accruals are discontinued, interest accrued and not collected in the current year is reversed from income, and interest accrued and not collected from prior years is charged to the allowance for loan losses. Nonaccrual loans may be returned to accrual status when all principal and interest amounts contractually due, including past due payments, are brought current; the ability of the borrower to repay the obligation is reasonably assured; and there is generally a period of at least six months of repayment performance by the borrower in accordance with the contractual terms.

Seriously delinquent loans are evaluated for loss mitigation options, including charge-off. Closed-end retail loans are generally charged off against the allowance for loan losses when the loans become 120 days past due. Open-end retail loans and residential real estate secured loans are generally charged off when the loans become 180 days past due. Unsecured loans are generally charged off when the loans become 90 days past due. All other loans are charged off against the allowance for loan losses after collection attempts have been exhausted, which generally is within 120 days. Recoveries of loans previously charged off are credited to the allowance for loan losses in the period received.

Loans are considered troubled debt restructurings (“TDRs”) when the Company grants concessions, for legal or economic reasons, to borrowers experiencing financial difficulty that would not otherwise be considered. The

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Company generally makes concessions in interest rates, loan terms, and/or amortization terms. All TDRs $250 thousand or greater are evaluated for a specific reserve based on either the collateral or net present value method, whichever is most applicable. TDRs under $250 thousand are subject to the reserve calculation for classified loans based primarily on the historical loss rate. At the date of modification, nonaccrual loans are classified as nonaccrual TDRs. TDRs classified as nonperforming at the date of modification are returned to performing status after six months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs.

Other real estate owned (“OREO”) acquired through foreclosure, or other settlement, is carried at the lower of cost or fair value less estimated selling costs. The fair value is generally based on current third-party appraisals. When a property is transferred into OREO, any excess of the loan balance over the net realizable fair value is charged against the allowance for loan losses. Operating expenses, gains, and losses on the sale of OREO are included in other noninterest expense in the Company’s consolidated statements of income after any fair value write-downs are recorded as valuation adjustments.

Allowance for Loan Losses

Management performs quarterly assessments of the allowance for loan losses. The allowance is increased by provisions charged to operations and reduced by net charge-offs. The provision is calculated and charged to earnings to bring the allowance to a level that, through a systematic process of measurement, reflects the amount management estimates is needed to absorb probable losses in the portfolio. The Company’s allowance for loan losses is segmented into commercial, consumer real estate, and consumer and other loans with each segment divided into classes with similar characteristics, such as the type of loan and collateral. The allowance for loan losses includes specific allocations related to significant individual loans and credit relationships and general reserves related to loans not individually evaluated. Loans not individually evaluated are grouped into pools based on similar risk characteristics. A loan that becomes adversely classified or graded is moved into a group of adversely classified or graded loans with similar risk characteristics for evaluation. A provision for loan losses is recorded for any credit deterioration in purchased performing loans after the acquisition date.

PCI loans are grouped into pools and evaluated separately from the non-PCI portfolio. The Company estimates cash flows to be collected on PCI loans and discounts those cash flows at a market rate of interest. If cash flows for PCI loans are expected to decline, generally a provision for loan losses is charged to earnings, resulting in an increase to the allowance for loan losses. If cash flows for PCI loans are expected to improve, any previously established allowance is first reversed to the extent of prior charges and then interest income is increased using the prospective yield adjustment over the remaining life of the loan, or pool of loans. Any provision established for PCI loans covered under the FDIC loss share agreements is offset by an adjustment to the FDIC indemnification asset to reflect the indemnified portion, 80%, of the post-acquisition exposure. While allocations are made to various portfolio segments, the allowance for loan losses is available for use against any loan loss management deems appropriate, excluding reserves allocated to specific loans and PCI loan pools.

FDIC Indemnification Asset

The FDIC indemnification asset represents the carrying amount of the right to receive payments from the FDIC for losses incurred on certain loans and OREO purchased from the FDIC that are covered by loss share agreements. The FDIC indemnification asset is measured separately from related covered assets because it is not contractually embedded in the assets or transferable should the assets be disposed. Under the acquisition method of accounting, the FDIC indemnification asset is recorded at fair value using projected cash flows based on expected reimbursements and applicable loss share percentages as outlined in the loss share agreements. The expected reimbursements do not include reimbursable amounts related to future covered expenditures. The cash

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flows are discounted to reflect the timing and receipt of reimbursements from the FDIC. The discount is accreted through noninterest income over future periods. Post-acquisition adjustments to the indemnification asset are measured on the same basis as the underlying covered assets. Increases in the cash flows of covered loans reduce the FDIC indemnification asset balance, which is recognized as amortization through noninterest income over the shorter of the remaining life of the FDIC indemnification asset or the underlying loans. Decreases in the cash flows of covered loans increase the FDIC indemnification asset balance, which is recognized as accretion through noninterest income.

Premises and Equipment

Premises, equipment, and capital leases are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets. Useful lives range from 5 to 10 years for furniture, fixtures, and equipment; 3 to 5 years for software, hardware, and data handling equipment; and 10 to 40 years for buildings and building improvements. Land improvements are amortized over a period of 20 years and leasehold improvements are amortized over the lesser of the term of the respective leases plus the first optional renewal period, when renewal is reasonably assured, or the estimated useful lives of the improvements. The Company leases various properties within its branch network. Leases generally have initial terms of up to 20 years and most contain options to renew with reasonable increases in rent. All leases are accounted for as operating leases. Maintenance and repairs are charged to current operations while improvements that extend the economic useful life of the underlying asset are capitalized. Disposition gains and losses are reflected in current operations.

Intangible Assets

Intangible assets consist of goodwill, core deposit intangible assets, and other identifiable intangible assets that result from business combinations. Goodwill represents the excess of the purchase price over the fair value of net assets acquired that is allocated to the appropriate reporting unit when acquired. Core deposit intangible assets represent the future earnings potential of acquired deposit relationships that are amortized over their estimated remaining useful lives. Other identifiable intangible assets primarily represent the rights arising from contractual arrangements that are amortized using the straight-line method.

Goodwill is tested annually, or more frequently if necessary, using a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the two-step quantitative goodwill impairment test is performed. Step 1 consists of calculating and comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of a reporting unit is greater than its book value, no goodwill impairment exists. If the carrying amount of a reporting unit is greater than its calculated fair value, goodwill impairment may exist and Step 2 is required to determine the amount of the impairment loss.

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are generally accounted for as collateralized financing transactions and recognized as short-term borrowings in the Company’s consolidated balance sheets. Securities, generally U.S. government and federal agency securities, pledged as collateral under these arrangements can be sold or repledged only if replaced by the secured party. The fair value of the collateral provided to a third party is continually monitored and additional collateral is provided as appropriate.

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Derivative Instruments

The Company primarily uses derivative instruments to protect against the risk of adverse price or interest rate movements on the value of certain assets and liabilities and on future cash flows. Derivative instruments represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another asset to the other party based on a notional amount and an underlying asset as specified in the contract such as interest rates, equity security prices, currencies, commodity prices, or credit spreads. These derivative instruments may consist of interest rate swaps, floors, caps, collars, futures, forward contracts, and written and purchased options. Derivative contracts often involve future commitments to exchange interest payment streams or currencies based on a notional or contractual amount, such as interest rate swaps or currency forwards, or to purchase or sell other financial instruments at specified terms on a specified date, such as options to buy or sell securities or currencies. Derivative instruments are subject to counterparty credit risk due to the possibility that the Company will incur a loss because a counterparty, which may be a bank, a broker-dealer or a customer, fails to meet its contractual obligations. This risk is measured as the expected positive replacement value of contracts. Derivative contracts may be executed only with exchanges or counterparties approved by the Company’s Asset/Liability Management Committee.

If certain conditions are met, a derivative may be designated as a hedge related to fair value, cash flow, or foreign exposure risk. The recognition of changes in the fair value of a derivative instrument varies depending on the intended use of the derivative and the resulting designation. The Company accounts for hedges of customer loans as fair value hedges. The change in fair value of the hedging derivative and the change in fair value of the hedged exposure are recorded in earnings. Any hedge ineffectiveness is also reflected in current earnings. Changes in the fair value of derivatives not designated as hedging instruments are recognized as a gain or loss in earnings. The Company formally documents any relationships between hedging instruments and hedged items and the risk management objective and strategy for undertaking each hedged transaction. All derivative instruments are reported at fair value in the consolidated balance sheets.

Equity-Based Compensation

The cost of employee services received in exchange for equity instruments, including stock options and restricted stock awards , is generally measured at fair value on the grant date. The Black-Scholes valuation model is used to estimate the fair value of stock options at the grant date while the fair value of restricted stock awards is based on the market price of the Company’s common stock on the grant date. The Black-Scholes model incorporates the following assumptions: the expected volatility is based on the weekly historical volatility of the Company’s common stock price over the expected term of the option; the expected term is generally calculated using the shortcut method; the risk-free interest rate is based on the U.S. Department of the Treasury’s (“Treasury”) yield curve on the grant date with a term comparable to the grant; and the dividend yield is based on the Company’s dividend yield using the most recent dividend rate paid per share and trading price of the Company’s common stock. Compensation cost is recognized over the required service period, generally defined as the vesting period for stock option awards and as the restriction period for restricted stock awards. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Advertising Expenses

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

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Income Taxes

Income tax expense is comprised of the current and deferred tax consequences of events and transactions already recognized. The Company includes interest and penalties related to income tax liabilities in income tax expense. The effective tax rate, income tax expense as a percent of pre-tax income, may vary significantly from statutory rates due to tax credits and permanent differences. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are adjusted through the provision for income taxes as changes in tax laws or rates are enacted.

Per Share Results

Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of potential common stock that could be issued by the Company. Under the treasury stock method of accounting, potential common stock may be issued for stock options, non-vested restricted stock awards, performance based stock awards, and convertible preferred stock. Diluted earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding for the period plus the number of dilutive potential common shares. The calculation of diluted earnings per common share excludes potential common shares that have an exercise price greater than the average market value of the Company’s common stock because the effect would be antidilutive.

Recent Accounting Standards

Standards Adopted

In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.” This ASU removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The update should be applied prospectively. The Company early adopted ASU 2017-04 in the first quarter of 2017. The adoption of the standard did not have an effect on the Company’s financial statements.

In January 2017, the FASB issued ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings.” This ASU requires registrants to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period. In cases where a registrant cannot reasonably estimate the impact of the adoption, additional qualitative disclosures should be considered to assist the reader in assessing the significance of the standard’s impact on its financial statements. The Company adopted ASU 2017-03 in the first quarter of 2017. The adoption of the standard resulted in enhanced disclosures regarding the impact that recently issued accounting standards adopted in a future period will have on the Company’s financial statements and disclosures. See “Standards Not Yet Adopted” below.

In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement Period Adjustments.” This ASU simplifies the accounting for adjustments made to provisional amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments. The Company adopted ASU 2015-16 in the first quarter of 2016. The adoption of the standard did not have an effect on the Company’s financial statements.

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In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis.” This ASU changes the analysis that an entity performs to determine whether to consolidate certain legal entities. The Company adopted ASU 2015-02 in the first quarter of 2016. The Company evaluated its investments in VIEs under the guidance and concluded that not consolidating these entities was still appropriate; therefore, the adoption of the standard did not have an effect on the Company’s financial statements.

In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. An entity should apply guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period for which the service has already been rendered. The Company adopted ASU 2014-12 in the first quarter of 2016. The adoption of the standard did not have an effect on the Company’s financial statements.

Standards Not Yet Adopted

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” This ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective for the Company for fiscal years beginning after December 15, 2017. The Company expects to adopt ASU 2016-18 in the first quarter of 2018. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 will be effective for the Company for the fiscal years beginning after December 15, 2017, with early adoption permitted. The update should be applied on a retrospective basis, if practicable. The Company expects to adopt ASU 2016-15 in the first quarter of 2018. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU intends to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the update amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for the Company for the fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company expects to adopt ASU 2016-13 in the first quarter of 2020 and recognize a cumulative adjustment to retained earnings as of the beginning of the year of adoption. The Company is evaluating the impact of the standard.

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In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for share-based payment award transactions including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 will be effective for the Company for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company expects to adopt ASU 2016-09 in the first quarter of 2017. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This ASU increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring more disclosures related to leasing transactions. ASU 2016-02 will be effective for the Company for the fiscal years beginning after December 15, 2018, with early adoption permitted. The Company expects to adopt ASU 2016-02 in the first quarter of 2019. The Company is evaluating the impact of the standard and expects a minimal increase in assets and liabilities; however, the Company does not expect the guidance to have a material effect on its financial statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The new guidance also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 will be effective for the Company for fiscal years beginning after December 15, 2017, with early adoption permitted for the instrument-specific credit risk provision. The Company expects to adopt ASU 2016-01 in the first quarter of 2018. The Company is evaluating the impact of the standard and does not expect to recognize a significant cumulative effect adjustment to retained earnings at the beginning of the year of adoption or expect the guidance to have a material effect on its financial statements. The cumulative-effect adjustment will be dependent on the composition and fair value of the Company’s equity securities portfolio at the adoption date.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This ASU’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under existing guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers” deferring the effective date of ASU 2014-09 for the Company until fiscal years beginning after December 15, 2017, with early adoption permitted for fiscal years beginning after December 15, 2016. Additional revenue related standards to be adopted concurrently with ASU 2014-09 include ASU 2016-20, ASU 2016-12, ASU 2016-10, and ASU 2016-08. The Company expects to adopt ASU 2014-09, and related updates, in the first quarter of 2018 and recognize a cumulative adjustment to retained earnings as of the beginning of the year of adoption. The Company’s primary source of revenue is interest income, which is excluded from the scope of this guidance; however, the Company is evaluating the impact of the standard on other income, which includes fees for services, commissions on sales, and various deposit service charges. The Company does not expect the guidance to have a material effect on its financial statements.

The Company does not expect other recent accounting standards issued by the FASB or other standards-setting bodies to have a material impact on the consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 2.

Acquisitions and Divestitures

The following table presents the components of net cash received in, or paid for, acquisitions and divestitures, an investing activity in the Company’s consolidated statements of cash flows, for the periods indicated:


	Year Ended December 31,
(Amounts in thousands)	2016			2015			2014
Acquisitions
Fair value of assets and liabilities acquired:
Loans	$	149,122		$	—		$	140
Premises and equipment		4,829			—			4,547
Other assets		448			—			4,563
Other intangible assets		3,842			—			—
Deposits		(134,307	)		—			(318,877	)
Other liabilities		(75	)		—			(76	)
Purchase price in excess of net assets acquired		2,446			88			1,721

Total purchase price		26,305			88			(307,982	)
Non-cash purchase price		—			—			—
Cash acquired		—			—			—

Net cash paid (received) in acquisitions		26,305			88			(307,982	)

Divestitures
Book value of assets sold		(165,742	)		389			(83,283	)
Book value of liabilities sold		111,198			(152	)		215,268
Sales price in excess of net liabilities assumed		(3,682	)		(6	)		(755	)

Total sales price		(58,226	)		231			131,230
Cash sold		—			—			(1,852	)
Amount due remaining on books		2,205			(231	)		—

Net cash (received) paid in divestitures		(56,021	)		—			129,378

Net cash (received) paid in acquisitions and divestitures	$	(29,716	)	$	88		$	(178,604	)

Ascension Insurance Agency, Inc.

On October 1, 2016, the Company completed the sale of Greenpoint Insurance Group, Inc. (“Greenpoint”) to Ascension Insurance Agency, Inc. for $7.11 million, including earn-out payments of $2.21 million to be received over the next three years if certain operating targets are met. The divestiture consisted of two North Carolina offices operating as Greenpoint and two Virginia offices operating under the trade name Carr & Hyde Insurance. The Company recorded a net gain of $617 thousand in connection with the divestiture and eliminated $6.49 million in goodwill and other intangible assets. The Company incurred expenses related to the divestiture of $46 thousand in 2016. The transaction did not impact the Company’s in-branch insurance offices operating as FCIS in West Virginia and Virginia.

On October 31, 2015, the Company sold one insurance agency for $372 thousand. The Company recorded a net loss of $8 thousand in connection with the sale and eliminated $385 thousand in goodwill and other intangible assets. In addition, the Company recorded additional goodwill of $88 thousand in 2015 related to contingent earn-out payments from acquisitions that occurred before 2009.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

First Bank

On July 15, 2016, the Company completed the branch exchange with First Bank, North Carolina, pursuant to which the Bank exchanged a portion of its North Carolina branch network for First Bank’s Virginia branch network. Under the agreements, the Bank simultaneously sold six branches in the Winston-Salem and Mooresville areas of North Carolina and acquired seven branches in Southwestern Virginia. The branch acquisition complements the Company’s 2014 acquisition of seven branches from Bank of America by expanding the Company’s existing presence in Southwest Virginia and affords the opportunity to realize certain operating cost savings.

In connection with the branch exchange, the Company acquired total assets of $160.69 million, including total loans of $149.12 million and goodwill and other intangibles of $6.29 million, and total liabilities of $134.38 million, including total deposits of $134.31 million. The Company did not acquire any PCI loans. The consideration transferred included the net fair value of divested assets and a purchase premium of $3.84 million. The Company divested total assets of $162.17 million, including loans of $155.54 million and goodwill and other intangibles of $2.33 million, and total liabilities of $111.05 million, including deposits of $111.02 million, and received a deposit premium of $4.07 million. In connection with the divestiture, the Company recorded a net gain of $3.07 million. The Company incurred expenses related to the First Bank transaction of $684 thousand in 2016. The estimated fair values, including identifiable intangible assets, are preliminary and subject to refinement for up to one year after the closing date of the acquisition.

CresCom Bank

On December 12, 2014, the Company completed the sale of thirteen branches to CresCom Bank, Charleston, South Carolina. The divestiture consisted of ten branches in the Southeastern, Coastal region of North Carolina and three branches in South Carolina, all of which were previously acquired in the FDIC-assisted acquisition of Waccamaw Bank (“Waccamaw”) on June 8, 2012. At closing, the Company divested total deposits of $215.19 million and total loans of $70.04 million. The transaction excluded loans covered under FDIC loss share agreements. The Company recorded a net gain of $755 thousand in connection with the divestiture, which included a deposit premium of $6.45 million and goodwill allocation of $6.45 million.

Bank of America

On October 24, 2014, the Company completed the acquisition of seven branches from Bank of America, National Association. The acquisition consisted of six branches in Southwestern Virginia and one branch in Central North Carolina. At acquisition, the Company assumed total deposits of $318.88 million for a premium of $5.79 million. No loans were included in the purchase. The Company purchased the real estate, or assumed the leases, associated with the branches.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 3.

Investment Securities

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


	December 31, 2016
(Amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
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


	December 31, 2015
(Amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. Agency securities	$	31,414	$	39	$	(751	)	$	30,702
Municipal securities		124,880		4,155		(357	)		128,678
Single issue trust preferred securities		55,882		—		(8,050	)		47,832
Corporate securities		70,571		—		(238	)		70,333
Certificates of deposit		5,000		—		—			5,000
Mortgage-backed Agency securities		84,576		155		(1,175	)		83,556
Equity securities		66		6		—			72

Total securities available for sale	$	372,389	$	4,355	$	(10,571	)	$	366,173

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the amortized cost and fair value of available-for-sale securities, by contractual maturity, as of December 31, 2016. Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.


(Amounts in thousands)	U.S. Agency Securities		Municipal Securities		Corporate Notes		Total
Amortized cost maturity:
One year or less	$	—	$	1,135	$	—	$	1,135
After one year through five years		1		1,035		—		1,036
After five years through ten years		—		88,449		—		88,449
After ten years		1,341		21,040		22,104		44,485

Amortized cost	$	1,342	$	111,659	$	22,104		135,105

Mortgage-backed securities								31,290
Equity securities								55

Total amortized cost							$	166,450

Fair value maturity:
One year or less	$	—	$	1,141	$	—	$	1,141
After one year through five years		1		1,059		—		1,060
After five years through ten years		—		90,360		—		90,360
After ten years		1,344		20,771		19,939		42,054

Fair value	$	1,345	$	113,331	$	19,939		134,615

Mortgage-backed securities								30,891
Equity securities								73

Total fair value							$	165,579

The following tables present the amortized cost and fair value of held-to-maturity securities, including gross unrealized gains and losses, as of the dates indicated:


	December 31, 2016
(Amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
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


	December 31, 2015
(Amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. Agency securities	$	61,863	$	75	$	(106	)	$	61,832
Municipal securities		190		3		—			193
Corporate securities		10,488		—		(23	)		10,465

Total securities held to maturity	$	72,541	$	78	$	(129	)	$	72,490

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the amortized cost and fair value of held-to-maturity securities, by contractual maturity, as of December 31, 2016. Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.


(Amounts in thousands)	U.S. Agency Securities		Corporate Notes		Total
Amortized cost maturity:
One year or less	$	18,756	$	3,095	$	21,851
After one year through five years		17,985		7,297		25,282
After five years through ten years		—		—		—
After ten years		—		—		—

Total amortized cost	$	36,741	$	10,392	$	47,133

Fair value maturity:
One year or less	$	18,768	$	3,096	$	21,864
After one year through five years		18,097		7,305		25,402
After five years through ten years		—		—		—
After ten years		—		—		—

Total fair value	$	36,865	$	10,401	$	47,266

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables present municipal securities, by state, for the states where the largest volume of these securities are held in the Company’s portfolio. The tables also present the amortized cost and fair value of the municipal securities, including gross unrealized gains and losses, as of the dates indicated.


	December 31, 2016
(Amounts in thousands)	Percent of Municipal Portfolio			Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
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


	December 31, 2015
(Amounts in thousands)	Percent of Municipal Portfolio			Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
New York		11.38	%	$	14,062	$	602	$	—		$	14,664
Minnesota		8.72	%		11,011		283		(64	)		11,230
Wisconsin		8.69	%		10,797		420		(14	)		11,203
Ohio		8.38	%		10,416		388		—			10,804
Connecticut		7.76	%		9,786		217		(5	)		9,998
New Jersey		7.69	%		9,554		378		(22	)		9,910
Massachusetts		7.60	%		9,479		315		—			9,794
Texas		6.04	%		7,651		208		(75	)		7,784
Other		5.03	%		6,471		75		(60	)		6,486
Total		28.71	%		35,843		1,272		(117	)		36,998

		100.00	%	$	125,070	$	4,158	$	(357	)	$	128,871

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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


	December 31, 2016
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
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	)


	December 31, 2015
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. Agency securities	$	4,441	$	(5	)	$	23,922	$	(746	)	$	28,363	$	(751	)
Municipal securities		8,126		(48	)		10,393		(309	)		18,519		(357	)
Single issue trust preferred securities		—		—			47,832		(8,050	)		47,832		(8,050	)
Corporate securities		70,333		(238	)		—		—			70,333		(238	)
Mortgage-backed Agency securities		27,050		(253	)		37,291		(922	)		64,341		(1,175	)

Total	$	109,950	$	(544	)	$	119,438	$	(10,027	)	$	229,388	$	(10,571	)

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


	December 31, 2016
	Less than 12 Months					12 Months or Longer				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
(Amounts in thousands)	Value		Losses			Value		Losses		Value		Losses
Corporate securities	$	3,533	$	(2	)	$	—	$	—	$	3,533	$	(2	)

Total	$	3,533	$	(2	)	$	—	$	—	$	3,533	$	(2	)


	December 31, 2015
	Less than 12 Months					12 Months or Longer				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
(Amounts in thousands)	Value		Losses			Value		Losses		Value		Losses
U.S. Agency securities	$	43,723	$	(106	)	$	—	$	—	$	43,723	$	(106	)
Corporate securities		6,851		(23	)		—		—		6,851		(23	)

Total	$	50,574	$	(129	)	$	—	$	—	$	50,574	$	(129	)

There were 82 individual securities in an unrealized loss position as of December 31, 2016, and their combined depreciation in value represented 1.51% of the investment securities portfolio. These securities included 15 securities in a continuous unrealized loss position for 12 months or longer that the Company does not intend to

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

sell, and that it has determined is not more likely than not going to be required to sell, prior to maturity or recovery. There were 107 individual securities in an unrealized loss position as of December 31, 2015, and their combined depreciation in value represented 2.44% of the investment securities portfolio.

The Company reviews its investment portfolio quarterly for indications of OTTI. The initial indicator of OTTI for both debt and equity securities is a decline in fair value below book value and the severity and duration of the decline. For debt securities, the credit-related OTTI is recognized as a charge to noninterest income and the noncredit-related OTTI is recognized in OCI. The Company incurred credit-related OTTI charges on debt securities of $4.64 million in 2016 related to the Company’s change in intent to hold certain securities to recovery. The intent was changed to sell specific trust preferred securities in the Company’s investment portfolio primarily to reduce credit concentrations with two issuers. The Company incurred credit-related OTTI charges on debt securities of $705 thousand in 2014 related to a non-Agency mortgage-backed security that was sold in November 2014. Temporary impairment on debt securities is primarily related to changes in benchmark interest rates, changes in pricing in the credit markets, and other current economic factors. For equity securities, the OTTI is recognized as a charge to noninterest income. The Company incurred OTTI charges related to equity securities of $11 thousand in 2016 and $32 thousand in 2014. There were no OTTI charges recognized in 2015.

The following table presents the changes in credit-related losses recognized in earnings on debt securities where a portion of the impairment was recognized in OCI during the periods indicated:


	Year Ended December 31,
(Amounts in thousands)	2016			2015		2014
Beginning balance⁽¹⁾	$	—		$	—	$	7,798
Additions for credit losses on securities not previously recognized		4,646			—		—
Additions for credit losses on securities previously recognized		—			—		705
Reduction for securities sold/realized losses		(4,646	)		—		(8,503	)

Ending balance	$	—		$	—	$	—

(1)	The beginning balance includes credit-related losses included in OTTI charges recognized on debt securities in prior periods.

The carrying amount of securities pledged for various purposes totaled $139.75 million as of December 31, 2016, and $236.73 million as of December 31, 2015.

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


	Year Ended December 31,
(Amounts in thousands)	2016			2015			2014
Gross realized gains	$	757		$	363		$	2,257
Gross realized losses		(422	)		(219	)		(3,642	)

Net gain (loss) on sale of securities	$	335		$	144		$	(1,385	)

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 $1.41 million as of December 31, 2016, and $1.24 million as of December 31, 2015. Deferred loan fees totaled $3.90 million in 2016, $3.78 million in 2015, and $3.39 million in 2014. For information about off-balance sheet financing, see Note 20, “Litigation, Commitments, and Contingencies,” to the Consolidated Financial Statements of this report.

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


	December 31,
	2016					2015
(Amounts in thousands)	Amount		Percent			Amount		Percent
Non-covered loans held for investment
Commercial loans
Construction, development, and other land	$	56,948		3.07	%	$	48,896		2.86	%
Commercial and industrial		92,204		4.98	%		88,903		5.21	%
Multi-family residential		134,228		7.24	%		95,026		5.57	%
Single family non-owner occupied		142,965		7.72	%		149,351		8.75	%
Non-farm, non-residential		598,674		32.31	%		485,460		28.45	%
Agricultural		6,003		0.32	%		2,911		0.17	%
Farmland		31,729		1.71	%		27,540		1.61	%

Total commercial loans		1,062,751		57.35	%		898,087		52.62	%
Consumer real estate loans
Home equity lines		106,361		5.74	%		107,367		6.29	%
Single family owner occupied		500,891		27.03	%		495,209		29.02	%
Owner occupied construction		44,535		2.41	%		43,505		2.55	%

Total consumer real estate loans		651,787		35.18	%		646,081		37.86	%
Consumer and other loans
Consumer loans		77,445		4.18	%		72,000		4.22	%
Other		3,971		0.21	%		7,338		0.43	%

Total consumer and other loans		81,416		4.39	%		79,338		4.65	%

Total non-covered loans		1,795,954		96.92	%		1,623,506		95.13	%
Total covered loans		56,994		3.08	%		83,035		4.87	%

Total loans held for investment, net of unearned income	$	1,852,948		100.00	%	$	1,706,541		100.00	%

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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


	December 31,
(Amounts in thousands)	2016		2015
Covered loans
Commercial loans
Construction, development, and other land	$	4,570	$	6,303
Commercial and industrial		895		1,170
Multi-family residential		8		640
Single family non-owner occupied		962		2,674
Non-farm, non-residential		7,512		14,065
Agricultural		25		34
Farmland		397		643

Total commercial loans		14,369		25,529
Consumer real estate loans
Home equity lines		35,817		48,565
Single family owner occupied		6,729		8,595
Owner occupied construction		—		262

Total consumer real estate loans		42,546		57,422
Consumer and other loans
Consumer loans		79		84

Total covered loans	$	56,994	$	83,035

The Company identifies certain purchased loans as impaired when fair values are established at acquisition and groups those PCI loans into loan pools with common risk characteristics. The Company estimates cash flows to be collected on PCI loans and discounts those cash flows at a market rate of interest. The following table presents the recorded investment and contractual unpaid principal balance of PCI loans, by acquisition, as of the dates indicated:


	December 31,
	2016				2015
(Amounts in thousands)	Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance
PCI Loans, by acquisition
Peoples	$	5,576	$	9,397	$	6,681	$	11,249
Waccamaw		21,758		45,030		34,707		63,151
Other acquired		1,095		1,121		1,254		1,297

Total PCI Loans	$	28,429	$	55,548	$	42,642	$	75,697

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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


(Amounts in thousands)	Peoples			Waccamaw			Other			Total
Balance January 1, 2014	$	5,294		$	10,338		$	8		$	15,640
Additions		267			26			—			293
Accretion		(2,147	)		(6,118	)		(37	)		(8,302	)
Reclassifications from nonaccretable difference		1,912			16,400			29			18,341
Other changes, net		(581	)		(1,598	)		—			(2,179	)

Balance December 31, 2014	$	4,745		$	19,048		$	—		$	23,793

Balance January 1, 2015	$	4,745		$	19,048		$	—		$	23,793
Additions		—			2			—			2
Accretion		(2,712	)		(6,459	)		—			(9,171	)
Reclassifications from nonaccretable difference		1,283			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		287			1,620			—			1,907
Other changes, net		1,753			(515	)		—			1,238

Balance December 31, 2016	$	4,392		$	21,834		$	—		$	26,226

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.

•

Special Mention — This grade is assigned to loans that require an above average degree of supervision and attention. These loans have the characteristics of an asset with acceptable credit quality and risk; however, adverse economic or financial conditions exist that create potential weaknesses deserving of management’s close attention. If potential weaknesses are not corrected, the prospect of repayment may worsen.

•

Substandard — This grade is assigned to loans that have well defined weaknesses that may make payment default, or principal exposure, possible. These loans will likely be dependent on collateral liquidation, secondary repayment sources, or events outside the normal course of business to meet repayment terms.

•

Doubtful — This grade is assigned to loans that have the weaknesses inherent in substandard loans; however, the weaknesses are so severe that collection or liquidation in full is unlikely based on current facts, conditions, and values. Due to certain specific pending factors, the amount of loss cannot yet be determined.

•

Loss — This grade is assigned to loans that will be charged off or charged down when payments, including the timing and value of payments, are uncertain. This risk grade does not imply that the asset has no recovery or salvage value, but simply means that it is not practical or desirable to defer writing off, either all or a portion of, the loan balance even though partial recovery may be realized in the future.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables present the recorded investment of the loan portfolio, by loan class and credit quality, as of the dates indicated. Losses on covered loans are generally reimbursable by the FDIC at the applicable loss share percentage, 80%; therefore, covered loans are disclosed separately.


	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

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


	December 31, 2015
			Special
(Amounts in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Total
Non-covered loans
Commercial loans
Construction, development, and other land	$	46,816	$	974	$	1,106	$	—	$	—	$	48,896
Commercial and industrial		87,223		663		1,017		—		—		88,903
Multi-family residential		81,168		12,969		889		—		—		95,026
Single family non-owner occupied		139,680		3,976		5,695		—		—		149,351
Non-farm, non-residential		454,906		15,170		15,384		—		—		485,460
Agricultural		2,886		25		—		—		—		2,911
Farmland		25,855		1,427		258		—		—		27,540
Consumer real estate loans
Home equity lines		104,897		1,083		1,387		—		—		107,367
Single family owner occupied		468,155		6,686		20,368		—		—		495,209
Owner occupied construction		42,783		—		722		—		—		43,505
Consumer and other loans
Consumer loans		71,685		61		254		—		—		72,000
Other		7,338		—		—		—		—		7,338

Total non-covered loans		1,533,392		43,034		47,080		—		—		1,623,506
Covered loans
Commercial loans
Construction, development, and other land		3,908		1,261		1,134		—		—		6,303
Commercial and industrial		1,144		4		22		—		—		1,170
Multi-family residential		460		—		180		—		—		640
Single family non-owner occupied		1,808		457		409		—		—		2,674
Non-farm, non-residential		9,192		2,044		2,829		—		—		14,065
Agricultural		34		—		—		—		—		34
Farmland		364		—		279		—		—		643
Consumer real estate loans
Home equity lines		17,893		29,823		849		—		—		48,565
Single family owner occupied		5,102		1,963		1,530		—		—		8,595
Owner occupied construction		112		51		99		—		—		262
Consumer and other loans
Consumer loans		84		—		—		—		—		84

Total covered loans		40,101		35,603		7,331		—		—		83,035

Total loans	$	1,573,493	$	78,637	$	54,411	$	—	$	—	$	1,706,541

The Company identifies loans for potential impairment through a variety of means, including, but not limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information. If the Company determines that it is probable all principal and interest amounts contractually due will not be collected, the loan is generally deemed impaired.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the recorded investment, unpaid principal balance, and related allowance for loan losses for impaired loans, excluding PCI loans, as of the dates indicated:


	December 31, 2016						December 31, 2015
			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	$	33	$	35	$	—	$	57	$	57	$	—
Commercial and industrial		346		383		—		16		23		—
Multi-family residential		294		369		—		84		94		—
Single family non-owner occupied		3,084		3,334		—		2,095		2,239		—
Non-farm, non-residential		3,829		4,534		—		10,369		11,055		—
Agricultural		—		—		—		—		—		—
Farmland		1,161		1,188		—		310		326		—
Consumer real estate loans
Home equity lines		913		968		—		868		898		—
Single family owner occupied		11,779		12,630		—		11,289		11,996		—
Owner occupied construction		573		589		—		243		243		—
Consumer and other loans
Consumer loans		62		103		—		71		74		—
Other		—		—		—		—		—		—

Total impaired loans with no allowance		22,074		24,133		—		25,402		27,005		—

Impaired loans with a related allowance
Commercial loans
Single family non-owner occupied		351		351		31		619		623		124
Non-farm, non-residential		—		—		—		5,667		5,673		1,568
Farmland		430		430		18		—		—		—
Consumer real estate loans
Single family owner occupied		4,118		4,174		770		4,899		4,907		672
Owner occupied construction		—		—		—		349		355		7

Total impaired loans with an allowance		4,899		4,955		819		11,534		11,558		2,371

Total impaired loans⁽¹⁾	$	26,973	$	29,088	$	819	$	36,936	$	38,563	$	2,371

(1)	Includes loans totaling $16.89 million as of December 31, 2016, and $14.22 million as of December 31, 2015, that do not meet the Company’s evaluation threshold for individual impairment and are therefore collectively evaluated for impairment

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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


	Year Ended December 31,
	2016				2015				2014
(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	$	22	$	344	$	5	$	481	$	8	$	607
Commercial and industrial		16		646		—		324		18		1,627
Multi-family residential		21		308		4		269		21		162
Single family non-owner occupied		178		3,076		88		2,140		60		1,629
Non-farm, non-residential		307		8,573		312		11,677		353		8,248
Agricultural		—		—		—		—		—		1
Farmland		55		437		16		195		6		315
Consumer real estate loans
Home equity lines		30		1,223		36		813		22		686
Single family owner occupied		343		12,330		356		12,708		404		11,486
Owner occupied construction		9		497		10		359		5		259
Consumer and other loans
Consumer loans		5		60		8		98		5		108

Total impaired loans with no related allowance		986		27,494		835		29,064		902		25,128

Impaired loans with a related allowance:
Commercial loans
Commercial and industrial		—		—		—		—		47		2,199
Multi-family residential		—		—		—		—		23		4,190
Single family non-owner occupied		23		518		25		575		2		369
Non-farm, non-residential		215		3,831		65		4,987		31		3,386
Farmland		14		108		—		—		—		—
Consumer real estate loans
Home equity lines		—		—		—		—		1		57
Single family owner occupied		118		4,452		26		3,731		48		3,897
Owner occupied construction		—		87		1		178		—		—

Total impaired loans with a related allowance		370		8,996		117		9,471		152		14,098

Total impaired loans	$	1,356	$	36,490	$	952	$	38,535	$	1,054	$	39,226

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


	December 31,
(Amounts in thousands, except impaired loan pools)	2016		2015
Unpaid principal balance	$	1,086	$	3,759
Recorded investment		1,085		2,834
Allowance for loan losses related to PCI loan pools		12		54
Impaired PCI loan pools		1		2


	Year Ended December 31,
(Amounts in thousands)	2016		2015		2014
Interest income recognized	$	142	$	364	$	3,081
Average recorded investment		1,929		3,309		30,007

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company generally places a loan on nonaccrual status when it is 90 days or more past due. PCI loans are generally not classified as nonaccrual due to the accrual of interest income under the accretion method of accounting. The following table presents nonaccrual loans, by loan class, as of the dates indicated:


	December 31,
	2016						2015
(Amounts in thousands)	Non-covered		Covered		Total		Non-covered		Covered		Total
Commercial loans
Construction, development, and other land	$	72	$	32	$	104	$	39	$	54	$	93
Commercial and industrial		332		13		345		—		16		16
Multi-family residential		294		—		294		84		—		84
Single family non-owner occupied		1,242		24		1,266		1,850		29		1,879
Non-farm, non-residential		3,295		30		3,325		7,150		39		7,189
Farmland		1,591		—		1,591		234		—		234
Consumer real estate loans
Home equity lines		705		400		1,105		825		413		1,238
Single family owner occupied		7,924		109		8,033		7,245		96		7,341
Owner occupied construction		336		—		336		349		—		349
Consumer and other loans
Consumer loans		63		—		63		71		—		71

Total nonaccrual loans	$	15,854	$	608	$	16,462	$	17,847	$	647	$	18,494

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables present the aging of past due loans, by loan class, as of the dates indicated. Nonaccrual loans 30 days or more past due are included in the applicable delinquency category. Loans acquired with credit deterioration, with a discount, continue to accrue interest based on expected cash flows; therefore, PCI loans are not generally considered nonaccrual. There were no non-covered accruing loans contractually past due 90 days or more as of December 31, 2016, or December 31, 2015.


	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
Owner occupied construction		—		—		—		—		—		—
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

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


	December 31, 2015
	30 - 59 Days Past Due		60 - 89 Days Past Due		90+ Days Past Due		Total Past Due		Current Loans		Total Loans
(Amounts in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		90+ Days Past Due		Total Past Due		Current Loans		Total Loans
Non-covered loans
Commercial loans
Construction, development, and other land	$	—	$	—	$	39	$	39	$	48,857	$	48,896
Commercial and industrial		281		66		—		347		88,556		88,903
Multi-family residential		302		76		84		462		94,564		95,026
Single family non-owner occupied		748		120		929		1,797		147,554		149,351
Non-farm, non-residential		347		676		4,940		5,963		479,497		485,460
Agricultural		—		—		—		—		2,911		2,911
Farmland		585		11		234		830		26,710		27,540
Consumer real estate loans
Home equity lines		668		195		468		1,331		106,036		107,367
Single family owner occupied		6,122		1,943		3,191		11,256		483,953		495,209
Owner occupied construction		—		—		—		—		43,505		43,505
Consumer and other loans
Consumer loans		278		71		23		372		71,628		72,000
Other		—		—		—		—		7,338		7,338

Total non-covered loans		9,331		3,158		9,908		22,397		1,601,109		1,623,506
Covered loans
Commercial loans
Construction, development, and other land		96		—		42		138		6,165		6,303
Commercial and industrial		—		—		16		16		1,154		1,170
Multi-family residential		—		—		—		—		640		640
Single family non-owner occupied		1,422		—		—		1,422		1,252		2,674
Non-farm, non-residential		—		—		39		39		14,026		14,065
Agricultural		—		—		—		—		34		34
Farmland		—		—		—		—		643		643
Consumer real estate loans
Home equity lines		489		37		225		751		47,814		48,565
Single family owner occupied		274		—		42		316		8,279		8,595
Owner occupied construction		—		—		—		—		262		262
Consumer and other loans
Consumer loans		—		—		—		—		84		84

Total covered loans		2,281		37		364		2,682		80,353		83,035

Total loans	$	11,612	$	3,195	$	10,272	$	25,079	$	1,681,462	$	1,706,541

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company may make concessions in interest rates, loan terms and/or amortization terms when restructuring loans for borrowers experiencing financial difficulty. Restructured loans in excess of $250 thousand are evaluated for a specific reserve based on either the collateral or net present value method, whichever is most applicable. Restructured loans under $250 thousand are subject to the reserve calculation at the historical loss rate for classified loans. Certain TDRs are classified as nonperforming at the time of restructuring and are returned to performing status after six months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs. PCI loans are generally not considered TDRs as long as the loans remain in the assigned loan pool. No covered loans were recorded as TDRs as of December 31, 2016, or December 31, 2015.

The following table presents loans modified as TDRs, by loan class and accrual status, as of the dates indicated:


	December 31,
	2016						2015
(Amounts in thousands)	Nonaccrual⁽¹⁾		Accruing		Total		Nonaccrual⁽¹⁾		Accruing		Total
Commercial loans
Single family non-owner occupied	$	38	$	892	$	930	$	130	$	820	$	950
Non-farm, non-residential		—		4,160		4,160		—		4,600		4,600
Consumer real estate loans
Home equity lines		—		158		158		127		43		170
Single family owner occupied		905		7,503		8,408		733		8,256		8,989
Owner occupied construction		341		239		580		349		243		592

Total TDRs	$	1,284	$	12,952	$	14,236	$	1,339	$	13,962	$	15,301

Allowance for loan losses related to TDRs					$	670					$	590

(1)	Nonaccrual TDRs are included in total nonaccrual loans disclosed in the nonaccrual table above.

The following table presents interest income recognized on TDRs for the periods indicated:


	Year Ended December 31,
(Amounts in thousands)	2016		2015		2014
Interest income recognized	$	424	$	608	$	597

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents loans modified as TDRs, by type of concession made and loan class, that were restructured during the periods indicated. The post-modification recorded investment represents the loan balance immediately following modification.


	Year Ended December 31,
	2016						2015
(Amounts in thousands)	Total Contracts		Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Total Contracts		Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Below market interest rate and extended payment term Single family owner occupied		1	$	115	$	115		5	$	342	$	342

Total		1	$	115	$	115		5	$	342	$	342

There were no payment defaults on loans modified as TDRs that were restructured within the previous 12 months as of December 31, 2016 and 2015.

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


	December 31,
(Amounts in thousands)	2016		2015
Non-covered OREO	$	5,109	$	4,873
Covered OREO		276		4,034

Total OREO	$	5,385	$	8,907

Non-covered OREO secured by residential real estate	$	1,746	$	2,677
Residential real estate loans in the foreclosure process⁽¹⁾		2,539		2,727

(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.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 6.

Allowance for Loan Losses

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


	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

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


	Year Ended December 31, 2015
(Amounts in thousands)	Commercial			Consumer Real Estate			Consumer and Other			Total Allowance
Allowance, excluding PCI
Beginning balance	$	13,010		$	6,489		$	670		$	20,169
Provision for loan losses charged to operations		931			95			1,140			2,166
Charge-offs		(1,282	)		(906	)		(1,557	)		(3,745	)
Recoveries		474			678			437			1,589

Net charge-offs		(808	)		(228	)		(1,120	)		(2,156	)

Ending balance	$	13,133		$	6,356		$	690		$	20,179

PCI allowance
Beginning balance	$	37		$	21		$	—		$	58
(Recovery of) provision for loan losses		(37	)		33			—			(4	)
Benefit attributable to the FDIC indemnification asset		29			—			—			29

(Recovery of) provision for loan losses charged to operations		(8	)		33			—			25
Recovery of loan losses recorded through the FDIC indemnification asset		(29	)		—			—			(29	)

Ending balance	$	—		$	54		$	—		$	54

Total allowance
Beginning balance	$	13,047		$	6,510		$	670		$	20,227
Provision for loan losses		894			128			1,140			2,162
Benefit attributable to the FDIC indemnification asset		29			—			—			29

Provision for loan losses charged to operations		923			128			1,140			2,191
Recovery of loan losses recorded through the FDIC indemnification asset		(29	)		—			—			(29	)
Charge-offs		(1,282	)		(906	)		(1,557	)		(3,745	)
Recoveries		474			678			437			1,589

Net charge-offs		(808	)		(228	)		(1,120	)		(2,156	)

Ending balance	$	13,133		$	6,410		$	690		$	20,233

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables present the allowance for loan losses and recorded investment in loans evaluated for impairment, excluding PCI loans, by loan class, as of the dates indicated:


	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


	December 31, 2015
(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	$	—	$	—	$	53,437	$	1,119
Commercial and industrial		—		—		89,885		504
Multi-family residential		—		—		95,486		1,535
Single family non-owner occupied		1,401		124		147,209		3,245
Non-farm, non-residential		14,094		1,568		478,839		4,825
Agricultural		—		—		2,945		22
Farmland		—		—		28,183		190

Total commercial loans		15,495		1,692		895,984		11,440
Consumer real estate loans
Home equity lines		—		—		126,691		1,091
Single family owner occupied		6,874		672		495,761		4,297
Owner occupied construction		349		7		43,323		290

Total consumer real estate loans		7,223		679		665,775		5,678
Consumer and other loans
Consumer loans		—		—		72,084		690
Other		—		—		7,338		—

Total consumer and other loans		—		—		79,422		690

Total loans, excluding PCI loans	$	22,718	$	2,371	$	1,641,181	$	17,808

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the allowance for loan losses on PCI loans and recorded investment in PCI loans, by loan pool, as of the dates indicated:


	December 31, 2016				December 31, 2015
(Amounts in thousands)	Recorded Investment		Allowance for Loan Pools With Impairment		Recorded Investment		Allowance for Loan Pools With Impairment
Commercial loans
Waccamaw commercial	$	260	$	—	$	3,788	$	—
Peoples commercial		4,491		—		5,525		—
Other		1,095		—		1,254		—

Total commercial loans		5,846		—		10,567		—
Consumer real estate loans
Waccamaw serviced home equity lines		20,178		—		29,241		—
Waccamaw residential		1,320		—		1,678		1
Peoples residential		1,085		12		1,156		53

Total consumer real estate loans		22,583		12		32,075		54

Total PCI loans	$	28,429	$	12	$	42,642	$	54

Management believed the allowance was adequate to absorb probable loan losses inherent in the loan portfolio as of December 31, 2016.

Note 7.

FDIC Indemnification Asset

In connection with the FDIC-assisted acquisition of Waccamaw in 2012, the Company entered into loss share agreements with the FDIC that covered $56.99 million of loans and $276 thousand of OREO as of December 31, 2016, compared to $83.04 million of loans and $4.03 million of OREO as of December 31, 2015. Under the loss share agreements, the FDIC agrees to cover 80% of most loan and foreclosed real estate losses and reimburse certain expenses incurred in relation to these covered assets. Loss share coverage will expire June 30, 2017, for commercial loans, with recoveries continuing until June 30, 2019. Loss share coverage will expire June 30, 2022, for single family loans. The Company’s consolidated statements of income include the expense on covered assets net of estimated reimbursements. The following table presents the changes in the FDIC indemnification asset during the periods indicated:


	Year Ended December 31,
(Amounts in thousands)	2016			2015
Beginning balance	$	20,844		$	27,900
Decrease in estimated losses on covered loans		(1	)		(28	)
Increase in estimated losses on covered OREO		1,045			1,489
Reimbursable expenses from the FDIC		162			545
Net amortization		(5,474	)		(6,379	)
Reimbursements from the FDIC		(4,403	)		(2,683	)

Ending balance	$	12,173		$	20,844

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 8.

Premises, Equipment, and Leases

Premises and Equipment

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


	December 31,
(Amounts in thousands)	2016			2015
Land	$	18,987		$	19,155
Buildings and leasehold improvements		46,740			50,776
Equipment		32,519			36,709

Total premises and equipment		98,246			106,640
Accumulated depreciation and amortization		(48,161	)		(53,884	)

Total premises and equipment, net	$	50,085		$	52,756

Impairment charges related to certain long-term investments in land and buildings totaled $364 thousand in 2016, $259 thousand in 2015, and $935 thousand in 2014. Depreciation and amortization expense for premises and equipment was $3.56 million in 2016, $4.14 million in 2015, and $4.41 million in 2014.

Leases

The Company enters into various noncancelable operating leases. The following schedule presents the future minimum lease payments required under noncancelable operating leases, with initial or remaining terms in excess of one year, by year, as of December 31, 2016:


(Amounts in thousands)
2017	$	341
2018		199
2019		110
2020		97
2021		97
2022 and thereafter		791

	$	1,635

Lease expense was $784 thousand in 2016, $862 thousand in 2015, and $1.06 million in 2014. Certain portions of the Company’s leases have been sublet to third parties for properties not currently being used by the Company. Future minimum lease payments to be received under noncancelable subleases totaled $1 thousand as of December 31, 2016.

Note 9.

Goodwill and Other Intangible Assets

Goodwill

The company has one reporting unit for goodwill impairment testing purposes – Community Banking. Prior to October 2016, the Company maintained two reporting units — Community Banking and Insurance Services. The Insurance Services reporting unit consisted of the Company’s wholly owned subsidiary Greenpoint, which was sold in October 2016. The Company performed its annual qualitative assessment of goodwill as of October 31, 2016, and concluded that no impairment charge was necessary. No events have occurred after the 2016 analysis to indicate potential impairment.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the changes in goodwill, by reporting unit, during the periods indicated:


(Amounts in thousands)	Community Banking			Insurance Services			Total
Balance January 1, 2014	$	96,541		$	8,914		$	105,455
Acquisitions and dispositions, net		(6,454	)		—			(6,454	)
Cash consideration paid		1,368			353			1,721

Balance December 31, 2014	$	91,455		$	9,267		$	100,722

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

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

Other Intangible Assets

The Company’s other intangible assets include core deposit and other identifiable intangibles. As of December 31, 2016, the remaining lives of core deposit intangibles ranged from 6 years to 9 years and the weighted average remaining life was 7 years. Other identifiable intangibles consist primarily of the value assigned to contractual rights arising from insurance agency acquisitions. The following table presents the components of other intangible assets, by reporting unit, as of the dates indicated:


	December 31,
	2016			2015
(Amounts in thousands)	Total			Community Banking			Insurance Services			Total
Core deposit intangibles	$	11,536		$	12,282		$	—		$	12,282
Accumulated amortization		(4,515	)		(7,958	)		—			(7,958	)

Core deposit intangibles, net		7,021			4,324			—			4,324
Other identifiable intangibles		3,508			535			3,711			4,246
Accumulated amortization		(3,322	)		(464	)		(2,863	)		(3,327	)

Other identifiable intangibles, net		186			71			848			919

Total other intangible assets, net	$	7,207		$	4,395		$	848		$	5,243

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Amortization expense for other intangible assets was $1.14 million in 2016, $1.12 million in 2015, and $787 thousand in 2014. The following schedule presents the estimated amortization expense for intangible assets, by year, as of December 31, 2016:


(Amounts in thousands)
2017	$	1,029
2018		1,029
2019		1,029
2020		1,029
2021		1,015
2022 and thereafter		2,034

	$	7,165

Note 10.

Deposits

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


	December 31,
(Amounts in thousands)	2016		2015
Noninterest-bearing demand deposits	$	427,705	$	451,511
Interest-bearing deposits:
Interest-bearing demand deposits		378,339		347,705
Money market accounts		196,997		213,982
Savings deposits		326,263		316,603
Certificates of deposit		382,503		408,519
Individual retirement accounts		129,531		134,939

Total interest-bearing deposits		1,413,633		1,421,748

Total deposits	$	1,841,338	$	1,873,259

The following schedule presents the contractual maturities of time deposits, by year, as of December 31, 2016:


(Amounts in thousands)
2017	$	254,738
2018		88,596
2019		53,400
2020		68,644
2021		44,968
2022 and thereafter		1,688

	$	512,034

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Time deposits of $250 thousand or more totaled $41.55 million as of December 31, 2016, and $41.35 million as of December 31, 2015. The following schedule presents the contractual maturities of time deposits of $250 thousand or more as of December 31, 2016:


(Amounts in thousands)
Three months or less	$	6,274
Over three through six months		2,687
Over six through twelve months		10,890
Over twelve months		21,698

	$	41,549

Note 11.

Borrowings

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


	December 31,
	2016					2015
(Amounts in thousands)	Balance		Weighted Average Rate			Balance		Weighted Average Rate
Short-term borrowings
Retail repurchase agreements	$	73,005		0.07	%	$	88,614		0.10	%
Long-term borrowings
Wholesale repurchase agreements		25,000		3.18	%		50,000		3.71	%
Long-term FHLB advances		65,000		4.04	%		65,000		4.04	%
Other borrowings
Subordinated debt		15,464		3.65	%		15,464		3.23	%
Other debt		244					292

Total borrowings	$	178,713				$	219,370

The following schedule presents the contractual and weighted average maturities of long-term borrowings, by year, as of December 31, 2016:


(Amounts in thousands)	Wholesale Repurchase Agreements		FHLB Borrowings		Total
2017	$	—	$	15,000	$	15,000
2018		—		—		—
2019		25,000		—		25,000
2020		—		—		—
2021		—		50,000		50,000
2022 and thereafter		—		—		—

	$	25,000	$	65,000	$	90,000

Weighted average maturity (in years)		2.15		3.17		2.89

The FHLB may redeem callable advances at quarterly intervals, which could substantially shorten the advances’ lives. If called, the advance may be paid in full or converted into another FHLB credit product. Prepayment of an advance may result in substantial penalties based on the differential between the contractual note and current advance rate for similar maturities. The Company pledged certain loans to secure FHLB advances and letters of

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

credit totaling $1.03 billion as of December 31, 2016. Unused borrowing capacity with the FHLB totaled $558.75 million, net of FHLB letters of credit $75.72 million, as of December 31, 2016. The FHLB letters of credit provide an attractive alternative to pledging securities for public unit deposits.

Investment securities pledged to secure repurchase agreements remain under the Company’s control during the agreements’ terms. The counterparties may redeem callable repurchase agreements, which could substantially shorten the borrowings’ lives. The prepayment or unwind of a repurchase agreement may result in substantial penalties based on market conditions.

The following schedule presents the contractual maturities of repurchase agreements, by type of collateral pledged, as of December 31, 2016:


(Amounts in thousands)	U.S. Agency Securities		Municipal Securities		Mortgage-backed Agency Securities		Total
Overnight and continuous	$	18,680	$	44,414	$	7,821	$	70,915
Up to 30 days		—		—		—		—
30 — 90 days		—		—		—		—
Greater than 90 days		—		1,204		25,886		27,090

	$	18,680	$	45,618	$	33,707	$	98,005

Subordinated debt consists of $15.46 million of junior subordinated debentures (“Debentures”) the Company issued to the Trust in October 2003 with an interest rate of three-month London InterBank Offered Rate (“LIBOR”) plus 2.95%. The Debentures mature on October 8, 2033, and are callable quarterly. The Trust purchased the Debentures through the issuance of trust preferred securities, which had substantially identical terms as the Debentures. Net proceeds from the offering were contributed as capital to the Bank to support further growth. The Company’s obligations under the Debentures and other relevant Trust agreements, in aggregate, constitute a full and unconditional guarantee of the Trust’s obligations. The preferred securities issued by the Trust are not included in the consolidated balance sheets; however, these securities qualify as Tier 1 capital for regulatory purposes, subject to guidelines issued by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Federal Reserve’s quantitative limits did not prevent the Company from including all $15.46 million in trust preferred securities outstanding in Tier 1 capital as of December 31, 2016 and 2015. On January 9, 2017, the Company redeemed all of its trust preferred securities.

In addition, the Company maintains a $15.00 million unsecured, committed line of credit with an unrelated financial institution with an interest rate of one-month LIBOR plus 2.00% and an April 2017 maturity. There was no outstanding balance on the line as of December 31, 2016, or December 31, 2015.

Note 12.

Derivative Instruments and Hedging Activities

As of December 31, 2016, the Company’s derivative instruments consisted of interest rate swaps. Generally, derivative instruments help the Company manage exposure to market risk and meet customer financing needs. Market risk represents the possibility that fluctuations in external factors such as interest rates, market-driven loan rates, prices, or other economic factors will adversely affect economic value or net interest income.

The Company uses interest rate swap contracts to modify its exposure to interest rate risk caused by changes in the LIBOR curve in relation to certain designated fixed rate loans. These instruments are used to convert these fixed rate loans to an effective floating rate. If the LIBOR rate falls below the loan’s stated fixed rate for a given period, the Company will owe the floating rate payer the notional amount times the difference between LIBOR

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

and the stated fixed rate. If LIBOR is above the stated rate for a given period, the Company will receive payments based on the notional amount times the difference between LIBOR and the stated fixed rate. The Company’s interest rate swaps qualify as fair value hedging instruments; therefore, fair value changes in the derivative and hedged item attributable to the hedged risk are recognized in earnings in the same period.

The Company’s interest rate swaps include a fourteen-year, $1.20 million notional interest rate swap agreement entered into in March 2015 and a fifteen-year, $4.37 million notional interest rate swap agreement entered into in February 2014. The swap agreements, which are accounted for as fair value hedges, and the loans hedged by the agreements are recorded at fair value. The fair value hedges were effective as of December 31, 2016. The following table presents the notional, or contractual, amounts and fair values of derivative instruments as of the dates indicated:


	December 31,
	2016						2015
(Amounts in thousands)	Notional or Contractual Amount		Derivative Assets		Derivative Liabilities		Notional or Contractual Amount		Derivative Assets		Derivative Liabilities
Derivatives designated as hedges
Interest rate swaps	$	4,835	$	—	$	167	$	5,151	$	—	$	251

Total derivatives	$	4,835	$	—	$	167	$	5,151	$	—	$	251

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


	Year Ended December 31,
(Amounts in thousands)	2016		2015		2014		Income Statement Location
Derivatives designated as hedges
Interest rate swaps	$	116	$	122	$	162		Interest and fees on loans

Total derivatives	$	116	$	122	$	162

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 13.

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’s unfunded Benefit Plans include the Supplemental Executive Retention Plan (“SERP”) and the Directors’ Supplemental Retirement Plan (“Directors’ Plan”). The SERP provides for a defined benefit, at normal retirement age, targeted at 35% of the participant’s projected final average compensation, subject to a defined maximum annual benefit. Benefits under the SERP generally become payable at age 62. The Directors’ Plan provides for a defined benefit, at normal retirement age, up to 100% of the participant’s highest consecutive three-year average compensation. Benefits under the Directors’ Plan generally become payable at age 70. The following table presents the changes in the aggregate actuarial benefit obligation during the periods indicated:


	December 31,
(Amounts in thousands)	2016			2015
Beginning balance	$	8,390		$	7,631
Plan change		69			—
Service cost		184			180
Interest cost		382			334
Actuarial loss		367			363
Benefits paid		(211	)		(118	)

Ending balance	$	9,181		$	8,390

The following table presents the components of net periodic pension cost and the assumed discount rate for the periods indicated:


	Year Ended December 31,
(Amounts in thousands, except discount rate)	2016			2015			2014
Service cost	$	184		$	180		$	128
Interest cost		382			334			336
Amortization of prior service cost		226			260			260
Amortization of losses		47			66			—

Net periodic cost	$	839		$	840		$	724

Assumed discount rate		4.22	%		4.62	%		4.41	%

The following schedule presents the projected benefit payments to be paid under the Benefit Plans, by year, as of December 31, 2016:


(Amounts in thousands)
2017	$	465
2018		462
2019		458
2020		529
2021		587
2022 through 2026		2,937

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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, 2016, stop-loss insurance coverage generally limits the Company’s risk of loss to $125 thousand for individual claims and $3.92 million for aggregate claims. Expenses related to the health plan totaled $3.48 million in 2016, $3.06 million in 2015, and $2.88 million in 2014.

Deferred Compensation Plan

The Company maintains deferred compensation agreements with certain current and former officers that provide benefit payments, over various periods, commencing at retirement or death. Accrued benefits are based on the present values of expected payments and estimated life expectancies and totaled $458 thousand as of December 31, 2016 and 2015. Expenses related to the deferred compensation plan totaled $60 thousand in each of the three years ended December 31, 2016.

Employee Stock Ownership and Savings Plan

The Company maintains the Employee Stock Ownership and Savings Plan (“KSOP”) that consists of a 401(k) savings feature that covers all employees that meet minimum eligibility requirements. The Company matches employee contributions at levels determined by the Board of Directors annually. These contributions are made in the first quarter following each plan year and employees must be employed on the last day of the plan year to be eligible. Matching contributions to qualified deferrals under the 401(k) savings component of the KSOP totaled $1.50 million in 2016, $1.53 million in 2015, and $1.58 million in 2014. The KSOP held 410,384 shares of the Company’s common stock as of December 31, 2016, 428,785 shares as of December 31, 2015, and 457,765 shares as of December 31, 2014. Substantially all plan assets are invested in the Company’s common stock.

Equity-Based Compensation Plans

The Company maintains equity-based compensation plans to promote the long-term success of the Company by encouraging officers, employees, directors, and other individuals performing services for the Company to focus on critical long-range objectives. The Company’s equity-based compensation plans include the 2012 Omnibus Equity Compensation Plan (“2012 Plan”), 2004 Omnibus Stock Option Plan, 2001 Director’s Option Plan, 1999 Stock Option Plan, and various other plans obtained through acquisitions. As of December 31, 2016, the 2012 Plan was the only plan available for the issuance of future grants. All plans issued or obtained before the 2012 Plan are frozen and no new grants may be issued; however, any options or awards unexercised and outstanding under those plans remain in effect per their respective terms. The 2012 Plan authorized 600,000 shares available for potential grants of incentive stock options, nonqualified stock options, performance awards, restricted stock, restricted stock units, stock appreciation rights, bonus stock, and stock awards. Grants issued under the 2012 Plan state the period of time the grant may be exercised, not to exceed more than ten years from the date granted. The Company’s Compensation and Retirement Committee determines the vesting period for each grant; however, if no vesting period is specified the vesting occurs in 25% increments on the first four anniversaries of the grant date.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the pre-tax compensation expense and excess tax benefit recognized in earnings for all equity-based compensation plans for the periods indicated:


	Year Ended December 31,
(Amounts in thousands)	2016		2015		2014
Pre-tax compensation expense	$	209	$	110	$	332
Excess tax benefit		174		8		5

Stock Options

The following table presents stock option activity and related information for the year ended December 31, 2016:


(Amounts in thousands, except share and per share data)	Option			Weighted Average Exercise Price		Weighted Average Remaining Contractual		Aggregate Intrinsic
	Shares			Per Share		Term (Years)		Value
Outstanding, January 1, 2016		236,404		$	20.17
Granted		32,768			20.15
Exercised		(43,463	)		17.26
Canceled		(25,313	)		28.56

Outstanding, December 31, 2016		200,396		$	19.73		6.1	$	2,123

Exercisable, December 31, 2016		167,628		$	19.65		5.5	$	1,790

The following table presents the total options granted and the weighted average assumptions used to estimate the fair value of those options during the periods indicated:


	Year Ended December 31,
	2016			2015		2014
Stock options granted	$	32,768		$	—	$	—
Grant-date fair value per share		10.16			—		—
Volatility		25.04	%		—		—
Risk-free rate		1.56	%		—		—
Expected dividend yield		3.09	%		—		—
Expected term (in years)		6.50			—		—

The intrinsic value of options exercised totaled $434 thousand in 2016, $20 thousand in 2015, and $13 thousand in 2014. As of December 31, 2016, unrecognized compensation cost related to nonvested stock options was $101 thousand with an expected weighted average recognition period of 1.11 years. The actual compensation cost recognized might differ from this estimate due to various items, including new grants and changes in estimated forfeitures.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Restricted Stock Awards

The following table presents restricted stock activity and related information for the year ended December 31, 2016:


				Weighted Average
	Shares			Grant-Date Fair Value
Nonvested, January 1, 2016		5,327		$	16.85
Granted		46,033			19.97
Vested		(21,533	)		17.90
Canceled		(2,024	)		19.27

Nonvested, December 31, 2016		27,803		$	20.59

As of December 31, 2016, unrecognized compensation cost related to nonvested restricted stock awards was $447 thousand with an expected weighted average recognition period of 2.03 years. The actual compensation cost recognized might differ from this estimate due to various items, including new awards granted and changes in estimated forfeitures.

Performance Stock Awards

Performance stock awards represent restricted stock that may be issuable in the future if specific performance criteria are met. The following table presents performance stock activity and related information for the year ended December 31, 2016:


	Shares			Weighted Average Grant-Date Fair Value
Nonvested, January 1, 2016		9,848		$	15.83
Granted		—			—
Vested		(9,848	)		15.83
Canceled		—			—

Nonvested, December 31, 2016		—		$	—

As of December 31, 2016, there was no unrecognized compensation cost related to nonvested performance stock awards. The actual compensation cost recognized might differ from this estimate due to various items, including new awards granted, changes in estimated forfeitures, and resolution of performance contingencies.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 14.

Other Operating Income and Expense

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


	Year Ended December 31,
(Amounts in thousands)	2016		2015		2014
Other operating income
Bank owned life insurance	$	955	$	1,971	$	1,587
Other⁽¹⁾		2,254		2,158		2,768

Total other operating income	$	3,209	$	4,129	$	4,355

Other operating expense
Service fees	$	3,641	$	3,401	$	3,856
ATM processing expenses		2,024		2,407		2,102
Telephone and data communications		1,598		1,595		1,715
Advertising and public relations		1,532		1,309		1,001
Professional fees		1,501		1,272		1,436
OREO expense and net loss		1,420		2,438		2,094
Office supplies		1,220		1,228		1,514
Other⁽¹⁾		7,011		7,461		8,524

Total other operating expense	$	19,947	$	21,111	$	22,242

(1)	Other components of other operating income or expense that do not exceed 1% of total income.

Note 15.

Income Taxes

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


	Year Ended December 31,
(Amounts in thousands)	2016			2015			2014
Current tax expense (benefit):
Federal	$	13,634		$	(254	)	$	7,234
State		675			581			1,325

Total current tax expense		14,309			327			8,559
Deferred tax expense (benefit):
Federal		(1,480	)		10,034			2,971
State		(10	)		1,020			794

Total deferred tax expense (benefit)		(1,490	)		11,054			3,765

Total income tax expense	$	12,819		$	11,381		$	12,324

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company’s effective tax rate, income tax as a percent of pre-tax income, may vary significantly from the statutory rate due to permanent differences and available tax credits. Permanent differences are income and expense items excluded by law in the calculation of taxable income. The Company’s most significant permanent differences generally include interest income on municipal securities and increases in the cash surrender value of life insurance policies. The following table reconciles the Company’s income tax expense to the amount computed by applying the federal statutory tax rate to pre-tax income for the periods indicated:


	Year Ended December 31,
	2016						2015						2014
(Amounts in thousands)	Amount			Percent			Amount			Percent			Amount			Percent
Income tax at the federal statutory rate	$	13,281			35.00	%	$	12,572			35.00	%	$	13,235			35.00	%
State income taxes, net of federal benefit		598			1.58	%		639			1.78	%		1,006			2.66	%

		13,878			36.58	%		13,212			36.78	%		14,241			37.66	%
Increase (decrease) resulting from:
Tax-exempt interest income		(1,336	)		-3.52	%		(1,463	)		-4.07	%		(1,645	)		-4.35	%
Nondeductible goodwill		340			0.89	%		—			—			—			—
Bank owned life insurance		(335	)		-0.88	%		(690	)		-1.92	%		(555	)		-1.47	%
Other items, net		271			0.71	%		322			0.89	%		283			0.75	%

Income tax at the effective tax rate	$	12,819			33.78	%	$	11,381			31.68	%	$	12,324			32.59	%

Deferred taxes derived from continuing operations reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for tax purposes. The following table presents the significant components of the net deferred tax asset as of the dates indicated:


	December 31,
(Amounts in thousands)	2016		2015
Deferred tax assets
Allowance for loan losses	$	6,644	$	7,741
Unrealized losses on available-for-sale securities		326		2,331
Unrealized asset losses		913		1,506
Purchase accounting		5,384		5,014
FDIC assisted transactions		6,540		6,551
Intangible assets		4,062		4,082
Deferred compensation assets		4,669		4,529
Deferred loan fees		1,979		1,402
Other deferred tax assets		825		1,181

Total deferred tax assets		31,342		34,337
Deferred tax liabilities
FDIC indemnification asset		11,927		13,162
Fixed assets		2,042		2,658
Odd days interest deferral		1,283		1,975
Other		347		347

Total deferred tax liabilities		15,599		18,142

Net deferred tax asset	$	15,743	$	16,195

The Company had no unrecognized tax benefits or accrued interest and penalties as of December 31, 2016 or 2015.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 16.

Accumulated Other Comprehensive Income

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


(Amounts in thousands)	Unrealized Gains (Losses) on Available-for-Sale Securities			Employee Benefit Plans			Total
Balance January 1, 2014	$	(13,640	)	$	(1,100	)	$	(14,740	)
Other comprehensive income (loss) before reclassifications		8,051			(401	)		7,650
Reclassified from AOCI		1,323			162			1,485

Other comprehensive income (loss), net		9,374			(239	)		9,135

Balance December 31, 2014	$	(4,266	)	$	(1,339	)	$	(5,605	)

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	)

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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


	Year Ended December 31,									Income Statement
(Amounts in thousands)	2016			2015			2014			Line Item Affected
Available-for-sale securities
(Gains) losses recognized		(335	)		(144	)		1,385		Net gain (loss) on sale of securities
OTTI recognized		4,646			—			737		Net impairment losses recognized in earnings

Reclassified out of AOCI, before tax		4,311			(144	)		2,122		Income before income taxes
Income tax (expense) benefit		(1,617	)		54			(799	)	Income tax expense

Reclassified out of AOCI, net of tax		2,694			(90	)		1,323		Net income
Employee benefit plans
Amortization of prior service cost		226			260			260		(1)
Amortization of net actuarial loss		47			66			—		(1)

Reclassified out of AOCI, before tax		273			326			260		Income before income taxes
Income tax expense		(102	)		(123	)		(98	)	Income tax expense

Reclassified out of AOCI, net of tax		171			203			162		Net income

Total reclassified out of AOCI, net of tax	$	2,865		$	113		$	1,485		Net income

(1)	Amortization is included in net periodic pension cost. See Note 13, “Employee Benefit Plans”

Note 17.

Fair Value

Financial Instruments Measured at Fair Value

The following discussion describes the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments under the valuation hierarchy.

Assets and Liabilities Reported at Fair Value on a Recurring Basis

Available-for-Sale Securities. Securities available for sale are reported at fair value on a recurring basis. The fair value of Level 1 securities is based on quoted market prices in active markets, if available. The Company also uses Level 1 inputs to value equity securities that are traded in active markets. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are primarily derived from or corroborated by observable market data. Level 2 securities use fair value measurements from independent pricing services obtained by the Company. These fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and bond terms and conditions. The Company’s Level 2 securities include Treasury securities, single issue trust preferred securities, corporate securities, mortgage-backed securities, and certain equity securities that are not actively traded. Securities are based on Level 3 inputs when there is limited activity or less transparency to the valuation inputs. In the absence of observable or corroborated market data, internally developed estimates that incorporate market-based assumptions are used when such information is available.

Fair value models may be required when trading activity has declined significantly or does not exist, prices are not current, or pricing variations are significant. For Level 3 securities, the Company obtains the cash flow of

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

specific securities from third parties that use modeling software to determine cash flows based on market participant data and knowledge of the structures of each individual security. The fair values of Level 3 securities are determined by applying proper market observable discount rates to the cash flow derived from third-party models. Discount rates are developed by determining credit spreads above a benchmark rate, such as LIBOR, and adding premiums for illiquidity, which are based on a comparison of initial issuance spread to LIBOR versus a financial sector curve for recently issued debt to LIBOR. Securities with increased uncertainty about the receipt of cash flows are discounted at higher rates due to the addition of a deal specific credit premium based on assumptions about the performance of the underlying collateral. Finally, internal fair value model pricing and external pricing observations are combined by assigning weights to each pricing observation. Pricing is reviewed for reasonableness based on the direction of specific markets and the general economic indicators.

Loans Held for Investment. Loans held for investment are reported at fair value using discounted future cash flows that apply current interest rates for loans with similar terms and borrower credit quality. Loans related to fair value hedges are recorded at fair value on a recurring basis.

Deferred Compensation Assets and Liabilities. Securities held for trading purposes are recorded at fair value on a recurring basis and included in other assets in the consolidated balance sheets. These securities include assets related to employee deferred compensation plans, which are generally invested in Level 1 equity securities. The liability associated with these deferred compensation plans is carried at the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets.

Derivative Assets and Liabilities. Derivatives are recorded at fair value on a recurring basis. The Company obtains dealer quotes, Level 2 inputs, based on observable data to value derivatives.

The following tables summarize financial assets and liabilities recorded at fair value on a recurring basis, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:


	December 31, 2016
	Total Fair Value		Fair Value Measurements Using
(Amounts in thousands)	Total Fair Value		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Agency securities	$	1,345	$	—	$	1,345	$	—
Municipal securities		113,331		—		113,331		—
Single issue trust preferred securities		19,939		—		19,939		—
Mortgage-backed Agency securities		30,891		—		30,891		—
Equity securities		73		55		18		—

Total available-for-sale securities		165,579		55		165,524		—
Fair value loans		4,701		—		4,701		—
Deferred compensation assets		3,224		3,224		—		—
Deferred compensation liabilities		3,224		3,224		—		—
Derivative liabilities		167		—		167		—

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


	December 31, 2015
	Total Fair Value		Fair Value Measurements Using
(Amounts in thousands)	Total Fair Value		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Agency securities	$	30,702	$	—	$	30,702	$	—
Municipal securities		128,678		—		128,678		—
Single issue trust preferred securities		47,832		—		47,832		—
Corporate securities		70,333		—		70,333		—
Certificates of deposit		5,000		—		5,000		—
Mortgage-backed Agency securities		83,556		—		83,556		—
Equity securities		72		54		18		—

Total available-for-sale securities		366,173		54		366,119		—
Fair value loans		4,886		—		4,886		—
Deferred compensation assets		3,464		3,464		—		—
Deferred compensation liabilities		3,464		3,464		—		—
Derivative liabilities		251		—		251		—

No changes in valuation techniques or transfers into or out of Level 3 of the fair value hierarchy occurred during the years ended December 31, 2016 or 2015.

Assets Measured at Fair Value on a Nonrecurring Basis

Impaired Loans. Impaired loans are recorded at fair value on a nonrecurring basis when repayment is expected solely from the sale of the loan’s collateral. Fair value is based on appraised value adjusted for customized discounting criteria, Level 3 inputs.

The Company maintains an active and robust problem credit identification system. The impairment review includes obtaining third-party collateral valuations to help management identify potential credit impairment and determine the amount of impairment to record. The Company’s Special Assets staff manages and monitors all impaired loans. Internal collateral valuations are generally performed within two to four weeks of identifying the initial potential impairment. The internal valuation compares the original appraisal to current local real estate market conditions and considers experience and expected liquidation costs. The Company typically receives a third-party valuation within thirty to forty-five days of completing the internal valuation. When a third-party valuation is received, it is reviewed for reasonableness. Once the valuation is reviewed and accepted, discounts are applied to fair market value, based on, but not limited to, our historical liquidation experience for like collateral, resulting in an estimated net realizable value. The estimated net realizable value is compared to the outstanding loan balance to determine the appropriate amount of specific impairment reserve.

Specific reserves are generally recorded for impaired loans while third-party valuations are in process and for impaired loans that continue to make some form of payment. While waiting to receive the third-party appraisal, the Company regularly reviews the relationship to identify any potential adverse developments and begins the tasks necessary to gain control of the collateral and prepare it for liquidation, including, but not limited to, engagement of counsel, inspection of collateral, and continued communication with the borrower. Generally, the only difference between the current appraised value, less liquidation costs, and the carrying amount of the loan, less the specific reserve, is any downward adjustment to the appraised value that the Company deems appropriate, such as the costs to sell the property. Impaired loans that do not meet certain criteria and do not have a specific reserve have typically been written down through partial charge-offs to net realizable value. Based on prior experience, the Company rarely returns loans to performing status after they have been partially charged off. Credits identified as impaired move quickly through the process towards ultimate resolution, except in cases involving bankruptcy and various state judicial processes that may extend the time for ultimate resolution.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

OREO. OREO is recorded at fair value on a nonrecurring basis using Level 3 inputs. The Company calculates the fair value of OREO from current or prior appraisals that have been adjusted for valuation declines, estimated selling costs, and other proprietary qualitative adjustments that are deemed necessary.

The following tables present assets measured at fair value on a nonrecurring basis, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:


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

	December 31, 2015
	Total Fair Value		Fair Value Measurements Using
	Total Fair Value		Level 1		Level 2		Level 3
(Amounts in thousands)
Impaired loans, non-covered	$	9,164	$	—	$	—	$	9,164
OREO, non-covered		4,819		—		—		4,819
OREO, covered		4,034		—		—		4,034

Quantitative Information about Level 3 Fair Value Measurements

The following table provides quantitative information for assets measured at fair value on a nonrecurring basis using Level 3 valuation inputs as of the dates indicated:

Valuation

Technique

Unobservable

Input

Discount Range (Weighted Average)

December 31, 2016

December 31, 2015

Impaired loans, non-covered

Discounted appraisals⁽¹⁾

Appraisal adjustments⁽²⁾

3% to 39% (17%)

1% to 39% (21%)

OREO, non-covered

Discounted appraisals⁽¹⁾

Appraisal adjustments⁽²⁾

0% to 88% (30%)

1% to 100% (33%)

OREO, covered

Discounted appraisals⁽¹⁾

Appraisal adjustments⁽²⁾

0% to 44% (40%)

21% to 65% (46%)

(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.

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.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

FDIC Indemnification Asset. The FDIC indemnification asset is reported at fair value using discounted future cash flows that apply current discount rates.

Accrued Interest Receivable/Payable. Accrued interest receivable/payable is reported at their carrying amount, which is considered a reasonable estimate due to the short-term nature of these instruments.

Deposits and Securities Sold Under Agreements to Repurchase. Deposits without a stated maturity, such as demand, interest-bearing demand, and savings, are reported at their carrying amount, the amount payable on demand as of the reporting date, which is considered a reasonable estimate of fair value. Deposits and repurchase agreements with fixed maturities and rates are reported at fair value using discounted future cash flows that apply interest rates available in the market for instruments with similar characteristics and maturities.

FHLB and Other Borrowings. FHLB and other borrowings are reported at fair value using discounted future cash flows that apply interest rates available to the Company for borrowings with similar characteristics and maturities. Trust preferred obligations are reported at fair value using current credit spreads in the market for similar issues.

Off-Balance Sheet Instruments. The Company believes that fair values of unfunded commitments to extend credit, standby letters of credit, and financial guarantees are not meaningful; therefore, off-balance sheet instruments are not addressed in the fair value disclosures. The Company believes it is not feasible or practical to accurately disclose the fair values of off-balance sheet instruments due to the uncertainty and difficulty in assessing the likelihood and timing of advancing available proceeds, the lack of an established market for these instruments, and the diversity in fee structures. For additional information about the unfunded, contractual value of off-balance sheet financial instruments, see Note 20, “Litigation, Commitments, and Contingencies,” to the Consolidated Financial Statements of this report.

The following tables present the carrying amounts and fair values of financial instruments, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:


	December 31, 2016
	Carrying Amount		Fair Value		Fair Value Measurements Using
(Amounts in thousands)	Carrying 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		—		—

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


	December 31, 2015
	Carrying Amount		Fair Value		Fair Value Measurements Using
(Amounts in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	51,787	$	51,787	$	51,787	$	—	$	—
Securities available for sale		366,173		366,173		54		366,119		—
Securities held to maturity		72,541		72,490		—		72,490		—
Loans held for investment, net of allowance		1,686,308		1,685,061		—		4,886		1,680,175
FDIC indemnification asset		20,844		10,753		—		—		10,753
Interest receivable		6,007		6,007		—		6,007		—
Deferred compensation assets		3,464		3,464		3,464		—		—

Liabilities
Demand deposits		451,511		451,511		—		451,511		—
Interest-bearing demand deposits		347,705		347,705		—		347,705		—
Savings deposits		530,585		530,585		—		530,585		—
Time deposits		543,458		541,059		—		541,059		—
Securities sold under agreements to repurchase		138,614		140,880		—		140,880		—
Interest payable		1,260		1,260		—		1,260		—
FHLB and other borrowings		80,756		85,774		—		85,774		—
Derivative financial liabilities		251		251		—		251		—
Deferred compensation liabilities		3,464		3,464		3,464		—		—

Note 18.

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,
(Amounts in thousands, except share and per share data)	2016		2015		2014
Net income	$	25,126	$	24,540	$	25,490
Dividends on preferred stock		—		105		910

Net income available to common shareholders	$	25,126	$	24,435	$	24,580

Weighted average common shares outstanding, basic		17,319,689		18,531,039		18,406,363
Dilutive effect of potential common shares
Stock options		34,530		26,487		18,607
Restricted stock		11,305		2,996		461
Convertible preferred stock		—		166,942		1,046,175
Contingently issuable shares		—		—		11,448

Total dilutive effect of potential common shares		45,835		196,425		1,076,691

Weighted average common shares outstanding, diluted		17,365,524		18,727,464		19,483,054

Basic earnings per common share	$	1.45	$	1.32	$	1.34
Diluted earnings per common share		1.45		1.31		1.31
Antidilutive potential common shares
Stock options		107,592		127,882		222,651
Restricted stock		3,279		—		—

Total potential antidilutive shares		110,871		127,882		222,651

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company redeemed all outstanding shares of its 6% Series A Noncumulative Convertible Preferred Stock (“Series A Preferred Stock”) in 2015. Before redemption, holders converted 12,784 shares of Series A Preferred Stock with each share convertible into 69 shares of the Company’s common stock. The Company redeemed the remaining 2,367 shares for $2.37 million along with accrued and unpaid dividends of $9 thousand.

Note 19.

Related Party Transactions

The Company engages in transactions with related parties in the normal course of business. Related parties include directors, executive officers, and principal shareholders and their immediate family members, business interests, and affiliates. All related party transactions are made on terms that are substantially the same as those prevailing at the time for similar transactions with unrelated parties, including interest rates and collateral. The following table presents the changes in loans with related parties during the periods indicated:


	Year Ended December 31,
(Amounts in thousands)	2016			2015
Beginning balance	$	21,886		$	22,826
New loans and advances		559			1,066
Loan repayments		(4,418	)		(2,006	)
Reclassifications⁽¹⁾		333			—

Ending balance	$	18,360		$	21,886

(1)	Changes related to the composition of the Company’s directors and executive officers

Deposits with related parties totaled $5.45 million as of December 31, 2016, and $6.55 million as of December 31, 2015. Legal fees paid to related parties totaled $104 thousand in 2016, $88 thousand in 2015, and $27 thousand in 2014. Lease expense paid to related parties totaled $95 thousand in 2016, $95 thousand in 2015, and $92 thousand in 2014. Other expense paid to related parties totaled $34 thousand in 2016 and $21 thousand in 2015. In addition, the Company repurchased 200,000 shares of its common stock from a related party in 2016 for $4.20 million, which represented the stock’s fair market value as of the date of the transaction.

Note 20.

Litigation, Commitments, and Contingencies

Litigation

In the normal course of business, the Company is a defendant in various legal actions and asserted claims. While the Company and its legal counsel are unable to assess the ultimate outcome of each of these matters with certainty, the Company believes the resolution of these actions, singly or in the aggregate, should not have a material adverse effect on its financial condition, results of operations, or cash flows.

Commitments and Contingencies

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest rate risk beyond the amount recognized in the consolidated balance sheets. The contractual amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments. If the other party to a financial instrument does not perform, the Company’s credit loss exposure is the same as the contractual amount of the instrument. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments are expected to expire without being drawn on, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of each customer on a case-by-case basis. Collateral may include accounts receivable, inventory, property, plant and equipment, and income producing commercial properties. The Company maintains a reserve for the risk inherent in unfunded lending commitments, which is included in other liabilities in the consolidated balance sheets.

Standby letters of credit and financial guarantees are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending credit to customers. The amount of collateral obtained, if deemed necessary, to secure the customer’s performance under certain letters of credit is based on management’s credit evaluation of the customer.

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


	December 31,
(Amounts in thousands)	2016		2015
Commitments to extend credit	$	261,801	$	235,302
Standby letters of credit and financial guarantees		8,180		7,765

Total off-balance sheet risk		269,981		243,067

Reserve for unfunded commitments	$	326	$	326

In connection with the private placement of $15.46 million of trust preferred securities through the Trust, the Company irrevocably and unconditionally guarantees the following payments or distributions to holders of the trust preferred securities, to the extent the Trust has not made such payments or distributions and the Company has the funds available: accrued and unpaid distributions, the redemption price, and, upon dissolution or termination of the Trust, the lesser of the liquidation amount and all accrued and unpaid distributions and the amount of assets of the Trust remaining available for distribution.

Note 21.

Regulatory Requirements and Restrictions

The Company and the Bank are subject to various regulatory capital requirements administered by state and federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, which applies only to the Bank, the Bank must meet specific capital guidelines that involve quantitative measures of the entity’s balance sheet assets and off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. In addition, the Company and the Bank are subject to various regulatory restrictions related to the payment of dividends, including requirements to maintain capital at or above regulatory minimums.

The current risk-based capital requirements, based on the international capital standards known as Basel III, requires the Company and the Bank to maintain minimum amounts and ratios of Common Equity Tier 1 capital, Tier 1 capital, and total capital to risk-weighted assets, and of Tier 1 capital to average consolidated assets (“Tier 1 leverage ratio”), as defined in the regulations. On January 1, 2016, Basel III’s capital conservation buffer,

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

which is intended to absorb losses during periods of economic stress, became effective at 0.625%, and will be phased in over a four-year period (increasing by an additional 0.625% each year until it reaches 2.5% on January 1, 2019). As of December 31, 2016, the capital conservation buffer was 5.29% for the Company and 3.48% for the Bank, which exceeds the required capital conservation buffer on a fully phased-in basis.

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


	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	%

(1)	Based on prompt corrective action provisions


	December 31, 2015
	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	$	246,237		14.54	%	$	76,196		4.50	%	$	118,527		7.00	%		N/A		N/A
Tier 1 risk-based capital ratio		249,436		14.73	%		101,595		6.00	%		143,926		8.50	%		N/A		N/A
Total risk-based capital ratio		269,998		15.95	%		135,459		8.00	%		177,791		10.50	%		N/A		N/A
Tier 1 Leverage ratio		249,436		10.62	%		93,935		4.00	%		93,935		4.00	%		N/A		N/A

The Bank
Common equity Tier 1 ratio	$	228,669		13.60	%	$	75,682		4.50	%	$	117,728		7.00	%	$	109,319		6.50	%
Tier 1 risk-based capital ratio		228,669		13.60	%		100,910		6.00	%		142,955		8.50	%		134,546		8.00	%
Total risk-based capital ratio		249,228		14.82	%		134,546		8.00	%		176,592		10.50	%		168,183		10.00	%
Tier 1 Leverage ratio		228,669		9.77	%		93,616		4.00	%		93,616		4.00	%		117,020		5.00	%

(1)	Based on prompt corrective action provisions

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 22. Parent Company Financial Information

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


	CONDENSED BALANCE SHEETS
	December 31,
(Amounts in thousands)	2016			2015
Assets
Cash and due from banks	$	23,561		$	8,367
Securities available for sale		17			8,459
Loans to affiliates		228			—
Investment in subsidiaries		321,389			336,311
Other assets		9,560			5,489

Total assets	$	354,755		$	358,626

Liabilities
Subordinated debt	$	15,464		$	15,464
Other liabilities		234			145

Total liabilities		15,698			15,609

Stockholders’ equity
Preferred stock		—			—
Common stock		21,382			21,382
Additional paid-in capital		228,142			227,692
Retained earnings		170,377			154,550
Treasury stock		(78,833	)		(56,457	)
Accumulated other comprehensive loss		(2,011	)		(4,150	)

Total stockholders’ equity		339,057			343,017

Total liabilities and stockholders’ equity	$	354,755		$	358,626

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


	CONDENSED STATEMENTS OF INCOME
	Year Ended December 31,
(Amounts in thousands)	2016			2015			2014
Cash dividends received from subsidiary bank	$	32,000		$	22,970		$	14,148
Other income		(1,121	)		1,039			515
Other operating expense		2,097			2,080			1,793

Income before income taxes and equity in undistributed net (loss) income of subsidiaries		28,782			21,929			12,870
Income tax benefit		(1,287	)		(616	)		(511	)

Income before equity in undistributed net income of subsidiaries		30,069			22,545			13,381
(Dividends in excess of) equity in undistributed net income of subsidiaries		(4,943	)		1,995			12,109

Net income		25,126			24,540			25,490
Dividends on preferred stock		—			105			910

Net income available to common shareholders	$	25,126		$	24,435		$	24,580

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


	CONDENSED STATEMENTS OF CASH FLOWS
	Year Ended December 31,
(Amounts in thousands)	2016			2015			2014
Operating activities
Net income	$	25,126		$	24,540		$	25,490
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed net income of subsidiaries		—			(1,995	)		(12,109	)
(Gain) loss on sale of securities		(65	)		(38	)		2
Net change in other operating activities		397			(626	)		4,212

Net cash provided by operating activities		25,458			21,881			17,595
Investing activities
Proceeds from sale of securities available for sale		8,660			199			5,030
Proceeds from divestitures		4,900			—			—
Return of capital from (investment in) subsidiaries		3,654			—			(2,000	)
Dividends in excess of undistributed net income of subsidiaries		4,943			—			—
Net change in other investing activities		(98	)		—			—

Net cash provided by investing activities		22,059			199			3,030
Financing activities
(Repayments of) proceeds from other debt		—			(2,000	)		2,000
Redemption of preferred stock		—			(2,367	)		—
Proceeds from issuance of common stock		1,243			264			89
Payments for repurchase of treasury stock		(23,762	)		(21,525	)		(2,168	)
Payments of common dividends		(10,396	)		(9,994	)		(9,200	)
Payments of preferred dividends		—			(219	)		(910	)
Net change in other financing activities		592			482			338

Net cash used in financing activities		(32,323	)		(35,359	)		(9,851	)

Net increase (decrease) in cash and cash equivalents		15,194			(13,279	)		10,774
Cash and cash equivalents at beginning of period		8,367			21,646			10,872

Cash and cash equivalents at end of period	$	23,561		$	8,367		$	21,646

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 23.

Quarterly Financial Data (Unaudited)

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


	Year Ended December 31, 2016
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
(Amounts in thousands, except share and per share data)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Interest income	$	23,550		$	24,137		$	23,621		$	23,416
Interest expense		2,439			2,446			2,500			2,459

Net interest income		21,111			21,691			21,121			20,957
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
Noninterest expense		18,814			18,722			18,557			16,653

Income before income taxes		9,013			9,277			9,613			10,042
Income tax expense		2,929			3,022			3,230			3,638

Net income available to common shareholders	$	6,084		$	6,255		$	6,383		$	6,404

Basic earnings per common share	$	0.34		$	0.36		$	0.37		$	0.38
Diluted earnings per common share		0.34			0.36			0.37			0.38
Dividend per common share		0.14			0.14			0.16			0.16
Weighted average basic shares outstanding		17,859,197			17,414,320			17,031,074			16,981,010
Weighted average diluted shares outstanding		17,892,531			17,462,845			17,083,526			17,043,869

	Year Ended December 31, 2015
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
(Amounts in thousands, except share and per share data)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Interest income	$	24,098		$	23,979		$	24,348		$	23,677
Interest expense		3,259			2,909			2,679			2,502

Net interest income		20,839			21,070			21,669			21,175
Provision for loan losses		1,100			276			381			434

Net interest income after provision		19,739			20,794			21,288			20,741
Noninterest income, excluding net (loss) gain on sale of securities		6,859			7,924			7,113			7,490
Net (loss) gain on sale of securities		(23	)		213			(39	)		(7	)
Noninterest expense		17,780			20,289			19,019			19,083

Income before income taxes		8,795			8,642			9,343			9,141
Income tax expense		2,837			2,467			3,084			2,993

Net income		5,958			6,175			6,259			6,148
Dividends on preferred stock		105			—			—			—

Net income available to common shareholders	$	5,853		$	6,175		$	6,259		$	6,148

Basic earnings per common share	$	0.31		$	0.33		$	0.34		$	0.34
Diluted earnings per common share		0.31			0.33			0.34			0.34
Dividend per common share		0.13			0.13			0.14			0.14
Weighted average basic shares outstanding		18,633,574			18,831,742			18,470,348			18,193,824
Weighted average diluted shares outstanding		19,344,443			18,860,119			18,500,975			18,226,719

- Report of Independent Registered Public Accounting Firm -

Audit Committee of the Board of Directors and the Stockholders

First Community Bancshares, Inc.

We have audited the accompanying consolidated balance sheets of First Community Bancshares, Inc. and Subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Community Bancshares, Inc. and its Subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 3, 2017 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ Dixon Hughes Goodman LLP

Asheville, North Carolina

March 3, 2017

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

First Community Bancshares, Inc. (the “Company”) is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this Annual Report on Form 10-K. The consolidated financial statements and notes included in this Annual Report on Form 10-K have been prepared in conformity with U.S. generally accepted accounting principles and necessarily include some amounts that are based on management’s best estimates and judgments.

We, as management of the Company, are responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with U.S. generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that its system of internal control over financial reporting was effective as of December 31, 2016.

Dixon Hughes Goodman LLP, independent registered public accounting firm, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. The Report of Independent Registered Public Accounting Firm, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016, appears hereafter in Item 8 of this Annual Report on Form 10-K.

Dated this 3^rd day of March, 2017.


/s/ William P. Stafford, II				/s/ David D. Brown

William P. Stafford, II				David D. Brown
Chief Executive Officer				Chief Financial Officer

- Report of Independent Registered Public Accounting Firm -

Audit Committee of the Board of Directors and the Stockholders

First Community Bancshares, Inc.

We have audited First Community Bancshares, Inc. and Subsidiaries (the “Company”) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, First Community Bancshares, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of First Community Bancshares, Inc. as of and for the year ended December 31, 2016, and our report, dated March 3, 2017 expressed an unqualified opinion on those consolidated financial statements.

/s/ Dixon Hughes Goodman LLP

Asheville, North Carolina

March 3, 2017

PART IV

Item 15.

Exhibits, Financial Statement Schedules.

(a)

Documents Filed as Part of this Report

(1)

Financial Statements

The financial statements required in this item are incorporated by reference to Item 8, “Financial Statements and Supplementary Data,” in Part II of this report.

(2)

Financial Statement Schedules

The schedules required in this item are omitted because they are not applicable or the required information is included in the consolidated financial statements or related notes.

(3)

Exhibits

The exhibits required in this item are incorporated by reference to the Exhibit Index of this report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 7th day of March, 2017.

First Community Bancshares, 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)

EXHIBIT INDEX


Exhibit No.		Exhibit

2.1		Purchase and Assumption Agreement between First Community Bank and First Bank, incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K dated March 3, 2016, filed on March 4, 2016

2.2		Purchase and Assumption Agreement between First Bank and First Community Bank, incorporated by reference to Exhibit 2.2 of the Current Report on Form 8-K dated March 3, 2016, filed on March 4, 2016

3.1		Articles of Incorporation of First Community Bancshares, Inc., as amended, incorporated by reference to Exhibit 3(i) of the Quarterly Report on Form 10-Q for the period ended June 30, 2010, filed on August 16, 2010

3.2		Amended and Restated Bylaws of First Community Bancshares, Inc., incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K dated February 23, 2016, filed on February 25, 2016

4.1		Specimen stock certificate of First Community Bancshares, Inc., incorporated by reference to Exhibit 4.1 of the Annual Report on Form 10-K for the period ended December 31, 2002, filed on March 25, 2003, amended on June 30, 2003

4.2		Indenture Agreement dated September 25, 2003, incorporated by reference to Exhibit 4.2 of the Quarterly Report on Form 10-Q for the period ended September 30, 2003, filed on November 10, 2003

4.3		Declaration of Trust of FCBI Capital Trust dated September 25, 2003, as amended and restated, incorporated by reference to Exhibit 4.3 of the Quarterly Report on Form 10-Q for the period ended September 30, 2003, filed on November 10, 2003

4.4		Preferred Securities Guarantee Agreement dated September 25, 2003, incorporated by reference to Exhibit 4.4 of the Quarterly Report on Form 10-Q for the period ended September 30, 2003, filed on November 10, 2003

10.1**		First Community Bancshares, Inc. 1999 Stock Option Plan, incorporated by reference to Exhibit 10.1 of the Annual Report on Form 10-K for the period ended December 31, 1999, filed on March 30, 2000, amended on April 13, 2000, and Amendment One, incorporated by reference to Exhibit 10.1.1 of the Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed on May 7, 2004

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 Plan, incorporated by reference to Exhibit 10.4 of the Quarterly Report on Form 10-Q for the period ended June 30, 2002, filed on August 14, 2002

10.4**		Employment Agreement between First Community Bancshares, Inc. and John M. Mendez dated December 16, 2008, as amended and restated, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated and filed on December 16, 2008, and Waiver Agreement, incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K dated December 16, 2010, filed on December 17, 2010

10.5**		First Community Bancshares, Inc. and Affiliates Executive Retention Plan, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated December 30, 2008, filed on January 5, 2009; Amendment #1, incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K


Exhibit No.		Exhibit
		dated December 16, 2010, filed on December 17, 2010; Amendment #2, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated February 21, 2013, filed on February 25, 2013; Amendment #3, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated May 24, 2016, filed on May 27, 2016; and Amendment #4, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated and filed on February 28, 2017

10.6**		First Community Bancshares, Inc. Split Dollar Plan and Agreement, incorporated by reference to Exhibit 10.5 of the Annual Report on Form 10-K for the period ended December 31, 1999, filed on March 30, 2000, amended on April 13, 2000

10.7**		First Community Bancshares, Inc. Supplemental Directors Retirement Plan, as amended and restated, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated December 16, 2010, filed on December 17, 2010, and Amendment #2, incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K dated May 24, 2016, filed on May 31, 2016

10.8**		First Community Bancshares, Inc. Nonqualified Supplemental Cash or Deferred Retirement Plan, as amended and restated, incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K dated August 22, 2006, filed on August 23, 2006, and Amendment #2, incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K dated and filed on February 28, 2017

10.9**		First Community Bancshares, Inc. 2004 Omnibus Stock Option Plan, incorporated by reference to Annex B to the 2004 First Community Bancshares, Inc. Definitive Proxy Statement filed on March 15, 2004, and Stock Award Agreement, incorporated by reference to Exhibit 10.13 of the Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed on August 6, 2004

10.10**		First Community Bancshares, Inc. 2012 Omnibus Equity Compensation Plan, incorporated by reference to the 2012 First Community Bancshares, Inc. Definitive Proxy Statement filed on March 7, 2012

10.11**		First Community Bancshares, Inc. Directors Deferred Compensation Plan, as amended and restated, incorporated by reference to Exhibit 99.2 of the Current Report on Form 8-K dated August 22, 2006, filed on August 23, 2006

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

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

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

10.15**		Employment Agreement between First Community Bancshares, Inc. and Martyn A. Pell dated April 16, 2015, incorporated by reference to Exhibit 10.4 of the Current Report on Form 8-K dated and filed on April 16, 2015, and Amendment #1 dated May 27, 2016, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated May 24, 2016, filed on May 27, 2016

10.16**		Employment Agreement between First Community Bank and Robert L. Schumacher dated April 16, 2015, incorporated by reference to the Current Report on Form 8-K dated and filed on April 16, 2015

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


Exhibit No.		Exhibit

10.18**		Employment Agreement between First Community Bank and Mark R. Evans dated July 31, 2009, incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K dated April 2, 2009, filed on April 3, 2009

10.19**		Form of Restricted Stock Grant Agreement under First Community Bancshares, Inc. 2012 Omnibus Equity Compensation Plan, incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K dated and filed May 28, 2013

10.20**		Separation Agreement and Release between First Community Bancshares, Inc. and John M. Mendez dated August 28, 2013, incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K/A dated August 12, 2013, filed on September 3, 2013

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*		Consent of Independent Public Accounting Firm

31.1*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2*		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32*		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101***		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of December 31, 2016 and 2015; (ii) Consolidated Statements of Income for the years ended December 31, 2016, 2015, and 2014; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015, and 2014; (iv) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016, 2015, and 2014; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014; and (vi) Notes to Consolidated Financial Statements

*	Filed herewith

**	Indicates a management contract or compensation plan or agreement

***	Previously filed with the Annual Report on Form 10-K for the year ended December 31, 2016, on March 3, 2017