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Note 2 - Acquisitions | 6 Months Ended
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Jun. 30, 2024
Notes to Financial Statements |
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block] | Note 2. Acquisitions On November 18, 2022, the Company and North Carolina-based Surrey Bancorp ("Surrey"), parent company of Surrey Bank & Trust, jointly announced their entry into an agreement and plan of merger pursuant to which First Community would acquire Surrey and its wholly-owned bank subsidiary, Surrey Bank & Trust. Under the terms of the agreement and plan of merger, each share of Surrey common stock immediately converted into the right to receive 0.7159 shares of the Company's common stock. The transaction was consummated on April 21, 2023. The total purchase price for the transaction was $71.37 million. The Surrey transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Fair values are preliminary and subject to refinement for up to a year after the closing date of the acquisition. The Company incurred a total of $2.99 million in merger expenses related to the Surrey transaction, $596 thousand was recorded in the last quarter of 2022 and $2.39 million in 2023. These costs were primarily related to data conversion, investment banking fees, and legal fees. Goodwill arising from business combinations represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the fair value of the liabilities assumed. The Surrey acquisition resulted in the Company recognizing $14.38 million in goodwill. The primary identifiable intangible asset we typically record in connection with a whole bank or bank branch acquisition is the value of the core deposit intangibles which represents the estimated value of the long-term deposit relationships acquired in the transaction. Determining the amount of identifiable intangible assets and their average lives involves multiple assumptions and estimates and is typically determined by performing a discounted cash flow analysis, which involves a combination of any or all of the following assumptions: customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates. The core deposit intangibles are amortized over the estimated useful lives of the deposit accounts based on a method that we believe reasonably approximates the anticipated benefit stream from this intangible. Core deposit intangibles for the Surrey transaction totaled $12.70 million. When loans are acquired they are identified as either purchased credit deteriorated PCD or non-PCD. PCD loans represent assets that are acquired with evidence of more than insignificant credit quality deterioration since the origination of the loans as of the acquisition date. The ACL for PCD assets is recognized within business combination accounting with no initial impact to net income. Changes in estimates of expected credit losses on PCD loans after acquisition are recognized as provision expense (or reversal of provision expense) in subsequent periods as they arise. Non-PCD loans acquired are generally estimated at fair value using a discounted cash flow approach with assumptions of discount rate, remaining life, prepayments, probability of default, and loss given default. The actual cash flows on these loans could differ materially from the fair value estimates. The amount we record as the fair values for the loans is generally less than the contractual unpaid principal balance due from the borrowers, with the difference being referred to as the “discount” on the acquired loans. Discounts on acquired non-PCD loans are accreted to interest income over their estimated remaining lives, which may include prepayment estimates in certain circumstances. The ACL for non-PCD assets is recognized as provision expense in the same reporting period as the business combination. Estimated loan losses for acquired loans are determined using methodologies and applying estimates and assumptions similar to originated performing loans. The fair value of purchased loans with credit deterioration was $101.42 million on the date of acquisition with the gross contractual amount totaling $111.22 million. The Company estimates that $2.01 million of contractual cash flows specific to the purchased loans with credit deterioration will not be collected. Non purchased credit deteriorated loans acquired had a fair value of $137.55 million with a gross contractual value of $143.55 million.
|  | As recorded by |  |  | Fair Value |  |  |  | As recorded by |
(Amounts in thousands, except share and per share data ) |  | Surrey |  |  | Adjustments |  |  |  | the Company |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 176,700 |  |  | $ | - |  |  |  | $ | 176,700 |
Securities-available-for-sale |  |  | 22,027 |  |  |  | (1,093 | ) | ( a ) |  |  | 20,934 |
Loans held for investment, net of allowance and mark |  |  | 251,944 |  |  |  | (12,864 | ) | ( b ) |  |  | 239,080 |
Premises and equipment |  |  | 5,501 |  |  |  | 774 |  | ( c ) |  |  | 6,275 |
Other assets |  |  | 10,787 |  |  |  | (229 | ) | ( d ), ( e ) |  |  | 10,558 |
Intangible assets |  |  | - |  |  |  | 12,700 |  | ( f ) |  |  | 12,700 |
Total assets |  | $ | 466,959 |  |  | $ | (712 | ) |  |  | $ | 466,247 |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |  |
Noninterest-bearing |  | $ | 158,389 |  |  | $ | - |  |  |  | $ | 158,389 |
Interest-bearing |  |  | 246,460 |  |  |  | (1,214 | ) | ( g ) |  |  | 245,246 |
Total deposits |  |  | 404,849 |  |  |  | (1,214 | ) |  |  |  | 403,635 |
Long term debt |  |  | - |  |  |  | - |  |  |  |  | - |
Other liabilities |  |  | 6,004 |  |  |  | (381 | ) | ( h ) |  |  | 5,623 |
Total liabilities |  |  | 410,853 |  |  |  | (1,595 | ) |  |  |  | 409,258 |
Net identifiable assets acquired over liabilities assumed |  |  | 56,106 |  |  |  | 883 |  |  |  |  | 56,989 |
Goodwill |  |  | - |  |  |  | 14,381 |  |  |  |  | 14,381 |
Net assets acquired over liabilities assumed |  | $ | 56,106 |  |  | $ | 15,264 |  |  |  | $ | 71,370 |
Consideration: |  |  |  |  |  |  |  |  |  |  |  |  |
First Community Bankshares, Inc. common stock issued |  |  |  |  |  |  |  |  |  |  |  | 2,996,786 |
Purchase price per share of the Company's common stock |  |  |  |  |  |  |  |  |  |  | $ | 23.81 |
Fair value of Company common stock issued |  |  |  |  |  |  |  |  |  |  |  | 71,354 |
Cash paid for fractional shares |  |  |  |  |  |  |  |  |  |  |  | 16 |
Fair Value of total consideration transferred |  |  |  |  |  |  |  |  |  |  | $ | 71,370 |
Explanation of fair value adjustments:
| (a) | Adjustment reflects the fair value adjustment based on the Company's evaluation of the acquired investment portfolio.
| (b) | Adjustment reflects the fair value adjustments of $(15.80) million based on the Company's evaluation of the acquired loan portfolio and excludes the allowance for credit losses and deferred loans fees of $2.94 million as recorded by Surrey.
| (c) | Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired premises and equipment.
| (d) | Adjustment reflects the fair value adjustment based on the Company's evaluation of stocks with other banks of $47 thousand.
| (e) | Adjustment to record the deferred tax asset related to the fair value adjustments $(177) thousand.
| (f) | Adjustment to record the core deposit intangible on the acquired deposit accounts.
| (g) | Adjustment reflects the fair value adjustment based on the Company's evaluation of the time deposit portfolio.
| (h) | Adjustment to reclass deferred tax asset $(99) thousand, goodwill $(282) thousand, federal income tax payable $(389) thousand, and state income tax payable $8 thousand.

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