# First Community Bankshares Inc: Form 10-Q for the period ended Jun 30, 2015

- Company: [First Community Bankshares Inc](/companies/fcbc.md) (CIK 859070)
- Form: 10-Q
- Filed: 2015-08-07
- Accepted by EDGAR: Aug 7, 2015, 12:53 ET
- Period: 2015-06-30
- Accession: 0001193125-15-282680
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/859070/000119312515282680/d80334d10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/859070/000119312515282680/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2015-04-01 to 2015-06-30 | $2.9m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2015-01-01 to 2015-06-30 | $6.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2015-04-01 to 2015-06-30 | $2.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2015-01-01 to 2015-06-30 | $5.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2015-04-01 to 2015-06-30 | $6.2m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2015-01-01 to 2015-06-30 | $12.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2015-04-01 to 2015-06-30 | $0.33 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2015-01-01 to 2015-06-30 | $0.64 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2015-04-01 to 2015-06-30 | $0.33 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2015-01-01 to 2015-06-30 | $0.64 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2015-04-01 to 2015-06-30 | 18,860,119 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2015-01-01 to 2015-06-30 | 19,095,408 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2015-01-01 to 2015-06-30 | $29.4m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 6 months, 2015-01-01 to 2015-06-30 | $537.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2015-01-01 to 2015-06-30 | $4.9m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 6 months, 2015-01-01 to 2015-06-30 | $11.5m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2015-06-30 | $92.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2015-06-30 | $2.49bn | us-gaap:Assets |
| Total liabilities | at 2015-06-30 | $2.15bn | us-gaap:Liabilities |
| Long-term debt | at 2015-06-30 | $115.0m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2015-06-30 | $344.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 69,683 characters.

Unless the context suggests otherwise, the terms “First Community,” “Company,” “we,” “our,” and “us” refer to First Community Bancshares, Inc. and its subsidiaries as a consolidated entity. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our financial condition, changes in financial condition, and results of operations. MD&A contains forward-looking statements and should be read in conjunction with our consolidated financial statements, accompanying notes, and other financial information included in this Quarterly Report on Form 10-Q and our 2014 Annual Report on Form 10-K (the “2014 Form 10-K”).

### Cautionary Statement Regarding Forward-Looking Statements

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

- the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations;
- the effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Federal Reserve System;
- inflation, interest rate, market and monetary fluctuations;
- our timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;
- the willingness of customers to substitute competitors’ products and services for our products and services and vice versa;
- the impact of changes in financial services laws and regulations, including laws about taxes, banking, securities, and insurance, and the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act;
- the impact of the U.S. Department of the Treasury and federal banking regulators’ continued implementation of programs to address capital and liquidity in the banking system;
- further, future and proposed rules, including those that are part of the process outlined in the International Basel Committee on Banking Supervision’s “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems,” which are expected to require banking institutions to increase levels of capital;
- technological changes;
- the effect of acquisitions, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions;
- the growth and profitability of our noninterest, or fee, income being less than expected;
- unanticipated regulatory or judicial proceedings;
- changes in consumer spending and saving habits; and
- our success at managing the risks involved in the foregoing.

We caution that the foregoing list of important factors is not exclusive. If one or more of the factors affecting these forward-looking statements proves incorrect, our actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking statements contained in this Quarterly Report on Form 10-Q and other reports we filed with the SEC. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We do not intend to update any forward-looking statements, whether written or oral, to reflect changes. All forward-looking statements attributable to our Company are expressly qualified by these cautionary statements. See Part II, Item 1A, “Risk Factors,” of this report and Part I, Item 1A, “Risk Factors,” of our 2014 Form 10-K.

### Company Overview

First Community Bancshares, Inc. (the “Company”) is a financial holding company, headquartered in Bluefield, Virginia, that provides commercial banking services through its wholly-owned subsidiary First Community Bank (the “Bank”). The Bank operates fifty-two banking locations under the name First Community Bank in West Virginia, Virginia, and North Carolina and under the trade name People’s Community Bank, a Division of First Community Bank, in Tennessee. The Bank offers wealth management and investment advice through its wholly-owned subsidiary First Community Wealth Management (“FCWM”) and the Bank’s Trust Division, which reported combined assets under management of $717 million as of June 30, 2015. These assets are not our assets, but are managed under various fee-based arrangements as fiduciary or agent. The Company provides insurance services through its wholly-owned subsidiary Greenpoint Insurance Group, Inc. (“Greenpoint”), headquartered in High Point, North Carolina, which operates eleven locations under the Greenpoint name and under the trade names First Community Insurance Services (“FCIS”) and Carolina Insurers Associates in North Carolina, Carr & Hyde Insurance and FCIS in Virginia, and FCIS in West Virginia. We reported total assets of $2.49 billion as of June 30, 2015. Our common stock is traded on the NASDAQ Global Select Market under the symbol, “FCBC.”

We fund our lending and investing activities primarily through the retail deposit operations of our branch banking network, with additional funding provided by retail and wholesale repurchase agreements and borrowings from the Federal Home Loan Bank (“FHLB”). We invest our funds primarily in loans to retail and commercial customers. In addition to loans, we invest a portion of our funds in various debt securities, including those of the United States and its agencies, municipals, and certain corporate notes, debt instruments, and equity securities. We also maintain overnight interest-bearing balances with the Federal Reserve and other correspondent banks. The difference between interest earned on assets and interest paid on liabilities is our primary source of earnings. Our net interest income is supplemented by fees for services, commissions on sales, and various deposit service charges.

### Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States and conform to general practices within the banking industry. Our financial position and results of operations require management to make judgments and estimates to develop the amounts reflected and disclosed in the consolidated financial statements. Different assumptions in the application of these estimates could result in material changes to our consolidated financial position and consolidated results of operations. Estimates, assumptions, and judgments are based on historical experience and other factors including expectations of future events believed to be reasonable under the circumstances that are periodically evaluated. These estimates are generally necessary when assets and liabilities are required to be recorded at estimated fair value, a decline in the value of an asset carried on the financial statements at fair value warrants an impairment write-down or establishment of a valuation reserve, or an asset or liability needs to be recorded based upon the probability of occurrence of a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. Fair values and information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or, when available, are provided by third-party sources. When third-party information is not available, valuation adjustments are estimated by management primarily through the use of financial modeling techniques and appraisal estimates. Our accounting policies are fundamental in understanding MD&A and the disclosures presented in the notes to consolidated statements. Our critical accounting estimates are described in detail in the “Critical Accounting Estimates” section in Part II, Item 7 of our 2014 Form 10-K.

### Performance Overview

Highlights of our results of operations for the quarter and six months ended June 30, 2015, and financial condition as of June 30, 2015, include the following:

- The Company prepaid an additional $25 million in Federal Home Loan Bank convertible advances during the second quarter. The prepayment was in keeping with the Company’s strategic goal of reducing high cost wholesale debt.
- The Company repurchased 345,173 common shares during the second quarter, bringing total repurchased shares to 684,407 during the first half of 2015.
- Asset quality metrics continue to be favorable as non-covered nonaccrual loans decreased $1.53 million, or 8.75% in the second quarter of 2015 compared to the same quarter of the prior year.
- Net charge-offs decreased $758 thousand, or 73.74%, and the ratio of annualized net charge-offs to average non-covered loans improved 19 basis points to 0.07% for the second quarter of 2015 compared to the same quarter of 2014.
- The Company significantly exceeds regulatory “well capitalized” targets as of June 30, 2015.

### Results of Operations

#### Net Income

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

*(Amounts in thousands, except per share data)*

|  | Three Months Ended June 30, 2015 | 2014 | Six Months Ended June 30, 2015 | 2014 | Three Months Ended Increase (Decrease) | % Change (Decrease) | Six Months Ended Increase | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net income | $6,175 | $7,007 | $12,133 | $12,732 | $(832) | -11.87% | $(599) | -4.70% |
| Net income available to common shareholders | 6,175 | 6,780 | 12,028 | 12,277 | (605) | -8.92% | (249) | -2.03% |
| Basic earnings per common share | 0.33 | 0.37 | 0.64 | 0.67 | (0.04) | -10.81% | (0.03) | -4.48% |
| Diluted earnings per common share | 0.33 | 0.36 | 0.64 | 0.65 | (0.03) | -8.33% | (0.01) | -1.54% |
| Return on average assets | 0.98% | 1.06% | 0.94% | 0.96% | -0.08% | -7.55% | -0.02% | -2.08% |
| Return on average common equity | 7.11% | 8.38% | 6.92% | 7.71% | -1.27% | -15.16% | -0.79% | -10.25% |

*Three-Month Comparison.* Net income decreased in the second quarter of 2015 compared to the same quarter of the prior year primarily due to a $998 thousand decrease in net interest income and $2.13 million increase in noninterest expense, offset by a $1.00 million decrease in the provision for loan losses, $533 thousand increase in noninterest income, and $756 thousand decrease in income tax.

*Six-Month Comparison.* Net income decreased in the first six months of 2015 compared to the same period of the prior year primarily due to a $2.18 million decrease in net interest income and $726 thousand increase in noninterest expense, offset by a $1.70 million decrease in the provision for loan losses, $135 thousand increase in noninterest income, and $480 thousand decrease in income tax.

#### Net Interest Income

Net interest income, our largest contributor to earnings, comprised 72.14% of total net interest and noninterest income in the second quarter of 2015 compared to 74.37% in the same quarter of 2014. Net interest income comprised 73.68% of total net interest and noninterest income in the first six months of 2015 compared to 74.82% in the same period of 2014.

Net interest income is analyzed on a fully taxable equivalent (“FTE”) basis, a non-GAAP financial measure. The FTE basis adjusts for the tax benefits of income from certain tax exempt loans and investments using the federal statutory rate of 35%. We believe this measure to be the preferred industry measurement of net interest income and provides better comparability between taxable and tax exempt amounts. We use this non-GAAP financial measure to monitor net interest income performance and to manage the composition of our balance sheet.

The following tables present our average consolidated balance sheets, as of the dates indicated, and the net interest analysis, on a FTE basis, in the periods indicated:

*(Amounts in thousands)*

| Assets Earning assets | Three Months Ended June 30, 2015 Average Balance | Interest(1) | Average Yield/ Rate(1) | 2014 Average Balance | Interest(1) | Average Yield/ Rate(1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans(2) | $1,671,476 | $21,862 | 5.25% | $1,748,048 | $23,467 | 5.38% |
| Securities available-for-sale | 362,366 | 2,418 | 2.68% | 428,111 | 3,239 | 3.03% |
| Securities held-to-maturity | 72,742 | 196 | 1.08% | 12,767 | 39 | 1.23% |
| Interest-bearing deposits | 120,025 | 80 | 0.27% | 49,325 | 47 | 0.38% |
| Total earning assets | 2,226,609 | 24,556 | 4.42% | 2,238,251 | 26,792 | 4.80% |
| Other assets | 311,437 |  |  | 334,279 |  |  |
| Total assets | $2,538,046 |  |  | $2,572,530 |  |  |
| Liabilities |  |  |  |  |  |  |
| Interest-bearing deposits |  |  |  |  |  |  |
| Demand deposits | $340,517 | $51 | 0.06% | $372,536 | $52 | 0.06% |
| Savings deposits | 538,717 | 101 | 0.08% | 524,539 | 128 | 0.10% |
| Time deposits | 655,243 | 1,410 | 0.86% | 697,326 | 1,655 | 0.95% |
| Total interest-bearing deposits | 1,534,477 | 1,562 | 0.41% | 1,594,401 | 1,835 | 0.46% |
| Borrowings |  |  |  |  |  |  |
| Retail repurchase agreements | 70,328 | 17 | 0.10% | 61,458 | 24 | 0.16% |
| Wholesale repurchase agreements | 50,000 | 468 | 3.75% | 50,000 | 468 | 3.75% |
| FHLB advances and other borrowings | 86,592 | 862 | 3.99% | 166,087 | 1,698 | 4.10% |
| Total borrowings | 206,920 | 1,347 | 2.61% | 277,545 | 2,190 | 3.16% |
| Total interest-bearing liabilities | 1,741,397 | 2,909 | 0.67% | 1,871,946 | 4,025 | 0.86% |
| Noninterest-bearing demand deposits | 428,442 |  |  | 344,485 |  |  |
| Other liabilities | 20,072 |  |  | 16,490 |  |  |
| Total liabilities | 2,189,911 |  |  | 2,232,921 |  |  |
| Stockholders’ equity | 348,135 |  |  | 339,609 |  |  |
| Total liabilities and stockholders’ equity | $2,538,046 |  |  | $2,572,530 |  |  |
| Net interest income, FTE |  | $21,647 |  |  | $22,767 |  |
| Net interest rate spread |  |  | 3.75% |  |  | 3.94% |
| Net interest margin |  |  | 3.90% |  |  | 4.08% |

(1) Fully taxable equivalent (“FTE”) basis based on the federal statutory rate of 35%

(2) Nonaccrual loans are included in average balances; however, no related interest income is recorded during the period of nonaccrual.

*(Amounts in thousands)*

| Assets Earning assets | Six Months Ended June 30, 2015 Average Balance | Interest(1) | Average Yield/ Rate(1) | 2014 Average Balance | Interest(1) | Average Yield/ Rate(1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans(2) | $1,674,778 | $43,816 | 5.28% | $1,733,061 | $46,359 | 5.39% |
| Securities available-for-sale | 346,792 | 4,831 | 2.81% | 463,783 | 7,047 | 3.06% |
| Securities held-to-maturity | 69,351 | 382 | 1.11% | 7,098 | 54 | 1.53% |
| Interest-bearing deposits | 164,201 | 213 | 0.26% | 37,924 | 77 | 0.41% |
| Total earning assets | 2,255,122 | 49,242 | 4.40% | 2,241,866 | 53,537 | 4.82% |
| Other assets | 315,126 |  |  | 340,117 |  |  |
| Total assets | $2,570,248 |  |  | $2,581,983 |  |  |
| Liabilities |  |  |  |  |  |  |
| Interest-bearing deposits |  |  |  |  |  |  |
| Demand deposits | $346,099 | $104 | 0.06% | $371,286 | $106 | 0.06% |
| Savings deposits | 532,740 | 206 | 0.08% | 527,270 | 265 | 0.10% |
| Time deposits | 676,519 | 2,982 | 0.89% | 705,817 | 3,352 | 0.96% |
| Total interest-bearing deposits | 1,555,358 | 3,292 | 0.43% | 1,604,373 | 3,723 | 0.47% |
| Borrowings |  |  |  |  |  |  |
| Federal funds purchased | — | — | — | 1,763 | 3 | 0.34% |
| Retail repurchase agreements | 69,097 | 38 | 0.11% | 64,391 | 51 | 0.16% |
| Wholesale repurchase agreements | 50,000 | 931 | 3.75% | 50,000 | 931 | 3.75% |
| FHLB advances and other borrowings | 96,551 | 1,907 | 3.98% | 166,087 | 3,375 | 4.10% |
| Total borrowings | 215,648 | 2,876 | 2.69% | 282,241 | 4,360 | 3.12% |
| Total interest-bearing liabilities | 1,771,006 | 6,168 | 0.70% | 1,886,614 | 8,083 | 0.87% |
| Noninterest-bearing demand deposits | 427,881 |  |  | 340,550 |  |  |
| Other liabilities | 20,696 |  |  | 18,692 |  |  |
| Total liabilities | 2,219,583 |  |  | 2,245,856 |  |  |
| Stockholders’ equity | 350,665 |  |  | 336,127 |  |  |
| Total liabilities and stockholders’ equity | $2,570,248 |  |  | $2,581,983 |  |  |
| Net interest income, FTE |  | $43,074 |  |  | $45,454 |  |
| Net interest rate spread |  |  | 3.70% |  |  | 3.95% |
| Net interest margin |  |  | 3.85% |  |  | 4.09% |

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

(2) Nonaccrual loans are included in average balances; however, no related interest income is recorded during the period of nonaccrual.

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

*(Amounts in thousands)*

| Interest earned on: | Three Months Ended June 30, 2015 Compared to 2014 Dollar Increase (Decrease) due to Volume | Rate | Rate/ Volume | Total | Six Months Ended June 30, 2015 Compared to 2014 Dollar Increase (Decrease) due to Volume | Rate | Rate/ Volume | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans(1) | $(1,028) | $(603) | $26 | $(1,605) | $(1,559) | $(1,018) | $34 | $(2,543) |
| Securities available-for-sale(1) | (497) | (382) | 58 | (821) | (1,778) | (586) | 148 | (2,216) |
| Securities held-to-maturity(1) | 183 | (5) | (21) | 157 | 474 | (15) | (131) | 328 |
| Interest-bearing deposits with other banks | 67 | (14) | (20) | 33 | 256 | (28) | (92) | 136 |
| Total interest earning assets | (1,275) | (1,004) | 43 | (2,236) | (2,607) | (1,647) | (41) | (4,295) |
| Interest paid on: |  |  |  |  |  |  |  |  |
| Demand deposits | (4) | 4 | (1) | (1) | (7) | 6 | (1) | (2) |
| Savings deposits | 3 | (30) | — | (27) | 3 | (61) | (1) | (59) |
| Time deposits | (100) | (154) | 9 | (245) | (139) | (241) | 10 | (370) |
| Federal funds purchased | — | — | — | — | (3) | — | — | (3) |
| Retail repurchase agreements | 3 | (9) | (1) | (7) | 4 | (16) | (1) | (13) |
| Wholesale repurchase agreements | — | — | — | — | — | — | — | — |
| FHLB advances and other borrowings | (813) | (45) | 22 | (836) | (1,413) | (95) | 40 | (1,468) |
| Total interest-bearing liabilities | (911) | (234) | 29 | (1,116) | (1,555) | (407) | 47 | (1,915) |
| Change in net interest income(1) | $(364) | $(770) | $14 | $(1,120) | $(1,052) | $(1,240) | $(88) | $(2,380) |

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

(2) Nonaccrual loans are included in average balances; however, no related interest income is recorded during the period of nonaccrual.

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

*(Amounts in thousands)*

|  | Three Months Ended June 30, 2015 | 2014 | Six Months Ended June 30, 2015 | 2014 |
| --- | ---: | ---: | ---: | ---: |
| Net interest income, GAAP | $21,070 | $22,068 | $41,909 | $44,093 |
| FTE adjustment(1) | 577 | 699 | 1,165 | 1,361 |
| Net interest income, FTE(1) | $21,647 | $22,767 | $43,074 | $45,454 |

(1) The FTE basis adjusts for the tax benefits of income from certain tax exempt loans and investments using the federal statutory rate of 35%.

The interest and the average yield on loans include accretion income from acquired loan portfolios. The following tables present our average consolidated balance sheets, as of the dates indicated, and net interest analysis, on a FTE basis excluding the impact of non-cash purchase accounting accretion, in the periods indicated:

*(Amounts in thousands)*

| Earning assets | Three Months Ended June 30, 2015 Interest(1) | Average Yield/ Rate(1) | 2014 Interest(1) | Average Yield/ Rate(1) |
| --- | ---: | ---: | ---: | ---: |
| Loans(2) | $21,863 | 5.25% | $23,467 | 5.38% |
| Accretion income | 2,416 |  | 2,789 |  |
| Less: cash accretion income | 1,134 |  | 1,247 |  |
| Non-cash accretion income | 1,282 |  | 1,542 |  |
| Loans, excluding non-cash accretion | 20,581 | 4.94% | 21,925 | 5.03% |
| Other earning assets | 2,693 | 1.95% | 3,325 | 2.72% |
| Total earning assets | 23,274 | 4.19% | 25,250 | 4.52% |
| Total interest-bearing liabilities | 2,909 | 0.67% | 4,025 | 0.86% |
| Net interest income, tax equivalent | $20,365 |  | $21,225 |  |
| Net interest rate spread, less non-cash accretion |  | 3.52% |  | 3.66% |
| Net interest margin, less non-cash accretion |  | 3.67% |  | 3.80% |

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

(2) Nonaccrual loans are included in average balances; however, no related interest income is recorded during the period of nonaccrual.

*(Amounts in thousands)*

| Earning assets | Six Months Ended June 30, 2015 Interest(1) | Average Yield/ Rate(1) | 2014 Interest(1) | Average Yield/ Rate(1) |
| --- | ---: | ---: | ---: | ---: |
| Loans(2) | $43,816 | 5.28% | $46,359 | 5.39% |
| Accretion income | 5,255 |  | 5,912 |  |
| Less: cash accretion income | 2,230 |  | 1,848 |  |
| Non-cash accretion income | 3,025 |  | 4,064 |  |
| Loans, excluding non-cash accretion | 40,791 | 4.91% | 42,295 | 4.92% |
| Other earning assets | 5,425 | 1.89% | 7,178 | 2.84% |
| Total earning assets | 46,216 | 4.13% | 49,473 | 4.45% |
| Total interest-bearing liabilities | 6,167 | 0.70% | 8,083 | 0.86% |
| Net interest income, tax equivalent | $40,049 |  | $41,390 |  |
| Net interest rate spread, less non-cash accretion |  | 3.43% |  | 3.59% |
| Net interest margin, less non-cash accretion |  | 3.58% |  | 3.73% |

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

(2) Nonaccrual loans are included in average balances; however, no related interest income is recorded during the period of nonaccrual.

*Three-Month Comparison*. Net interest income under GAAP decreased $998 thousand or 4.52%, and net interest income on a FTE basis decreased $1.12 million, or 4.92%, in the second quarter of 2015 compared to the same quarter of the prior year. Changes in the average balances of and yields/rates on earning assets and interest-bearing liabilities resulted in a 19 basis point decrease in the net interest rate spread and an 18 basis point decrease in the net interest margin.

Loan interest accretion totaled $2.42 million in the second quarter of 2015, of which $1.13 million was received in cash, compared to $2.79 million in the same quarter of the prior year, of which $1.25 million was received in cash. Excluding non-cash accretion income, the yield on loans decreased 9 basis points, compared to a decrease of 13 basis points under GAAP. Excluding non-cash accretion income, the net interest margin decreased 13 basis points compared to a decrease of 18 basis points under GAAP. We expect the purchase accounting interest accretion to continue to decline in future periods due to acquired portfolio attrition.

Average earning assets decreased $11.64 million, or 0.52%, in the second quarter of 2015 compared to the same quarter of the prior year primarily due to decreases in the average covered loan portfolio and securities available for sale. The yield on earning assets decreased 38 basis points, which was largely due to a decrease in the average balance and yield of available-for-sale securities. Interest-bearing deposits with banks are primarily comprised of excess liquidity kept at the FRB of Richmond bearing overnight market rates.

As of June 30, 2015, interest-bearing liabilities included interest-bearing deposits; retail repurchase agreements, consisting of collateralized retail deposits and commercial treasury accounts; wholesale repurchase agreements; FHLB advances; and other borrowings. Average interest-bearing liabilities decreased $130.55 million, or 6.97%, in the second quarter of 2015 compared to the same quarter of the prior year, primarily due to the prepayment of FHLB advances and the decline in average interest-bearing demand and time deposit balances. We prepaid $25 million of a FHLB convertible advance with an interest rate of 4.15% during the second quarter of 2015. The yield on interest-bearing liabilities decreased 19 basis points, which was largely due to a 55 basis point decrease in the rate on borrowings. Average interest-bearing deposits decreased $59.92 million, or 3.76%, which was driven by a $42.08 million, or 6.03%, decrease in average time deposits and a $32.02 million, or 8.59%, decrease in interest-bearing demand deposits offset by a $14.18 million, or 2.70%, increase in savings deposits, which include money market and savings accounts. Average borrowings decreased $70.63 million, or 25.45%, which was driven by a $79.50 million, or 47.86%, decrease in FHLB and other borrowings.

*Six-Month Comparison*. Net interest income under GAAP decreased $2.18 million, or 4.95%, and FTE net interest income decreased $2.38 million, or 5.24%, in the first six months of 2015 compared to the same period of the prior year. Changes in the average balances of and yields/rates on earning assets and interest-bearing liabilities resulted in a 25 basis point decrease in the net interest rate spread and a 24 basis point decrease in the net interest margin.

Loan interest accretion totaled $5.26 million in the first six months of 2015, of which $2.23 million was received in cash, compared to $5.91 million in the same period of the prior year, of which $1.85 million was received in cash. Excluding non-cash accretion income, the yield on loans decreased 1 basis point, compared to a decrease of 11 basis points under GAAP. Excluding non-cash accretion income, the net interest margin decreased 15 basis points compared to a decrease of 24 basis points under GAAP. We expect the purchase accounting interest accretion to continue to decline in future periods due to acquired portfolio attrition.

Average earning assets increased $13.26 million, or 0.59%, in the first six months of 2015 compared to the same period of the prior year primarily due to increases in interest-bearing deposits held with other financial institutions and securities held to maturity. The yield on earning assets decreased 42 basis points, which was largely due to a decrease in the average balance and yield of available-for-sale securities and loans. During the first six months of 2015, we continued purchasing low-yield, short-term bonds in the held-to-maturity category to provide for the funding necessary to extinguish certain wholesale borrowings as they come due. Interest-bearing deposits with banks are primarily comprised of excess liquidity kept at the FRB of Richmond bearing overnight market rates.

Average interest-bearing liabilities decreased $115.61 million, or 6.13%, in the first six months of 2015 compared to the same period of the prior year, primarily due to the prepayment of FHLB advances and the decline in average interest-bearing demand and time deposit balances. The yield on interest-bearing liabilities decreased 17 basis points, which was largely due to a 43 basis point decrease in the rate on borrowings. Average interest-bearing deposits decreased $49.02 million, or 3.06%, which was driven by a $29.30 million, or 4.15%, decrease in average time deposits and a $25.19 million, or 6.78%, decrease in interest-bearing demand deposits offset by a $5.47 million, or 1.04%, increase in savings deposits, which include money market and savings accounts. Average borrowings decreased $66.59 million, or 23.59%, which was driven by a $69.54 million, or 41.87%, decrease in FHLB and other borrowings.

#### Provision for Loan Losses

*Three-Month Comparison*. The provision for loan losses is added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level management determines necessary to absorb probable losses in the existing loan portfolio. The provision charged to operations decreased $1.00 million to $276 thousand in the second quarter of 2015 compared to the same quarter of the prior year. The decrease was due to significantly lower charge offs in recent quarters and lower average historical loss rates. The PCI loan portfolio recognized no provision in the second quarter of 2015.

*Six-Month Comparison*. The provision charged to operations decreased $1.70 million to $1.38 million in the first six months of 2015 compared to the same period of the prior year. The decrease was due to significantly lower charge offs in recent quarters and lower average historical loss rates. The PCI loan portfolio recognized a provision of $56 thousand in the first six months of 2015, resulting in a $46 thousand provision recorded through the FDIC indemnification asset to reflect the indemnified portion of the post-acquisition exposure and a $10 thousand provision charged to operations. See “Allowance for Loan Losses” in the “Financial Condition” section below.

#### Noninterest Income

Noninterest income consists of all revenues not included in interest and fee income related to earning assets. Noninterest income comprised 27.86% of total net interest and noninterest income in the second quarter of 2015 compared to 25.63% in the same quarter of the prior year. Noninterest income comprised 26.32% of total net interest and noninterest income in the first six months of 2015 compared to 25.18% in the same period of the prior year. The following table presents the components of, and changes in, noninterest income in the periods indicated:

*(Amounts in thousands)*

|  | Three Months Ended June 30, Increase (Decrease) 2015 | % Change 2014 | Six Months Ended June 30, Increase (Decrease) 2015 | % Change 2014 | Three Months Ended |  | Six Months Ended |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Wealth management | $775 | $718 | $1,441 | $1,726 | $57 | 7.94% | $(285) | -16.51% |
| Service charges on deposit accounts | 3,507 | 3,423 | 6,410 | 6,493 | 84 | 2.45% | (83) | -1.28% |
| Other service charges and fees | 2,005 | 1,850 | 4,013 | 3,621 | 155 | 8.38% | 392 | 10.83% |
| Insurance commissions | 1,559 | 1,454 | 3,686 | 3,418 | 105 | 7.22% | 268 | 7.84% |
| Net impairment loss | — | (254) | — | (518) | 254 | -100.00% | 518 | -100.00% |
| Net gain (loss) on sale of securities | 213 | (59) | 190 | (14) | 272 | -461.02% | 204 | -1457.14% |
| Net FDIC indemnification asset amortization | (1,846) | (936) | (3,411) | (2,070) | (910) | 97.22% | (1,341) | 64.78% |
| Other operating income | 1,924 | 1,408 | 2,644 | 2,182 | 516 | 36.65% | 462 | 21.17% |
| Noninterest income | $8,137 | $7,604 | $14,973 | $14,838 | $533 | 7.01% | $135 | 0.91% |

*Three-Month Comparison*. Noninterest income increased $533 thousand, or 7.01%, in the second quarter of 2015 compared to the same quarter of the prior year. Wealth management revenues, which include fees and commissions for trust and investment advisory services, increased as a result of an increase in FCWM income. Service charges on deposit accounts and other charges and fees increased primarily from an increase in monthly service charges on checking accounts and debit card income, offset by a decrease in insufficient fee income. Insurance commissions increased largely due to an increase in contingency profit-sharing revenue income. In the second quarter of 2015, we realized a net gain of $213 thousand on the sale of securities. See Note 2, “Investment Securities,” to the Condensed Consolidated Financial Statements in Item 1 of this report. We recorded net amortization related to the FDIC indemnification asset of $1.85 million as a result of improved loss estimates and payoffs in the covered Waccamaw loan portfolio. Other operating income increased primarily due to a $1.14 million after tax death benefit from the maturity of a bank-owned life insurance policy offset by a $536 thousand bank owned life insurance benefit recognized in the same quarter of the prior year.

Excluding the impact from OTTI charges, the sale of securities, the net amortization on the FDIC indemnification asset, and death benefits from bank owned life insurance policies, noninterest income increased $310 thousand, or 3.73%, to $8.63 million in the second quarter of 2015, compared with $8.32 million in the same quarter of the prior year.

*Six-Month Comparison*. Noninterest income increased $135 thousand, or 0.91%, in the first six months of 2015 compared to the same period of the prior year. Wealth management revenues, which include fees and commissions for trust and investment advisory services, decreased as a result of higher estate settlement fees earned in the same period of the prior year. Service charges on deposit accounts and other charges and fees increased primarily from an increase in monthly service charges on checking accounts and debit card income, offset by a decrease in insufficient fee income. Insurance commissions increased largely due to an increase in contingency profit-sharing revenue income. In the first six months of 2015, we realized a net gain of $190 thousand on the sale of securities. See Note 2, “Investment Securities,” to the Condensed Consolidated Financial Statements in Item 1 of this report. We recorded net amortization related to the FDIC indemnification asset of $3.41 million as a result of improved loss estimates and payoffs in the covered Waccamaw loan portfolio. Other operating income increased primarily due to activity related to bank-owned life insurance policies.

Excluding the impact from OTTI charges, the sale of securities, the net amortization on the FDIC indemnification asset, and death benefits from bank owned life insurance policies, noninterest income decreased $1.19 million, or 8.05%, to $13.64 million in the first six months of 2015, compared with $14.83 million in the same period of the prior year.

#### Noninterest Expense

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

*(Amounts in thousands)*

|  | Three Months Ended June 30, Increase (Decrease) 2015 | % Change 2014 | Six Months Ended June 30, Increase (Decrease) 2015 | % Change 2014 | Three Months Ended |  | Six Months Ended |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Salaries and employee benefits | $9,693 | $10,043 | $19,386 | $19,948 | $(350) | -3.49% | $(562) | -2.82% |
| Occupancy of bank premises | 1,427 | 1,578 | 2,961 | 3,356 | (151) | -9.57% | (395) | -11.77% |
| Furniture and equipment | 1,358 | 1,205 | 2,595 | 2,399 | 153 | 12.70% | 196 | 8.17% |
| Amortization of intangible assets | 279 | 178 | 556 | 353 | 101 | 56.74% | 203 | 57.51% |
| FDIC premiums and assessments | 389 | 458 | 804 | 892 | (69) | -15.07% | (88) | -9.87% |
| FHLB debt prepayment | 1,702 | — | 1,702 | — | 1,702 | — | 1,702 | — |
| Merger, acquisition, and divestiture | — | — | 86 | — | — | — | 86 | — |
| Other operating expense | 5,441 | 4,701 | 9,979 | 10,395 | 740 | 15.74% | (416) | -4.00% |
| Total noninterest expense | $20,289 | $18,163 | $38,069 | $37,343 | $2,126 | 11.71% | $726 | 1.94% |

*Three-Month Comparison*. Noninterest expense increased $2.13 million, or 11.71%, in the second quarter of 2015 compared to the same quarter of the prior year. Full-time equivalent employees, calculated using the number of hours worked, decreased to 677 as of June 30, 2015, from 707 as of June 30, 2014. The reduction in full-time equivalent employees was primarily due to net branch divestiture activity that occurred during the fourth quarter of 2014. Occupancy, furniture, and equipment expense remained relatively stable in the second quarter of 2015 compared to the same quarter of the prior year. We prepaid $25 million of a FHLB convertible advance with a May 2017 maturity and 4.15% interest rate during the second quarter of 2015, which resulted in a prepayment penalty of $1.70 million. The increase in other operating expense included a $213 thousand branch property write-down and an increase in the net loss on sales and expenses related to OREO of $161 thousand to $415 thousand in the second quarter of 2015 compared to $254 thousand in the same quarter of the prior year.

*Six-Month Comparison*. Noninterest expense increased $726 thousand, or 1.94%, in the first six months of 2015 compared to the same period of the prior year. Occupancy, furniture, and equipment expense decreased $199 thousand, or 3.46%, in the first six months of 2015, which was primarily due to the branch divestiture activity that occurred during the fourth quarter of 2014. Acquisition and divestiture expense totaled $86 thousand in the first six months of 2015, which was related to branch acquisition and divestiture activity that occurred in the fourth quarter of 2014. We prepaid $25 million of a FHLB convertible advance with a May 2017 maturity and 4.15% interest rate during the second quarter of 2015, which resulted in a prepayment penalty of $1.70 million. The decrease in other operating expense included a $528 thousand decrease in legal expense and a $157 thousand decrease in problem loan expense offset by a $213 thousand branch property write-down. Other operating expenses also included a decrease in the net loss on sales and expenses related to OREO of $369 thousand to $743 thousand in the first six months of 2015 compared to $1.11 million in the same period of the prior year.

#### Income Tax Expense

Income tax as a percentage of pretax income may vary significantly from statutory rates due to permanent differences, which are items of income and expense excluded by law from the calculation of taxable income. Our most significant permanent differences generally include interest income on municipal securities and increases in the cash surrender value of officers’ life insurance policies, which are both exempt from federal income tax. Income tax expense decreased $756 thousand, or 23.46%, and the effective rate decreased 296 basis points to 28.55% in the second quarter of 2015 compared to the same quarter of the prior year. The decrease in the effective tax rate was largely due to the tax exempt nature of the death benefit received. Income tax expense decreased $480 thousand, or 8.30%, and the effective rate decreased 83 basis points to 30.41% in the first six months of 2015 compared to the same period of the prior year. The decrease in the effective tax rate was largely due to the tax exempt nature of the death benefit received.

### Financial Condition

Total assets were $2.49 billion as of June 30, 2015, a decrease of $116.14 million, or 4.45%, compared with $2.61 billion as of December 31, 2014. Total liabilities were $2.15 billion as of June 30, 2015, a decrease of $109.33 million, or 4.85%, compared with $2.26 billion as of December 31, 2014. Our book value per common share was $18.48 as of June 30, 2015, an increase of $0.42, or 2.33%, compared with $18.06 as of December 31, 2014.

#### Cash and Cash Equivalents

Cash and cash equivalents as of June 30, 2015, decreased $143.85 million, or 73.07%, compared to December 31, 2014. The decrease was primarily due to the deployment of liquidity to redeem our convertible preferred shares, repurchase common stock, purchase investment securities to provide the funding necessary to extinguish certain borrowings as they come due, and establish a short-term investment portfolio.

#### Investment Securities

Available-for-sale securities as of June 30, 2015, increased $50.07 million, or 15.35%, compared to December 31, 2014. The market value of securities available for sale as a percentage of amortized cost was 97.96% as of June 30, 2015, compared to 97.95% as of December 31, 2014. Held-to-maturity securities as of June 30, 2015, increased $14.70 million, or 25.37%, compared to December 31, 2014, due to the purchase of low-yield, short-term bonds to provide funding to extinguish certain wholesale borrowings when due. Investment securities classified as held to maturity are comprised primarily of U.S. Agency securities and high grade municipal bonds. The market value of securities held to maturity as a percentage of amortized cost was 100.31% as of June 30, 2015, compared with 99.90% as of December 31, 2014.

Investment securities are reviewed quarterly for possible OTTI. We recognized no credit-related OTTI charges in earnings associated with debt securities beneficially owned for the three months ended June 30, 2015, compared to $254 thousand for the same period of 2014. We recongnized no credit-related OTTI charges in earnings associated with debt securities beneficially owned for the six months ended June 30, 2015, compared to $486 thousand for the same period of 2014. These charges were related to a non-Agency mortgage-backed security that was sold in November 2014. We recognized no OTTI charges in earnings associated with equity securities for the three months ended June 30, 2015 or June 30, 2014. We recognized no OTTI charges in earnings associated with equity securities for the six months ended June 30, 2015, compared to $32 thousand for the six months ended June 30, 2014. See Note 2, “Investment Securities,” to the Condensed Consolidated Financial Statements in Item 1 of this report.

#### Loans Held for Sale

Loans held for sale as of June 30, 2015, decreased $879 thousand, or 49.05%, compared to June 30, 2014. Loans held for sale consist of mortgage loans sold on a best efforts basis into the secondary loan market; accordingly, we do not retain the interest rate risk involved in these long-term commitments. The gross notional amount of outstanding commitments to originate mortgage loans in the secondary market totaled $4.43 million for 31 commitments as of June 30, 2015, and $1.39 million for 9 commitments as of December 31, 2014.

#### Loans Held for Investment

Our loans held for investment are grouped into three segments (commercial loans, consumer real estate loans, and consumer and other loans) with each segment divided into various classes. Covered loans are defined as loans acquired in FDIC-assisted transactions that are covered by loss share agreements. Loans held for investment as of June 30, 2015, decreased $22.13 million, or 1.31%, compared to December 31, 2014. The non-covered loan portfolio decreased $2.52 million, or 0.16%, compared to December 31, 2014. The decrease was primarily due to several large payoffs in the Eastern Virginia Region coupled with moderate loan growth across the remainder of the portfolio. The covered loan portfolio as of June 30, 2015, decreased $19.61 million, or 16.04%, compared to December 31, 2014, due to continued runoff in the covered Waccamaw portfolio. The average loan to deposit ratio was 84.45% for the six months ended June 30, 2015, compared to 89.11% for the same period of 2014. See Note 3, “Loans,” to the Condensed Consolidated Financial Statements in Item 1 of this report.

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

*(Amounts in thousands)*

| Non-covered loans held for investment Commercial loans | June 30, 2015 Amount | Percent | December 31, 2014 Amount | Percent | June 30, 2014 Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Construction, development, and other land | $39,854 | 2.39% | $41,271 | 2.44% | $44,653 | 2.54% |
| Commercial and industrial | 82,121 | 4.93% | 83,099 | 4.92% | 94,359 | 5.36% |
| Multi-family residential | 96,235 | 5.77% | 97,480 | 5.77% | 88,456 | 5.02% |
| Single family non-owner occupied | 144,639 | 8.67% | 135,171 | 8.00% | 141,376 | 8.04% |
| Non-farm, non-residential | 458,325 | 27.49% | 473,906 | 28.05% | 498,096 | 28.31% |
| Agricultural | 1,863 | 0.11% | 1,599 | 0.09% | 2,443 | 0.14% |
| Farmland | 27,945 | 1.68% | 29,517 | 1.75% | 32,396 | 1.84% |
| Total commercial loans | 850,982 | 51.04% | 862,043 | 51.02% | 901,779 | 51.25% |
| Consumer real estate loans |  |  |  |  |  |  |
| Home equity lines | 107,961 | 6.48% | 110,957 | 6.57% | 112,621 | 6.40% |
| Single family owner occupied | 488,712 | 29.31% | 485,475 | 28.74% | 490,626 | 27.89% |
| Owner occupied construction | 37,434 | 2.24% | 32,799 | 1.94% | 40,212 | 2.29% |
| Total consumer real estate loans | 634,107 | 38.03% | 629,231 | 37.25% | 643,459 | 36.58% |
| Consumer and other loans |  |  |  |  |  |  |
| Consumer loans | 72,094 | 4.32% | 69,347 | 4.10% | 74,100 | 4.21% |
| Other | 7,472 | 0.45% | 6,555 | 0.39% | 7,369 | 0.42% |
| Total consumer and other loans | 79,566 | 4.77% | 75,902 | 4.49% | 81,469 | 4.63% |
| Non-covered loans held for investment | 1,564,655 | 93.84% | 1,567,176 | 92.76% | 1,626,707 | 92.46% |
| Covered loans | 102,634 | 6.16% | 122,240 | 7.24% | 132,717 | 7.54% |
| Total loans held for investment | 1,667,289 | 100.00% | 1,689,416 | 100.00% | 1,759,424 | 100.00% |
| Allowance for loan losses | 20,258 |  | 20,227 |  | 23,911 |  |
| Total loans held for investment, less allowance | $1,647,031 |  | $1,669,189 |  | $1,735,513 |  |
| Loans held for sale | $913 |  | $1,792 |  | $459 |  |

The following table presents covered loans disaggregated by class as of the periods indicated:

*(Amounts in thousands)*

| Covered loans held for investment Commercial loans | June 30, 2015 | December 31, 2014 | June 30, 2014 |
| --- | ---: | ---: | ---: |
| Construction, development, and other land | $9,000 | $13,100 | $15,043 |
| Commercial and industrial | 1,449 | 2,662 | 2,855 |
| Multi-family residential | 848 | 1,584 | 1,662 |
| Single family non-owner occupied | 4,138 | 5,918 | 6,443 |
| Non-farm, non-residential | 21,404 | 25,317 | 27,478 |
| Agricultural | 35 | 43 | 153 |
| Farmland | 671 | 716 | 803 |
| Total commercial loans | 37,545 | 49,340 | 54,437 |
| Consumer real estate loans |  |  |  |
| Home equity lines | 54,565 | 60,391 | 64,260 |
| Single family owner occupied | 10,253 | 11,968 | 13,534 |
| Owner occupied construction | 186 | 453 | 385 |
| Total consumer real estate loans | 65,004 | 72,812 | 78,179 |
| Consumer and other loans |  |  |  |
| Consumer loans | 85 | 88 | 101 |
| Covered loans held for investment | $102,634 | $122,240 | $132,717 |

55

#### Risk Elements

Nonperforming assets consist of loans accounted for on a nonaccrual basis, accruing loans contractually past due 90 days or more, unseasoned troubled debt restructurings (“TDRs”), and OREO. 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. See Note 4, “Credit Quality,” to the Condensed Consolidated Financial Statements in Item 1 of this report. The following table summarizes the components of nonperforming assets and presents additional details for nonperforming and restructured loans as of the periods indicated:

*(Amounts in thousands)*

| Non-covered nonperforming | June 30, 2015 | December 31, 2014 | June 30, 2014 |
| --- | ---: | ---: | ---: |
| Nonaccrual loans | $15,936 | $10,556 | $17,464 |
| Accruing loans past due 90 days or more | — | — | — |
| TDRs(1) | — | 2,726 | 1,877 |
| Total nonperforming loans | 15,936 | 13,282 | 19,341 |
| Non-covered OREO | 7,434 | 6,638 | 5,693 |
| Total nonperforming assets | $23,370 | $19,920 | $25,034 |
| **Covered nonperforming** |  |  |  |
| Nonaccrual loans | $1,062 | $2,438 | $955 |
| Accruing loans past due 90 days or more | — | — | 109 |
| Total nonperforming loans | 1,062 | 2,438 | 1,064 |
| Covered OREO | 5,382 | 6,324 | 8,814 |
| Total nonperforming assets | $6,444 | $8,762 | $9,878 |
| **Total nonperforming** |  |  |  |
| Nonaccrual loans | $16,998 | $12,994 | $18,419 |
| Accruing loans past due 90 days or more | — | — | 109 |
| TDRs(1) | — | 2,726 | 1,877 |
| Total nonperforming loans | 16,998 | 15,720 | 20,405 |
| OREO | 12,816 | 12,962 | 14,507 |
| Total nonperforming assets | $29,814 | $28,682 | $34,912 |
| **Additional Information** |  |  |  |
| Performing TDRs(2) | $13,841 | $11,808 | $11,029 |
| Total TDRs(3) | 13,841 | 14,534 | 12,906 |
| **Non-covered ratios** |  |  |  |
| Nonperforming loans to total loans | 1.02% | 0.85% | 1.19% |
| Nonperforming assets to total assets | 0.98% | 0.80% | 1.03% |
| Non-PCI allowance to nonperforming loans | 126.41% | 151.85% | 121.47% |
| Non-PCI allowance to total loans | 1.29% | 1.29% | 1.44% |
| **Total ratios** |  |  |  |
| Nonperforming loans to total loans | 1.02% | 0.93% | 1.16% |
| Nonperforming assets to total assets | 1.20% | 1.10% | 1.36% |
| Allowance for loan losses to nonperforming loans | 119.18% | 128.67% | 117.18% |
| Allowance for loan losses to total loans | 1.22% | 1.20% | 1.36% |

(1) TDRs not performing or restructured within the past six months, excludes nonaccrual TDRs of $356 thousand, $306 thousand and $675 thousand for the periods ended June 30, 2015, December 31, 2014, and June 30, 2014, respectively.

(2) TDRs with six months or more of satisfactory payment performance, excludes nonaccrual TDRs of $312 thousand, $248 thousand, and $1.49 million for the periods ended June 30, 2015, December 31, 2014, and June 30, 2014, respectively.

(3) Perfoming and nonperforming TDRs, excludes nonaccrual TDRs of $668 thousand, $554 thousand, and $2.17 million for the periods ended June 30, 2015, December 31, 2014, and June 30, 2014, respectively.

Non-covered nonperforming assets as of June 30, 2015, increased $3.45 million, or 17.32%, from December 31, 2014, and decreased $1.66 million, or 6.65%, from June 30, 2014. Non-covered nonperforming assets as a percentage of total non-covered assets were 0.98% as of June 30, 2015, 0.80% as of December 31, 2014, and 1.03% as of June 30, 2014.

Non-covered nonaccrual loans as of June 30, 2015, increased $5.38 million, or 50.97%, from December 31, 2014, and decreased $1.53 million, or 8.75%, from June 30, 2014. As of June 30, 2015, non-covered nonaccrual loans were largely attributed to the following loan classes: non-farm, non-residential (42.70%) and single family owner occupied (41.31%) . As of June 30, 2015, approximately $196 thousand, or 1.23%, of non-covered nonaccrual loans were attributed to performing loans acquired in business combinations. Certain loans included in the nonaccrual category have been written down to estimated realizable value or assigned specific reserves in the allowance for loan losses based upon management’s estimate of loss at ultimate resolution.

When restructuring loans for borrowers experiencing financial difficulty, we generally make concessions in interest rates, loan terms, and/or amortization terms. Certain TDRs are classified as nonperforming at 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. Accruing TDRs as of June 30, 2015, decreased $693 thousand, or 4.77%, from December 31, 2014, and increased $935 thousand, or 7.24%, from June 30, 2014. There were no nonperforming accruing TDRs as of June 30, 2015, compared to $2.73 million, or 18.76% of total accruing TDRs, as of December 31, 2014, and $1.88 million, or 14.54% of total accruing TDRs, as of June 30, 2014. The allowance for loan losses attributed to TDRs totaled $478 thousand as of June 30, 2015, $475 thousand as of December 31, 2014, and $1.77 million as of June 30, 2014.

Ongoing activity in the classification and categories of nonperforming loans include collections on delinquencies, foreclosures, loan restructurings, and movements into or out of the nonperforming classification as a result of changing economic conditions, borrower financial capacity, or resolution efforts. There were no non-covered accruing loans contractually past due 90 days or more as of June 30, 2015, December 31, 2014, or June 30, 2014. There were no covered accruing loans contractually past due 90 days or more as of June 30, 2015, or December 31, 2014. Covered accruing loans contractually past due 90 days or more totaled $109 thousand as of June 30, 2014.

Non-covered delinquent loans, comprised of loans 30 days or more past due and nonaccrual loans, totaled $21.76 million as of June 30, 2015, a decrease of $219 thousand, or 1.00%, compared with December 31, 2014, and a decrease of $5.36 million, or 19.76%, compared with June 30, 2014. Non-covered delinquent loans as a percentage of total non-covered loans measured 1.39% as of June 30, 2015, which is attributed to loans 30 to 89 days past due of 0.37% and nonaccrual loans of 1.02%. Non-covered nonperforming loans, comprised of nonaccrual loans and nonperforming and unseasoned TDRs, as a percentage of total non-covered loans were 1.02% as of June 30, 2015, 0.85% at December 31, 2014, and 1.19% at June 30, 2014.

Non-covered OREO, which is carried at the lesser of estimated net realizable value or cost, increased $796 thousand, or 11.99%, as of June 30, 2015, compared with December 31, 2014, and increased $1.74 million, or 30.58%, as of June 30, 2014. As of June 30, 2015, non-covered OREO consisted of 68 properties with an average holding period of 9 months. The net loss on the sale of OREO totaled $242 thousand in the second quarter of 2015 compared to $68 thousand in the same quarter of the prior year. The net loss on the sale of OREO totaled $418 thousand in the first six months of 2015 compared to $782 thousand in the same period of the prior year. The following table details activity within OREO for the periods indicated:

*(Amounts in thousands)*

|  | Six Months Ended June 30, 2015 Non-covered | Covered | Total | 2014 Non-covered | Covered | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Beginning balance | $6,638 | $6,324 | $12,962 | $7,318 | $7,541 | $14,859 |
| Additions | 2,139 | 1,272 | 3,411 | 533 | 2,160 | 2,693 |
| Disposals | (1,157) | (1,625) | (2,782) | (1,469) | (382) | (1,851) |
| Valuation adjustments | (186) | (589) | (775) | (459) | (614) | (1,073) |
| Ending balance | $7,434 | $5,382 | $12,816 | $5,923 | $8,705 | $14,628 |

57

#### Allowance for Loan Losses

The allowance for loan losses is maintained at a level management deems sufficient to absorb probable loan losses inherent in the loan portfolio. The allowance is increased by charges to earnings in the form of provisions and recoveries of prior loan charge-offs and decreased by loans charged off. The provision for loan losses is calculated and charged to expense to bring the allowance to an appropriate level using a systematic process of measurement that requires significant judgments and estimates.

Management performs quarterly assessments to determine the appropriate level of the allowance for loan losses. The allowance for loan losses includes specific allocations to significant individual loans and credit relationships and general reserves to the remaining loans that have been deemed impaired. Loans not specifically identified are grouped into pools based on similar risk characteristics. Management’s general reserve allocations are based on judgments of qualitative and quantitative factors about macro and micro economic conditions reflected in the loan portfolio and the economy. For loans acquired in business combinations, a provision is recorded for any credit deterioration after the acquisition. Loans identified with credit impairment at acquisition are grouped into pools and evaluated separately from the non-PCI portfolio. The provision calculated for PCI loans is offset by an adjustment to the FDIC indemnification asset to reflect the indemnified portion of the post-acquisition exposure. See “Critical Accounting Estimates” above, as well as “Significant Accounting Policies” in Note 1, “General,” and Note 5, “Allowance for Loan Losses,” to the Condensed Consolidated Financial Statements in Item 1 of this report.

Our allowance for loan losses as of June 30, 2015, increased $31 thousand, or 0.15%, compared with December 31, 2014, and decreased $3.65 million, or 15.28%, compared with June 30, 2014. The allowance attributed to the non-PCI loan portfolio as a percentage of non-covered loans held for investment was 1.29% as of June 30, 2015, 1.29% at December 31, 2014, and 1.44% at June 30, 2014. The cash flow analysis identified two of our six open PCI loan pools as impaired as of June 30, 2015, compared to two of seven PCI loan pools at December 31, 2014, and four of seven loan pools at June 30, 2014. The allowance attributed to the PCI loan portfolio totaled $114 thousand as of June 30, 2015, $58 thousand as of December 31, 2014, and $418 thousand as of June 30, 2014. During the second quarter of 2015, no provision was recorded through the FDIC indemnification asset to reflect the indemnified portion of the post-acquisition exposure, compared to $46 thousand during the first six months of 2015. As of June 30, 2015, management considered the allowance to be adequate based upon analysis of the portfolio; however, no assurance can be made that additions to the allowance will not be required in future periods.

Our qualitative risk factors continue to reflect a reduced risk of loan losses due to improvements in general economic conditions and asset quality metrics offset by an increased risk of loan losses due to credit concentrations. Net charge-offs decreased $758 thousand, or 73.74%, in the second quarter of 2015 compared to the same quarter of the prior year and decreased $1.51 million, or 51.98%, in the first six months of 2015 compared to the same period of the prior year. The portfolio continues to be monitored for deterioration in credit, which may result in the need to increase the allowance for loan losses in future periods.

The following tables present activity in our allowance for loan losses for the periods indicated:

*(Amounts in thousands)*

|  | Three Months Ended June 30, 2015 Non-PCI Portfolio | PCI Portfolio | Total | 2014 Non-PCI Portfolio | PCI Portfolio | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Beginning balance | $20,138 | $114 | $20,252 | $23,305 | $493 | $23,798 |
| Provision for (recovery of) loan losses | 276 | — | 276 | 1,216 | (75) | 1,141 |
| Benefit attributable to the FDIC indemnification asset | — | — | — | — | 138 | 138 |
| Provision for loan losses charged to operations | 276 | — | 276 | 1,216 | 63 | 1,279 |
| Provision for (recovery of) loan losses recorded through the FDIC indemnification asset | — | — | — | — | (138) | (138) |
| Charge-offs | (673) | — | (673) | (1,785) | — | (1,785) |
| Recoveries | 403 | — | 403 | 757 | — | 757 |
| Net charge-offs | (270) | — | (270) | (1,028) | — | (1,028) |
| Ending balance | $20,144 | $114 | $20,258 | $23,493 | $418 | $23,911 |

58

*(Amounts in thousands)*

|  | Six Months Ended June 30, 2015 Non-PCI Portfolio | PCI Portfolio | Total | 2014 Non-PCI Portfolio | PCI Portfolio | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Beginning balance | $20,169 | $58 | $20,227 | $23,322 | $755 | $24,077 |
| Provision for (recovery of) loan losses | 1,366 | 56 | 1,422 | 3,068 | (337) | 2,731 |
| Benefit attributable to the FDIC indemnification asset | — | (46) | (46) | — | 341 | 341 |
| Provision for (recovery of) loan losses charged to operations | 1,366 | 10 | 1,376 | 3,068 | 4 | 3,072 |
| Provision for (recovery of) loan losses recorded through the FDIC indemnification asset | — | 46 | 46 | — | (341) | (341) |
| Charge-offs | (2,251) | — | (2,251) | (4,001) | — | (4,001) |
| Recoveries | 860 | — | 860 | 1,104 | — | 1,104 |
| Net charge-offs | (1,391) | — | (1,391) | (2,897) | — | (2,897) |
| Ending balance | $20,144 | $114 | $20,258 | $23,493 | $418 | $23,911 |

#### Deposits

Total deposits as of June 30, 2015, decreased $80.54 million, or 4.03%, compared to December 31, 2014. Interest-bearing deposits decreased $24.29 million and time deposits decreased $65.48 million as of June 30, 2015, compared to December 31, 2014. Noninterest-bearing deposits increased $6.71 million and savings deposits, which include money market and savings accounts, increased $2.53 million as of June 30, 2015, compared to December 31, 2014.

#### Borrowings

Total borrowings as of June 30, 2015, decreased $26.58 million, or 11.57%, compared to December 31, 2014. Short-term borrowings consist of retail repurchase agreements. The balance of retail repurchase agreements increased $416 thousand, or 0.58%, as of June 30, 2015, compared to December 31, 2014. Securities underlying retail repurchase agreements remain under our control during the terms of the agreements. Long-term borrowings consist of wholesale repurchase agreements; FHLB borrowings, including convertible and callable advances; and other obligations. The balance and weighted average rate of wholesale repurchase agreements remained constant at $50.00 million and 3.71%, respectively, as of June 30, 2015, compared to December 31, 2014. As of June 30, 2015, wholesale repurchase agreements had contractual maturities between one and four years. The balance of FHLB borrowings decreased $25.00 million, or 27.78%, as of June 30, 2015, compared to December 31, 2014, and the weighted average rate decreased 3 basis points to 4.04%. We prepaid $25 million of a FHLB convertible advance with a May 2017 maturity and 4.21% interest rate during the second quarter of 2015, which resulted in a prepayment penalty of $1.70 million. As of June 30, 2015, FHLB borrowings had contractual maturities between one and six years. Included in other borrowings is $15.46 million of junior subordinated debentures (“Debentures”) that were issued by the Company in October 2003 through the Trust with an interest rate of three-month London InterBank Offered Rate (“LIBOR”) plus 2.95%. The Debentures mature in October 2033 and are currently callable at the option of the Company. The Company maintains a $15.00 million unsecured, committed line of credit with an unrelated financial institution that carries an interest rate of one-month LIBOR plus 2.00% and matures in April 2016. As of June 30, 2015, there was no outstanding balance on the line compared to an outstanding balance of $2.00 million as of December 31, 2014.

#### Stockholders’ Equity

Total stockholders’ equity decreased $6.81 million, or 1.94%, from $351.37 million as of December 31, 2014, to $344.57 million as of June 30, 2015. The change in stockholders’ equity was primarily due to the repurchase of 684,407 shares of our common stock and the redemption of 2,367 shares of Series A Preferred Stock.

#### Liquidity and Capital Resources

Liquidity is a measure of our ability to raise sufficient cash, or convert assets to cash, to meet our financial obligations. We maintain a liquidity risk management policy and contingency funding policy (“Liquidity Plan”) that is designed to detect potential liquidity issues to protect depositors, creditors, and shareholders. The Liquidity Plan includes various internal and external indicators that are reviewed on a recurring basis by our Asset/Liability Management Committee (“ALCO”) and the Board of Directors. ALCO reviews liquidity risk exposure and policies related to liquidity management, ensures that systems and internal controls are consistent with liquidity policies, and provides accurate reports about liquidity needs, sources, and compliance.

As of June 30, 2015, we maintained liquidity in the form of unencumbered cash on hand and deposits with other financial institutions of $92.60 million, availability on federal funds lines with correspondent banks of $105.00 million, credit available from the Federal Reserve Bank discount window of $9.08 million, unused borrowing capacity with the FHLB of $441.37 million, and unpledged available-for-sale securities of $131.23 million. Cash on hand and deposits with other financial institutions, as well as lines of credit extended from correspondent banks and the FHLB, are immediately available to satisfy deposit withdrawals, customer credit needs, and our operations. Unused borrowing capacity with the FHLB is reported net of letters of credit held to secure public unit deposits. As of June 30, 2015, we provided letters of credit to public depositors with the FHLB totaling $6.19 million. Available-for-sale securities represent a secondary source of liquidity upon conversion to a liquid asset. Our approved lines of credit with correspondent banks are available as backup liquidity sources.

As a holding company, the Company does not conduct significant operations. The Company’s primary sources of liquidity are dividends received from the Bank and borrowings. Dividends paid by the Bank are subject to certain regulatory limitations. As of June 30, 2015, the Company’s liquid assets consisted of cash and investment securities totaling $19.96 million. The Company’s cash reserves and investments provide adequate working capital to meet obligations and projected dividends to shareholders for the next twelve months. The Company maintains a $15.00 million unsecured, committed line of credit with an unrelated financial institution. As of June 30, 2015, there was no outstanding balance on the line.

#### Capital Adequacy Requirements

Risk-based capital guidelines, issued by state and federal banking agencies, include balance sheet assets and off-balance sheet arrangements weighted by the risks inherent in the specific asset type. Basel III Capital Rules became effective on January 1, 2015, subject to a four-year phase-in period. The Company’s required initial minimum capital ratios under Basel III include:

- 4.5% Common equity Tier 1 capital to risk-weighted assets
- 6.0% Tier 1 capital to risk-weighted assets
- 8.0% Total capital to risk-weighted assets

Our capital ratios presented for the quarter ended June 30, 2015, are based on the Basel III requirements, while prior period information is based on the requirements under Basel II. A detailed description of the Basel III Capital Rules is included in Part I, Item 1 of the Company’s 2014 Form 10-K. The following table presents our capital ratios as of the dates indicated:

| Common equity Tier 1 ratio | June 30, 2015 | December 31, 2014 |
| --- | ---: | ---: |
| First Community Bancshares, Inc. | 15.13% | NA |
| First Community Bank | 13.98% | NA |
| Tier 1 risk-based capital ratio |  |  |
| First Community Bancshares, Inc. | 15.33% | 16.43% |
| First Community Bank | 13.98% | 14.48% |
| Total risk-based capital ratio |  |  |
| First Community Bancshares, Inc. | 16.58% | 17.68% |
| First Community Bank | 15.24% | 15.73% |
| Tier 1 leverage ratio |  |  |
| First Community Bancshares, Inc. | 10.37% | 10.12% |
| First Community Bank | 9.41% | 8.87% |

As of June 30, 2015, and December 31, 2014, our capital ratios were well in excess of the minimum standards and classified as “well capitalized” under regulatory capital adequacy standards applicable to that period. Additionally, our capital ratios were in excess of the minimum standards under the Basel III Capital Rules on a fully phased-in basis, if such requirements were in effect, as of June 30, 2015.

#### Off-Balance Sheet Arrangements

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

The following table presents our off-balance sheet arrangements as of the dates indicated:

*(Amounts in thousands)*

|  | June 30, 2015 | December 31, 2014 |
| --- | ---: | ---: |
| Commitments to extend credit | $213,408 | $236,471 |
| Commitments related to secondary market mortgage loans | 4,425 | 1,391 |
| Standby letters of credit and financial guarantees | 3,064 | 3,581 |
| Total off-balance sheet risk | $220,897 | $241,443 |
| Reserve for unfunded commitments | $326 | $326 |

#### Impact of Inflation and Changing Prices

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

## Market risk

As filed, 5,392 characters.

Our profitability is largely dependent upon net interest income, which is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Our Company, like other financial institutions, is subject to interest rate risk to the degree that interest-earning assets reprice differently than interest-bearing liabilities. We manage our mix of assets and liabilities with the goal of limiting exposure to interest rate risk, ensuring adequate liquidity, and coordinating sources and uses of funds while maintaining an acceptable level of net interest income given the current interest rate environment.

Net interest income, our primary component of operational revenue, is subject to variation due to changes in interest rate environments and unbalanced repricing opportunities on earning assets and interest-bearing liabilities. Interest rate risk has four primary components: repricing risk, basis risk, yield curve risk, and option risk. Repricing risk occurs when earning assets and paying liabilities reprice at differing times as interest rates change. Basis risk occurs when underlying rates on assets and liabilities change at different levels or in varying degrees. Yield curve risk is the risk of adverse consequences that occurs when the same instrument experiences unequal change in the spread between two or more rates for different maturities. Lastly, option risk occurs from embedded options, often put or call options, given or sold to holders of financial instruments.

To mitigate the effect of changes in the general level of interest rates, we manage repricing opportunities and thus, our interest rate sensitivity. We seek to control our interest rate risk exposure to insulate net interest income and net earnings from fluctuations in the general level of interest rates. To measure our exposure to interest rate risk, quarterly simulations of net interest income are performed using financial models that project net interest income through a range of possible interest rate environments, including rising, declining, most likely, and flat rate scenarios. We use a simulation model that captures all earning assets, interest-bearing liabilities, and off-balance sheet financial instruments and combines the various factors affecting rate sensitivity into an earnings outlook for a range of assumed interest rate scenarios. Simulation results show the existence and severity of interest rate risk in each rate environment based on the current balance sheet position, assumptions about changes in the volume and mix of interest-earning assets and interest-paying liabilities, and our estimate of yields earned on assets and rates paid on deposit instruments and borrowings. These assumptions are inherently uncertain and, as a result, the model cannot precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from simulated results due to the timing, magnitude, and frequency of interest rate changes and changes in market conditions and our strategies. The earnings simulation model provides the best tool for managing interest rate risk available to us and the industry.

We have established policy limits for tolerance of interest rate risk in various interest rate scenarios. In addition, the policy addresses exposure limits to changes in the economic value of equity per predefined policy guidelines. The most recent simulation indicates that current exposure to interest rate risk is within our defined policy limits.

The following table summarizes the impact of immediate and sustained rate shocks in the interest rate environment on net interest income. The model simulates rate changes of plus 300 to minus 100 basis points from the base simulation and illustrates the prospective effects of hypothetical interest rate changes over a twelve-month period. This modeling technique, although useful, does not take into account all strategies that management might undertake in response to a sudden and sustained rate shock as depicted. As market conditions vary from those assumed in the sensitivity analysis, actual results will differ due to prepayment and refinancing levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal and external variables. As of June 30, 2015, the Federal Open Market Committee maintained a target range for federal funds of 0 to 25 basis points, rendering a complete downward shock of 200 basis points meaningless; thus, downward rate scenarios are limited to minus 100 basis points. In the downward rate shocks presented, benchmark interest rates are assumed to have floors near 0%.

*(Amounts in thousands, except basis points)*

| Increase (Decrease) in Interest Rates in Basis Points | June 30, 2015 Change in Net Interest Income | Percent Change | December 31, 2014 Change in Net Interest Income | Percent Change |
| ---: | ---: | ---: | ---: | ---: |
| 300 | $(1,186) | -1.4% | $3,619 | 4.2% |
| 200 | (806) | -0.9% | 2,183 | 2.5% |
| 100 | (611) | -0.7% | 871 | 1.0% |
| (100) | (1,715) | -2.0% | 290 | 0.3% |

## Controls and procedures

As filed, 2,525 characters.

### Evaluation of Disclosure Controls and Procedures

In connection with this report, we conducted an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures under the Exchange Act Rule 13a-15(b). Based upon that evaluation, the CEO and CFO concluded that, as of June 30, 2015, our disclosure controls and procedures were effective.

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

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

### Changes in Internal Control over Financial Reporting

We assess the adequacy of our internal control over financial reporting quarterly and enhance our controls in response to internal control assessments and internal and external audit and regulatory recommendations. There were no changes in our internal control over financial reporting during the quarter ended June 30, 2015, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 873 characters.

A description of the Company’s risk factors is included in Part I, Item 1A, “Risk Factors,” of our 2014 Form 10-K. Our risk factors discuss potential events, trends, or other circumstances that could adversely affect our business, financial condition, results of operations, cash flows, liquidity, access to capital resources, and, consequently, cause the market value of our common stock to decline. These risks could cause our future results to differ materially from historical results and expectations of future financial performance. There may be risks and uncertainties that we have not identified or that we have deemed immaterial that could adversely affect our business; therefore, our risk factors are not intended to be an exhaustive list of all risks we face. There have been no material changes from the risk factors previously disclosed in our 2014 Form 10-K.

Filed Aug 7, 2015.
Source: SEC EDGAR, the filing index for accession 0001193125-15-282680. Last ingested by Listed: Nov 12, 2026, 23:04 ET. No prices; not investment advice.