First Community Bankshares, Inc. (NasdaqGS:FCBC) signed the indication of interest to acquire Highlands Bankshares, Inc. (OTCPK:HLND) on May 24, 2019. First Community Bankshares, Inc. (NasdaqGS:FCBC) entered into an agreement to acquire Highlands Bankshares, Inc. (OTCPK:HLND) for $74.3 million on September 11, 2019. Under the agreement, each outstanding share of common stock of Highlands and Series A convertible perpetual preferred stock will be converted into the right to receive 0.2703 shares of First Community common stock. The fixed exchange ratio may be increased if there are savings related to termination costs to be paid by Highlands to its core data processing provider. As of October 30, 2019, no adjustment to the exchange ratio is expected. The holders of shares of Highlands common stock and Highlands preferred stock as of immediately prior to the closing of the merger will hold, in the aggregate, approximately 18% of the issued and outstanding shares of First Community common stock immediately following the closing of the merger (including shares received in respect of Highlands restricted stock and without giving effect to any shares of First Community common stock held by Highlands shareholders prior to the merger). As a result, current First Community shareholders will hold, in the aggregate, approximately 82% of the outstanding shares of First Community common stock immediately following the closing of the merger. As per the agreement, Highlands will merge with and into First Community. Highlands will cease to exist and First Community will survive and continue to exist as a Virginia corporation. First Community Bank, a wholly- owned subsidiary of First Community and Highlands Union Bank, a wholly- owned subsidiary of Highlands have entered into a separate merger agreement, such that at the effective time of the merger, Highlands Union Bank, will merge with and into First Community Bank, (the “Bank Merger”). First Community Bank will survive the Bank Merger and continue to exist as a Virginia banking corporation. Upon termination, merger agreement provides that Highlands will pay a fee of $4 million to First Community.

Follow the transaction, one current member of the Highlands Board of Directors will be appointed to the First Community Bank Board of Directors. The transaction is subject to approval of at least two-thirds of the outstanding shares of Highlands common stockholders and majority of the outstanding shares of Highlands preferred stockholders, the receipt of all required regulatory approvals, all statutory waiting periods, the registration statement shall have been declared effective by the SEC, listing of all shares of First Community Common Stock to be delivered as merger consideration and other customary conditions. The transaction, received unanimous approval by both First Community's and Highlands' Board of Directors. The special meeting of shareholders of Highlands Bankshares will be held on December 13, 2019 to approve the transaction. As of October 30, 2019, the special meeting of Highlands shareholders will be held on December 17, 2019. The transaction is expected to close in the fourth quarter of 2019. First Community expects the transaction to be neutral to tangible book value per share (non- GAAP), provide upper single digit accretion to earnings in the first year of the combination, cash IRR exceeding mid-teens threshold and approximately 9% accretive to earnings per share, neutral to return of average assets, return of average equity and positive to return on adjusted trading capital employed.

Banks Street Partners, LLC acted as financial advisor to First Community and First Community Bank. William L. Pitman of Pitman Law Firm, LLC, Fox Rothchild LLP and Bowles Rice LLP acted as legal advisors to First Community and First Community Bank. Neil E. Grayson of Nelson Mullins Riley & Scarborough LLP acted as legal advisor to Highlands and Highlands Union Bank. Stephens Inc. acted as financial advisor to Highlands. Banks Street Partners, LLC provided a fairness opinion to the Board of Directors of First Community and Stephens Inc. provided a fairness opinion to the Board of Directors of Highlands.

First Community Bankshares, Inc. (NasdaqGS:FCBC) completed the acquisition of Highlands Bankshares, Inc. on December 31, 2019.