8-K: First Community Bankshares Settles Class Action Lawsuit for $4.8 Million

First Community Bank has agreed to a $4.8 million settlement to resolve a class action lawsuit regarding overdraft fees, without admitting any wrongdoing.

Summary

• First Community Bank, a subsidiary of First Community Bankshares, Inc., has agreed to settle a class action lawsuit filed on June 24, 2022.
• The lawsuit alleged that the bank breached deposit account agreements and was unjustly enriched by collecting overdraft fees and assessing multiple non-sufficient funds fees.
• The settlement involves a $4.8 million settlement fund and the forgiveness of up to $500,000 in unpaid fees.
• The settlement fund will cover attorney fees, settlement administration expenses, and payments to eligible class members.
• The bank admits no wrongdoing as part of the settlement and will receive a complete release of all claims.
• The company had previously accrued $3.00 million as an estimated liability for this lawsuit.

Sentiment

Score: 6

Explanation: The settlement resolves a legal issue, which is positive, but it also incurs a significant cost. The fact that the company had already accrued a portion of the cost mitigates the negative impact.

Positives

• The settlement resolves a significant legal issue for the bank.
• The bank avoids further legal expenses and potential reputational damage by settling.
• The settlement provides a complete release of all claims related to the lawsuit.
• The company had already accrued $3.00 million towards the settlement, reducing the impact of the additional cost.

Negatives

• The settlement will cost the bank $4.8 million, plus up to $500,000 in forgiven fees.
• The settlement requires the bank to pay legal fees and settlement administration expenses.
• The settlement may negatively impact the bank's earnings for the period.

Risks

• The settlement is subject to documentation and preliminary and final court approval, which could introduce uncertainty.
• The settlement may lead to increased scrutiny of the bank's fee practices.
• There is a risk of future similar lawsuits if the bank's practices are not fully compliant.

Future Outlook

The settlement is subject to court approval, and the bank will need to implement the terms of the agreement once approved.

Management Comments

• The Bank agreed to the settlement in order to resolve the litigation and avoid further expense.

Industry Context

Class action lawsuits related to overdraft and non-sufficient funds fees are not uncommon in the banking industry, reflecting increased regulatory and consumer scrutiny of these practices.

Comparison to Industry Standards

• Many banks have faced similar class action lawsuits regarding overdraft and NSF fees, with settlement amounts varying based on the size of the institution and the scope of the alleged violations.
• For example, some larger national banks have settled similar cases for tens or hundreds of millions of dollars, while smaller regional banks may have settlements in the single-digit millions.
• The $4.8 million settlement for First Community Bank appears to be within the range of settlements for similar-sized institutions.

Legal Proceedings

• First Community Bank settled a class action lawsuit regarding overdraft and non-sufficient funds fees.

Stakeholder Impact

• Shareholders will bear the cost of the settlement.
• Customers who were charged overdraft and non-sufficient funds fees may receive payments from the settlement fund.
• The settlement may improve the bank's reputation by resolving a legal issue.

Next Steps

• The bank will need to finalize the settlement documentation.
• The settlement will require preliminary and final court approval.
• The bank will need to administer the settlement fund and distribute payments to eligible class members.

Key Dates

Keywords

settlement, class action lawsuit, overdraft fees, non-sufficient funds fees, litigation, bank, financial, legal