PART I.

ITEM 1. Financial Statements

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS
~~(Amounts in Thousands, Except Share Data)~~


	September 30,			December 31,			March 31,			December 31,
	2005			2004			2006			2005
	(Unaudited)			(Note 1)
(Amounts in Thousands, Except Share Data)							(Unaudited)			(Note 1)
Assets
Cash and due from banks	$	48,122		$	37,294		$	46,953		$	46,872
Interest-bearing balances with banks		47,822			17,452			59,005			10,667

Total cash and cash equivalents		95,944			54,746			105,958			57,539
Securities available for sale (amortized cost of $421,801 at September 30, 2005; $384,746 at December 31, 2004)		424,631			388,678
Securities held to maturity (fair value of $25,645 at September 30, 2005; $35,610 at December 31, 2004)		24,723			34,221
Securities available for sale (amortized cost of $400,600 at March 31, 2006; $405,667 at December 31, 2005)								396,691			404,381
Securities held to maturity (fair value of $23,328 at March 31, 2006; $24,877 at December 31, 2005)								22,789			24,173
Loans held for sale		1,377			1,194			848			1,274
Loans held for investment, net of unearned income		1,321,221			1,238,756			1,329,666			1,331,039
Less allowance for loan losses		14,486			16,339			14,797			14,736

Net loans held for investment		1,306,735			1,222,417			1,314,869			1,316,303
Premises and equipment		35,640			37,360			35,636			34,993
Other real estate owned		1,690			1,419			867			1,400
Interest receivable		10,175			8,554			10,664			10,232
Goodwill and other intangible assets		61,287			61,310			61,028			61,119
Other assets		25,312			20,923			39,512			41,069

Total Assets	$	1,987,514		$	1,830,822		$	1,988,862		$	1,952,483


Liabilities
Deposits:
Noninterest-bearing	$	237,455		$	221,499		$	246,521		$	230,542
Interest-bearing		1,208,583			1,137,565			1,195,569			1,175,402

Total Deposits		1,446,038			1,359,064			1,442,090			1,405,944
Interest, taxes and other liabilities		15,169			14,313			15,471			16,153
Federal funds purchased		—			32,500			—			82,500
Securities sold under agreements to repurchase		125,739			109,857			131,009			124,154
FHLB borrowings and other indebtedness		207,180			131,855			204,192			129,231

Total Liabilities		1,794,126			1,647,589			1,792,762			1,757,982


Stockholders’ Equity
Preferred stock, par value undesignated; 1,000,000 shares authorized; no shares issued and outstanding in 2005 and 2004		—			—
Common stock, $1 par value; 25,000,000 and 15,000,000 shares authorized in 2005 and 2004; 11,495,570 and 11,472,311 issued in 2005 and 2004, and 11,273,248 and 11,250,927 outstanding in 2005 and 2004		11,496			11,472
Preferred stock, par value undesignated; 1,000,000 shares authorized; none issued								—			—
Common stock, $1 par value; 25,000,000 shares authorized; 11,499,018 and 11,496,312 shares issued at March 31, 2006, and December 31, 2005, including 284,434 and 244,509 shares in treasury, respectively								11,499			11,496
Additional paid-in capital		108,606			108,263			108,629			108,573
Retained earnings		78,484			68,019			86,755			82,828
Treasury stock, at cost		(6,897	)		(6,881	)		(8,934	)		(7,625	)
Accumulated other comprehensive income		1,699			2,360			(1,849	)		(771	)

Total Stockholders’ Equity		193,388			183,233			196,100			194,501

Total Liabilities and Stockholders’ Equity	$	1,987,514		$	1,830,822		$	1,988,862		$	1,952,483

See Notes to Consolidated Financial Statements.

~~-3-~~- 3 -

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
~~(Amounts in Thousands Except Share and Per Share Data) (Unaudited)~~


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2005			2004			2005			2004
(Amounts in Thousands Except Share and Per Share Data)													2006		2005
Interest Income
Interest and fees on loans held for investment	$	23,263		$	19,953		$	66,183		$	56,195		$	23,925	$	20,728
Interest on securities-taxable		2,904			2,960			7,755			9,659			2,878		2,296
Interest on securities-nontaxable		1,783			1,642			5,597			4,985			1,825		1,949
Interest on deposits in banks		343			94			737			395			296		215

Total interest income		28,293			24,649			80,272			71,234			28,924		25,188
Interest Expense
Interest on deposits		6,296			4,702			16,805			13,830			7,647		4,962
Interest on borrowings		3,276			2,246			8,471			6,092			3,211		2,473

Total interest expense		9,572			6,948			25,276			19,922			10,858		7,435

Net interest income		18,721			17,701			54,996			51,312			18,066		17,753
Provision for loan losses		1,060			1,152			2,824			2,407			408		691

Net interest income after provision for loan losses		17,661			16,549			52,172			48,905			17,658		17,062

Noninterest Income
Fiduciary income		541			499			1,668			1,429			683		689
Service charges on deposit accounts		2,660			2,461			7,431			6,722			2,417		2,148
Other service charges, commissions and fees		949			728			2,634			2,000			740		659
Gain on sale of securities		536			60			679			1,509			159		22
Other operating income		346			530			912			1,435			1,148		204

Total noninterest income		5,032			4,278			13,324			13,095			5,147		3,722

Noninterest Expense
Salaries and employee benefits		7,260			6,807			22,030			19,582			7,901		7,318
Occupancy expense of bank premises		1,000			913			2,911			2,659			1,040		943
Furniture and equipment expense		855			735			2,452			2,108			850		784
Core deposit amortization		112			112			333			287			90		110
Other operating expense		3,891			3,670			11,189			10,737			3,452		3,341

Total noninterest expense		13,118			12,237			38,915			35,373			13,333		12,496

Income from continuing operations before income taxes		9,575			8,590			26,581			26,627			9,472		8,288
Income tax expense		2,641			1,968			7,372			6,817			2,628		2,237

Income from continuing operations		6,934			6,622			19,209			19,810			6,844		6,051

Loss from discontinued operations before income tax		(36	)		(1,266	)		(206	)		(5,531	)		—		(131	)
Income tax benefit		(14	)		(1,054	)		(80	)		(2,006	)		—		(51	)

Loss from discontinued operations	$	(22	)	$	(212	)	$	(126	)	$	(3,525	)		—		(80	)

Net income	$	6,912		$	6,410		$	19,083		$	16,285		$	6,844	$	5,971


Basic earnings per common share	$	0.61		$	0.57		$	1.69		$	1.45		$	0.61	$	0.53

Diluted earnings per common share	$	0.61		$	0.57		$	1.68		$	1.44		$	0.61	$	0.53


Basic earnings per common share from continuing operations	$	0.61		$	0.59		$	1.70		$	1.76
Basic earnings per common share — continuing operations													$	0.61	$	0.54

Diluted earnings per common share from continuing operations	$	0.61		$	0.58		$	1.69		$	1.75
Diluted earnings per common share — continuing operations													$	0.61	$	0.53


Dividends declared per common share	$	0.255		$	0.25		$	0.765		$	0.75		$	0.26	$	0.255


Weighted average basic shares outstanding		11,275,156			11,231,973			11,269,515			11,235,462			11,233,005		11,259,494
Weighted average diluted shares outstanding		11,342,912			11,326,999			11,342,233			11,331,718			11,311,743		11,339,136

See Notes to Consolidated Financial Statements.

~~-4-~~- 4 -

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
~~(Amounts in Thousands)~~ (Unaudited)

Nine Months Ended
September 30
2005 2004
Cash flows from operating activities-continuing operations:

Net income from continuing operations $ 19,209 $ 19,810
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Provision for loan losses 2,824 2,407
Depreciation and amortization of premises and equipment 2,474 2,137
Core deposit amortization 333 287
Net investment amortization and accretion 1,139 1,880
Net gain on the sale of assets (490 ) (1,763 )
Mortgage loans originated for sale (28,419 ) (18,994 )
Proceeds from sale of mortgage loans 28,236 18,255
Deferred income tax expense 1,098 54
(Increase) decrease in interest receivable (1,621 ) 489
Increase in other assets (4,231 ) (1,206 )
Increase in other liabilities 671 1,068

Net cash provided by operating activities from continuing operations
21,223 24,424

Cash flows from investing activities-continuing operations:

Proceeds from sales of securities available for sale 18,959 49,951
Proceeds from maturities and calls of securities available for sale 33,798 105,065
Proceeds from maturities and calls of securities held to maturity 9,552 3,834
Purchase of securities available for sale (90,326 ) (78,012 )
Net increase in loans made to customers (87,064 ) (74,858 )
Purchase of premises and equipment (2,462 ) (5,077 )
Proceeds from sale of equipment 1,005 359
Net cash used in acquisitions — (26,325 )

Net cash used in investing activities from continuing operations
(116,538 ) (25,063 )

Cash flows from financing activities-continuing operations:

Net increase in demand and savings deposits 8,053 10,619
Net increase (decrease) in time deposits 78,921 (22,689 )
Net proceeds from and repayments of FHLB and other borrowings 74,861 5,012
Net decrease in federal funds purchased (32,500 ) —
Net increase in securities sold under agreement to repurchase 15,882 12,668
Issuance of common stock 333 420
Acquisition of treasury stock (293 ) (1,195 )
Dividends paid (8,618 ) (8,427 )

Net cash provided by (used in) financing activities from continuing operations
136,639 (3,592 )

Net increase (decrease) in cash and cash equivalents from continuing operations
$ 41,324 $ (4,231 )

Net cash used in discontinued operations
$ (126 ) $ —

Cash and cash equivalents at beginning of period-continuing operations $ 54,746 $ 59,309
Cash and cash equivalents at beginning of period-discontinued operations — —

Cash and cash equivalents at beginning of period $ 54,746 $ 59,309

Cash and cash equivalents at end of period-continuing operations
$ 95,944 $ 55,078
Cash and cash equivalents at end of period-discontinued operations
— —

Cash and cash equivalents at end of period
$ 95,944 $ 55,078


	Three Months Ended
	March 31,
(Amounts in thousands)	2006			2005
Operating activities — continuing operations:
Net income from continuing operations	$	6,844		$	6,051
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Provision for loan losses		408			691
Depreciation and amortization of premises and equipment		853			797
Core deposit amortization		90			110
Net investment amortization and accretion		245			456
Net (gain) loss on the sale of assets		(200	)		124
Mortgage loans originated for sale		(6,400	)		(7,010	)
Proceeds from sales of mortgage loans		6,857			7,049
Gain on sales of loans		(31	)		(27	)
Deferred income tax expense (benefit)		412			(310	)
Increase in interest receivable		(432	)		(570	)
Excess tax benefit from stock-based compensation		(42	)		—
Decrease (increase) in other assets		2,396			(619	)
(Decrease) increase in other liabilities		(682	)		1,452

Net cash provided by operating activities — continuing operations		10,318			8,194


Investing activities — continuing operations:
Proceeds from sales of securities available for sale		756			2,994
Proceeds from maturities and calls of securities available for sale		5,976			13,199
Proceeds from maturities and calls of securities held to maturity		1,418			2,211
Purchase of securities available for sale		(259	)		(4,643	)
Net decrease (increase) in loans held for investment		1,618			(44,258	)
Purchase of premises and equipment		(1,639	)		(807	)
Proceeds from sale of equipment		104			760

Net cash provided by (used in) investing activities — continuing operations		7,974			(30,544	)


Financing activities — continuing operations:
Net increase (decrease) in demand and savings deposits		28,198			(16,771	)
Net increase in time deposits		7,948			59,580
Net decrease in federal funds purchased		(82,500	)		(32,500	)
Net increase in securities sold under agreement to repurchase		6,855			18,387
Net proceeds from and repayments of FHLB and other borrowings		74,961			24,967
Proceeds from the exercise of stock options		136			169
Excess tax benefit from stock-based compensation		42			—
Acquisition of treasury stock		(2,596	)		(4	)
Dividends paid		(2,917	)		(2,874	)

Net cash provided by financing activities — continuing operations		30,127			50,954

Cash flows of discontinued operations: (Revised — See Note 2)
Net cash used in operating activities		—			(80	)
Net cash used in investing activities		—			—
Net cash used in financing activities		—			—

Net cash used in discontinued operations		—			(80	)

Increase in cash and cash equivalents		48,419			28,524

Cash and cash equivalents at beginning of period		57,539			54,746

Cash and cash equivalents at end of period	$	105,958		$	83,270


Supplemental information — Noncash items
Transfer of loans to other real estate	$	173		$	100

See Notes to Consolidated Financial ~~Statements.~~Statements

~~-5-~~- 5 -

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in Thousands, Except Share and Per Share Information) (Unaudited)

Accumulated
Additional Other
Common Paid-in Retained Treasury Comprehensive
Stock Capital Earnings Stock (Loss) Income Total
Balance January 1, 2004
$ 11,442 $ 108,128 $ 56,894 $ (6,407 ) $ 4,978 $ 175,035
Comprehensive income:

Net income
— — 16,285 — — 16,285
Other comprehensive income, net of tax:

Net unrealized gain on securities available for sale
— — — — (723 ) (723 )
Less reclassification adjustment for gains realized in net income
— — — — (896 ) (896 )

Comprehensive income
— — 16,285 — (1,619 ) 14,666

Common dividends declared ($.75 per share)
— — (8,427 ) — — (8,427 )
Purchase 44,400 treasury shares
— — — (1,195 ) — (1,195 )
Acquisition of Stone Capital 2,541 shares issued
3 85 — — — 88
Option exercise 47,950 shares
25 67 — 573 — 665

Balance September 30, 2004
$ 11,470 $ 108,280 $ 64,752 $ (7,029 ) $ 3,359 $ 180,832

Balance January 1, 2005
$ 11,472 $ 108,263 $ 68,019 $ (6,881 ) $ 2,360 $ 183,233
Comprehensive income:

Net income
— — 19,083 — — 19,083
Other comprehensive income, net of tax:

Unrealized loss on securities available for sale
— — — — (307 ) (307 )
Less reclassification adjustment for gains realized in net income
— — — — (354 ) (354 )

Comprehensive income
— — 19,083 — (661 ) 18,422

Common dividends declared ($.765 per share)
— — (8,618 ) — — (8,618 )
Net acquisition of 9,917 treasury shares
— — — (293 ) — (293 )
Acquisition of Stone Capital 2,447 shares issued
2 85 — — — 87
Stock awards
2 18 — — — 20
Tax benefit from exercise of non- qualified stock options
— 204 — — — 204
Option exercises 28,224 shares
20 36 — 277 — 333

Balance September 30, 2005
$ 11,496 $ 108,606 $ 78,484 $ (6,897 ) $ 1,699 $ 193,388


												Accumulated
			Additional									Other
	Common		Paid-in			Retained			Treasury			Comprehensive
	Stock		Capital			Earnings			Stock			(Loss) Income			Total
Balance January 1, 2005	$	11,472	$	108,263		$	68,019		$	(6,881	)	$	2,360		$	183,233
Comprehensive income:
Net income		—		—			5,971			—			—			5,971
Other comprehensive income, net of tax:
Unrealized loss on securities available for sale		—		—			—			—			(2,453	)		(2,453	)
Less reclassification adjustment for gains realized in net income		—		—			—			—			(13	)		(13	)

Comprehensive income		—		—			5,971			—			(2,466	)		3,505

Common dividends declared ($.255 per share)		—		—			(2,874	)		—			—			(2,874	)
Purchase 303 treasury shares		—		—			—			(4	)		—			(4	)
Acquisition of Stone Capital 2,447 shares issued		2		85			—			—			—			87
Stock awards 1,500 shares issued		2		18												20
Tax benefit from exercise of non-qualified stock options		—		137			—			—			—			137
Option exercise 17,197 shares		15		73			—			81			—			169

Balance March 31, 2005	$	11,491	$	108,576		$	71,116		$	(6,804	)	$	(106	)	$	184,273


Balance January 1, 2006	$	11,496	$	108,573		$	82,828		$	(7,625	)	$	(771	)	$	194,501
Comprehensive income:
Net income		—		—			6,844			—			—			6,844
Other comprehensive income, net of tax:
Unrealized loss on securities available for sale		—		—			—			—			(1,479	)		(1,479	)
Less reclassification adjustment for gains realized in net income		—		—			—			—			(96	)		(96	)
Unrealized gain on derivative securities		—		—			—			—			497			497

Comprehensive income		—		—			6,844			—			(1,078	)		5,766

Common dividends declared ($.26 per share)		—		—			(2,917	)		—			—			(2,917	)
Net acquisition of 81,061 treasury shares		—		—			—			(2,596	)		—			(2,596	)
Acquisition of Stone Capital 2,706 shares issued		3		85			—			—			—			88
Stock awards 4,832 shares		—		(41	)		—			152			—			111
ESOP allocation 27,733 shares				16						867						883
Equity-based compensation expense		—		71			—			—			—			71
Tax benefit from exercise of non-qualified stock options		—		58			—			—			—			58
Option exercises 8,571 shares		—		(133	)		—			268			—			135

Balance March 31, 2006	$	11,499	$	108,629		$	86,755		$	(8,934	)	$	(1,849	)	$	196,100

See Notes to Consolidated Financial Statements.

~~-6-~~- 6 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. General

Unaudited Consolidated Financial Statements

The accompanying unaudited condensed consolidated ~~balance sheet as of September 30, 2005, the unaudited consolidated~~financial statements of income for the three and nine months ended September 30, 2005 and 2004, and the unaudited consolidated statements of cash flows and changes in stockholders’ equity for the nine months ended September 30, 2005 and 2004, have been prepared by the management of First Community Bancshares, Inc. and subsidiaries (“~~FCBI”~~First Community” or the “Company”). have been prepared in accordance with United States generally accepted accounting principles 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 ~~to present fairly the financial position of FCBI and subsidiary at September 30, 2005, and its results of operations, cash flows, and changes in stockholders’ equity~~ for ~~the three and nine months ended September 30, 2005 and 2004,~~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, ~~2004,~~2005, has been derived from the audited financial statements included in the Company’s ~~2004~~2005 Annual Report ~~to Stockholders~~ on Form 10-K. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted in accordance with standards for the preparation of interim financial statements. These financial statements should be read in conjunction with the financial statements and notes thereto included in the ~~2004~~2005 Annual Report of ~~FCBI~~First Community on Form 10-K.

A more complete and detailed description of ~~FCBI’s~~First Community’s significant accounting policies is included within Footnote 1 to the Company’s Annual Report on Form 10-K for December 31, ~~2004.~~2005. 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 one business segment, community banking.

The cash flows resulting from discontinued operations have been revised to conform to the current year’s presentation, which details cash flows from operating, investing, and financing activities.

Recent Accounting Pronouncements

In ~~June 2005,~~March 2006, the Financial Accounting Standards Board (“FASB”) ~~directed its staff~~issued Statement No. 156, “Accounting for Servicing of Financial Assets,” which amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” The Statement permits an entity to ~~draft FSP FAS 115-1, “The Meaning~~measure servicing assets or servicing liabilities at fair value at each reporting date and report changes in fair value in earnings in the period in which the change occurs. The Statement is effective as of ~~Other-Than-Temporary Impairment and Its Application to Certain Investments.” FSP 115-1 will codify the guidance set forth in EITF Topic D-44 and clarify that~~ an investor should recognize an impairment loss no later than when the impairment is deemed other than temporary, even if a decision to sell has not been made. FSP FAS 115-1 will be effective for other-than-temporary impairment analysis conducted in periodsentity’s first fiscal year beginning after September 15, ~~2005. Management does not anticipate the issuance~~2006. However, earlier adoption of the ~~final consensus will have a material impact on financial condition,~~Statement is permitted as of the ~~results~~beginning of ~~operations, or liquidity.~~

~~In May 2005,~~an entity’s fiscal year, provided the ~~FASB~~entity has not yet issued Statement No. 154, “Accounting Changes and Error Corrections,” which changes the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle and changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. This statement requires retrospective application to prior period financial statements for any interim period of ~~changes in accounting principle, unless it is impractical to determine either the period-specific or cumulative effects of the change. Statement No. 154 is effective for accounting changes made in~~that fiscal ~~years beginning after December 15, 2005.~~year. The adoption of this standard is not expected to have a material ~~effect~~impact on the Company’s financial condition, the results of operations, or liquidity.

In ~~December 2004,~~February 2006, the FASB issued Statement No. ~~123R, “Share-Based Payment,~~155, “Accounting for Certain Hybrid Financial Instruments — An Amendment of FASB Statements No. 133 and 140.” ~~which is an amendment of~~This Statement amends FASB Statement No. ~~123.~~133, “Accounting for Derivative Instruments and Hedging Activities,” to require evaluation of all interests in securitized financial assets under Statement ~~123R changes, among other things,~~No. 133, eliminating a long-standing (but always intended to be temporary) exemption from Statement No. 133 for such financial instruments. As a result of the ~~manner in which share-based compensation,~~Statement, entities will have to determine if such ~~as stock options, will~~interests may be ~~accounted for by both public and non-public companies. For public companies,~~(1) freestanding derivatives, (2) hybrid financial instruments containing embedded derivatives requiring bifurcation, or (3) hybrid financial instruments containing embedded derivatives that do not require bifurcation. In addition, the ~~cost of employee services received in exchange for equity instruments including options and restricted stock awards generally will be measured at~~Statement permits fair value ~~at the grant date.~~ remeasurement for any hybrid instrument that contains an embedded derivative that would otherwise have to be bifurcated.

The ~~grant date fair value will be estimated using option-pricing models adjusted~~Statement is effective for ~~the unique characteristics of those options and~~all financial instruments ~~unless observable market prices for the same~~acquired, issued, or similar options are available. The cost will be recognized over the requisite service period, often the vesting period, and will be re-measured subsequently at each reporting date through settlement date. In March 2005, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 107, “Share-Based Payment” (SAB 107), which expresses the SEC staff’s views on Statement 123R. SAB 107 provides further discussion on various topics, including share-based payment transactions with non-employees, valuation methods, classification of expense in financial statements, and disclosures in management’s discussion and analysis. In April 2005, the SEC announced that it would provide forsubject to a ~~phased-in implementation process for Statement 123R, and require registrants to adopt the standard’s fair-value method of accounting for share-based payments to employees no later than~~remeasurement event occurring after the beginning of ~~the~~an entity’s first fiscal year beginning after ~~December~~September 15, ~~2005.~~2006. Earlier adoption of the Statement is permitted as of the beginning of an entity’s fiscal year, provided the entity has not yet issued financial statements for any interim period of that fiscal year. The adoption of this standard is not expected to have a material impact on the Company’s financial condition, the results of operations, or liquidity.

~~-7-~~- 7 -

The Company has stock option plans for certain executives and directors accounted for under the intrinsic value method. Because the exercise price of the Company’s stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation for the three- and nine-month periods ended September 30, 2005 and 2004.

(Dollars in thousands) Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Net income as reported $ 6,912 $ 6,410 $ 19,083 $ 16,285
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (53 ) (60 ) (144 ) (145 )

Pro forma net income $ 6,859 $ 6,350 $ 18,939 $ 16,140

Income from continuing operations $ 6,934 $ 6,622 $ 19,209 $ 19,810
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (53 ) (60 ) (144 ) (145 )

Pro forma income from continuing operations $ 6,881 $ 6,562 $ 19,065 $ 19,665

Earnings per share:

Basic as reported $ 0.61 $ 0.57 $ 1.69 $ 1.45
Basic pro forma $ 0.61 $ 0.57 $ 1.68 $ 1.44

Diluted as reported $ 0.61 $ 0.57 $ 1.68 $ 1.44
Diluted pro forma $ 0.60 $ 0.56 $ 1.67 $ 1.42

Earnings per share from continuing operations:

Basic as reported $ 0.61 $ 0.59 $ 1.70 $ 1.76
Basic pro forma $ 0.61 $ 0.58 $ 1.69 $ 1.75

Diluted as reported $ 0.61 $ 0.58 $ 1.69 $ 1.75
Diluted pro forma $ 0.61 $ 0.58 $ 1.68 $ 1.74

~~-8-~~

Note 2. Discontinued Operations

On August 18, 2004, the Company sold its ~~United First Mortgage, Inc. (“UFM”) subsidiary headquartered in Richmond, Virginia.~~mortgage banking subsidiary. The transaction resulted in the sale of 100% of the stock of UFM for cash consideration of approximately $250 thousand. The transaction produced an after-tax gain of approximately $380 thousand in the third quarter of 2004, and completed the Company’s exit from the mortgage banking business segment.

The business related to ~~UFM~~the former mortgage banking subsidiary is accounted for as discontinued operations and, therefore, the results of operations and cash flows have been removed from the Company’s results of continuing operations in accordance with ~~Financial Accounting Standard~~SFAS 144 for all periods presented in this report. The results of ~~UFM~~former mortgage subsidiary are presented ~~along with the after-tax gain on sale,~~ as discontinued operations in a separate category on the income statement relating to the 2005 period following results from continuing operations. ~~The Company continues to incur costs related to UFM in the form of one non-cancelable lease. This lease, along with residual salaries expense, create a loss from discontinued operations in 2005.~~ The results of discontinued operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2005, ~~and 2004,~~ are ~~as follows:~~presented below. The Company had no related income or loss from discontinued operations in 2006.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,						Three Months Ended
(Amounts in thousands)	2005			2004			2005			2004			March 31, 2005

Interest Income		—			115			—			690		$	—
Interest Expense		—			55			—			507			—
							��

Net interest income		—			60			—			183			—

Other Income		—			165			—			1,015			—
Other Expense		36			1,491			206			6,729			131


Loss before income taxes		(36	)		(1,266	)		(206	)		(5,531	)		(131	)
Applicable income tax benefit		(14	)		(1,054	)		(80	)		(2,006	)		(51	)


Net Loss	$	(22	)	$	(212	)	$	(126	)	$	(3,525	)	$	(80	)

Note 3. Mergers, Acquisitions and Branch Development

In ~~August 2005,~~March 2006, the Company entered into a definitive agreement with ~~Sonabank, N. A.,~~Smith River Community Bank to sell its branch location in ~~Clifton Forge,~~Drakes Branch, Virginia. The branch had deposits and repurchase agreements totaling approximately ~~$46~~$16.1 million and loans of approximately $9$1.9 million at ~~July~~December 31, 2005. The transaction ~~will~~is expected to result in ~~an approximate $3.9 million pre-tax~~a gain ~~on sale,~~of approximately $726 thousand, and is expected to be completed by ~~December 31, 2005,~~June 30, 2006, subject to regulatory approvals.

Also in March 2006, the Company entered into a definitive agreement with Clear Mountain Bank to sell its branch location in Rowlesburg, West Virginia. The ~~following schedule details~~ branch ~~openings since January 1, 2004.~~


~~Quarter~~
~~Opened~~	~~Location~~	~~Type~~

~~Q1 2004~~	~~Mount Airy, NC~~	~~Loan Production Office~~
~~Q1 2004~~	~~Charlotte, NC~~	~~Loan Production Office~~
~~Q2 2004~~	~~Blacksburg, Va.~~	~~Loan Production Office~~
~~Q2 2004~~	~~Norfolk, Va.~~	~~Loan Production Office~~
~~Q4 2004~~	~~Princeton, W.Va.~~	~~Full Service Branch~~
~~Q2 2005~~	~~Clarksburg, W.Va.~~	~~Loan Production Office~~
~~Q3 2005~~	~~Charleston, W.Va.~~	~~Loan Production Office~~

~~After the close of business on March 31, 2004, PCB Bancorp, Inc., a Tennessee-chartered bank holding company (“PCB”) headquartered in Johnson City, Tennessee, was acquired by the Company. PCB~~ had ~~five full service branch offices located in Johnson City, Kingsport~~deposits and ~~surrounding areas in Washington~~repurchase agreements totaling approximately $10.7 million and ~~Sullivan Counties in East Tennessee. At acquisition, PCB had total assets of $171.0 million, total net~~ loans of ~~$128.0~~approximately $3.2 million at December 31, 2005. The transaction is expected to result in a gain of approximately $382 thousand, and ~~total deposits of $150.0 million. These resources were included in the Company’s financial statements beginning with the second quarter of 2004.~~

Under the terms of the merger agreement, shares of PCB common stock were purchased for $40.00 per share in cash. The total deal value, including the cash-out of outstanding stock options, was approximately $36.0 million. Concurrent with the PCB acquisition, Peoples Community Bank, the wholly-owned subsidiary of PCB, was merged into the Bank. As a result of the acquisition and preliminary purchase price allocation, approximately $21.3 million in goodwill was recorded which represents the excess of the purchase price over the fair market value of the net assets acquired and identified intangibles.is expected to be completed by September 30, 2006, subject to regulatory approvals.

~~-10-~~- 8 -

Commitments to extend credit are agreements to lend to a customer as long as there is not a violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit is based on management’s credit evaluation of the counterparties. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Standby letters of credit and written financial guarantees are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. To the extent deemed necessary, collateral of varying types and amounts is held to secure customer performance under certain of those letters of credit outstanding.

Financial instruments whose contract amounts represent credit risk at ~~September 30, 2005,~~March 31, 2006, are commitments to extend credit (including availability of lines of credit) of ~~$219.1~~$233.2 million and standby letters of credit and financial guarantees written of ~~$13.0~~$5.3 million.

Note 6. Allowance for ~~Credit~~Loan Losses

The allowance for ~~credit~~loan losses is maintained at a level sufficient to absorb probable loan losses inherent in the loan ~~portfolio and lending-related commitments.~~portfolio. The allowance is increased by charges to earnings in the form of ~~provisions~~provision for loan losses ~~and lending-related commitments~~ and recoveries of prior loan charge-offs, and decreased by loans charged off. The ~~provisions are~~provision is calculated to bring the allowance to a level which, according to a systematic process of measurement, reflects the amount management estimates is needed to absorb probable losses within the ~~portfolio and lending-related commitments.~~portfolio.

Management performs periodic assessments to determine the appropriate level of allowance. Differences between actual loan loss experience and estimates are reflected through adjustments that are made by either increasing or decreasing the loss provision based upon current measurement criteria. Commercial, consumer and mortgage loan portfolios are evaluated separately for purposes of determining the allowance. The specific components of the allowance include allocations to individual commercial credits and allocations to the remaining non-homogeneous and homogeneous pools of loans. Management’s allocations are based on judgment of qualitative and quantitative factors about both macro and micro economic conditions reflected within the portfolio of loans and the economy as a whole. Factors considered in this evaluation include, but are not necessarily limited to, probable losses from loan and other credit arrangements, general economic conditions, changes in credit concentrations or pledged collateral, historical loan loss experience, and trends in portfolio volume, maturities, composition, delinquencies, and non-accruals. While management has allocated the allowance for ~~credit~~loan losses to various portfolio segments, the entire allowance is available for use against any type of loan loss deemed appropriate by management.

In the third quarter of 2005, the Company charged down $2.2 million of a $4.3 million commercial real estate loan, and transferred the $2.1 million balance to non-accrual loans. The loan had been previously disclosed as a potential problem loan, and carried a specific reserve allocation of $2.2 million.

~~-13-~~

Also included in ~~other indebtedness~~borrowings is ~~$15~~$15.5 million of junior subordinated debentures (the “Debentures”) issued by the Company in October 2003 to an unconsolidated trust subsidiary, FCBI Capital Trust (the “Trust”) with an interest rate of three-month LIBOR plus 2.95%. The Trust was able to purchase the Debentures through the issuance of trust preferred securities which had substantially identical terms as the Debentures. The Debentures mature on October 8, 2033, and are callable beginning October 8, 2008. The net proceeds from the offering were contributed as capital to the ~~Bank~~Company’s subsidiary bank to support further growth.

The Company has committed to irrevocably and unconditionally guarantee the following payments or distributions with respect to the preferred securities to the holders thereof to the extent that the Trust has not made such payments or distributions: (i) accrued and unpaid distributions, (ii) the redemption price, and (iii) upon a dissolution or termination of the trust, the lesser of the liquidation amount and all accrued and unpaid distributions and the amount of assets of the trust remaining available for distribution, in each case to the extent the Trust has funds available.

Note 9. Commitments and Contingencies

In the normal course of business, the Company is a defendant in various legal actions and asserted claims, most of which involve lending, collection and employment matters. While the Company and its legal counsel are unable to assess the ultimate outcome of each of these matters with certainty, the resolution of these actions, singly or in the aggregate, should not have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

During the first quarter of 2006, the Company received restitution stemming from a payment systems fraud. The ~~previously disclosed state tax audit of state income, franchise,~~Company received approximately $676 thousand, which is included in other noninterest income.

Note 10. Equity-Based Compensation

The Company maintains share-based compensation plans to encourage and ~~sales tax~~facilitate investment in ~~one~~the common stock of the ~~Company’s tax jurisdictions was recently concluded.~~Company by key executives and to assist in the long-term retention of service by those executives. The ~~outcome~~Company has four stock-based compensation plans. The 1999 Stock Option Plan has non-qualified stock options awarded that will continue to vest through 2008. The 2001 Director Option Plan has awards made to directors that are fully vested. Awards made under the CommonWealth Plan were fully vested at the point of grant. The 2004 Omnibus Stock Option Plan allows for the award of non-qualified and incentive stock options, as well as restricted and unrestricted stock. Vesting under the 2004 plan is generally over a three-year period.

The Company adopted FASB Statement No. 123R, “Share-Based Payment” (“SFAS 123R”), on January 1, 2006, using the “modified prospective” method. Under this ~~audit was favorable~~method, awards that are granted, modified, or settled after December 31, 2005, are measured and accounted for in accordance with SFAS 123R. Also under this method, expense is recognized for unvested awards that were granted prior to January 1, 2006, based upon the fair value determined at the grant date under FASB Statement No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). Prior to the adoption of SFAS 123R, the Company accounted for stock compensation under the intrinsic value method permitted by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and ~~will result in total state income and franchise tax refunds of approximately $470 thousand, subject~~related interpretations. Accordingly, the Company previously recognized no compensation cost for employee stock options that were granted with an exercise price equal to the ~~final filing~~market value of ~~amended returns. The Company regularly evaluates~~ the ~~tax provision and continues to believe that it has established appropriate provisions for state income and franchise taxes.~~underlying common stock on the date of grant.

~~-15-~~- 13 -

~~Note 10. Earnings per Share~~

The following ~~schedule details~~table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 in 2005.


	Three Months
	Ended
(Dollars in thousands, except per share data)	March 31, 2005
Net income as reported	$	5,971
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(44	)

Pro forma net income	$	5,927

Income from continuing operations	$	6,051
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(44	)

Pro forma income from continuing operations	$	6,007

Earnings per share:

Basic as reported	$	0.53
Basic pro forma	$	0.53

Diluted as reported	$	0.53
Diluted pro forma	$	0.52

Earnings per share from continuing operations:

Basic as reported	$	0.54
Basic pro forma	$	0.53

Diluted as reported	$	0.53
Diluted pro forma	$	0.53

Prior to the adoption of SFAS 123R, the Company presented all tax benefits of deductions resulting from the exercise of stock options and ~~shares used~~the vesting of restricted stock as operating cash flows in ~~computing~~the Consolidated Statements of Cash Flows. SFAS 123R requires the cash flows from the tax benefits resulting from tax deductions in excess of the compensation expense recognized for those options and restricted stock (“excess tax benefits”) to be classified as financing cash flows. An excess tax benefit totaling $42 thousand is classified as a financing cash inflow for the three months ended March 31, 2006.

As a result of adopting SFAS 123R, pre-tax income and net income for the three months ended March 31, 2006, are approximately $71 thousand and $43 thousand lower, respectively, than accounting for stock options under the intrinsic value method. The increased compensation expense resulting from the adoption of SFAS 123R had no effect on basic ~~and~~or diluted earnings per share for the ~~three~~first quarter of 2006.

During the quarter ended March 31, 2006, the Company recognized pre-tax compensation expense related to total equity-based compensation of approximately $188 thousand.

As of March 31, 2006, there was approximately $656 thousand of unrecognized compensation cost related to unvested stock options. That cost is expected to be recognized over a weighted-average period of 1.5 years. The actual compensation cost recognized will differ from this estimate due to a number of items, including new awards granted and ~~nine months~~changes in estimated forfeitures.

- 14 -

A summary of the Company’s stock option activity, and related information for the quarter ended ~~September 30,~~March 31, 2006, is as follows:


						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
	Option			Exercise		Contractual		Intrinsic
	Shares			Price		Term (Years)		Value
								(In thousands)
Outstanding, January 1, 2006		383,562		$	22.08
Granted		1,000			31.06
Exercised		(8,571	)		15.92
Forfeited		(2,094	)		24.86

Outstanding, March 31, 2006		373,897		$	22.23		12.6	$	3,645

Exercisable at March 31, 2006		250,097		$	21.01		11.9	$	2,744

The fair value of options is estimated at the date of grant using the Black-Scholes option pricing model and certain assumptions. The fair values of grants made in the quarters ended March 31, 2006 and 2005, were estimated using the following weighted-average assumptions:


	Three Months Ended
	March 31,
	2006			2005
Volatility		28.50	%		28.50	%
Expected dividend yield		3.35	%		3.22	%
Expected term (in years)		6.00			6.00
Risk-free rate		4.69	%		3.81	%

The weighted-average grant-date fair value of options granted in the quarter ended March 31, 2006, was $7.57. The aggregate intrinsic value of options exercised during the quarter ended March 31, 2006, was approximately $145 thousand.

Stock Awards

The 2004 Omnibus Stock Option Plan permits the granting of restricted and ~~2004.~~unrestricted stock grants either alone, in addition to, or in tandem with other awards made by the Company. Stock grants are generally measured at fair value on the date of grant based on the number of shares granted and the quoted price of the Company’s stock. Such value is recognized as expense over the corresponding service period. Compensation costs related to these types of awards are consistently reported for all periods presented.

- 15 -

Report of Independent Registered Public Accounting Firm

The Board of Directors
First Community Bancshares, Inc.

We have reviewed the condensed consolidated balance sheet of First Community Bancshares, Inc. and subsidiary (the Company) as of ~~September 30, 2005,~~March 31, 2006, and the related condensed consolidated statements of income, ~~for the three- and nine-month periods ended September 30, 2005 and 2004 and the condensed consolidated statements of~~ cash flows and changes in stockholders’ equity for the ~~nine-month~~three-month periods ended ~~September 30, 2005~~March 31, 2006 and ~~2004.~~2005. These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U. S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated balance sheet of the Company as of December 31, ~~2004,~~2005, and the related consolidated statements of income, cash flows and changes in stockholders’ equity for the year then ended (not presented herein) and in our report dated March ~~11, 2005,~~3, 2006, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, ~~2004,~~2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Charleston, West Virginia
~~November 3, 2005~~May 9, 2006

~~-17-~~- 17 -

First Community Bancshares, Inc.

~~PART I.~~

PART I. ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is provided to address information about ~~the~~ First Community Bancshares, Inc.’s (the ~~Company)~~“Company”) financial condition and results of operations. This discussion and analysis should be read in conjunction with the ~~2004~~Company’s 2005 Annual Report ~~to Shareholders~~ on Form 10-K and the other financial information included in this report.

The Company is a multi-state bank holding company headquartered in Bluefield, Virginia, with total assets of $1.99 billion at ~~September 30, 2005.~~March 31, 2006. Through its community bank subsidiary, First Community Bank, N. A. (the “Bank”), the Company provides financial, trust and investment advisory services to individuals and commercial customers through ~~fifty-three full-service~~sixty banking locations and six ~~loan production offices and two asset~~wealth management offices located in the four states of Virginia, West Virginia, North Carolina and Tennessee. The ~~First Community~~ Bank ~~N. A.~~ is the parent of Stone Capital, a ~~SEC registered~~SEC-registered investment advisory firm that offers wealth management and investment advice. The Company’s common stock is traded on the NASDAQ National Market under the symbol “FCBC”.

FORWARD LOOKING STATEMENTS

The Company may from time to time make written or oral “forward-looking statements”, including statements contained in its filings with the SEC (including this Quarterly Report on Form 10-Q and the Exhibits hereto and thereto), in its reports to stockholders and in other communications which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include, among others, statements with respect to the Company’s beliefs, plans, objectives, goals, guidelines, expectations, anticipations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors (many of which are beyond the Company’s control). The words “may”, “could”, “should”, “would”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan” and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause the Company’s financial performance to differ materially from that expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; the timely development of competitive new products and services of the Company and the acceptance of these products and services by new and existing customers; the willingness of customers to substitute competitors’ products and services for the Company’s products and services and vice versa; the impact of changes in financial services’ laws and regulations (including laws concerning taxes, banking, securities and insurance); 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 the Company’s non-interest or fee income being less than expected; unanticipated regulatory or judicial proceedings; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing.

The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position ~~and/or~~and consolidated results of operations.

Estimates, assumptions, and judgments are necessary principally when assets and liabilities are required to be recorded at estimated fair value, when a decline in the value of an asset carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when 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. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by third party sources, when available. When third party information

~~-18-~~

The Company’s accounting policies are fundamental to understanding Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operation. The ~~following is a summary of the Company’s more subjective and complex “critical accounting policies.” In addition, the~~ disclosures presented in the Notes to the Consolidated Financial Statements and in ~~management’s discussion~~Management’s Discussion and ~~analysis~~Analysis provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified i.) the determination of the allowance for ~~credit~~loan losses, ii.) accounting for acquisitions and intangible assets, and iii.) accounting for income taxes as the accounting areas that require the most subjective or complex judgments. ~~Derivatives hedging practices were previously included, but were eliminated~~The identified critical accounting policies are described in ~~August 2004 with the disposition of~~detail in the Company’s ~~mortgage banking subsidiary.~~

~~Allowance for Credit Losses~~

~~The allowance for credit losses is established and maintained at levels management deems adequate to cover losses inherent in the portfolio and is based~~2005 Annual Report on ~~management’s evaluation of the risks in the loan portfolio and~~Form 10-K. There have been no material changes in the nature and volume of loan activity. The allowance for credit losses is comprised of the allowance for loan losses and the allowance for lending-related commitments. Estimates for credit losses are determined by analyzing historical loan losses, current trends in delinquencies and charge-offs, plans for problem loan resolution, the opinions of FCBI’s regulators, changes in the size and composition of the loan portfolio and industry information. Also included in management’s estimates for credit losses are considerations with respect to the impact of economic events, the outcome of which are uncertain. These events may include, but are not limited to, a general slowdown in the economy, fluctuations in overall lending rates, political conditions, legislation that may directly or indirectly affect the banking industry, and economic conditions affecting specific geographic areas in which the Company conducts business.

The Company determines the allowance for credit losses by making specific allocations to impaired loans and loan pools that exhibit inherent weaknesses and various credit risk factors. Allocations to loan pools are developed giving weight to risk ratings, historical loss trends and management’s judgment concerning those trends and other relevant factors. These factors may include, among others, actual versus estimated losses, regional and national economic conditions, business segment and portfolio concentrations, industry competition and consolidation, and the impact of government regulations. The foregoing analysis is performed by management to evaluate the portfolio and calculate an estimated valuation allowance through a quantitative and qualitative analysis that applies risk factors to those identified risk areas.

This risk management evaluation is applied at both the portfolio level and the individual loan level for commercial loans and credit relationships while the level of consumer and residential mortgage loan allowance is determined primarily on a total portfolio level based on a review of historical loss percentages and other qualitative factors including concentrations, industry specific factors and economic conditions. The commercial and commercial real estate portfolios require more specific analysis of individually significant loans and the borrower’s underlying cash flow, business conditions, capacity for debt repayment and the valuation of secondary sources of payment, such as collateral. This analysis may result in specifically identified weaknesses and corresponding specific impairment allowances.

~~The use of various estimates and judgments in the~~ Company’s ongoing evaluation of the required level of allowance can significantly impact the Company’s results of operations and financial condition and may result in either greater provisions against earnings to increase the allowance or reduced provisions based upon management’s current view of portfolio and economic conditions and the application of revised estimates and assumptions.

~~Acquisitions and Intangible Assets~~

~~As part of its growth plan, the Company engages in business combinations with other companies. The acquisition of a business is generally accounted for under purchase~~critical accounting rules promulgated by the Financial Accounting Standards Board (“FASB”). Purchase accounting requires the recording of underlying assets and liabilities of the entity acquired at their fair market value. Any excess of the purchase price of the business over the net assets acquired and any identified intangibles is recorded as goodwill. Fair values are assigned based on quoted prices for similar assets, if readily available, or appraisal by qualified independent parties for relevant asset and liability categories. Financial assets and liabilities are typically valued using discount models which apply current discount rates to streams of cash flow. All of these valuation methods require the use of assumptions which can result in alternate valuations and varying levels of goodwill and, in some cases, amortization expense or accretion income.

~~-19-~~

Management must also make estimates of useful or economic lives of certain acquired assets and liabilities. These lives are used in establishing amortization and accretion of some intangible assets and liabilities, such as the intangible associated with core deposits acquired in the acquisition of a commercial bank.

Goodwill is recorded as the excess of the purchase price, if any, over the fair value of the revalued net assets. Goodwill is tested at least annually in the month of November for possible impairment. This testing again uses a discounted cash flow model applied to the anticipated stream of cash flows from operations of the business or segment being tested. Impairment testing necessarily uses estimates in the form of growth and attrition rates, anticipated rates of return, and discount rates. These estimates have a direct bearing on the results of the impairment testing and serve as the basis for management’s conclusions as to impairment.

~~Income Taxes~~

The establishment of provisions for federal and state income taxes is a complex area of accounting which also involves the use of judgments and estimates in applying relevant tax statutes. The Company operates in multiple state tax jurisdictions and this requires the appropriate allocation of income and expense to each state based on a variety of apportionment or allocation bases. Management strives to keep abreast of changes in tax law and the issuance of regulations which may impact tax reporting and provisions for income tax expense. The Company is also subject to audit by federal and state tax authorities. Results of these audits may produce indicated liabilities which differ from Company estimates and provisions. The Company continually evaluates its exposure to possible tax assessments arising from audits and records its estimate of possible exposure based on current facts and circumstances. The Company recently completed a state tax audit. The results of that audit are discussed under the heading “Results of Operations – Income Tax Expense.”policies since December 31, 2005.

EXECUTIVE OVERVIEW

The Company is a full service commercial bank holding company which operates within the four-state region of Virginia, West Virginia, North Carolina, and Tennessee. The Company operates through its community bank subsidiary, ~~First Community~~the Bank, ~~N. A.~~ and offers a wide range of financial services. The Company reported total assets of $1.99 billion at ~~September 30, 2005,~~March 31, 2006, and operates through ~~fifty-three full service~~sixty banking offices and six ~~commercial loan production offices in addition to its asset~~wealth management offices.

The Company funds its lending activities primarily through the retail deposit operations of its branch banking network. Borrowings from the Federal Home Loan Bank (“FHLB”) provide additional funding as ~~needed from time to time.~~needed. The Company invests its funds primarily in loans to retail and commercial customers. In addition to loans, the Company also invests a portion of its funds in various debt securities, including those of United States agencies, state and political subdivisions, and certain corporate notes and debt instruments. The Company also maintains overnight interest-bearing balances with the FHLB and correspondent banks. The difference between interest earned on assets and interest paid on liabilities is the Company’s primary source of earnings. In August 2004, the Company divested itself of its mortgage subsidiary. ~~Small losses from discontinued operations in 2005 stem from residual costs of remaining leases and trailing personnel costs.~~

RECENT ACQUISITIONS AND BRANCHING ACTIVITY

In ~~August 2005,~~March 2006, the Company entered into a definitive agreement with ~~Sonabank, N. A.,~~Smith River Community Bank to sell its branch location in ~~Clifton Forge,~~Drakes Branch, Virginia. The branch had deposits and repurchase agreements totaling approximately ~~$46~~$16.1 million and loans of approximately $9$1.9 million at ~~July~~December 31, 2005. The transaction is expected to result in ~~an approximate $3.9 million pre-tax~~a gain ~~on sale,~~of approximately $726 thousand, and is expected to be completed by ~~December 31, 2005,~~June 30, 2006, subject to regulatory approvals.

Also in March 2006, the Company entered into a definitive agreement with Clear Mountain Bank to sell its branch location in Rowlesburg, West Virginia. The branch ~~sale~~had deposits and repurchase agreements totaling approximately $10.7 million and loans of approximately $3.2 million at December 31, 2005. The transaction is ~~part~~expected to result in a gain of approximately $382 thousand, and is expected to be completed by September 30, 2006, subject to regulatory approvals.

The two transactions are a ~~continuing~~result of the Company’s current strategic review of ~~the~~its branch network, and ~~is designed to re-deploy~~the resources towill be re-deployed in markets which offer improved growth and development opportunities.

~~-20-~~

~~The following schedule details branch openings since January 1, 2004.~~


~~Quarter~~
~~Opened~~	~~Location~~	~~Type~~
~~Q1 2004~~	~~Mount Airy, NC~~	~~Loan Production Office~~
~~Q1 2004~~	~~Charlotte, NC~~	~~Loan Production Office~~
~~Q2 2004~~	~~Blacksburg, Va.~~	~~Loan Production Office~~
~~Q2 2004~~	~~Norfolk, Va.~~	~~Loan Production Office~~
~~Q4 2004~~	~~Princeton, W.Va.~~	~~Full Service Branch~~
~~Q2 2005~~	~~Clarksburg, W.Va.~~	~~Loan Production Office~~
~~Q3 2005~~	~~Charleston, W.Va.~~	~~Loan Production Office~~

The Company acquired PCB Bancorp, Inc., a Tennessee-chartered bank holding company (“PCB Bancorp”) after the close of business on March 31, 2004. PCB Bancorp had five full service branch offices located in Johnson City, Kingsport and surrounding areas in Washington and Sullivan Counties in East Tennessee. PCB Bancorp had total assets of $171 million, loans of $128 million and total deposits of $150 million as of the date of the merger. The assets, liabilities and results of operations have been included in the Company’s financial statements beginning with the second quarter 2004.

Under the terms of the acquisition agreement, shares of PCB Bancorp common stock were purchased for $40.00 per share in cash. The total deal value, including the cash-out of outstanding stock options, was approximately $36.0 million. Concurrent with the PCB Bancorp acquisition, Peoples Community Bank, the wholly-owned subsidiary of PCB Bancorp, was merged into First Community Bank, N. A.

~~FINANCIAL POSITION~~

Total assets at September 30, 2005, increased $156.7 million to $1.99 billion from December 31, 2004, an annualized growth rate of 11%. The increases in the balance sheet were primarily driven by the addition of $82.5 million in loans, $26.5 million in investment securities, and $30.4 million in interest-bearing deposits with banks. Increases in assets were funded primarily through increases of $87.0 million in deposits, $15.9 million in repurchase agreements, and borrowings of $75.3 million.

~~Securities~~

Securities available for sale were $424.6 million at September 30, 2005, compared to $388.7 million at December 31, 2004, an increase of $36.0 million. This change reflects the purchase of $90.3 million in securities, $4.6 million in maturities and calls, proceeds from sales of $18.3 million, a market value decrease of approximately $1.1 million, the continuation of larger pay-downs of $29.2 million on mortgage-backed securities and collateralized mortgage obligations triggered by the low interest rate environment and approximately $1.1 million in bond premium amortization. Securities available for sale are recorded at their estimated fair market value. The unrealized gain or loss, which is the difference between amortized cost and estimated market value, net of related deferred taxes, is recognized in the stockholders’ equity section of the balance sheet as either accumulated other comprehensive income or loss. The unrealized gain after taxes of $1.7 million at September 30, 2005, represents a decrease of $661 thousand from the $2.4 million gain at December 31, 2004, the result of market value changes in reaction to rate movements on similar instruments.

The Company attempts to maintain an acceptable level of interest rate risk within its securities portfolio. At September 30, 2005, the average life and duration of the portfolio were 5.6 years and 4.3, respectively. Average life and duration were somewhat higher than December 31, 2004, at 4.0 years and 3.5, respectively. However, the Company has been shifting towards more floating-rate securities. At September 30, 2005, 21% of the portfolio was floating-rate, compared to 16% at December 31, 2004.

~~-21-~~

the length of time the fair value has been below cost, the expectation for that security’s performance, the credit worthiness of the issuer and the Company’s intent and ability to hold the security to recovery or maturity. At September 30, 2005, the combined depreciation in value of the individual securities in an unrealized loss position for more than 12 months was less than 1% of the combined reported value of the aggregate securities portfolio. Management does not believe any unrealized loss, individually or in the aggregate, as of September 30, 2005, represents other-than-temporary impairment. The Company has the intent and ability to hold these securities until such time as the value recovers or the securities mature. Furthermore, the Company believes the value is attributable to changes in market interest rates and not the credit quality of the issuer.

Securities held to maturity totaled $24.7 million at September 30, 2005, reflective of a continuing decrease due primarily to continuing paydowns, maturities and calls within the portfolio. The market value of investment securities held to maturity was 103.7% and 104.1% of book value at September 30, 2005, and December 31, 2004, respectively. Recent trends in interest rates have had little effect on the portfolio market value since December 31, 2004, due to its larger percentage of municipal securities which display less price sensitivity to rate changes.

~~Loan Portfolio~~

~~Loans Held for Sale:~~The $1.4 million balance of loans held for sale at September 30, 2005, are long-term mortgage loans that are sold to investors on a best efforts basis; accordingly, the Company does not retain the interest rate risk involved in the commitment. The gross notional amount of outstanding commitments at September 30, 2005, was $6.2 million on 48 loans.

~~Loans Held for Investment:~~Total loans held for investment increased $82.5 million to $1.32 billion at September 30, 2005, from the $1.24 billion level at December 31, 2004, and increased $92.0 million from September 30, 2004, as a result of increased loan production and contributions by new loan production offices. The loan to deposit ratio increased slightly to 91.5% at September 30, 2005, compared with 91.2% at December 31, 2004, and 90.2% at September 30, 2004. 2005 year-to-date average loans held for investment of $1.29 billion increased $160.0 million when compared to the average for the first nine months of 2004 of $1.13 billion. The increase in average loans reflects the impact of the acquisition of PCB on March 31, 2004.

The held for investment loan portfolio continues to be diversified among loan types and industry segments. The following table presents the various loan categories and changes in composition as of September 30, 2005, December 31, 2004 and September 30, 2004.

~~Loan Portfolio Overview~~

September 30, 2005 December 31, 2004 September 30, 2004
(Dollars in Thousands) Amount Percent Amount Percent Amount Percent
Loans Held for Investment:

Commercial and agricultural $ 110,511 8.36 % $ 99,303 8.02 % $ 97,539 7.93 %
Commercial real estate 456,207 34.53 % 453,899 36.64 % 439,486 35.75 %
Residential real estate 497,730 37.67 % 457,386 36.92 % 450,266 36.63 %
Construction 143,738 10.89 % 112,732 9.10 % 124,165 10.10 %
Consumer 111,148 8.41 % 113,424 9.16 % 115,720 9.41 %
Other 1,887 0.14 % 2,012 0.16 % 2,094 0.17 %

Total $ 1,321,221 100.00 % $ 1,238,756 100.00 % $ 1,229,270 100.00 %

Loans Held for Sale
$ 1,377 $ 1,194 $ 1,163

~~Non-Performing Assets~~

Non-performing assets include loans on non-accrual status, loans contractually past due 90 days or more and still accruing interest, other real estate owned (“OREO”), and repossessions. Non-performing assets were $7.1 million at September 30, 2005, $6.6 million at December 31, 2004, and $5.4 million at September 30, 2004. The percentage of non-performing assets to total loans, OREO and repossessions was 0.54% at September 30, 2005, consistent with 0.53% at December 31, 2004, and up from 0.44% at September 30, 2004.

~~-22-~~

~~The following schedule details non-performing assets by category at the close of each of the quarters ended September 30, 2005 and 2004, and December 31, 2004.~~

September 30, December 31, September 30,
(Amounts in Thousands) 2005 2004 2004
Non-accrual $ 5,417 $ 5,168 $ 3,679
Ninety days past due and accruing — — —
Other real estate owned 1,690 1,419 1,636
Repossessions 14 1 40

Total non-performing assets $ 7,121 $ 6,588 $ 5,355

Restructured loans performing in accordance with modified terms $ 313 $ 354 $ 368

At September 30, 2005, non-accrual loans increased $249 thousand from December 31, 2004, and increased $1.7 million from September 30, 2004. Ninety-day past due and accruing loans remained at zero. Ongoing activity within the classification and categories of non-performing loans continues to include collections on delinquencies, foreclosures and movements into or out of the non-performing classification as a result of changing customer business conditions. OREO of $1.7 million increased from December 31, 2004, and is comparable to September 30, 2004. OREO is carried at the lesser of estimated net realizable value or cost.

~~Deposits and Other Borrowings~~

Total deposits grew by $87.0 million or 6.4% during the first nine months of 2005. Non interest-bearing demand deposits increased by $16.0 million, while interest-bearing demand deposits remained stable. Savings decreased $10.1 million while time deposits increased $78.9 million, or 13.1%. The attrition from savings and the increase in time deposits reflects the continued migration of new and current customer funds in response to the upward movement in time deposit interest rates.

The Company’s convertible and callable FHLB borrowings at September 30, 2005, increased $75.0 million to $182.4 million. The first and second quarter advances allowed the Company to fund increasing loan demand, lock in current low-cost funding, and increase the asset-sensitive position of the Company. Noncallable term advances decreased slightly to $9.3 million. For further discussion of FHLB borrowings, see the Borrowings Note to the Unaudited Consolidated Financial Statements included in this report. Securities sold under repurchase agreements increased $15.9 million in the first nine months of 2005. There were no federal funds purchased outstanding at September 30, 2005, as the Company experienced increased liquidity in the first nine months of 2005.

~~Stockholders’ Equity~~

Total stockholders’ equity increased $10.2 million from December 31, 2004, as the Company continued to balance capital adequacy and returns to stockholders. The increase in equity was due mainly to net earnings of $19.1 million after dividends paid to stockholders of $8.6 million.

Risk-based capital guidelines and leverage ratio measure capital adequacy of banking institutions. Risk-based capital guidelines weight balance sheet assets and off-balance sheet commitments based on inherent risks associated with the respective asset types. At September 30, 2005, the Company’s total capital to risk-weighted assets ratio was 11.33% versus 12.09% at December 31, 2004. The Company’s Tier 1 capital to risk-weighted assets ratio was 10.25% at September 30, 2005, compared to 10.80% at December 31, 2004. The Company’s Tier 1 leverage ratio at September 30, 2005, was 7.71% compared to 7.62% at December 31, 2004. All of the Company’s regulatory capital ratios exceed the current well-capitalized levels prescribed for banks.

~~-23-~~

RESULTS OF OPERATIONS

Overview

Net income for the nine months ended September 30, 2005, was $19.1 million or $1.69 per basic and $1.68 per diluted share, compared with $16.3 million or $1.45 per basic and $1.44 per diluted share for the nine months ended September 30, 2004. Return on average equity for the nine months ended September 30, 2005 was 13.49% compared to 12.30% for the nine months ended September 30, 2004. Return on average assets was 1.34% for the nine months ended September 30, 2005, compared to 1.21% for the nine months ended September 30, 2004.

The $2.8 million increase in net income between 2004 and 2005 is largely due to the elimination of losses from the now discontinued operations of the Company’s former mortgage banking subsidiary. While income from continuing operations remained constant at $26.6 million, 2004 results benefited from an additional $830 thousand in investment securities gains. The higher effective tax rate from continuing operations in 2005 also resulted in an additional $555 thousand in income taxes.

Income from continuing operations for the nine months ended September 30, 2005, was $19.2 million, versus $19.8 million for the nine months ended September 30, 2004. Return on average equity from continuing operations for the first nine months of 2005 was 13.57% compared to 14.97% for the first nine months of last year. Return on average assets from continuing operations was 1.35% compared to 1.49% for the first nine months of 2004.

~~Net income for the~~ three months ended ~~September 30, 2005,~~March 31, 2006, was ~~$6.9~~$6.8 million or $0.61 per basic and diluted share, compared with ~~$6.4~~$6.0 million or ~~$0.57~~$0.53 per basic and diluted share for the three months ended ~~September 30, 2004.~~March 31, 2005. Return on average equity for the ~~quarter~~three months ended ~~September 30, 2005,~~March 31, 2006 was ~~14.23%~~14.09% compared to ~~13.06%~~13.00% for the ~~same period of 2004.~~three months ended March 31, 2005. Return on average assets was ~~1.40%~~1.42% for the three months ended ~~September 30, 2005, and 1.22% for the comparable period of 2004.~~

~~Income from continuing operations~~March 31, 2006, compared to 1.30% for the three months ended September 30, 2005, was $6.9 million, versus $6.6 million for the three months ended September 30, 2004. Return on average equity from continuing operations for the third quarter of 2005 was 14.28% compared to 17.33% for the same period last year and return on average assets from continuing operations was 1.40% in 2005, compared to 1.65% for 2004.

In August 2004, the Company sold its mortgage banking subsidiary. The loss from discontinued operations was $126 thousand for the first nine months of 2005, compared to $3.5 million or $0.31 per basic and diluted share for the nine months ended September 30, 2004.March 31, 2005.

Net Interest Income ~~– Quarterly Comparison~~ (See Table I)

Net interest income for the quarter ended September 30, 2005 was $18.7 million compared to $17.7 million for the same period in 2004, an increase of $1 million. Tax-equivalent net interest income increased $1.4 million, or 7.5%, from $18.3 million for the quarter ended September 30, 2004, to $19.7 million for the quarter ended September 30, 2005. For purposes of the net interest income discussions, comparisons are made on a tax-equivalent basis, which provides a common basis for comparing yields on earning assets exempt from federal income taxes to those which are fully taxable. The yield on earning assets increased 38 basis points to 6.43%, while the cost of interest-bearing liabilities increased 48 basis points to 2.50%. The result was a 10 basis point decrease in the net interest rate spread for the quarter compared to 2004. Tax-equivalent net interest margin remained steady at 4.33%. Net interest spread for the third quarter of 2005 was 3.93%.

In this period of continuing industry-wide margin compression, the Company’s margin has remained relatively strong. The Company’s loan portfolio continues to produce increasing yields. The yield on loans for the third quarter of 2005 increased 44 basis points over the comparable period to 6.99%. Increases in deposit and borrowing costs have been managed through the Company’s asset/liability and pricing management processes. Maintaining lower borrowing costs in the rising rate environment has been, and continues to be, dependent on control of savings and time deposit rates, which are influenced by market and competitive forces.

Average earning assets increased $123.5 million in the third quarter of 2005 compared to the third quarter of 2004, contributing to the improvements noted in net interest income. The largest increase in average earning assets was in average loans held for investment of $106.8 million. Securities available for sale decreased $1.2 million while the tax-equivalent yield increased 35 basis points. Average securities held-to-maturity decreased $8.0 million while the tax-equivalent yield decreased 73 basis points. Average interest-bearing deposit with banks increased $26.0 million to $39.4 million and yielded 3.46%.

~~-24-~~

The increase in average interest-bearing liabilities was smaller at $94.8 million, and was mostly driven by increases in time deposits of $50.7 million and borrowings of $58.5 million. Total interest-bearing deposits increased $27.1 million, but due to the continuing customer shift from certain transaction accounts to time deposits, the cost on total interest-bearing deposits increased 39 basis points.

The $1.4 million increase in tax-equivalent net interest income was achieved through the combined effect of changes in volume and corresponding rates on the underlying assets and liabilities. Earnings attributable to the net volume increase in earning assets over paying liabilities was approximately $1.1 million while the effect of changing rates represented an addition of approximately $263 thousand for a combined effect on net interest income of an additional $1.4 million.

~~Net Interest Income — Year to Date Comparison (See Table II)~~

Net interest income, the largest contributor to earnings, was ~~$55.0~~$18.1 million for the ~~nine~~three months ended ~~September 30, 2005,~~March 31, 2006, compared to ~~$51.3~~$17.8 million for the corresponding period in ~~2004.~~2005. Tax-equivalent net interest income totaled ~~$58.1~~$19.1 million for the ~~nine~~three months ended ~~September 30, 2005,~~March 31, 2006, an increase of ~~$4.0 million~~$226 thousand from ~~the $54.1~~$18.8 million for the first ~~nine~~three months of ~~2004.~~2005. The increase reflects a ~~$5.2 million~~$387 thousand increase due to increased volume, which was partially offset by a ~~$1.2 million~~$161 thousand decrease due to rate changes on the underlying assets and liabilities.

- 19 -

~~During~~

Compared to the first ~~nine~~three months of 2005, average earning assets increased ~~$110.2~~$83.2 million while interest-bearing liabilities increased ~~$92.0~~$79.7 million ~~over~~during the ~~comparable period.~~first three months of 2006. The yield on average earning assets increased 3453 basis points to ~~6.36%~~6.77% from ~~6.02% for the nine months ended September 30, 2004.~~6.24%. Total cost of interest-bearing liabilities increased 3680 basis points during the same period, ~~leaving the~~which resulted in a net interest rate spread (the difference between interest income on earning assets and expense on interest bearing liabilities) 3that was 27 basis points lower at ~~4.07%~~3.87% compared to ~~4.10%~~4.14% for the same period last year. The Company’s tax-equivalent net interest margin of ~~4.43%~~4.32% for the ~~nine~~three months ended ~~September 30, 2005, increased 3~~March 31, 2006, decreased 15 basis points from ~~4.40%~~4.47% in ~~2004.~~2005.

The largest contributor to the increase in the yield on average earning assets in ~~2005,~~2006, on a volume-weighted basis, was the ~~$160.0~~$74.6 million increase in ~~loans held for investment.~~average loans. The loan portfolio contributed approximately ~~$10.0~~$3.2 million to the change in interest income, while the portfolio’s average yield increased 2259 basis points from the prior year to ~~6.85%~~7.27%. The volume of variable rate loans tied to prime and other indices increased in response to the recent increases in short-term interest rates.

During the ~~nine~~three months ended ~~September 30, 2005,~~March 31, 2006, the tax-equivalent yield on securities available for sale increased 3137 basis points to ~~4.93%~~5.26%, while the average balance ~~decreased~~increased by ~~$42.7~~$20.1 million. ~~Although the total portfolio decreased through the period, the~~The average tax-equivalent yield increased due to the addition of ~~higher-rate~~higher rate securities and the reduction of ~~lower-rate~~lower rate securities. ~~Funds received from the paydowns, maturities, calls, and sales of investment securities helped fund the loan growth.~~

Compared to the first ~~nine~~three months of ~~2004,~~2005, average interest-bearing balances with banks ~~remained steady at $31.2~~decreased slightly to $28.8 million during the first ~~nine~~three months of ~~2005,~~2006, while the yield increased ~~150~~134 basis points to ~~3.15%~~4.15%.

The Company actively manages its product pricing by staying abreast of the current economic climate and competitive forces in order to enhance repricing opportunities available with respect to the liability side of its balance sheet. In doing so, the cost of interest-bearing liabilities increased by 36 basis points from 1.93% for the nine months ended September 30, 2004, to 2.29% for the same period of 2005 while the average volume increased $92 million.

The average balance of borrowings increased by $24.9 million in 2005 to $170.6 million, while the rate paid on those borrowings increased 47 basis points. These changes were due to the combined effects of the addition of balances added from the PCB acquisition, the allocation of FHLB borrowings to the discontinued segment in 2004, the call of a $25.0 million advance at the end of the fourth quarter of 2004, and the subsequent take-downs of $25.0 million and $50.0 million FHLB advances in mid-first quarter and the end of the second quarter 2005, respectively.

Compared to the same period in ~~2004, average federal funds purchased and repurchase agreements increased $18.2 million at September 30,~~ 2005, ~~while the average rate increased 79 basis points. In addition,~~ the average balances of interest-bearing demand and savings deposits ~~increased $5.9~~decreased $6.9 million and ~~$7.3~~$16.4 million, respectively, for the ~~nine~~three months ended ~~September 30, 2005.~~March 31, 2006. The average rate paid on interest-bearing demand deposits ~~remained consistent, increasing only 2~~increased slightly by 5 basis points, while the average rate paid on savings increased 1990 basis points. Average time deposits increased ~~$35.6~~$46.3 million while the average rate paid increased 3697 basis points from ~~2.44%~~2.56% in ~~2004~~2005 to ~~2.80%~~3.53% in ~~2005.~~2006. The level of average non-interest-bearing demand deposits increased ~~$18.1~~$11.9 million to ~~$227.0~~$231.6 million ~~at September 30, 2005,~~during the quarter ended March 31, 2006, compared to the corresponding period of the prior year.

The changes in average deposits between the two quarters includes the effect of the previously disclosed sale of the Company’s Clifton Forge, Virginia, branch which had average noninterest-bearing demand, interest-bearing demand, savings, and time deposits of $4.1 million, $6.8 million, $11.8 million, and $22.3��million, respectively during the first quarter of 2005.

Compared to the same period in 2005, average federal funds purchased and repurchase agreements remained steady at $130.6 million during the first quarter of 2006, while the average rate increased 122 basis points. The average balance of FHLB borrowings and other long-term debt increased by $55.4 million in 2006 to $200.0 million, while the rate paid on those borrowings decreased 79 basis points. The significant decrease in the rate is due to the FHLB debt restructuring near year-end 2005, where the Company paid off high interest rate obligations. The increase in the balance of FHLB borrowings is primarily attributable to the $50 million advance drawn late in the second quarter of 2005.

~~-25-~~- 20 -

Table I

AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS

Three Months Ended Three Months Ended
September 30, 2005 September 30, 2004
Average Interest Yield/Rate Average Interest Yield/Rate
Balance (1) (1) Balance (1) (1)
(Dollars in Thousands)
ASSETS
Earning Assets:
Loans Held for Investment: (2)
Taxable $ 1,318,759 $ 23,241 6.99 % $ 1,208,446 $ 19,899 6.55 %
Tax-Exempt 1,675 33 7.84 % 5,236 82 6.23 %

Total 1,320,434 23,274 6.99 % 1,213,682 19,981 6.55 %
Securities Available for Sale:
Taxable 275,775 2,901 4.17 % 309,742 2,951 3.79 %
Tax-Exempt 141,865 2,255 6.31 % 109,133 1,839 6.70 %

Total 417,640 5,156 4.90 % 418,875 4,790 4.55 %
Securities Held to Maturity:
Taxable 398 3 2.99 % 411 9 8.71 %
Tax-Exempt 26,682 487 7.23 % 34,684 688 7.89 %

Total 27,080 490 7.17 % 35,095 697 7.90 %
Interest-Bearing Deposits 39,350 343 3.46 % 13,330 94 2.81 %

Total Earning Assets 1,804,504 29,263 6.43 % 1,680,982 25,562 6.05 %
Other Assets (3) 155,079 150,614
Assets Related to Discontinued Operations — 9,315

TOTAL ASSETS $ 1,959,583 $ 1,840,911

LIABILITIES
Interest-Bearing Liabilities:
Demand Deposits $ 152,658 $ 105 0.27 % $ 155,435 $ 399 1.02 %
Savings Deposits (4) 367,314 1,108 1.20 % 388,194 866 0.89 %
Time Deposits 667,986 5,083 3.02 % 617,251 3,737 2.41 %

Total Deposits 1,187,958 6,296 2.10 % 1,160,880 5,002 1.71 %
Fed Funds Purchased & Repurchase
Agreements 123,936 691 2.21 % 114,670 362 1.26 %
Short-term Borrowings 139,735 1,790 5.08 % 131,728 1,658 5.01 %
Long-term Borrowings 67,471 795 4.67 % 17,016 226 5.28 %

Total Interest-Bearing liabilities 1,519,100 9,572 2.50 % 1,424,294 7,248 2.02 %

Demand Deposits 232,841 218,073
Other Liabilities 14,994 13,344
Liabilities Related to Discontinued Operations — 8,831
Stockholders’ Equity 192,648 176,369

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,959,583 $ 1,840,911

Net Interest Income, Tax Equivalent $ 19,691 $ 18,314

Net Interest Rate Spread (5) 3.93 % 4.03 %

Net Interest Margin (6) 4.33 % 4.33 %


	Three Months Ended							Three Months Ended
	March 31, 2006							March 31, 2005
	Average				Yield/			Average				Yield/
	Balance		Interest (1)		Rate (1)			Balance		Interest (1)		Rate (1)
	(Dollars in thousands)
ASSETS
Earning Assets:
Loans: (2)
Taxable	$	1,333,508	$	23,905		7.27	%	$	1,256,095	$	20,673		6.67	%
Tax-exempt		1,572		31		8.00	%		4,426		83		7.60	%

Total		1,335,080		23,936		7.27	%		1,260,521		20,756		6.68	%
Securities available for sale:
Taxable		251,530		2,873		4.63	%		240,158		2,295		3.88	%
Tax-exempt		152,136		2,359		6.29	%		143,419		2,333		6.60	%

Total		403,666		5,232		5.26	%		383,577		4,628		4.89	%
Securities held to maturity:
Taxable		390		5		5.20	%		406		4		4.00	%
Tax-exempt		22,897		449		7.95	%		32,439		664		8.31	%

Total		23,287		454		7.91	%		32,845		668		8.25	%

Interest-bearing deposits		28,837		295		4.15	%		30,767		213		2.81	%

Total Earning Assets		1,790,870		29,917		6.77	%		1,707,710		26,265		6.24	%
Other assets		168,730							149,935

TOTAL ASSETS	$	1,959,600						$	1,857,645


LIABILITIES
Interest-bearing liabilities:
Demand deposits	$	146,467	$	106		0.29	%	$	153,323	$	92		0.24	%
Savings deposits		359,804		1,632		1.84	%		376,218		869		0.94	%
Time deposits		678,994		5,910		3.53	%		632,689		4,001		2.56	%

Total interest-bearing deposits		1,185,265		7,648		2.62	%		1,162,230		4,962		1.73	%
Federal funds purchased and repurchase agreements		130,579		961		2.98	%		129,352		561		1.76	%
FHLB borrowings and other long-term debt		200,042		2,249		4.56	%		144,613		1,909		5.35	%

Total interest-bearing liabilities		1,515,886		10,858		2.90	%		1,436,195		7,432		2.10	%

Noninterest-bearing demand deposits		231,630							219,699
Other liabilities		15,086							15,419
Stockholders’ Equity		196,998							186,332

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,959,600						$	1,857,645

Net Interest Income, Tax Equivalent			$	19,059						$	18,833

Net Interest Rate Spread (3)						3.87	%						4.14	%

Net Interest Margin (4)						4.32	%						4.47	%


(1)		Fully Taxable Equivalent (“FTE”) at the rate of 35%. The FTE basis adjusts for the tax benefits of income on certain tax-exempt loans and investments using the federal statutory rate of 35% for each period presented. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

(2)		Non-accrual loans are included in average balances outstanding but with no related interest income during the period of non-accrual.

(3)		In previous years, the Allowance for Credit Losses was netted against loans in the earning asset section. In 2005, the Allowance was netted against other assets and the comparable prior period was reclassified to conform to the 2005 presentation.

~~(4)~~		In previous years, certain interest-bearing Money Market Demand accounts were included in the interest-bearing demand category in the earning asset section. In 2005, these accounts were reclassified to savings and the comparable prior period was reclassified to conform to the 2005 presentation.

~~(5)~~		Represents the difference between the yield on earning assets and cost of funds.

~~(6)~~(4)		Represents tax equivalent net interest income divided by average interest-earning assets.

~~-26-~~

~~Table II~~

~~AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS~~

Nine Months Ended Nine Months Ended
September 30, 2005 September 30, 2004
Average Interest Yield/Rate Average Interest Yield/Rate
Balance (1) (1) Balance (1) (1)
(Dollars in Thousands)
ASSETS
Earning Assets:
Loans Held for Investment: (2)
Taxable $ 1,290,606 $ 66,089 6.85 % $ 1,128,762 $ 56,047 6.64 %
Tax-Exempt 3,052 144 6.31 % 4,918 227 6.17 %

Total 1,293,658 66,233 6.85 % 1,133,680 56,274 6.63 %
Securities Available for Sale:
Taxable 253,335 7,744 4.09 % 331,158 9,638 3.89 %
Tax-Exempt 142,400 6,835 6.42 % 107,318 5,513 6.86 %

Total 395,735 14,579 4.93 % 438,476 15,151 4.62 %
Securities Held to Maturity:
Taxable 402 11 3.66 % 422 21 6.65 %
Tax-Exempt 29,774 1,775 7.97 % 36,114 2,157 7.98 %

Total 30,176 1,786 7.91 % 36,536 2,178 7.96 %

Interest-Bearing Deposits 31,241 736 3.15 % 31,812 394 1.65 %
Federal Funds Sold — — 80 1 1.67 %

Total Earning Assets 1,750,810 83,334 6.36 % 1,640,584 73,998 6.02 %
Other Assets (3) 152,466 137,821
Assets Related to Discontinued Operations — 19,969

TOTAL ASSETS $ 1,903,276 $ 1,798,374

LIABILITIES
Interest-Bearing Liabilities:
Demand Deposits $ 153,938 $ 295 0.26 % $ 147,992 $ 270 0.24 %
Savings Deposits (4) 367,415 2,813 1.02 % 360,097 2,247 0.83 %
Time Deposits 654,397 13,697 2.80 % 618,758 11,313 2.44 %

Total Deposits 1,175,750 16,805 1.91 % 1,126,847 13,830 1.64 %
Fed Funds Purchased & Repurchase Agreements 126,215 1,897 2.01 % 107,977 987 1.22 %
Short-term Borrowings 136,982 5,218 5.09 % 128,652 4,462 4.63 %
Long-term Borrowings 33,570 1,355 5.40 % 17,012 643 5.05 %

Total Interest-Bearing liabilities 1,472,517 25,275 2.29 % 1,380,488 19,922 1.93 %

Demand Deposits 227,038 208,905
Other Liabilities 14,522 14,472
Liabilities Related to Discontinued Operations — 19,969
Stockholders’ Equity 189,199 174,540

TOTAL LIABILITIES
AND STOCKHOLDERS’ EQUITY $ 1,903,276 $ 1,798,374

Net Interest Income, Tax Equivalent $ 58,059 $ 54,076

Net Interest Rate Spread (5) 4.07 % 4.10 %

Net Interest Margin (6) 4.43 % 4.40 %


~~(1)~~		Fully Taxable Equivalent (“FTE”) at the rate of 35%. The FTE basis adjusts for the tax benefits of income on certain tax-exempt loans and investments using the federal statutory rate of 35% for each period presented. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

~~(2)~~		~~Non-accrual loans are included in average balances outstanding but with no related interest income during the period of non-accrual.~~

~~(3)~~		In previous years, the Allowance for Credit Losses was netted against loans in the earning asset section. In 2005, the Allowance was netted against other assets and the comparable prior period was reclassified to conform to the 2005 presentation.

~~(4)~~		In previous years, certain interest-bearing Money Market Demand accounts were included in the interest-bearing demand category in the earning asset section. In 2005, these accounts were reclassified to savings and the comparable prior period was reclassified to conform to the 2005 presentation.

~~(5)~~		~~Represents the difference between the yield on earning assets and cost of funds.~~

~~(6)~~		~~Represents tax equivalent net interest income divided by average interest-earning assets.~~

~~-27-~~- 21 -

The following table summarizes the changes in interest earned and paid resulting from changes in the volume of earning assets and paying liabilities and changes in their interest rates. The changes in interest due to both rate and volume have been allocated to the volume and rate columns in proportion to absolute dollar amounts.


	Three Months Ended September 30, 2005,									Nine Months Ended September 30, 2005,									Three Months Ended March 31, 2006,									Three Months Ended March 31, 2005,
	Compared to 2004									Compared to 2004									Compared to 2005									Compared to 2004
	$ Increase/(Decrease) due to									$ Increase/(Decrease) due to									$ Increase/(Decrease) due to									$ Increase/(Decrease) due to
(Amounts in Thousands)	Volume			Rate			Total			Volume			Rate			Total
(Amounts in thousands)																			Volume			Rate			Total			Volume			Rate			Total
Interest Earned On:
Loans(1)	$	1,857		$	1,436		$	3,293		$	8,110		$	1,849		$	9,959		$	1,264		$	1,916		$	3,180		$	4,020		$	(418	)	$	3,602
Securities available for sale(1)		193			173			366			(666	)		94			(572	)		251			353			604			(118	)		(321	)		(439	)
Securities held to maturity(1)		(148	)		(59	)		(207	)		(381	)		(11	)		(392	)		(188	)		(26	)		(214	)		(94	)		46			(48	)
Interest-bearing deposits with other banks		222			27			249			(7	)		349			342			(14	)		96			82			(137	)		153			16
Federal funds sold		—			—			—			(1	)		(1	)		(2	)

Total interest-earning assets		2,124			1,577			3,701			7,055			2,280			9,335			1,313			2,339			3,652			3,671			(540	)		3,131


Interest Paid On:
Demand deposits		(7	)		(287	)		(294	)		11			14			25			(4	)		18			14			10			6			16
Savings deposits		(49	)		291			242			46			520			566			(39	)		802			763			158			222			380
Time deposits		330			1,016			1,346			675			1,709			2,384			311			1,598			1,909			166			85			251
Fed funds purchased and repurchase agreements		32			297			329			189			721			910			5			395			400			114			155			269
Short-term borrowings		106			26			132			298			458			756
Long-term debt		598			(29	)		569			665			46			711
FHLB borrowings and other long-term debt																				653			(313	)		340			(31	)		302			271

Total interest-bearing liabilities		1,010			1,314			2,324			1,884			3,468			5,352			926			2,500			3,426			417			770			1,187


Change in net interest income	$	1,114		$	263		$	1,377		$	5,171		$	(1,188	)	$	3,983		$	387		$	(161	)	$	226		$	3,254		$	(1,310	)	$	1,944


(1)		Fully taxable equivalent using a rate of 35%.

Provision and Allowance for ~~Credit~~Loan Losses

The allowance for loan losses was $14.8 million at March 31, 2006, compared to $14.7 million at December 31, 2005 and $16.5 million at March 31, 2005. The Company’s allowance for ~~credit losses is made up of two separate components. The primary component is the allowance for~~ loan losses, and is presented as such on the balance sheet. The allowance for losses attributable to lending-related commitments, such as unfunded loan commitments and letters of credit, is the allowance for lending-related commitments, and is included in other liabilities. The combination of the two allowances is referred to as the allowance for credit losses. At September 30, 2005, the Company’s allowance for loan losses and the allowance for lending-related liabilities were $14.5 million and $460 thousand, respectively.

The allowance for credit losses was $14.9 million at September 30, 2005, compared to $16.3 million at December 31, 2004 and $16.2 million at September 30, 2004. The allowance for credit losses represents 276% of non-performing loans at September 30, 2005, versus 316% and 441% at December 31, 2004, and September 30, 2004, respectively. When other real estate and repossessions are combined with non-performing loans, the allowance equals 210% of non-performing assets at September 30, 2005, versus 248% and 303% at December 31, 2004, and September 30, 2004, respectively.

~~The Company’s allowance for credit~~ loss activity for the ~~three- and nine-month~~three-month periods ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ are as follows:


	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended
	September 30,						September 30,						March 31,
(Amounts in thousands)	2005			2004			2005			2004			2006			2005
Allowance for Credit Losses
Allowance for loan losses
Beginning balance	$	16,597		$	16,160		$	16,339		$	14,624		$	14,736		$	16,339
Provision for Credit Losses		907			1,152			2,892			2,407
Balance acquired in acquisition		—			—			—			1,786
Provision for loan losses														408			691
Charge-offs		(3,037	)		(1,312	)		(5,519	)		(3,456	)		(715	)		(844	)
Recoveries		479			233			1,234			872			368			357

Ending balance	$	14,946		$	16,233		$	14,946		$	16,233		$	14,797		$	16,543

the portfolio as of ~~September 30, 2005, however~~March 31, 2006. However, no assurances can be made that future adjustments to the allowance for loan losses will not be necessary as a result of increases in non-performing loans and other factors.

The provision for ~~credit~~loan losses for the ~~nine-month~~three-month period ended ~~September 30, 2005, increased~~March 31, 2006, decreased to ~~$2.9 million~~$408 thousand when compared to the ~~nine-month~~three-month period ending ~~September 30, 2004,~~March 31, 2005, of ~~$2.4 million.~~$691 thousand. The ~~increase~~decrease in ~~loss~~ provision between the periods is primarily attributable to ~~new, or increased, specific allocations, increased commercial~~lower net charge-offs and ~~residential real estate loan volume, and changes~~a downward trend in ~~various qualitative risk factors.~~the three-year loss history, which management uses as a primary component in determining the adequacy of the allowance. Net charge-offs for the first ~~nine~~three months of ~~2005~~2006 were ~~$4.3 million,~~$347 thousand, compared to ~~$2.6 million~~$487 thousand for the corresponding period in ~~2004.~~2005. Expressed as a percentage of average loans held for investment, net charge-offs ~~increased~~decreased from ~~0.22%~~0.15% for the ~~nine~~three months ended ~~September 30, 2004,~~March 31, 2005, to ~~0.33%~~0.10% for the same period of ~~2005. Net charge-offs for the three and nine months ended September 30, 2005, were negatively influenced by the charge off of the commercial relationship discussed under “Non-Performing Assets.”~~

The provision for credit losses for the three-month period ended September 30, 2005, was $907 thousand compared to $1.2 million for the same quarter of 2004. Net charge offs were $2.6 million in the third quarter of 2005, versus $1.1 million for the third quarter of 2004.2006.

Non-interest Income

Non-interest income consists of all revenues which are not included in interest and fee income related to earning assets. Non-interest income from continuing operations for the ~~third~~first quarter of ~~2005~~2006 was ~~$5.0~~$5.1 million compared to ~~$4.3~~$3.7 million in the same period of ~~2004.~~2005, an increase of 38%. The ~~third~~first quarter of ~~2005~~2006 included securities gains which were ~~$476~~$137 thousand greater than those recognized in ~~2004.~~2005. The remaining components of non-interest income increased by ~~$278 thousand,~~$1.3 million, or ~~6.6%~~35%, in the ~~third~~first quarter of ~~2005~~2006 compared to the same period of ~~2004.~~2005.

~~Third quarter~~Wealth management income remained relatively steady compared to 2005 ~~trust services income increased $42~~at $683 thousand. Stone Capital Management contributed $176 thousand to total wealth management revenues, an increase of $25 thousand, or ~~8.4%~~17%, ~~compared to 2004 as a result of growth in trust accounts, trust assets and the related fees generated by such growth in all areas, including estates, employee benefits and~~

~~-29-~~

~~investment related accounts.~~over 2005. Service charges on deposit accounts increased ~~$199~~$269 thousand, or ~~8.1%~~13%. All other service charges, commissions and fees increased ~~$221~~$81 thousand, or ~~30%~~12%, compared to the ~~third~~first quarter of ~~2004.~~2005.

~~Year-to-date~~First quarter 2006 other non-interest income ~~was $13.3 million compared~~includes $676 thousand related to ~~$13.1 million for the first nine months~~partial fulfillment of 2004. Securities gains in the first nine months of 2005 were $679 thousand compared to $1.5 million for the same period of 2004. All other components of non-interest income increased by $1.1 million, or 9.1%, in the first three quarters of 2005 compared to the same period of 2004.

Year-to-date 2005 trust services income increased by $239 thousand, or 17%, compared to 2004. Service charges on deposit accounts increased $709 thousand, or 11%, and other service charges, commissions and fees increased $634 thousand, or 32%, for the comparable period.restitution from a previously disclosed payments system fraud.

Non-interest Expense

Non-interest expense totaled ~~$13.1~~$13.3 million for the quarter ended ~~September 30, 2005,~~March 31, 2006, increasing ~~$881~~$837 thousand, or ~~7.2%~~6.7%, over the same period of ~~2004. Year-to-date non-interest expense was $38.9 million, an~~2005. The increase ~~of $3.5 million, or 11%,~~ over the ~~same period in 2004. The increases over the third~~first quarter ~~and year-to-date periods in 2004 are~~2005 is primarily attributable to increases in salaries and benefits of ~~$453~~$583 thousand, which included stock option expense of $71 thousand and ~~$2.4 million, respectively. The increases are due to~~ increases in ~~staffing to support added corporate services~~incentive payments and ~~continued branch growth and increased health benefits costs.~~commissions of $307 thousand. In addition to human resource costs, year-to-date ~~costs related to Sarbanes-Oxley compliance and audit fees have~~legal expenses increased ~~$332~~$105 thousand compared to ~~2004.~~2005. All other components of non-interest expense remained relatively stable between the two periods.

Income Tax Expense

Income tax expense is comprised of federal and state current and deferred income taxes on pre-tax earnings of the Company. Income taxes as a percentage of pre-tax income may vary significantly from statutory rates due to items of income and expense which are excluded, by law, from the calculation of taxable income. These items are commonly referred to as permanent differences. The most significant permanent differences for the Company include i) income on state and municipal securities which are exempt from federal income tax, ii) certain dividend payments which are deductible by the Company, and iii) tax credits generated by investments in low income housing and ~~iv) for 2004, goodwill impairment expense which is not deductible.~~historic rehabilitations.

For the ~~third~~first quarter of ~~2005,~~2006, consolidated income taxes were $2.6 million compared to ~~$914 thousand~~$2.2 million for the ~~third~~first quarter of ~~2004.~~2005. For the quarters ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ the effective tax rates were ~~27.54%~~27.74% and ~~12.48%~~26.80%, respectively. ~~For the first nine months of 2005, consolidated income taxes were $7.3 million, a 27.65%~~The effective tax rate was higher during the current quarter due to a lower proportion of tax-free municipal security interest income than in the first quarter of 2005.

FINANCIAL POSITION

Total assets at March 31, 2006, increased $36 million to $1.99 billion from December 31, 2005, an annualized growth rate of 7.5%. The increases in the balance sheet were primarily driven by the addition of $48 million in interest-bearing deposits with banks. This increase was partially offset by small decreases in total loans and investment securities.

- 23 -

Securities

Securities available for sale were $396.7 million at March 31, 2006, compared to ~~$4.8~~$404.4 million ~~an effective tax rate~~at December 31, 2005, a decrease of 22.81%, for the first nine months of 2004. Effective tax rates for the 2004 periods were less than comparable current periods due to the tax benefits realized from the divestiture of the mortgage banking subsidiary.

The previously disclosed state tax audit of state income, franchise, and sales tax in one of the Company’s tax jurisdictions was recently concluded. The outcome of this audit was favorable to the Company and will result in total state income and franchise tax refunds of approximately $470 thousand, subject to the final filing of amended returns. The Company regularly evaluates the tax provision and continues to believe that it has established appropriate provisions for state income and franchise taxes.

~~Hurricanes Katrina, Rita, and Wilma Exposure~~$7.7 million.

The Company ~~performed~~attempts to maintain an ~~evaluation~~acceptable level of interest rate risk within its ~~exposure~~securities portfolio. At March 31, 2006, the average life and duration of the portfolio were 7.3 years and 5.5, respectively. Average life and duration were somewhat higher than December 31, 2005, at 7.0 years and 5.4, respectively. However, the Company has been shifting towards more floating-rate securities. At March 31, 2006, and December 31, 2005, 22% of the portfolio was floating-rate.

The Company’s available-for-sale securities portfolio is reported at fair value. The fair value of most securities is determined based on quoted market prices. If quoted market prices are not available, fair value is determined based on quoted prices of similar instruments. Available-for-sale and held to ~~potential~~maturity securities are reviewed quarterly for possible other-than-temporary impairment. This review includes an analysis of the facts and circumstances of each individual investment such as the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer and the Company’s intent and ability to hold the security to recovery or maturity. Management does not believe any unrealized loss, individually or in the aggregate, as of March 31, 2006, represents other-than-temporary impairment. The Company has the intent and ability to hold these securities until such time as the value recovers or the securities mature. Furthermore, the Company believes the decrease in value is attributable to changes in market interest rates and not the credit quality of the issuer.

Securities held to maturity totaled $22.8 million at March 31, 2006, reflective of continuing paydowns, maturities and calls within the portfolio. The market value of investment securities held to maturity was 102.4% and 102.9% of book value at March 31, 2006, and December 31, 2005, respectively.

Loan Portfolio

Loans Held for Sale:The $848 thousand balance of loans held for sale at March 31, 2006, are long-term mortgage loans that are sold to investors on a best efforts basis. Accordingly, the Company does not retain the interest rate risk involved in the commitment. The gross notional amount of outstanding commitments at March 31, 2006, was $3.4 million on 30 loans.

Loans Held for Investment:Total loans held for investment remained relatively stable at $1.33 billion at March 31, 2006, compared to December 31, 2005, and increased $47.1 million from March 31, 2005, as a result of increased loan production and contributions by new loan production offices. The average loan-to-deposit ratio increased to 94.2% for the ~~devastation caused~~first quarter of 2006, compared to 92.3% for the fourth quarter of 2005 and 91.2% for the first quarter of 2005. 2006 year-to-date average loans of $1.34 billion increased $74.6 million when compared to the average for the first three months of 2005 of $1.26 billion.

The held for investment loan portfolio continues to be diversified among loan types and industry segments. The following table presents the various loan categories and changes in composition as of March 31, 2006, December 31, 2005 and March 31, 2005.


	March 31, 2006					December 31, 2005					March 31, 2005
(Dollars in thousands)	Amount		Percent			Amount		Percent			Amount		Percent
Loans Held for Investment
Commercial and agricultural	$	107,995		8.12	%	$	110,211		8.28	%	$	99,669		7.77	%
Commercial real estate		439,635		33.06	%		464,510		34.90	%		486,701		37.95	%
Residential real estate		512,776		38.56	%		504,386		37.89	%		471,829		36.79	%
Construction		165,271		12.44	%		143,976		10.82	%		112,340		8.76	%
Consumer		101,807		7.66	%		106,148		7.97	%		110,141		8.59	%
Other		2,182		0.16	%		1,808		0.14	%		1,866		0.14	%

Total	$	1,329,666		100.00	%	$	1,331,039		100.00	%	$	1,282,546		100.00	%


Loans Held for Sale	$	848				$	1,274				$	1,182

Non-Performing Assets

- 24 -

$4.8 million at December 31, 2005, and $7.8 million at March 31, 2005. The percentage of non-performing assets to total loans, OREO and repossessions was 0.25% at March 31, 2006, down from 0.36% at December 31, 2005, and 0.61% at March 31, 2005.

The following schedule details non-performing assets by category at the close of each of the quarters ended March 31, 2006 and 2005, and December 31, 2005.


	March 31,		December 31,		March 31,
(Amounts in thousands)	2006		2005		2005
Non-accrual	$	2,517	$	3,383	$	6,419
Ninety days past due and accruing		—		11		—
Other real estate owned		867		1,400		1,389
Repossessions		8		55		26

Total non-performing assets	$	3,392	$	4,849	$	7,834


Restructured loans performing in accordance with modified terms	$	297	$	302	$	344

At March 31, 2006, non-accrual loans decreased $866 thousand from December 31, 2005, and $3.9 million from March 31, 2005. The decrease in non-accrual loans is reflective of the Company’s increasing credit quality. Ongoing activity within the classification and categories of non-performing loans continues to include collections on delinquencies, foreclosures and movements into or out of the non-performing classification as a result of changing customer business conditions. OREO of $867 thousand decreased from both March 31 and December 31, 2005, levels as a result of property sales. OREO is carried at the lesser of estimated net realizable value or cost.

Deposits and Other Borrowings

Total deposits grew by $36.1 million or 2.6% during the first three months of 2006. Non interest-bearing demand deposits increased by $16.0 million and interest-bearing demand deposits increased $4.7 million. Savings increased $7.5 million and time deposits increased $7.9 million.

In December 2005, the Company prepaid $77 million of Federal Home Loan Bank advances, with interest rates ranging from 5.71% to 6.27%, with a weighted-average rate and maturity of 5.96% and 4.3 years, respectively. In January 2006, the Company drew additional FHLB advances of $75 million, with a floating interest rate based on 3-month LIBOR, and which mature in fifteen years. The FHLB has the option, after five years, to convert the new advances to a fixed interest rate of 4%. Concurrent with the new advances, the Company entered into an interest rate swap agreement, effectively fixing the rate on $50 million of the new advances for five years. Under the terms of the swap, the Company will pay fixed interest payments of 4.335% on a notional $50 million, and receive floating interest rate payments of 3-month LIBOR less 45 basis points. The Company expects to save approximately $813 thousand in annual interest expense on the $50 million fixed by ~~hurricanes Katrina, Rita, and Wilma~~the interest rate swap. The remaining $25 million will float at an interest rate based on 3-month LIBOR. The initial interest rate on the floating portion of the FHLB advances is approximately 1.86% less than the weighted-average rate of the prepaid advances. For further discussion of FHLB borrowings, see the Borrowings note to the Unaudited Consolidated Financial Statements included in this report.

Securities sold under repurchase agreements increased $6.9 million in the ~~states~~first three months of ~~Louisiana, Mississippi, Alabama, Texas, Florida,~~2006. There were no federal funds purchased outstanding at March 31, 2006, as the Company experienced increased liquidity in the first three months of 2006.

Stockholders’ Equity

Total stockholders’ equity increased $1.6 million from December 31, 2005, as the Company continued to balance capital adequacy and ~~other effected areas.~~returns to stockholders. The ~~evaluation included~~increase in equity was due mainly to net earnings of $6.8 million after dividends paid to stockholders of $2.9 million and a net addition of $1.3 million in treasury stock.

- 25 -

Risk-based capital guidelines and leverage ratio measure capital adequacy of banking institutions. Risk-based capital guidelines weight balance sheet assets and off-balance sheet commitments based on inherent risks associated with the ~~review~~respective asset types. At March 31, 2006, the Company’s total capital to risk-weighted assets ratio was 11.95% versus 11.65% at December 31, 2005. The Company’s Tier 1 capital to risk-weighted assets ratio was 10.83% at March 31, 2006, compared to 10.54% at December 31, 2005. The Company’s Tier 1 leverage ratio at March 31, 2006, was 8.00% compared to 7.77% at December 31, 2005. All of investment securities, loan and deposit portfolios, commitments to lend and letters of credit, and adverse interest rate movements. The evaluation disclosed no significant areas of potential loss exposure.

~~PART I.~~the Company’s regulatory capital ratios exceed the current well-capitalized levels prescribed for banks.

PART 1. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Liquidity and Capital Resources

At ~~September 30, 2005,~~March 31, 2006, the Company maintained a significant level of liquidity in the form of cash and cash equivalent balances of ~~$55.9~~$106.0 million, investment securities available for sale of ~~$424.6~~$396.7 million, and FHLB credit availability of approximately ~~$205.3~~$162.9 million. Cash and cash equivalents as well as advances from the FHLB are immediately available for satisfaction of deposit withdrawals, customer credit needs and operations of the Company. Investment securities available for sale represent a secondary level of liquidity available for conversion to liquid funds in the event of extraordinary needs. The Company also maintains approved lines of credit with correspondent banks as backup liquidity sources.

The Company maintains a liquidity policy as a means to manage the liquidity risk process and associated risk. The policy includes a Liquidity Contingency Plan ~~(“Liquidity~~(the “Liquidity Plan”) that is designed as a tool for the Company to detect liquidity issues promptly in order to protect depositors, creditors and shareholders. The Liquidity Plan includes monitoring various internal and external indicators such as changes in core deposits and changes in market conditions. It provides for timely responses to

~~-30-~~

a wide variety of funding scenarios ranging from changes in loan demand to a decline in the Company’s quarterly earnings to a decline in the market price of the Company’s stock. The Liquidity Plan calls for specific responses designed to meet a wide range of liquidity needs based upon assessments on a recurring basis by management and the Board of Directors.

Interest Rate Risk and Asset/Liability Management

The Company’s profitability is dependent to a large extent upon its net interest income, ~~(“NII”),~~ which is the difference between its interest income on interest-earning assets, such as loans and securities, and its interest expense on interest-bearing liabilities, such as deposits and borrowings. The Company, like other financial institutions, is subject to interest rate risk to the degree that interest-earning assets reprice differently than interest-bearing liabilities. The Company manages its mix of assets and liabilities with the goals of limiting its exposure to interest rate risk, ensuring adequate liquidity, and coordinating its sources and uses of funds while maintaining an acceptable level of ~~NII~~net interest income given the current interest rate environment.

The Company’s primary component of operational revenue, ~~NII,~~net interest income, is subject to variation as a result of changes in interest rate environments in conjunction with unbalanced repricing opportunities on earning assets and interest-bearing liabilities. Interest rate risk has four primary components including 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 the underlying rates on the assets and liabilities the institution holds change at different levels or in varying degrees. Yield curve risk is the risk of adverse consequences as a result of unequal changes in the spread between two or more rates for different maturities for the same instrument. Lastly, option risk is due to ~~“embedded~~embedded options,” often put or call options, given or sold to holders of financial instruments.

In order to mitigate the effect of changes in the general level of interest rates, the Company manages repricing opportunities and thus, its interest rate sensitivity. The Company seeks to control its ~~IRR~~interest rate risk exposure to insulate ~~NII~~net interest income and net earnings from fluctuations in the general level of interest rates. To measure its exposure to ~~IRR,~~interest rate risk, quarterly simulations of ~~NII~~net interest income are performed using financial models that project ~~NII~~net interest income through a range of possible interest rate environments including rising, declining, most likely and flat rate scenarios. The simulation model used by the Company captures all earning assets, interest-bearing liabilities and all off-balance sheet financial instruments and combines the various factors affecting rate sensitivity into an earnings outlook. The results of these simulations indicate the existence and severity of ~~IRR~~interest rate risk in each of those rate environments based upon the current balance sheet position, assumptions as to changes in the volume and mix of interest-earning assets and interest-paying liabilities and management’s estimate of yields to be attained in those future rate environments and rates that will be paid on various 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 ~~NII.~~net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions and

- 26 -

management’s strategies. However, the earnings simulation model is currently the best tool available to management for managing ~~IRR.~~interest rate risk.

Specific strategies for management of ~~IRR~~interest rate risk have included shortening the amortized maturity of new fixed-rate loans, increasing the volume of adjustable-rate loans to reduce the average maturity of the Company’s interest-earning assets and monitoring the term structure of liabilities to maintain a balanced mix of maturity and re-pricing structures to mitigate the potential exposure. Based upon the latest simulation, the Company believes that it is biased toward an asset sensitive position. Absent adequate management, asset sensitive positions can negatively impact net interest income in a falling rate environment or, alternatively, positively impact net interest income in a rising rate environment.

The Company has established policy limits for tolerance of interest rate risk that allow for no more than a 10% reduction in projected ~~NII~~net interest income based on a comparison of quarterly net interest income simulations ~~compared to forecasted results.~~in various interest rate scenarios. In addition, the policy addresses exposure limits to changes in the ~~Economic Value~~economic value of ~~Equity (“EVE”)~~equity according to predefined policy guidelines. The most recent simulation indicates that current exposure to interest rate risk is within the Company’s defined policy limits.

The following table summarizes the impact on ~~NII~~net interest income and the ~~EVE~~economic value of equity as of ~~September 30, 2005,~~March 31, 2006, and December 31, ~~2004,~~2005, of immediate and sustained rate shocks in the interest rate environment of plus and minus ~~100 basis points and plus~~ 200 basis points from the base simulation, assuming no remedial measures are ~~effected.~~affected.

~~-31-~~

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is currently a defendant in various legal actions and asserted claims involving lending and collection activities and other matters in the normal course of business. While the Company and legal counsel are unable to assess the ultimate outcome of each of these matters with certainty, they are of the belief that the resolution of these actions should not have a material adverse affect on the financial position, results of operations, or cash flows of the Company.

ITEM 1A. Risk Factors

There were no material changes to the risk factors as presented in the Company’s annual report on Form 10-K for the year ended December 31, 2005.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~(a) Not Applicable~~

~~(b) Not Applicable~~

~~(c)~~

	(a)		Not Applicable

	(b)		Not Applicable

	(c)		Issuer Purchases of Equity Securities

The following table sets forth open market purchases by the Company of its equity securities during the ~~nine~~three months ended ~~September 30, 2005.~~March 31, 2006.

Maximum
Number of
Total Number of Shares that
Total # of Average Shares Purchased May yet be
Shares Price Paid as Part of Publicly Purchased
Purchased per Share Announced Plan Under the Plan
January 1-31, 2005 303 $ 32.63 303 281,000
February 1-28, 2005 — — — 281,000
March 1-31, 2005 — — — 281,000
April 1-30, 2005 — — — 281,216
May 1-31, 2005 2,000 28.12 2,000 330,080
June 1-30, 2005 2,123 29.46 2,123 328,821
July 1-31, 2005 — — — 331,845
August 1-31, 2005 5,000 30.50 5,000 328,169
September 1-30, 2005 491 29.44 491 327,678

Total 9,917 $ 29.51 9,917


							Maximum
							Number of
					Total Number of		Shares that
	Total # of		Average		Shares Purchased		May yet be
	Shares		Price Paid		as Part of Publicly		Purchased
	Purchased		per Share		Announced Plan		Under the Plan
January 1-31, 2006		23,161	$	32.10		23,161		284,455
February 1-28, 2006		32,900		32.14		32,900		287,234
March 1-31, 2006		25,000		31.81		25,000		265,566

Total		81,061	$	32.03		81,061

The Company’s stock repurchase plan, as amended, allows the purchase and retention of up to 550,000 shares. The plan has no expiration date and remains open. The Company ~~currently holds 222,322~~held 284,434 shares in ~~treasury.~~treasury at March 31, 2006.

ITEM 3. Defaults Upon Senior Securities

Not Applicable

ITEM 4. Submission of Matters to a Vote of Security Holders

~~Not Applicable~~

	(a)		The Annual Meeting of Stockholders was held on April 25, 2006.

	(b)		The following directors were elected to serve a three-year term through the date of the 2009 Annual Meeting of Stockholders:

			I. Norris Kantor, A. A. Modena, and William P. Stafford, II

- 29 -

Item 6. Exhibits

(a) Exhibits


Exhibit No.		Exhibit
3(i)		Articles of Incorporation of First Community Bancshares, Inc., as amended. (1)

3(ii)		Bylaws of First Community Bancshares, Inc., as amended. (2)

4.1		Specimen stock certificate of First Community Bancshares, Inc. (3)

4.2		Indenture Agreement dated September 25, 2003. (11)

4.3		Amended and Restated Declaration of Trust of FCBI Capital Trust dated September 25, 2003. (11)

4.4		Preferred Securities Guarantee Agreement dated September 25, 2003. (11)

10.1		First Community Bancshares, Inc. 1999 Stock Option Contracts (2) and Plan. (4)*

10.1.1		Amendment to the First Community Bancshares, Inc. 1999 Stock Option Plan (12)*

10.2		First Community Bancshares, Inc. 2001 Non-Qualified Directors Stock Option Plan. (5)*

10.3		Employment Agreement dated January 1, 2000, and amended October 17, 2000, between First Community Bancshares, Inc. and John M. Mendez. (2)(6)*

10.4		First Community Bancshares, Inc. 2000 Executive Retention Plan, as amended. (4)*

10.5		First Community Bancshares, Inc. Split Dollar Plan and Agreement. (4)*

10.6		First Community Bancshares, Inc. 2001 Directors Supplemental Retirement Plan. (2)*

10.6.1		First Community Bancshares, Inc. 2001 Directors Supplemental Retirement Plan. Second Amendment (B. W. Harvey, ~~Sr.—October~~Sr.-October 19, 2004). (14)*

10.7		First Community Bancshares, Inc. Wrap Plan. (3)*

10.8		Employment Agreement between First Community Bancshares, Inc. and J. E. Causey Davis. (8)*

10.9		Form of Indemnification Agreement between First Community Bancshares, Inc., its Directors and Certain Executive Officers.(9)*

10.10		Form of Indemnification Agreement between First Community Bank, N. A., its Directors and Certain Executive Officers. (9)*

10.12		First Community Bancshares, Inc. 2004 Omnibus Stock Option ~~Plan-Stock~~Plan (10) and Stock Award Agreement (13)*

~~11.0~~10.13		~~Statement regarding computation~~Change of ~~earnings per share. (7)~~control agreement between First Community Bank, N. A. and Mark A. Wendel. (15)

~~15.0~~15		Acknowledgement of Independent Registered Public Accounting Firm.

31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

32		Certification of Chief Executive and Chief Financial Officer Section 1350.


*		Management contract or compensatory plan or arrangement.

~~-34-~~- 31 -


(1)		Incorporated by reference from the Quarterly Report on Form 10-Q for the period ended June 30, 2005, filed on August 5, 2005.

(2)		Incorporated by reference from the Quarterly Report on Form 10-Q for the period ended June 30, 2002, filed on August 14, 2002.

(3)		Incorporated by reference from the Annual Report on Form 10-K for the period ended December 31, 2002, filed on March 25, 2003, as amended on March 31, 2003.

(4)		Incorporated by reference from the Annual Report on Form 10-K for the period ended December 31, 1999, filed on March 30, 2000, as amended April 13, 2000.

(5)		The option agreements entered into pursuant to the 1999 Stock Option Plan and the 2001 Non-Qualified Directors Stock Option Plan are incorporated by reference from the Quarterly Report on Form 10-Q for the period ended June 30, 2002, filed on August 14, 2002.

(6)		First Community Bancshares, Inc. has entered into substantially identical agreements with Robert L. Buzzo and E. Stephen Lilly, with the only differences being with respect to title, salary and the use of a vehicle.

(7)		~~Incorporated by reference from the Earnings per Share footnote of the Notes to Consolidated Financial Statements included herein.~~Not used.

(8)		Incorporated by reference from S-4 Registration Statement filed on March 28, 2003. The Company has entered into a substantially identical contract with Phillip R. Carriger dated March 31, 2004.

(9)		Form of indemnification agreement entered into by the Corporation and by First Community Bank, N. A. with their respective directors and certain officers of each including, for the registrant and Bank: John M. Mendez, Robert L. Schumacher, Robert L. Buzzo, Kenneth P. Mulkey, E. Stephen Lilly and at the Bank level: Samuel L. Elmore. Incorporated by reference from the Annual Report on Form 10-K for the period ended December 31, 2003, filed on March 15, 2004, and amended on May 19, 2004.

(10)		Incorporated by reference from the 2004 First Community Bancshares, Inc. Definitive Proxy filed on March 19, 2004.

(11)		Incorporated by reference from the Quarterly Report on Form 10-Q for the period ended September 30, 2003 filed on November 10, 2003.

(12)		Incorporated by reference from the Quarterly Report on Form 10-Q for the period ended March 31, 2004 filed on May 7, 2004.

(13)		Incorporated by reference from the Quarterly Report on Form 10-Q for the period ended June 30, 2004 filed on August 6, 2004.

(14)		Incorporated by reference from the Annual Report on Form 10-K for the period ended December 31, 2004, and filed on March 16, 2005. Amendments in substantially similar form were executed for Directors Clark, Kantor, Hamner, Modena, Perkinson, Stafford, and Stafford II but are not filed herewith.

(15)		Incorporated by reference from the Annual Report on Form 10-K for the period ended December 31, 2005, and filed on March 15, 2006.

~~-35-~~- 32 -


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)


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Consolidated Balance Sheets as of ~~September 30, 2005,~~March 31, 2006 (Unaudited), and December 31, ~~2004~~2005			3
Consolidated Statements of Income for the ~~Three- and Nine-Month~~Three-Month Periods Ended ~~September 30,~~March 31, 2006 and 2005 ~~and 2004~~(Unaudited)			4
Consolidated Statements of Cash Flows for the ~~Nine-Month~~Three-Month Periods Ended ~~September 30,~~March 31, 2006 and 2005 ~~and 2004~~(Unaudited)			5
Consolidated Statements of Changes in Stockholders’ Equity for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2006 and 2005 ~~and 2004~~(Unaudited)			6
Notes to Consolidated Financial Statements			7
Report of Independent Registered Public Accounting Firm			17

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18

Item 3. Quantitative and Qualitative Disclosures about Market Risk			3026

Item 4. Controls and Procedures			3228

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			3329

Item 1A. Risk Factors			29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			3329

Item 3. Defaults Upon Senior Securities			3329

Item 4. Submission of Matters to a Vote of Security Holders			3329

Item 5. Other Information			3330

Item 6. Exhibits			3431

SIGNATURES			3633

EXHIBIT INDEX			3734
EX-15
EX-31.1
EX-31.2
EX-32


	September 30, 2005									March 31, 2006
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
(Amounts in thousands)	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
U.S. Government agency securities	$	79,120	$	77	$	(395	)	$	78,802	$	92,662	$	—	$	(2,543	)	$	90,119
States and political subdivisions		138,626		3,480		(266	)		141,840		150,511		1,913		(1,872	)		150,552
Corporate notes		78,959		235		(345	)		78,849		61,493		225		(242	)		61,476
Mortgage-backed securities		105,461		305		(1,239	)		104,527		89,378		103		(2,805	)		86,676
Equities		19,635		1,145		(167	)		20,613		6,556		1,495		(183	)		7,868

Total	$	421,801	$	5,242	$	(2,412	)	$	424,631	$	400,600	$	3,736	$	(7,645	)	$	396,691


	December 31, 2004									December 31, 2005
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
U.S. Government agency securities	$	46,541	$	20	$	(615	)	$	45,946	$	92,739	$	—	$	(1,315	)	$	91,424
States and political subdivisions		142,882		2,647		(383	)		145,146		151,118		2,426		(1,376	)		152,168
Corporate notes		37,589		540		—			38,129		61,466		125		(317	)		61,274
Mortgage-backed securities		142,427		921		(369	)		142,979		94,954		155		(2,115	)		92,994
Equities		15,307		1,188		(17	)		16,478		5,390		1,282		(151	)		6,521

Total	$	384,746	$	5,316	$	(1,384	)	$	388,678	$	405,667	$	3,988	$	(5,274	)	$	404,381


	Nine Months Ended
	September 30
	2005			2004
Cash flows from operating activities-continuing operations:
Net income from continuing operations	$	19,209		$	19,810
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Provision for loan losses		2,824			2,407
Depreciation and amortization of premises and equipment		2,474			2,137
Core deposit amortization		333			287
Net investment amortization and accretion		1,139			1,880
Net gain on the sale of assets		(490	)		(1,763	)
Mortgage loans originated for sale		(28,419	)		(18,994	)
Proceeds from sale of mortgage loans		28,236			18,255
Deferred income tax expense		1,098			54
(Increase) decrease in interest receivable		(1,621	)		489
Increase in other assets		(4,231	)		(1,206	)
Increase in other liabilities		671			1,068

Net cash provided by operating activities from continuing operations		21,223			24,424


Cash flows from investing activities-continuing operations:
Proceeds from sales of securities available for sale		18,959			49,951
Proceeds from maturities and calls of securities available for sale		33,798			105,065
Proceeds from maturities and calls of securities held to maturity		9,552			3,834
Purchase of securities available for sale		(90,326	)		(78,012	)
Net increase in loans made to customers		(87,064	)		(74,858	)
Purchase of premises and equipment		(2,462	)		(5,077	)
Proceeds from sale of equipment		1,005			359
Net cash used in acquisitions		—			(26,325	)

Net cash used in investing activities from continuing operations		(116,538	)		(25,063	)


Cash flows from financing activities-continuing operations:
Net increase in demand and savings deposits		8,053			10,619
Net increase (decrease) in time deposits		78,921			(22,689	)
Net proceeds from and repayments of FHLB and other borrowings		74,861			5,012
Net decrease in federal funds purchased		(32,500	)		—
Net increase in securities sold under agreement to repurchase		15,882			12,668
Issuance of common stock		333			420
Acquisition of treasury stock		(293	)		(1,195	)
Dividends paid		(8,618	)		(8,427	)

Net cash provided by (used in) financing activities from continuing operations		136,639			(3,592	)


Net increase (decrease) in cash and cash equivalents from continuing operations	$	41,324		$	(4,231	)

Net cash used in discontinued operations	$	(126	)	$	—


Cash and cash equivalents at beginning of period-continuing operations	$	54,746		$	59,309
Cash and cash equivalents at beginning of period-discontinued operations		—			—

Cash and cash equivalents at beginning of period	$	54,746		$	59,309


Cash and cash equivalents at end of period-continuing operations	$	95,944		$	55,078
Cash and cash equivalents at end of period-discontinued operations		—			—

Cash and cash equivalents at end of period	$	95,944		$	55,078


																March 31, 2006
	September 30, 2005															Less than 12 Months					12 Months or longer					Total
	Less than 12 Months					12 Months or longer					Total					Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Amounts in thousands)			Unrealized					Unrealized					Unrealized			Value		Losses			Value		Losses			Value		Losses
Description of Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses

U. S. Government agency securities	$	10,860	$	(75	)	$	30,179	$	(320	)	$	41,039	$	(395	)	$	59,854	$	(1,391	)	$	30,265	$	(1,152	)	$	90,119	$	(2,543	)
States and political subdivisions		28,130		(265	)		631		(2	)	$	28,761		(267	)		51,889		(1,011	)		24,975		(864	)		76,864		(1,875	)
Other securities		41,085		(345	)		—		—			41,085		(345	)		33,015		(243	)		—		—			33,015		(243	)
Mortgage-backed securities		62,182		(847	)		28,520		(392	)		90,702		(1,239	)		11,821		(204	)		70,080		(2,601	)		81,901		(2,805	)
Equity securities		1,517		(127	)		132		(40	)		1,649		(167	)		2,416		(118	)		502		(65	)		2,918		(183	)

Total	$	143,774	$	(1,659	)	$	59,462	$	(754	)	$	203,236	$	(2,413	)	$	158,995	$	(2,967	)	$	125,822	$	(4,682	)	$	284,817	$	(7,649	)


Year	Amount
	(in thousands)		Amount
2005	$	905
			(in thousands)
2006		394	$	375
2007		6,267		6,252
2008		27,000		—
2009 and thereafter		157,146
2009				—
2010				25,000
2011 and thereafter				157,101

Total	$	191,712	$	188,728


				Weighted-
				Average
	Nonvested			Grant-Date
	Shares			Fair Value
Nonvested at January 1, 2006		4,000		$	26.24
Granted		4,232			31.47
Exercised		(4,832	)		29.63
Vested		—
Forfeited		—

Nonvested at March 31, 2006		3,400		$	27.93


	September 30, 2005					December 31, 2004					September 30, 2004
(Dollars in Thousands)	Amount		Percent			Amount		Percent			Amount		Percent
Loans Held for Investment:
Commercial and agricultural	$	110,511		8.36	%	$	99,303		8.02	%	$	97,539		7.93	%
Commercial real estate		456,207		34.53	%		453,899		36.64	%		439,486		35.75	%
Residential real estate		497,730		37.67	%		457,386		36.92	%		450,266		36.63	%
Construction		143,738		10.89	%		112,732		9.10	%		124,165		10.10	%
Consumer		111,148		8.41	%		113,424		9.16	%		115,720		9.41	%
Other		1,887		0.14	%		2,012		0.16	%		2,094		0.17	%

Total	$	1,321,221		100.00	%	$	1,238,756		100.00	%	$	1,229,270		100.00	%

Loans Held for Sale	$	1,377				$	1,194				$	1,163


	September 30, 2005
	Change in						Change in
Increase (Decrease) in	Net Interest			%			Market Value		%
Interest Rates (Basis Points)	Income			Change			of Equity		Change
				(Dollars in Thousands)
200	$	4,236			5.6		$	448		0.2
100		2,182			2.9			5,596		2.1
(100)		(3,395	)		(4.5	)		3,570		1.3


	Votes For		Votes Withheld
I. Norris Kantor		7,909,518		129,952
A. A. Modena		7,683,613		355,857
William P. Stafford, II		7,342,769		696,701

/s/ John M. Mendez

John M. Mendez
President & Chief Executive Officer
(Duly Authorized Officer)

~~President & Chief Executive Officer~~

DATE: May 10, 2006

~~(Duly Authorized Officer)~~