UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-19297

FIRST COMMUNITY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Nevada		55-0694814
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

P.O. Box 989
Bluefield, Virginia		24605-0989
(Address of principal executive offices)		(Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class — Common Stock, $1.00 Par Value; 17,698,892 shares outstanding as of July 31, 2009

 

 

FIRST COMMUNITY BANCSHARES, INC.
FORM 10-Q/A
For the quarter ended June 30, 2009

INDEX

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and December 31, 2008			4
Consolidated Statements of Income for the Three- and Six-Month Periods Ended June 30, 2009 and 2008 (Unaudited)			5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008 (Unaudited)			6
Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2009 and 2008 (Unaudited)			7
Notes to Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Quantitative and Qualitative Disclosures about Market Risk			42
Item 4. Controls and Procedures			43
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			44
Item 1A. Risk Factors			44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			51
Item 3. Defaults Upon Senior Securities			51
Item 4. Submission of Matters to a Vote of Security Holders			51
Item 5. Other Information			52
Item 6. Exhibits			52
SIGNATURES			55
EXHIBIT INDEX			56
EX-31.1
EX-31.2
EX-32

Explanatory Note

Overview

First Community Bancshares, Inc. (“the Company”) is filing this amendment to its Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (the “Original Filing”) to amend and restate financial statements and other financial information in the Original Filing as filed with the Securities and Exchange Commission (“SEC”) to reflect the correction of a computational error in its model used to calculate its allowance for loan losses. For the same reason, Company also is restating the financial statements and other financial information filed with the SEC for the years ended December 31, 2009 and 2008 and each of the quarters ended March 31, 2009, September 30, 2009 and March 31, 2010.

Background

The reason for the restatement is to correct a computational error in the model that the Company used to calculate the quantitative basis for its allowance for loan losses for the periods indicated. The Company identified the computational error as a result of one of its routine internal audits. In connection with its determination of the appropriate loan loss reserves at December 31, 2008, the Company made certain modifications to its loan loss reserves model with respect to a $130.76 million pool of loans. However, in calculating the loan loss reserves for this pool of loans, the computational error resulted in the Company’s historical quarterly net charge-off rates not being annualized.

The Company has corrected the computational error in its model for calculating the allowance for loan losses. Based on the Company’s modeling using the corrected computations, the Company, in consultation with the Audit Committee of its Board of Directors, determined that the amount of the allowance for loan losses should be increased by an aggregate of $2.55 million for the period beginning December 31, 2008 and ending March 31, 2010.

Amendments to the Original Filing

The following sections of this Quarterly Report on Form 10-Q/A have been revised to reflect the restatement: Part I — Item 1 — Financial Statements, Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 4 — Controls and Procedures, and Part II — Item 6 — Exhibits. Except to the extent relating to the restatement of the Company’s financial statements and other financial information described above, the financial statements and other disclosures in this Quarterly Report on Form 10-Q/A do not reflect any events that have occurred after the Original Filing was filed with the SEC on August 13, 2009. This Quarterly Report on Form 10-Q/A does not modify or update those disclosures affected by subsequent events. Information not affected by the restatement is unchanged and reflects the disclosures made at the time of the Original Filing. Although the Company is amending only certain portions of its Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, for convenience and ease of reference, it is filing the entire Quarterly Report on this Form 10-Q/A.

PART I. ITEM 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

		June 30,				December 31,
		2009				2008*
(Dollars in Thousands, Except Per Share Data)		(Unaudited)
		(Restated)				(Restated)
Assets
Cash and due from banks		$	116,095			$	39,310
Interest-bearing balances with banks			28,354				7,129
Total cash and cash equivalents			144,449				46,439
Securities available-for-sale			521,879				520,723
Securities held-to-maturity			7,725				8,670
Loans held for sale			802				1,024
Loans held for investment, net of unearned income			1,269,443				1,298,159
Less allowance for loan losses			18,543				17,782
Net loans held for investment			1,250,900				1,280,377
Premises and equipment			55,193				55,024
Other real estate owned			3,615				1,326
Interest receivable			8,935				10,084
Goodwill and other intangible assets			89,534				89,612
Other assets			119,013				118,908
Total Assets		$	2,202,045			$	2,132,187
Liabilities
Deposits:
Noninterest-bearing		$	202,543			$	199,712
Interest-bearing			1,344,815				1,304,046
Total Deposits			1,547,358				1,503,758
Interest, taxes and other liabilities			27,630				27,423
Securities sold under agreements to repurchase			153,804				165,914
FHLB borrowings and other indebtedness			190,863				215,877
Total Liabilities			1,919,655				1,912,972
Stockholders’ Equity
Preferred stock, par value undesignated; 1,000,000 shares authorized; 41,500 issued at June 30, 2009, and December 31, 2008.			40,525				40,419
Common stock, $1 par value; 25,000,000 shares authorized; 17,341,234 shares issued at June 30, 2009, and 12,051,234 issued December 31, 2008, including 431,642 and 483,785 shares in treasury, respectively			17,341				12,051
Additional paid-in capital			183,955				128,526
Retained earnings			115,832				106,104
Treasury stock, at cost			(13,712	)			(15,368	)
Accumulated other comprehensive loss			(61,551	)			(52,517	)
Total Stockholders’ Equity			282,390				219,215
Total Liabilities and Stockholders’ Equity		$	2,202,045			$	2,132,187

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(Dollars In Thousands, Except Per Share Data)		2009				2008				2009				2008
										(Restated)
Interest Income
Interest and fees on loans held for investment		$	19,571			$	19,891			$	39,555			$	41,128
Interest on securities-taxable			5,177				5,467				10,341				11,534
Interest on securities-nontaxable			1,402				2,004				3,078				4,067
Interest on federal funds sold and deposits			39				71				78				251
Total interest income			26,189				27,433				53,052				56,980
Interest Expense
Interest on deposits			7,076				7,118				14,643				15,859
Interest on borrowings			2,792				3,690				5,655				8,136
Total interest expense			9,868				10,808				20,298				23,995
Net interest income			16,321				16,625				32,754				32,985
Provision for loan losses			2,552				937				4,700				1,260
Net interest income after provision for loan losses			13,769				15,688				28,054				31,725
Noninterest Income
Wealth management income			1,133				1,098				2,117				1,997
Service charges on deposit accounts			3,491				3,463				6,648				6,562
Other service charges and fees			1,133				1,064				2,311				2,185
Insurance commissions			1,639				1,146				3,956				2,490
Total impairment losses on securities			(25,169	)			—				(25,378	)			—
Portion of loss recognized in other comprehensive income			21,393				—				21,393				—
Net impairment losses recognized in earnings			(3,776	)			—				(3,985	)			—
Security gains			1,653				150				2,064				1,970
Other operating income			349				803				935				1,661
Total non-interest income			5,622				7,724				14,046				16,865
Noninterest Expense
Salaries and employee benefits			7,405				7,580				15,271				15,370
Occupancy expense of bank premises			1,333				1,256				2,936				2,420
Furniture and equipment expense			892				973				1,830				1,874
Amortization of intangible assets			244				158				489				318
FHLB debt prepayment fees			88				—				88				1,647
FDIC premiums and assessments			1,287				39				1,475				79
Other operating expense			4,894				4,753				9,248				9,334
Total noninterest expense			16,143				14,759				31,337				31,042
Income before income taxes			3,248				8,653				10,763				17,548
Income tax expense			843				2,415				3,166				4,998
Net income			2,405				6,238				7,597				12,550
Dividends on preferred stock			578				—				1,149				—
Net income available to common shareholders		$	1,827			$	6,238			$	6,448			$	12,550
Basic earnings per common share		$	0.14			$	0.57			$	0.53			$	1.14
Diluted earnings per common share		$	0.14			$	0.56			$	0.53			$	1.13
Dividends declared per common share		$	0.20			$	0.28			$	0.20			$	0.56
Weighted average basic shares outstanding			12,696,202				10,992,301				12,135,103				11,011,116
Weighted average diluted shares outstanding			12,741,080				11,073,440				12,181,843				11,091,714

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

		Six Months Ended
		June 30,
(In Thousands)		2009				2008
		(Restated)
Operating activities:
Net Income		$	7,597			$	12,550
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			4,700				1,260
Depreciation and amortization of premises and equipment			2,189				1,855
Intangible amortization			489				318
Net investment amortization and accretion			768				(526	)
Net gain on the sale of assets			(2,154	)			(1,929	)
Mortgage loans originated for sale			(18,422	)			(22,964	)
Proceeds from sales of mortgage loans			18,685				22,376
Gain on sales of loans			(41	)			(123	)
Deferred income tax benefit			(611	)			(330	)
Decrease in interest receivable			1,148				2,473
Non-cash other-than-temporary impairment charge			3,985				—
Other operating activities, net			(25	)			(118	)
Net cash provided by operating activities			18,308				14,842
Investing activities:
Proceeds from sales of securities available-for-sale			89,827				73,731
Proceeds from maturities and calls of securities available-for-sale			28,051				54,521
Proceeds from maturities and calls of securities held-to-maturity			946				1,578
Purchase of securities available-for-sale			(125,496	)			(97,491	)
Net decrease in loans held for investment			22,375				43,740
Proceeds from the redemption of FHLB stock			351				—
Proceeds from sales of equipment			188				—
Purchase of premises and equipment			(2,393	)			(3,549	)
Net cash provided by investing activities			13,849				72,530
Financing activities:
Net increase in demand and savings deposits			15,477				4,139
Net increase (decrease) in time deposits			28,123				(58,175	)
Net decrease in federal funds purchased			—				48,000
Net (decrease) increase in securities sold under agreement to repurchase			(12,110	)			8,183
Net decrease in FHLB and other borrowings			(25,014	)			(75,054	)
FHLB debt prepayment fees			(88	)			(1,647	)
Net proceeds from the issuance of common stock			61,668				—
Proceeds from the exercise of stock options			—				97
Excess tax benefit from stock-based compensation			—				22
Acquisition of treasury stock			—				(4,112	)
Preferred dividends paid			(1,043	)			—
Common dividends paid			(1,160	)			(6,154	)
Net cash (used in) provided by financing activities			65,853				(84,701	)
Increase in cash and cash equivalents			98,010				2,671
Cash and cash equivalents at beginning of period			46,439				52,746
Cash and cash equivalents at end of period		$	144,449			$	55,417
Supplemental information — Noncash items
Transfer of loans to other real estate		$	2,485			$	637
Cumulative effect adjustment of FAS 115-2, net of tax		$	6,131			$	—

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

																						Accumulated
										Additional												Other
		Preferred				Common				Paid-in				Retained				Treasury				Comprehensive
		Stock				Stock				Capital				Earnings				Stock				Loss				Total
(Dollars in Thousands)
Balance January 1, 2008		$	—			$	11,499			$	108,825			$	117,670			$	(13,613	)		$	(7,283	)		$	217,098
Comprehensive income:
Net income			—				—				—				12,550				—				—				12,550
Other comprehensive loss, net of tax:
Unrealized loss on securities available for sale			—				—				—				—				—				(21,631	)			(21,631	)
Reclassification adjustment for gains realized in net income																							(810	)			(810	)
Unrealized gain on derivative securities			—				—				—				—				—				(13	)			(13	)
Comprehensive loss			—				—				—				12,550				—				(22,454	)			(9,904	)
Cumulative effect of change in accounting principle			—				—				—				(813	)			—				—				(813	)
Common dividends declared			—				—				—				(6,154	)			—								(6,154	)
Acquisition of 128,100 treasury shares			—				—				—				—				(4,112	)			—				(4,112	)
Acquisition of GreenPoint Insurance Group - 7,728 shares issued			—				—				22				—				245				—				267
Equity-based compensation expense			—				—				107				—				—				—				107
Tax benefit from exercise of stock options			—				—				29				—				—				—				29
Option exercises - 4,804 shares			—				—				(57	)			—				152				—				95
Balance June 30, 2008		$	—			$	11,499			$	108,926			$	123,253			$	(17,328	)		$	(29,737	)		$	196,613
Balance January 1, 2009 (restated)		$	40,419			$	12,051			$	128,526			$	106,104			$	(15,368	)		$	(52,517	)		$	219,215
Cumulative effect of change in accounting principle			—				—				—				6,131				—				(6,131	)			—
Comprehensive income:
Net income (restated)			—				—				—				7,597				—				—				7,597
Other comprehensive loss, net of tax:
Unrealized loss on securities available-for-sale			—				—				—				—				—				(2,890	)			(2,890	)
Reclassification adjustment for gains realized in net income			—				—				—				—				—				(363	)			(363	)
Unrealized gain on derivative securities			—				—				—				—				—				350				350
Comprehensive loss			—				—				—				7,597				—				(2,903	)			4,694
Preferred dividend, net			106				—				(37	)			(1,149	)			—				—				(1,080	)
Common dividends declared			—				—				—				(2,851	)			—				—				(2,851	)
Issuance of vested shares			—				—				(22	)			—				22				—				—
Equity-based compensation expense			—				—				72				—				—				—				72
Common stock issuance - 5,290,000 shares issued			—				5,290				56,378				—				—				—				61,668
Retirement plan contribution - 51,443 shares issued			—				—				(962	)			—				1,634				—				672
Balance June 30, 2009 (restated)		$	40,525			$	17,341			$	183,955			$	115,832			$	(13,712	)		$	(61,551	)		$	282,390

See Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. General

Unaudited Consolidated Financial Statements

The accompanying unaudited consolidated financial statements of First Community Bancshares, Inc. and subsidiaries (“First Community” or the “Company”) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments, including normal recurring accruals, necessary for a fair presentation have been made. These results are not necessarily indicative of the results of consolidated operations that might be expected for the full calendar year.

The consolidated balance sheet as of December 31, 2008, has been derived from the restated audited consolidated financial statements included in the Company’s 2008 Annual Report on Form 10-K/A (the “2008 Form 10-K/A”). Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been omitted in accordance with standards for the preparation of interim consolidated financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2008 Form 10-K/A.

A more complete and detailed description of First Community’s significant accounting policies is included within Footnote 1 of Item 8, “Financial Statements and Supplementary Data” in the Company’s 2008 Form 10-K/A. Further discussion of the Company’s application of critical accounting policies is included within the “Application of Critical Accounting Policies” section of Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included herein.

The Company operates within two business segments, banking and insurance services. Insurance services are comprised of agencies which sell property and casualty and life and health insurance policies and arrangements. All other operations, including commercial and consumer banking, lending activities, and wealth management are included within the banking segment.

Earnings Per Share

Basic earnings per share is determined by dividing net income available to common shareholders by the weighted average number of shares outstanding. Diluted earnings per share is determined by dividing net income available to common shareholders by the weighted average shares outstanding, which includes the dilutive effect of stock options, warrants and contingently issuable shares. Basic and diluted net income per common share calculations follow:

		For the three months								For the six months
		ended June 30,								ended June 30,
(Amounts in Thousands, Except Share and Per Share Data)		2009				2008				2009				2008
										(Restated)
Net income available to common shareholders		$	1,827			$	6,238			$	6,448			$	12,550
Weighted average shares outstanding			12,696,202				10,992,301				12,135,103				11,011,116
Dilutive shares for stock options			2,411				58,134				4,274				57,593
Contingently issuable shares			42,467				23,005				42,467				23,005
Common stock warrants			—				—				—				—
Weighted average dilutive shares outstanding			12,741,080				11,073,440				12,181,843				11,091,714
Basic earnings per share		$	0.14			$	0.57			$	0.53			$	1.14
Diluted earnings per share		$	0.14			$	0.56			$	0.53			$	1.13

For the three- and six-month periods ended June 30, 2009, options and warrants to purchase 399,156 and 400,156 shares, respectively, of common stock were outstanding but were not included in the computation of diluted earnings per common share because the exercise price was greater than the market price of our common stock and, accordingly, they would have an anti-dilutive effect. This compares to options to purchase 10,000 shares of common stock outstanding, but not included in the

computation of diluted earnings per common share because their effect would be anti-dilutive for the three- and six-month periods ended June 30, 2008.

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standard Board (“FASB”) issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS 168”). The Codification will become the source of authoritative US GAAP recognized by the FASB to be applied by nongovernmental entities and will supersede all non-SEC accounting and reporting standards. This statement is effective for financial statements issued for interim and annual financial statements ending after September 15, 2009, and is not expected to have an impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued Statement No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). This statement, which is a revision to FIN 46(R), contains new criteria for determining the primary beneficiary, eliminates the exception to consolidating QSPEs, requires continual reconsideration of conclusions reached in determining the primary beneficiary, and requires additional disclosures. SFAS 167 is effective as of the beginning of fiscal years beginning after November 15, 2009 and is applied using a cumulative effect adjustment to retained earnings for any carrying amount adjustments (e.g., for newly-consolidated VIEs). The Company does not expect SFAS 167 to have a material effect on its financial condition, results of operations, or liquidity.

In June 2009, the FASB issued Statement No. 166, “Accounting for Transfers of Financial Assets” (“SFAS 166”). This statement, which is a revision to SFAS No. 140, eliminates the concept of a qualifying special purpose entity (QSPE), changes the requirements for derecognizing financial assets, and requires additional disclosures, including information about continuing exposure to risks related to transferred financial assets. SFAS 166 is effective for financial asset transfers occurring after the beginning of fiscal years beginning after November 15, 2009. The disclosure requirements must be applied to transfers that occurred before and after the effective date, and are not expected to have an impact on the Company’s consolidated financial statements.

In May 2009, the FASB Statement No. 165, “Subsequent Events” (“SFAS 165”). This statement establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. SFAS 165 defines (i) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (iii) the disclosures an entity should make about events or transactions that occurred after the balance sheet date. The Company adopted SFAS 165 effective April 1, 2009 and provided related disclosure in Note 15.

In April 2009, the FASB issued FASB Staff Position (FSP) 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” The FSP requires a public entity to provide disclosures about fair value of financial instruments in interim financial information. The FSP will be effective for interim and annual financial periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted the provisions of FSP FAS 107-1 and APB 28-1 effective January 1, 2009 and provided related disclosure in Note 13.

In April 2009, the FASB issued FSP FAS 115-2, FAS 124-2 and EITF 99-20-2, “Recognition and Presentation of Other-Than-Temporary-Impairment.” The FSP (i) changes existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired debt security until recovery with a requirement that management assert: (a) it does not have the intent to sell the debt security; and (b) it is more likely than not that it will not have to sell the debt security before recovery of its cost basis. Under the FSP, declines in the fair value of held-to-maturity and available-for-sale debt securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of impairment related to other factors is recognized in other comprehensive income. The Company adopted the provisions of FSP FAS 115-2, FAS 124-2 and EITF 99-20-2-1 effective January 1, 2009, which resulted in a cumulative effect credit adjustment in retained earnings of approximately $6.13 million and provided related disclosure in Note 4 to the Financial Statements.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” The FSP affirms the objective of fair value when a market is not active, clarifies and includes additional factors for determining whether there has been a significant decrease in market activity, eliminates the presumption that all transactions are distressed unless proven

otherwise, and requires an entity to disclose a change in valuation technique. The Company adopted the provisions of FSP FAS 157-4 effective January 1, 2009, which did not have a material impact on the Company’s financial condition or results of operations and provided related disclosure in Note 12.

In May 2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). This statement establishes a framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP. SFAS 162 was effective 60 days following the approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles” by the Securities and Exchange Commission (“SEC”), and is not expected to have an impact on the Company’s consolidated financial statements.

In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS 161”). This statement requires enhanced disclosures about an entity’s derivative and hedging activities in order to improve the transparency of financial reporting. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The Company adopted SFAS 161 effective January 1, 2009, and the enhanced disclosures are included in Note 12 — Derivatives and Hedging Activities.

In December 2007, the FASB revised Statement No. 141, “Business Combinations” (“SFAS 141R”). This statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. This statement recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. This statement also defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquiree achieves control. Additionally this statement determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. In connection with its January 1, 2009, adoption of SFAS 141R, the Company has expensed costs associated with recently announced transactions. This standard will impact the accounting of the transaction related to the acquisition of TriStone Community Bank that closed on July 30, 2009.

Note 2. Restatement of Consolidated Financial Statements

As a result of a routine internal audit, the Company determined there was a computational error in the model that it uses to calculate the quantitative basis for its allowance for loan losses. In connection with its determination of the appropriate loan loss reserve at December 31, 2008, the Company made certain modifications to its loan loss reserve model with respect to a $130.76 million pool of loans. However, in calculating the loan loss reserves for this pool of loans, the historical quarterly net charge-off rates were not annualized as was the case with all other quarterly loss rates in the model. The Company has corrected the computational error in its model for calculating the allowance for loan losses. Based on the Company’s modeling using the corrected computations, the Company, in consultation with the Audit Committee of its Board of Directors, determined that the amount of the allowance for loan losses should be increased by an aggregate of $2.55 million for the period beginning December 31, 2008 and ending March 31, 2010.

In this Form 10-Q/A, the Company is restating its unaudited consolidated balance sheet as of June 30, 2009. The consolidated statement of income and statement of cash flows for the three months ended June 30, 2009, were not affected by the restatement. The Company is also restating its unaudited consolidated statement of income, statement of cash flows, and statement of changes in stockholders’ equity for the six months ended June 30, 2009.

In its 2008 Form 10-K/A, which has been filed with the SEC, the Company restated its consolidated balance sheet, statements of income, statements of cash flows and statement of changes in stockholders’ equity at and for the year ended December 31, 2008. For ease of reference, the effects of the restatement on the consolidated balance sheet for the year ended December 31, 2008 is provided below in this Note 2.

The effects of the restatement by line item for the periods presented in this Quarterly Report on Form 10-Q/A follow.

		Impact on Consolidated
		Balance Sheets
		June 30, 2009												December 31, 2008
		As Previously												As Previously
(Amounts in Thousands)		Reported				As Restated				Effect of Change				Reported				As Restated				Effect of Change
Allowance for loan losses		$	16,678			$	18,543			$	1,865			$	15,978			$	17,782			$	1,804
Net loans held for investment			1,252,765				1,250,900				(1,865	)			1,282,181				1,280,377				(1,804	)
Other assets			118,313				119,013				700				118,231				118,908				677
Total assets			2,203,210				2,202,045				(1,165	)			2,133,314				2,132,187				(1,127	)
Retained earnings			116,997				115,832				(1,165	)			107,231				106,104				(1,127	)
Total stockholders’ equity			283,555				282,390				(1,165	)			220,342				219,215				(1,127	)

		Impact on Consolidated
		Statements of Income
		Six Months Ended June 30, 2009
		As Previously								Effect of
(Amounts in Thousands, except per share data)		Reported				As Restated				Change
Provision for loan losses		$	4,639			$	4,700			$	61
Net interest income after provision for loan losses			28,115				28,054				(61	)
Income before income taxes			10,824				10,763				(61	)
Income tax expense			3,189				3,166				(23	)
Net income			7,635				7,597				(38	)
Net income to common shareholders			6,486				6,448				(38	)
Net income per share
Basic		$	0.53			$	0.53			$	—
Diluted		$	0.53			$	0.53			$	—

		Impact on Consolidated
		Statements of Cash Flows
		Six Months Ended June 30, 2009
		As Previously								Effect of
(Amounts in Thousands)		Reported				As Restated				Change
Operating Activities:
Net income		$	7,635			$	7,597			$	(38	)
Provision for loan losses			4,639				4,700				61
Deferred income tax benefit			(588	)			(611	)			(23	)

		Impact on Consolidated
		Statements of
		Changes in Stockholders’ Equity
		Six Months Ended June 30, 2009
		As Previously								Effect of
(Amounts in Thousands)		Reported				As Restated				Change
Total retained earnings, January 1		$	107,231			$	106,104			$	(1,127	)
Net income			7,635				7,597				(38	)
Total retained earnings, June 30			116,997				115,832				(1,165	)

Note 3. Mergers, Acquisitions, and Branching Activity

On April 2, 2009, the Company signed a definitive agreement providing for the acquisition of TriStone Community Bank (“TriStone”), a $152.42 million state-chartered commercial bank headquartered in Winston-Salem, North Carolina. Under the terms of the merger agreement, subject to dissenter’s rights, shares of TriStone were exchanged for .5262 shares of the Company’s common stock, resulting in a purchase price of approximately $10.73 million. TriStone was merged with and into the Company’s wholly-owned national bank subsidiary, First Community Bank, N. A., on July 31, 2009, and at acquisition, had total assets of approximately $165.53 million, loans of approximately $132.23 million, and deposits of approximately $142.22 million.

On November 14, 2008, the Company completed the acquisition of Coddle Creek Financial Corp. (“Coddle Creek”), based in Mooresville, North Carolina. Coddle Creek had three full service locations in Mooresville, Cornelius, and Huntersville, North Carolina. At acquisition, Coddle Creek had total assets of approximately $158.66 million, loans of approximately $136.99 million, and deposits of approximately $137.06 million. Under the terms of the merger agreement, shares of Coddle Creek were exchanged for .9046 shares of the Company’s common stock and $19.60 in cash, for a total purchase price of approximately $32.29 million. As a result of the acquisition and purchase price allocation, approximately $14.41 million in goodwill was recorded, which represents the excess purchase price over the fair market value of the net assets acquired and identified intangibles.

Since January 1, 2008, GreenPoint Insurance Group, Inc., the Company’s wholly-owned insurance agency subsidiary, has acquired a total of five agencies, issuing cash consideration of approximately $2.04 million. Acquisition terms in all instances call for additional cash consideration if certain operating performance targets are met. If those targets are met, the value of the consideration ultimately paid will be added to the cost of the acquisitions. Goodwill and other intangibles associated with those acquisitions total approximately $2.04 million.

The Company opened a new branch location in Grafton, West Virginia, in June 2009.

Note 4. Investment Securities

As of June 30, 2009, and December 31, 2008, the amortized cost and estimated fair value of available-for-sale securities were as follows:

		June 30, 2009
		Amortized				Unrealized				Unrealized				Fair
(In Thousands)		Cost				Gains				Losses				Value
U.S. Government agency securities		$	53,426			$	428			$	(24	)		$	53,830
States and political subdivisions			136,358				1,143				(3,535	)			133,966
Trust preferred securities:
Single issue			55,552				—				(23,041	)			32,511
Pooled			90,270				—				(62,120	)			28,150
Total trust preferred securities			145,822				—				(85,162	)			60,661
Mortgage-backed securities:
Agency			250,279				3,823				(1,600	)			252,502
Non-Agency prime residential			6,596				—				(1,338	)			5,258
Non-Agency Alt-A residential			20,968				—				(10,465	)			10,503
Total mortgage-backed securities			277,843				3,823				(13,403	)			268,263
Equities			5,476				400				(717	)			5,159
Total		$	618,925			$	5,794			$	(102,840	)		$	521,879

		December 31, 2008
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
U.S. Government agency securities		$	53,425			$	1,393			$	—			$	54,818
States and political subdivisions			163,042				864				(4,487	)			159,419
Trust preferred securities:
Single Issue			55,491				—				(21,950	)			33,541
Pooled			93,269				—				(60,757	)			32,512
Total trust preferred securities			148,760				—				(82,707	)			66,053
Mortgage-backed securities:
Agency			212,315				4,649				(2	)			216,962
Non-Agency prime residential			7,423				—				(1,657	)			5,766
Non-Agency Alt-A residential			10,750				—				—				10,750
Total mortgage-backed securities			230,488				4,649				(1,659	)			233,478
Equities			7,979				357				(1,381	)			6,955
Total		$	603,694			$	7,263			$	(90,234	)		$	520,723

As of June 30, 2009, and December 31, 2008, the amortized cost and estimated fair value of held-to-maturity securities were as follows:

		June 30, 2009
		Amortized				Unrealized				Unrealized				Fair
(In Thousands)		Cost				Gains				Losses				Value
States and political subdivisions		$	7,725			$	121			$	—			$	7,846
Total		$	7,725			$	121			$	—			$	7,846

		December 31, 2008
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
States and political subdivisions		$	8,670			$	133			$	(1	)		$	8,802
Total		$	8,670			$	133			$	(1	)		$	8,802

The amortized cost and estimated fair value of available-for-sale securities by contractual maturity, at June 30, 2009, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Amortized
		Cost				Fair Value
		(Dollars in Thousands)
Due within one year		$	1,329			$	1,340
Due after one year but within five years			4,680				4,763
Due after five years but within ten years			71,416				71,751
Due after ten years			258,181				170,603
			335,606				248,457
Mortgage-backed securities			277,843				268,263
Equity securities			5,476				5,159
Total		$	618,925			$	521,879

The amortized cost and estimated fair value of held-to-maturity securities by contractual maturity, at June 30, 2009, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Amortized
		Cost				Fair Value
		(Dollars in Thousands)
Due within one year		$	1,091			$	1,105
Due after one year but within five years			3,988				4,053
Due after five years but within ten years			—				—
Due after ten years			2,646				2,688
Total		$	7,725			$	7,846

The carrying value of securities pledged to secure public deposits and for other purposes required by law were $355.27 million and $377.56 million at June 30, 2009, and December 31, 2008, respectively.

During the three months ended June 30, 2009, net gains on the sale of securities were $1.65 million. Gross gains were $1.67 million while gross losses were $16 thousand. During the six months ended June 30, 2009, net gains on the sale of securities were $2.06 million. Gross gains were $2.87 million while gross losses were $805 thousand.

The following table reflects those investments in an unrealized loss position at June 30, 2009, and December 31, 2008.

		June 30, 2009
Description of Securities		Less than 12 Months								12 Months or longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
(In Thousands)		Value				Losses				Value				Losses				Value				Losses
U. S. Government agency securities		$	9,411			$	(24	)		$	—			$	—			$	9,411			$	(24	)
States and political subdivisions			47,796				(1,757	)			16,844				(1,778	)			64,640				(3,535	)
Trust preferred securities:																			—				—
Single Issue			—				—				32,511				(23,041	)			32,511				(23,041	)
Pooled			—				—				26,906				(62,120	)			26,906				(62,120	)
Total trust preferred securities			—				—				59,417				(85,162	)			59,417				(85,162	)
Mortgage-backed securities:																			—				—
Agency			73,616				(1,599	)			42				(1	)			73,658				(1,600	)
Prime residential			—				—				5,258				(1,338	)			5,258				(1,338	)
Alt-A residential			—				—				10,503				(10,465	)			10,503				(10,465	)
Total mortgage-backed securities			73,616				(1,599	)			15,803				(11,804	)			89,419				(13,403	)
Equity securities			565				(164	)			1,229				(553	)			1,794				(717	)
Total		$	131,388			$	(3,544	)		$	93,293			$	(99,296	)		$	234,681			$	(102,840	)

		December 31, 2008
		Less than 12 Months								12 Months or longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
Description of Securities		Value				Losses				Value				Losses				Value				Losses
U. S. Government agency securities		$	—			$	—			$	—			$	—			$	—			$	—
States and political subdivisions			85,374				(2,948	)			16,413				(1,539	)			101,787				(4,487	)
Trust preferred securities:
Single Issue			—				—				30,693				(21,950	)			30,693				(21,950	)
Pooled			—				—				29,567				(60,757	)			29,567				(60,757	)
Total trust preferred securities			—				—				60,260				(82,707	)			60,260				(82,707	)
Mortgage-backed securities:
Agency			42,674				(1	)			43				(1	)			42,717				(2	)
Prime residential			5,766				(1,657	)			—				—				5,766				(1,657	)
Alt-A residential			—				—				—				—				—				—
Total mortgage-backed securities			48,440				(1,658	)			43				(1	)			48,483				(1,659	)
Equity securities			2,167				(1,161	)			2,201				(220	)			4,368				(1,381	)
Total		$	135,981			$	(5,767	)		$	78,917			$	(84,467	)		$	214,898			$	(90,234	)

At June 30, 2009, the combined depreciation in value of the 207 individual securities in an unrealized loss position was approximately 19.42% of the combined reported value of the aggregate securities portfolio. At December 31, 2008, the combined depreciation in value of the 310 individual securities in an unrealized loss position was approximately 17.04% of the combined reported value of the aggregate securities portfolio.

The Company reviews its investment portfolio on a quarterly basis for indications of other-than-temporary impairment (“OTTI”). The analysis differs depending upon the type of investment security is being analyzed. First, for all debt securities we have determined that we do not intend to sell securities that are impaired and have asserted that it is not more likely than not that we will have to sell impaired securities before recovery of the impairment occurs. Our assertion is based upon our investment strategy for the particular type of security, the Company’s cash flow needs, liquidity position, capital adequacy and interest rate risk position.

For analysis of non-beneficial interest debt securities, we analyze several qualitative factors such as the severity and duration of the impairment, adverse conditions within the issuing industry, prospects for the issuer, performance of the security, changes in rating by rating agencies and other qualitative factors to determine if the impairment will be recovered. If it is

determined that there is evidence that the impairment will not be recovered, we perform a present value calculation to determine the amount of credit related impairment and record any credit related OTTI through earnings and the non-credit related OTTI through other comprehensive income (“OCI”). During the three and six months ended June 30, 2009 and 2008, respectively, we incurred no OTTI charges related to non-beneficial interest debt securities. The impairment on these securities is primarily related to changes in interest rates, certain disruptions in the credit markets, and other current economic factors that did not lead to OTTI.

For analysis of beneficial interest debt securities, we prepare cash flow analyses on each applicable security to determine if an adverse change in cash flows expected to be collected has occurred. An adverse change in cash flows expected to be collected has occurred if the present value of cash flows previously projected is greater than the present value of cash flows projected at the current reporting date and less than the current book value. If an adverse change in cash flows is deemed to have occurred, then OTTI has occurred. We then compare the present value of cash flows using the current yield for the current reporting period and compare it to the reference amount, or current net book value, to determine the credit-related OTTI. The credit-related OTTI is then recorded through earnings and the non-credit related OTTI is accounted for in OCI.

During the three- and six- month periods ended June 30, 2009, we incurred credit-related OTTI charges of $3.37 million and non-credit related impairment of $22.85 million for beneficial interest debt securities. For the beneficial interest debt securities not deemed to have incurred OTTI, we have concluded that the primary difference in the fair value of the securities and our cash flow model is the significantly higher rate of return currently demanded by market participants in this illiquid and inactive market as compared to the rate of return that we received when we purchased the security in a normally functioning market.

The cash flow projections for the pooled trust preferred securities beneficial interest debt securities utilize a discounted cash flow test that uses variables such as the estimate of future cash flows, creditworthiness of the underlying banks and determination of probability of default of the underlying collateral. Cash flows are constructed in an INTEX cash flow model. INTEX is a proprietary cash flow model recognized as the industry standard for analyzing all types of collateralized debt obligations. It includes each individual deal’s structural features updated with trustee information, including asset-by-asset detail, as it becomes available. The modeled cash flows are then used to determine if all the scheduled principal and interest payments of our investments will be returned.

The expected future default assumptions for the pooled trust preferred securities are based upon the approximate level of depository institution failures experienced during the savings and loan crisis in the late 1980’s and early 1990’s. Those default rates equate to 3% constant default in 2009 and 2010, 2.5% in 2011, 2% in 2012, 1% in 2013, and 0.25% in 2014 and beyond. This is an increase from the 0.75% constant default rate used in prior projections. Banks currently in default or deferring interest payments are assigned a 100% probability of default. In all cases, a 15% projected recovery rate is applied to current deferrals and projected defaults.

In addition, the risk of future OTTI may be influenced by additional bank failures, prolonged recession in the U.S. economy, changes in real estate values, interest deferrals, and whether the federal government provides assistance to certain financial institutions.

For the non-Agency Alt-A MBS, we model cash flows using the following assumptions: constant prepayment speed of 5, a customized constant default rate scenario starting at 15 for the first six quarters declining to 3 beginning with the fourth year, and a default severity of 45.

The following table presents in more detail the Company’s single-issue and pooled trust preferred security holdings as of June 30, 2009. These details are listed separately due to the inherent level of risk for OTTI within these portfolios.

(Dollars In Thousands)		June 30, 2009
																				Deferrals/Defaults								Excess Subordination
				Current		Credit
		Class/		Credit		Rating at		Issuing				Book				Fair								Percent of								Percent of
Deal Name		Tranche		Rating		Purchase		Banks				Value				Value				Amount				Deal				Amount				Deal
Single-issuer
BankAmerica Cap		n/a		BBB		A+			1			$	3,079			$	2,329			None					n/a				n/a				n/a
BankBoston Cap		n/a		AA		A+			1				4,901				2,956			None					n/a				n/a				n/a
Chase Capital II		n/a		A		A			1				3,618				2,128			None					n/a				n/a				n/a
CoreStates Capital I		n/a		A		A+			1				2,933				1,498			None					n/a				n/a				n/a
First Chicago NDB CA		n/a		A		A			1				1,435				840			None					n/a				n/a				n/a
JPMorgan Chase Cap X		n/a		A		A			1				5,013				2,818			None					n/a				n/a				n/a
NB-Global		n/a		BBB		A+			1				20,751				12,486			None					n/a				n/a				n/a
NTC Capital I Float		n/a		A		A2			1				4,006				2,119			None					n/a				n/a				n/a
SunTrust Banks		n/a		BBB		A			1				4,940				2,625			None					n/a				n/a				n/a
Wachovia Cap II		n/a		A		A+			1				4,876				2,712			None					n/a				n/a				n/a
												$	55,552			$	32,511
Pooled
PreTSL X		B1		CC		A			58			$	8,779			$	4,436			$	126,625				32.5	%		$	14,000				4.0	%
PreTSL XII		B1		CC		A			79				19,551				10,006				142,600				22.4	%			48,500				8.0	%
PreTSL XIV		B1		CC		A			64				9,000				6,439				51,000				11.9	%			77,000				18.0	%
PreTSL XVI		C		CC		A			50				4,024				914				111,910				22.5	%			57,500				12.0	%
PreTSL XXII		C1		CC		A			82				12,631				1,293				231,500				20.0	%			182,500				16.0	%
PreTSL XXIII		C1		CCC		A			70				7,934				2,480				191,500				16.0	%			250,000				21.0	%
PreTSL XXVI		C1		CC		A			64				6,984				395				159,000				19.7	%			125,000				16.0	%
SLOSO 2007 1A		A3L		CC		A			56				1,244				1,244				52,500				11.1	%			140				0.0	%
TRAPEZA SER 13A		D		C		A			63				20,123				943				66,000				9.7	%			1,263				0.2	%
												$	90,270			$	28,150