ote

Acquisitions

Highlands Bankshares, Inc.

September 11, 2019,

the Company entered into an Agreement and Plan of Merger with Highlands Bankshares, Inc. (“Highlands”) of Abingdon, Virginia. Under the terms of the agreement and plan of merger, each share of Highlands’ common and preferred stock outstanding immediately converted into the right to receive

0.2703

shares of the Company’s stock. The transaction was consummated the close of business

December 31, 2019.

The transaction combined

two

traditional Southwestern Virginia community banks who serve the Highlands region in Virginia, North Carolina, and Tennessee. The total purchase price for the transaction was

$86.65

million.

The Highlands transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Fair values are preliminary and subject to refinement for up to a year after the closing date of the acquisition.

	As recorded by		Fair Value				As recorded by
(Amounts in thousands)	Highlands		Adjustments				the Company
Assets
Cash and cash equivalents	$	25,879	$	-			$	25,879
Securities available for sale		53,732		-				53,732
Loans held for sale		263		-				263
Loans held for investment, net of allowance and mark		438,896		(11,429	)	( a )		427,467
Premises and equipment		16,722		(2,317	)	( b )		14,405
Other real estate		1,963		-				1,963
Other assets		25,556		2,250		( c )		27,806
Intangible assets		-		4,490		( d )		4,490
Total assets	$	563,011	$	(7,006	)		$	556,005

LIABILITIES
Deposits:
Noninterest-bearing	$	155,714	$	-			$	155,714
Interest-bearing		346,028		1,261		( e )		347,289
Total deposits		501,742		1,261				503,003
Long term debt		40		-				40
Other liabilities		2,938		198		( f )		3,136
Total liabilities		504,720		1,459				506,179
Net identifiable assets acquired over (under) liabilities assumed		58,291		(8,465	)			49,826
Goodwill		-		36,821				36,821
Net assets acquired over liabilities assumed	$	58,291	$	28,356			$	86,647

Consideration:
First Community Bankshares, Inc. common								2,792,729
Purchase price per share of the Company's common stock							$	31.02
Fair value of Company common stock issued								86,631
Cash paid for fractional shares								16
Fair Value of total consideration transferred							$	86,647

Explanation of fair value adjustments:

( a ) - Adjustment reflects the fair value adjustments of $(

14.70

) million based on the Company's evaluation of the acquired loan portfolio and excludes the allowance for loan losses ("ALLL") and deferred loan fees of

$3.27

million recorded by Highlands.

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

( c ) - Adjustment to record the deferred tax asset related to the fair value adjustments.

( d ) - Adjustment reflects the recording of the core deposit intangible on the acquired deposit accounts.

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

( f ) - Adjustment reflects the fair value adjustment for death benefits payable of

$320

thousand, the fair value adjustment for lease liability of $(

) thousand and the fair value adjustment to the reserve for unfunded commitments of $(

) thousand.

Comparative and Pro Forma Financial Information for Acquisitions

As the merger date was the close of business,

December 31, 2019,

Highlands had

earnings contribution to the

March 31, 2019

consolidated statement of income for the Company. For the

three

months ended

March 31, 2020,

$7.12

million of gross revenues and earnings was contributed by Highlands branches and included in the consolidated financials of the Company.

The following table discloses the impact of the merger. The table also presents certain pro forma information as if Highlands had been acquired on

January 1, 2019.

These results combine the historical results of Highlands in the Company’s consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are

not

indicative of what would have occurred had the acquisition taken place on

January 1, 2019.

Residual merger-related costs of

$1.89

million incurred by the Company during the period ended

March 31, 2020,

have been excluded from the proforma information below.

adjustments have been made to the pro formas to eliminate the provision for loan losses for the periods ended

March 31, 2019

of Highlands in the amount of

$103,000.

The Company expects to achieve further operating cost savings and other business synergies as a result of the acquisitions which are

not

reflected in the pro forma amounts below:

	ProForma		ProForma
(Dollars in thousands)	March 31, 2020		March 31, 2019
Total revenues (net interest income plus noninterest income)	$	35,231	$	37,234
Net adjusted income available to the common shareholder	$	9,360	$	11,358