UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarter ended ~~March 31,~~September 30, 2007

Commission file number 000-19297

FIRST COMMUNITY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


Nevada		55-0694814

(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

P.O. Box 989
Bluefield, Virginia		24605-0989

(Address of principal executive offices)		(Zip Code)

(276) 326-9000

(Registrant’s telephone number, including area code)

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

þ Yeso No

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

Large accelerated filero Accelerated filerþ Non-accelerated filero

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

o Yesþ No

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

Class – Common Stock, $1.00 Par Value; ~~11,271,302~~11,167,050 shares outstanding as of ~~April 30,~~October 31, 2007

PART I.ITEM 1. Financial Statements

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS


	March 31,			December 31,			September 30,			December 31,
	2007			2006			2007			2006
(Amounts in thousands, except share and per share data)	(Unaudited)			(Note 1)
(Dollars in Thousands, Except Per Share Data)							(Unaudited)
Assets
Cash and due from banks	$	42,394		$	47,909		$	39,877		$	47,909
Interest-bearing balances with banks		17,082			9,850			19,427			9,850

Total cash and cash equivalents		59,476			57,759			59,304			57,759
Securities available-for-sale (amortized cost of $612,340 at March 31, 2007; $508,423 at December 31, 2006)		612,977			508,370
Securities held-to-maturity (fair value of $19,530 at March 31, 2007; $20,350 at December 31, 2006)		19,266			20,019
Securities available-for-sale (amortized cost of $681,164 at September 30, 2007; $508,423 at December 31, 2006)								671,360			508,370
Securities held-to-maturity (fair value of $12,776 at September 30, 2007; $20,350 at December 31, 2006)								12,548			20,019
Loans held for sale		1,068			781			2,294			781
Loans held for investment, net of unearned income		1,258,847			1,284,863			1,239,207			1,284,863
Less allowance for loan losses		14,510			14,549			13,190			14,549

Net loans held for investment		1,244,337			1,270,314			1,226,017			1,270,314
Premises and equipment		38,381			36,889			46,702			36,889
Other real estate owned		600			258			211			258
Interest receivable		11,835			12,141			13,289			12,141
Goodwill and other intangible assets		62,092			62,196			69,104			62,196
Other assets		65,763			64,971			73,817			64,971

Total Assets	$	2,115,795		$	2,033,698		$	2,174,646		$	2,033,698


Liabilities
Deposits:
Noninterest-bearing	$	242,254		$	244,771		$	224,297		$	244,771
Interest-bearing		1,177,330			1,150,000			1,178,740			1,150,000

Total Deposits		1,419,584			1,394,771			1,403,037			1,394,771
Interest, taxes and other liabilities		20,522			19,641			20,120			19,641
Federal funds purchased		45,000			7,700			15,600			7,700
Securities sold under agreements to repurchase		220,198			201,185			226,784			201,185
FHLB borrowings and other indebtedness		192,654			197,671			291,942			197,671

Total Liabilities		1,897,958			1,820,968			1,957,483			1,820,968


Stockholders’ Equity
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 shares issued at March 31, 2007, and December 31, 2006, including 227,716 and 253,276 shares in treasury, respectively		11,499			11,499
Common stock, $1 par value; 25,000,000 shares authorized; 11,499,018 shares issued at September 30, 2007, and December 31, 2006, including 323,468 and 253,276 shares in treasury, respectively								11,499			11,499
Additional paid-in capital		108,769			108,806			108,794			108,806
Retained earnings		104,198			100,117			112,911			100,117
Treasury stock, at cost		(7,124	)		(7,924	)		(10,051	)		(7,924	)
Accumulated other comprehensive income		495			232
Accumulated other comprehensive (loss) income								(5,990	)		232

Total Stockholders’ Equity		217,837			212,730			217,163			212,730

Total Liabilities and Stockholders’ Equity	$	2,115,795		$	2,033,698		$	2,174,646		$	2,033,698

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


	Three Months Ended				Three Months Ended					Nine Months Ended
	March 31,				September 30,					September 30,
(Amounts in thousands except share and per share data)	2007		2006
(Dollars in Thousands, Except Per Share Data)					2007		2006			2007		2006
Interest Income
Interest and fees on loans held for investment	$	23,519	$	23,925	$	23,478	$	24,578		$	70,401	$	73,009
Interest on securities-taxable		4,981		2,877		6,772		3,497			17,783		9,598
Interest on securities-nontaxable		1,912		1,826		2,078		1,877			6,140		5,519
Interest on deposits in banks		274		295		404		288			1,073		1,062

Total interest income		30,686		28,923		32,732		30,240			95,397		89,188
Interest Expense
Interest on deposits		9,300		7,647		10,083		8,760			29,131		24,733
Interest on borrowings		4,371		3,211		5,506		3,724			15,094		10,461

Total interest expense		13,671		10,858		15,589		12,484			44,225		35,194

Net interest income		17,015		18,065		17,143		17,756			51,172		53,994
Provision for loan losses		—		408		—		579			—		1,798

Net interest income after provision for loan losses		17,015		17,657		17,143		17,177			51,172		52,196

Noninterest Income
Wealth management income		1,018		683		908		623			2,931		2,038
Service charges on deposit accounts		2,409		2,417		3,006		2,611			8,077		7,683
Other service charges, commissions and fees		870		740		902		750			2,609		2,201
Gain on sale of securities		129		160
Gain (loss) on sale of securities						50		(6	)		209		60
Other operating income		789		1,148		1,154		1,120			2,956		3,784

Total noninterest income		5,215		5,148		6,020		5,098			16,782		15,766

Noninterest Expense
Salaries and employee benefits		6,411		7,901		6,544		6,151			19,120		20,834
Occupancy expense of bank premises		1,057		1,040		933		1,039			3,010		3,090
Furniture and equipment expense		823		850		844		871			2,447		2,579
Intangible amortization		103		90		105		88			313		322
Other operating expense		3,764		3,452		4,410		4,064			12,179		11,309

Total noninterest expense		12,158		13,333		12,836		12,213			37,069		38,134

Income before income taxes		10,072		9,472		10,327		10,062			30,885		29,828
Income tax expense		2,948		2,628		3,011		2,877			9,006		8,507

Net income	$	7,124	$	6,844	$	7,316	$	7,185		$	21,879	$	21,321


Basic earnings per common share	$	0.63	$	0.61	$	0.65	$	0.64		$	1.95	$	1.90

Diluted earnings per common share	$	0.63	$	0.61	$	0.65	$	0.64		$	1.94	$	1.89


Dividends declared per common share	$	0.27	$	0.26	$	0.27	$	0.26		$	0.81	$	0.78


Weighted average basic shares outstanding		11,259,375		11,233,005		11,179,322		11,174,479			11,232,895		11,202,631
Weighted average diluted shares outstanding		11,346,828		11,311,743		11,230,220		11,245,073			11,299,727		11,273,293

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Three Months Ended						Nine Months Ended
	March 31,						September 30,
(Amounts in thousands)	2007			2006
(In Thousands)							2007			2006
Operating activities:
Net Income	$	7,124		$	6,844		$	21,879		$	21,321
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		—			408			—			1,798
Depreciation and amortization of premises and equipment		800			853			2,362			2,564
Intangible amortization		103			90			313			322
Net investment amortization and accretion		145			245			435			602
Net gain on the sale of assets		(122	)		(200	)		(186	)		(796	)
Mortgage loans originated for sale		(9,212	)		(6,400	)		(34,794	)		(23,204	)
Proceeds from sales of mortgage loans		8,993			6,857			33,472			23,551
Gain on sales of loans		(68	)		(31	)		(191	)		(119	)
Deferred income tax expense		122			412
Decrease (increase) in interest receivable		306			(432	)
Deferred income tax expense (benefit)								552			(34	)
Increase in interest receivable								(1,148	)		(1,213	)
Other operating activities, net		(309	)		1,672			(967	)		443

Net cash provided by operating activities		7,882			10,318			21,727			25,235


Investing activities:
Proceeds from sales of securities available-for-sale		769			756			1,288			14,073
Proceeds from maturities and calls of securities available-for-sale		6,414			5,976			22,258			17,628
Proceeds from maturities and calls of securities held-to-maturity		755			1,418			7,437			3,974
Purchase of securities available-for-sale		(111,116	)		(259	)		(196,479	)		(100,834	)
Net decrease in loans held for investment		25,627			1,618			44,322			29,056
Purchase of FHLB stock								(4,077	)		—
Purchase of bank-owned life insurance								—			(25,000	)
Net cash used in acquisition of GreenPoint								(5,135	)		—
Net cash used in branch divestiture								—			(13,721	)
Purchase of premises and equipment		(2,296	)		(1,639	)		(11,981	)		(4,094	)
Proceeds from sale of equipment		—			104			—			323

Net cash (used in) provided by investing activities		(79,847	)		7,974
Net cash used in investing activities								(142,367	)		(78,595	)


Financing activities:
Net increase in demand and savings deposits		13,416			28,198
Net increase in time deposits		11,397			7,948
Net increase (decrease) in demand and savings deposits								13,283			(6,881	)
Net (decrease) increase in time deposits								(5,180	)		16,695
Net increase (decrease) in federal funds purchased		37,300			(82,500	)		7,900			(67,000	)
Net increase in securities sold under agreement to repurchase		19,013			6,855			25,599			48,836
Net repayments of and proceeds from FHLB and other borrowings		(5,017	)		74,961
Net increase in FHLB and other borrowings								93,698			68,896
Proceeds from the exercise of stock options		488			136			715			871
Excess tax benefit from stock-based compensation		128			42			290			139
Acquisition of treasury stock		—			(2,596	)		(5,035	)		(4,566	)
Dividends paid		(3,043	)		(2,917	)		(9,085	)		(8,735	)

Net cash provided by financing activities		73,682			30,127			122,185			48,255


Increase in cash and cash equivalents		1,717			48,419
Increase (decrease) in cash and cash equivalents								1,545			(5,105	)

Cash and cash equivalents at beginning of period		57,759			57,539			57,759			57,539

Cash and cash equivalents at end of period	$	59,476		$	105,958		$	59,304		$	52,434


Supplemental information — Noncash items
Transfer of loans to other real estate	$	590		$	173		$	973		$	883

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)


												Accumulated																	Accumulated
			Additional									Other								Additional									Other
	Common		Paid-in			Retained			Treasury			Comprehensive						Common		Paid-in			Retained			Treasury			Comprehensive
(Amounts in thousands, except share and per share data)	Stock		Capital			Earnings			Stock			Income (Loss)			Total
(Dollars in Thousands)																		Stock		Capital			Earnings			Stock			Income (Loss)			Total
Balance January 1, 2006	$	11,496	$	108,573		$	82,828		$	(7,625	)	$	(771	)	$	194,501		$	11,496	$	108,573		$	82,828		$	(7,625	)	$	(771	)	$	194,501
Comprehensive income:
Net income		—		—			6,844			—			—			6,844			—		—			21,321			—			—			21,321
Other comprehensive income, net of tax:
Unrealized loss on securities available for sale		—		—			—			—			(1,479	)		(1,479	)
Unrealized gain on securities available for sale																			—		—			—			—			663			663
Less reclassification adjustment for gains realized in net income													(96	)		(96	)													(14	)		(14	)
Unrealized gain on derivative securities		—		—			—			—			497			497
Unrealized gain on derivative security																			—		—			—			—			252			252

Comprehensive income		—		—			6,844			—			(1,078	)		5,766			—		—			21,321			—			901			22,222

Common dividends declared		—		—			(2,917	)		—			—			(2,917	)		—		—			(8,735	)		—			—			(8,735	)
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 issued		—		(41	)		—			152			—			111
Net acquisition of 145,161 treasury shares																			—		—			—			(4,566	)		—			(4,566	)
Acquisition of Stone Capital - 2,706 shares issued																			3		85			—			—			—			88
Stock awards 5,132 shares issued																			—		(42	)		—			160			—			118
ESOP allocation 27,733 shares		—		16			—			867			—			883			—		16			—			867			—			883
Equity-based compensation expense		—		71			—			—			—			71			—		223			—			—			—			223
Tax benefit from exercise of non-qualified stock options		—		58			—			—			—			58
Option exercise 8,571 shares		—		(133	)		—			268			—			135
Tax benefit from exercise of stock options																			—		189			—			—			—			189
Option exercises - 41,455 shares																			—		(439	)		—			1,298			—			859

Balance March 31, 2006	$	11,499	$	108,629		$	86,755		$	(8,934	)	$	(1,849	)	$	196,100
Balance September 30, 2006																		$	11,499	$	108,605		$	95,414		$	(9,866	)	$	130		$	205,782


Balance January 1, 2007	$	11,499	$	108,806		$	100,117		$	(7,924	)	$	232		$	212,730		$	11,499	$	108,806		$	100,117		$	(7,924	)	$	232		$	212,730
Comprehensive income:
Net income		—		—			7,124			—			—			7,124			—		—			21,879			—			—			21,879
Other comprehensive income, net of tax:
Unrealized gain on securities available-for-sale		—		—			—			—			471			471
Unrealized loss on securities available-for-sale																			—		—			—			—			(5,834	)		(5,834	)
Less reclassification adjustment for gains realized in net income		—		—			—			—			(56	)		(56	)		—		—			—			—			(16	)		(16	)
Unrealized loss on derivative securities		—		—			—			—			(152	)		(152	)
Unrealized loss on derivative security																			—		—			—			—			(372	)		(372	)

Comprehensive income		—		—			7,124			—			263			7,387			—		—			21,879			—			(6,222	)		15,657

Common dividends declared		—		—			(3,043	)		—			—			(3,043	)		—		—			(9,085	)		—			—			(9,085	)
Acquisition of 163,500 treasury shares																			—		—			—			(5,035	)		—			(5,035	)
Acquisition of GreenPoint Insurance - 49,088 shares issued																			—		133			—			1,524			—			1,657
Equity-based compensation expense		—		10			—			86			—			96			—		121			—			87			—			208
Tax benefit from exercise stock options		—		179			—			—			—			179
Option exercises 22,810 shares		—		(226	)		—			714			—			488
Tax benefit from exercise of stock options																			—		337			—			—			—			337
Option exercises - 41,470 shares																			—		(603	)		—			1,297			—			694

Balance March 31, 2007	$	11,499	$	108,769		$	104,198		$	(7,124	)	$	495		$	217,837
Balance September 30, 2007																		$	11,499	$	108,794		$	112,911		$	(10,051	)	$	(5,990	)	$	217,163

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. General

Unaudited Consolidated Financial Statements

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

The consolidated balance sheet as of December 31, 2006, has been derived from the audited financial statements included in the Company’s 2006 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in annual consolidated 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 consolidated financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2006 Annual Report on Form 10-K.

A more complete and detailed description of First Community’s significant accounting policies is included within Footnote 1 to the Company’s Annual Report on Form 10-K for December 31, 2006. 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.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,” which seeks to reduce the diversity in practice associated with the accounting and reporting for uncertainty in income tax positions. This Interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The Company adopted FIN 48 on January 1, 2007, and the adoption did not have an effect on its consolidated financial statements.

The Company includes interest and penalties related to income tax liabilities in income tax expense. The Company and its subsidiaries’ tax filings for the years ended December 31, 2003 through 2006 are currently open to audit under statutes of limitation by the Internal Revenue Service and various state tax departments.

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 156, “Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140.” SFAS 156 requires that all separately recognized servicing assets and liabilities be initially measured at fair value and permits (but does not require) subsequent measurement of servicing assets and liabilities at fair value. This statement is effective for fiscal years beginning after September 15, 2006. The adoption of this standard did not have a material effect on the financial condition, the results of operations, or liquidity of the Company.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. The Company must adopt these new requirements no later than the first quarter of 2008. The Company has not yet determined the effect of adopting SFAS 157 on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 123(R).” SFAS 158 requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the

~~- 7 -~~

fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The Company does not expect the full adoption of this standard to have a significant impact on its consolidated financial statements.

In September 2006, the Emerging Issues Task Force reached a consensus regarding EITF 06-4 “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” The scope of EITF 06-4 is limited to the recognition of a liability and related compensation costs for endorsement split-dollar life insurance policies that provide a benefit to an employee that extends to postretirement periods. Therefore, this EITF would not apply to a split-dollar life insurance arrangement that provides a specified benefit to an employee that is limited to the employee’s active service period with an employer. EITF 06-4 is effective for fiscal years beginning after December 15, 2007, with earlier application permitted. The Company ~~has not yet determined~~is currently evaluating the impact ~~if any,~~ of ~~adopting~~the adoption of this EITF ~~06-4~~ on its consolidated financial statements.

In September 2006, the Emerging Issues Task Force reached a consensus regarding EITF 06-5 “Accounting for Purchases of Life ~~Insurance-Determining~~Insurance – Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4.” The scope of EITF 06-5 is limited to the determination of net cash surrender value of a life insurance contract in accordance with Technical Bulletin 85-4. This EITF outlines when contractual limitations of the policy should be considered when determining the net realizable value of the contract. EITF 06-5 is effective for fiscal years beginning after December 15, 2006, with earlier application permitted. The adoption of EITF 06-5 did not have a material effect on the condition, results of operations, or liquidity of the Company.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. The Statement’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. SFAS 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of Statement 157. The Company did not elect early adoption as provided for in the Statement, and is currently evaluating the impact, if any, of adopting this Statement on the consolidated financial statements.

Note 2. Mergers, Acquisitions and Branching Activity

In September 2007, the Company completed the acquisition of GreenPoint Insurance Group, Inc. (“GreenPoint”), a High Point, North Carolina, insurance agency. In connection with the initial payment of approximately $1.66 million, the Company issued 49,088 shares of common stock. Under the terms of the stock purchase agreement, former shareholders of GreenPoint are entitled to additional consideration aggregating up to $1.45 million in the form of cash or the Company’s common stock, valued at the time of issuance, if certain future operating performance targets are met. If those operating targets are met, the value of the consideration ultimately paid will be added to the cost of the acquisition, which will increase the amount of goodwill related to the acquisition. The acquisition of GreenPoint added $7.19 million of goodwill and intangibles. The Company is in the process of identifying and valuing intangibles. The Company also assumed $5.57 million debt in connection with the acquisition, of which approximately $5.00 million was paid off at closing.

In October 2007, the Company opened a new branch location in Daniels, West Virginia. In March 2007, the Company opened two new branch locations in the Winston-Salem, North Carolina, area. The Company currently has plans to open four more branch offices during the next six months. In Richmond, Virginia, locations are planned for the Chesterfield Towne Center and on Mechanicsville Turnpike, Route 360. In West Virginia, locations are planned for Summersville and Princeton.

In December 2006, the Company completed the sale of its Rowlesburg, West Virginia, branch location. At the time of the sale, the branch had deposits and repurchase agreements totaling approximately $10.6 million and loans of approximately $2.2 million. The transaction resulted in a pre-tax gain of approximately $333 thousand.

In November 2006, the Company completed the acquisition of Investment Planning Consultants, Inc. (“IPC”), a registered investment advisory firm. In connection with the initial payment of approximately $1.47 million, the Company issued 39,874

- 8 -

The following table reflects those investments in an unrealized loss position at ~~March 31,~~September 30, 2007, and December 31, 2006. There were no securities in a continuous unrealized loss position for 12 or more months which the Company does not have the ability to hold until the security matures or recovers in value.


	March 31, 2007															September 30, 2007
	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)	Value		Losses			Value		Losses			Value		Losses
Description of Securities																Fair		Unrealized			Fair		Unrealized			Fair		Unrealized

(In Thousands)																Value		Losses			Value		Losses			Value		Losses
U. S. Government agency securities	$	58,110	$	(390	)	$	56,030	$	(818	)	$	114,140	$	(1,208	)	$	—	$	—		$	29,926	$	(428	)	$	29,926	$	(428	)
States and political subdivisions		48,118		(775	)		34,679		(416	)		82,797		(1,191	)		62,279		(1,721	)		34,524		(566	)		96,803		(2,287	)
Other securities		33,235		(151	)		13,065		(36	)		46,300		(187	)
Corporate Notes																	126,259		(8,479	)		10,375		(141	)		136,634		(8,620	)
Mortgage-backed securities		91,495		(465	)		64,402		(1,265	)		155,897		(1,730	)		97,006		(1,333	)		50,849		(1,043	)		147,855		(2,376	)
Equity securities		2,224		(101	)		1,631		(45	)		3,855		(146	)		1,551		(198	)		1,632		(51	)		3,183		(249	)

Total	$	233,182	$	(1,882	)	$	169,807	$	(2,580	)	$	402,989	$	(4,462	)	$	287,095	$	(11,731	)	$	127,306	$	(2,229	)	$	414,401	$	(13,960	)

amount recognized on the balance sheet. The contractual amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit and financial guarantees written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

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 ~~March 31,~~September 30, 2007, are commitments to extend credit (including availability of lines of credit) of ~~$196.79~~$222.12 million and standby letters of credit and financial guarantees written of ~~$6.66~~$3.23 million. Additionally, the Company had gross notional amount of outstanding commitments to lend related to secondary market mortgage loans of $8.10 million at September 30, 2007.

Note 5. Allowance for Loan Losses

The allowance for loan losses is maintained at a level sufficient to absorb probable loan losses inherent in the loan portfolio. The allowance is increased by charges to earnings in the form of provision for loan losses and recoveries of prior loan charge-offs, and decreased by loans charged off. The 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.

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

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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 First Community Bancshares, Inc.’s (the “Company”) financial condition and results of operations. This discussion and analysis should be read in conjunction with the Company’s 2006 Annual Report on Form 10-K and the other financial information included in this report.

The Company is a multi-state ~~bank~~financial holding company headquartered in Bluefield, Virginia, with total assets of ~~$2.12~~$2.17 billion at ~~March 31,~~September 30, 2007. 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-six~~over fifty locations ~~and four wealth management offices located~~ in the four states of Virginia, West Virginia, North Carolina and Tennessee. The Company is also the parent of GreenPoint Insurance Group, Inc., a North Carolina-based full-service insurance agency offering commercial and personal lines (“GreenPoint”). The Bank is the parent of Investment Planning Consultants, Inc., a SEC-registered investment advisory firm that offers wealth management and investment ~~advice.~~advice (“IPC”). The Company’s common stock is traded on the NASDAQ Global Select 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. These factors are described in greater detail in Item 1A. Risk Factors of the Company’s 2006 Annual Report on Form 10-K.

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 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

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The Company’s accounting policies are fundamental to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operation. The disclosures presented in the Notes to the Consolidated Financial Statements and in Management’s Discussion and 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 the determination of the allowance for loan losses, accounting for acquisitions and intangible assets, and accounting for income taxes as the accounting areas that require the most subjective or complex judgments. The identified critical accounting policies are described in detail in the Company’s 2006 Annual Report on Form 10-K. There have been no material changes in the Company’s critical accounting policies since December 31, 2006.

COMPANY OVERVIEW

The Company is a full service commercial ~~bank~~financial holding company which operates within the four-state region of Virginia, West Virginia, North Carolina, and Tennessee. The Company operates through the Bank, IPC, and GreenPoint, and offers a wide range of financial services. The Company reported total assets of ~~$2.12~~$2.17 billion at ~~March 31, 2007, and operates through fifty-six offices and four wealth management offices.~~September 30, 2007.

The Company funds its lending activities primarily through the retail deposit operations of its branch banking network. Retail and wholesale repurchase agreements and borrowings from the Federal Home Loan Bank (“FHLB”) provide additional funding as 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.

The Company also conducts asset management activities through its Trust and Financial Services Division and its registered investment advisory firm, IPC. These two divisions manage assets with a market value of $844 million. These assets are not assets of the Company, but are managed under various fee-based arrangements as fiduciary or agent.

MERGERS, ACQUISITIONS AND BRANCHING ACTIVITY

In September 2007, the Company acquired GreenPoint, a High Point, North Carolina, insurance agency. As of September 30, 2007, GreenPoint had annualized commission revenues of approximately $4.60 million. In connection with the initial payment of approximately $1.66 million, the Company issued 49,088 shares of common stock. Under the terms of the stock purchase agreement, former shareholders of GreenPoint are entitled to additional consideration aggregating up to $1.45 million in the form of cash or the Company’s common stock, valued at the time of issuance, if certain future operating performance targets are met. If those operating targets are met, the value of the consideration ultimately paid will be added to the cost of the acquisition, which will increase the amount of goodwill related to the acquisition. The acquisition of GreenPoint added $7.19 million of goodwill and intangibles. The Company is in the process of identifying and valuing intangibles. The Company also assumed $5.57 million debt in connection with the acquisition, of which approximately $5.00 million was paid off at closing.

In November 2006, the Company completed the acquisition of ~~Investment Planning Consultants, Inc. (“IPC”),~~IPC, a registered investment advisory firm. In connection with the initial payment of approximately $1.47 million, the Company issued 39,874 shares of common stock. Under the terms of the stock purchase agreement, former shareholders of IPC are entitled to additional consideration aggregating up to $1.43 million in

- 16 -

the form of the Company’s common stock, valued at the time of issuance, if certain future operating performance targets are met. If those operating targets are met, the value of the consideration ultimately paid will be added to the cost of the acquisition, which will increase the amount of goodwill related to the acquisition.

In June 2006, the Company sold its Drakes Branch, Virginia, branch office. At the time of the sale, the branch had deposits and repurchase agreements totaling approximately $16.4 million and loans of approximately $1.9 million. The transaction resulted in a gain of approximately $702 thousand.

~~In March 2007,~~ The sale of this and the ~~Company opened two new~~previously referenced Rowlesburg branch ~~locations in~~were designed to enhance the ~~Winston-Salem, North Carolina. The Company currently has plans to open five more~~efficiency of the Company’s branch offices during 2007. In the Richmond, Virginia, area locations are planned for the Chesterfield Towne Center and Mechanicsville. In West Virginia, locations are planned for Daniels, Summersville, and Princeton. These locations are all in various stages of construction, and are anticipated to be open by the third quarter of 2007.network.

RESULTS OF OPERATIONS

Overview

Net income for the three months ended ~~March 31,~~September 30, 2007, was ~~$7.12~~$7.32 million, or ~~$0.63~~$0.65 per basic and diluted share, compared with ~~$6.84~~$7.19 million or ~~$0.61~~$0.64 per basic and diluted share for the three months ended ~~March 31,~~September 30, 2006, an improvement of $131 thousand, or 1.82%. Return on average assets was 1.34% for the three months ended September 30, 2007, compared with 1.45% for the same period in 2006. Return on average equity for the three months ended ~~March 31,~~September 30, 2007, was ~~13.33%~~13.31% compared ~~to 14.09%~~with 14.05% for the three months ended ~~March 31,~~September 30, 2006.

Net income for the nine months ended September 30, 2007, was $21.88 million, or $1.95 per basic and $1.94 per diluted share, compared with $21.32 million or $1.90 per basic and $1.89 per diluted share for the nine months ended September 30, 2006, an improvement of $558 thousand, or 2.62%. Return on average assets was ~~1.42%~~1.38% for the ~~three~~nine months ended ~~March 31,~~September 30, 2007, ~~and~~compared with 1.45% for the same period in 2006. Return on average equity for the nine months ended September 30, 2007, was 13.40%, compared with 14.29% for the nine months ended September 30, 2006.

~~- 16 -~~

Net Interest Income – Quarterly Comparison (See Table I)

~~Interest~~Net interest income, the largest contributor to earnings, was ~~$30.69~~$17.14 million for the three months ended ~~March 31,~~September 30, 2007, compared ~~to $28.92~~with $17.76 million for the corresponding period in ~~2006.~~2006, a decrease of $613 thousand, or 3.45%. Tax-equivalent net interest income totaled ~~$18.06~~$18.28 million for the three months ended ~~March 31,~~September 30, 2007, a decrease of ~~$1.00 million~~$494 thousand from ~~$19.06~~$18.78 million for the ~~first~~third quarter of 2006. The net decrease was due mostly to increases in rates paid on interest-bearing liabilities which outpaced increases in the rates earned on loans and securities.

Compared towith the ~~first~~third quarter of 2006, average earning assets increased ~~$50.37~~$184.58 million while interest-bearing liabilities increased ~~$58.34~~$194.93 million. The yield on average earning assets ~~increased 22~~decreased by 13 basis points to ~~6.99%~~6.86% from ~~6.77%~~6.99%. Total cost of interest-bearing liabilities increased 6234 basis points ~~during~~between the ~~first quarter~~third quarters of 2006 and 2007, which resulted in a net interest rate spread that was 4047 basis points lower at ~~3.46%~~3.23% compared ~~to 3.86%~~with 3.70% for the same period last year. The Company’s tax-equivalent net interest margin of ~~3.98%~~3.70% for the three months ended ~~March 31,~~September 30, 2007, decreased 3450 basis points from ~~4.32%~~4.20% for the same period of 2006.

The rate earned on loans increased one basis point to ~~7.54%~~7.48% from ~~7.27%, which is attributable~~7.47%. The effect of the September 18, 2007, 50 basis point cut in the target federal funds rate by the Federal Open Market Committee and the associated decline in the prime rate was late enough to not have a material effect on loan yields in the ~~general rise in market rates of interest since the beginning of 2006.~~third quarter. Declines in the average portfolio balances ~~resulted in~~contributed largely to a net ~~$406 thousand~~$1.09 million decrease in tax-equivalent loan interest income compared towith the ~~first~~third quarter of 2006.

The largest contributors to the increase in the tax-equivalent interest income in 2007 were the increases in both average balance and rate earned on the securities portfolio. During the three months ended ~~March 31,~~September 30, 2007, the tax-equivalent yield on available-for-sale securities increased 4819 basis points to ~~5.74%~~5.79%, while the average balance increased by ~~$128.95~~$242.92 million. The average tax-equivalent yield increased due to the addition of higher rate securities and the reduction of lower rate securities. As net payoffs in the loan portfolio are realized, the Company has been reinvesting those ~~liquid~~ funds in securities. The average balance of the held-to-maturity securities portfolio continued to decline as securities matured ~~and~~or were called and were not replaced.

Compared towith the ~~first~~third quarter of 2006, average interest-bearing balances with banks ~~decreased~~increased to ~~$23.22~~$33.54 million during the ~~first~~third quarter of 2007, as the yield increased 6315 basis points to 4.78%. Interest-bearing balances with banks ~~include~~is made up largely of excess liquidity bearing overnight market ~~rates.~~rates and a small portfolio of certificates of deposit. The rate earned on ~~those~~overnight balances has risen along with increases in short-term benchmark interest rates. The balance has increased as the Company experienced higher levels of liquidity during the third quarter.

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Compared towith the same period in 2006, the average balances of interest-bearing demand and savings deposits ~~decreased $507 thousand~~increased $1.29 million and ~~$40.14~~$8.26 million, respectively, for the three months ended ~~March 31,~~September 30, 2007. The average rate paid on interest-bearing demand deposits ~~increased~~decreased by 2one basis ~~points,~~point, while the average rate paid on savings increased 2831 basis points. Average time deposits increased ~~$20.89~~$23.18 million while the average rate paid increased 8343 basis points from ~~3.54%~~4.04% in 2006 to ~~4.37%~~4.47% in 2007. Retail repurchase agreements, which consist of collateralized retail deposits and commercial treasury accounts, increased $24.95 million to $173.63 million, while the rate increased 12 basis points to 3.46%. The level of average non-interest-bearing demand deposits decreased ~~slightly~~$11.08 million to ~~$229.57~~$229.45 million during the quarter ended ~~March 31,~~September 30, 2007, compared towith the corresponding period of the prior year.

The changes in average deposits between the two quarters include the effect of the previously disclosed sale of the Company’s Rowlesburg, West Virginia, branch office. The average deposit balances held by that branch in the third quarter of 2006 totaled $10.71 million.

Compared with the same period in 2006, average federal funds purchased decreased $1.30 million to $751 thousand during the third quarter of 2007. Wholesale repurchase agreements increased $48.91 million, as the Company added approximately $50.00 million of wholesale repurchase agreements funding in the latter part of 2006. The average balance of FHLB borrowings and other long-term debt increased by $91.30 million in 2007 to $291.39 million, while the rate paid on those borrowings decreased 19 basis points. The Company borrowed an additional $100 million in FHLB advances early in the second quarter of 2007 that have a weighted-average cost of 4.18%.

Net Interest Income – Year-to-Date Comparison (See Table II)

Net interest income was $51.17 million for the nine months ended September 30, 2007, compared with $53.99 million for the corresponding period in 2006, a decrease of $2.82 million, or 5.23%. Tax-equivalent net interest income totaled $54.53 million for the nine months ended September 30, 2007, a decrease of $2.47 million from $57.00 million for the first nine months of 2006. The net decrease was due mostly to increases in rates paid on interest-bearing liabilities which outpaced increases in the rates earned on loans and securities.

Compared with the first nine months of 2006, average earning assets increased $123.49 million while interest-bearing liabilities increased $128.01 million. The yield on average earning assets increased one basis point to 6.91% from 6.90%. Total cost of interest-bearing liabilities increased 49 basis points during the first nine months of 2007, which resulted in a net interest rate spread that was 48 basis points lower at 3.32% compared with 3.80% for the same period last year. The Company’s tax-equivalent net interest margin of 3.81% for the nine months ended September 30, 2007, decreased 45 basis points from 4.26% for the same period of 2006.

The rate earned on loans increased to 7.50% from 7.38%, which is attributable to the general rise in market rates of interest since the beginning of 2006. Declines in the average portfolio balances contributed largely to a net $2.59 million decrease in tax-equivalent loan interest income compared with the first nine months of 2006.

The largest contributors to the increase in the tax-equivalent interest income in 2007 were the increases in both average balance and rate earned on the securities portfolio. During the nine months ended September 30, 2007, the tax-equivalent yield on available-for-sale securities increased 30 basis points to 5.76%, while the average balance increased by $198.82 million. The average tax-equivalent yield increased due to the addition of higher rate securities and the reduction of lower rate securities. As net payoffs in the loan portfolio are realized, the Company has been reinvesting those funds in securities. The average balance of the held-to-maturity securities portfolio continued to decline as securities matured or were called and were not replaced.

Compared with the first nine months of 2006, average interest-bearing balances with banks decreased to $29.73 million during the first nine months of 2007, as the yield increased 34 basis points to 4.83%. Interest-bearing balances with banks is made up largely of excess liquidity bearing overnight market rates and a small portfolio of certificates of deposit. The rate earned on those balances has risen along with increases in short-term benchmark interest rates. The balance has decreased as the Company has invested in higher yielding securities.

Compared with the same period in 2006, the average balances of interest-bearing demand and savings deposits decreased $42 thousand and $20.81 million, respectively, for the nine months ended September 30, 2007. The average rate paid on interest-bearing demand deposits increased by one basis point, while the average rate paid on savings increased 27 basis points. Average time deposits increased $21.83 million while the average rate paid increased 65 basis points from 3.79% in 2006 to 4.44% in 2007. Retail repurchase agreements, which consist of collateralized retail deposits and commercial treasury accounts, increased $30.54 million to $167.15 million, while the rate increased 36 basis points to 3.55%. The level of

- 18 -

average non-interest-bearing demand deposits decreased slightly to $231.19 million during the nine months ended September 30, 2007, compared with the corresponding period of the prior year.

The changes in average deposits between the two periods include the effect of the previously disclosed sale of the Company’s Drakes Branch, Virginia, and Rowlesburg, West Virginia, branch offices. The average deposit and repurchase agreement balances held by those two branches in the first ~~quarter~~nine months of 2006 totaled ~~$26.73~~$21.38 million.

Compared towith the same period in 2006, average federal funds purchased ~~and repurchase agreements~~ increased ~~$83.88~~$2.72 million to ~~$214.46~~$5.45 million during the first ~~quarter~~nine months of 2007, while the average rate increased 8728 basis points. ~~The~~Wholesale repurchase agreements increased $49.63 million, as the Company added approximately $50.00 million of wholesale repurchase agreement funding in the latter part of 2006. The average balance of FHLB borrowings and other long-term debt ~~decreased~~increased by ~~$5.77~~$45.99 million in 2007 to ~~$194.27~~$247.43 million, while the rate paid on those borrowings increased 32four basis points. The Company borrowed an additional $100 million in FHLB advances early in the second quarter that have a weighted-average cost of 4.18%.

- 1719 -

Table I

AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS


	Three Months Ended							Three Months Ended							Three Months Ended							Three Months Ended
	March 31, 2007							March 31, 2006							September 30, 2007							September 30, 2006
	Average				Yield/			Average				Yield/			Average				Yield/			Average				Yield/
	Balance		Interest (1)		Rate (1)			Balance		Interest (1)		Rate (1)			Balance		Interest (1)		Rate (1)			Balance		Interest (1)		Rate (1)
	(Dollars in thousands)														(Dollars in Thousands)
ASSETS
Earning Assets:
Loans: (2)
Taxable	$	1,263,816	$	23,497		7.54	%	$	1,333,508	$	23,905		7.27	%	$	1,243,913	$	23,448		7.48	%	$	1,304,500	$	24,562		7.47	%
Tax-exempt		1,812		33		7.39	%		1,572		31		8.00	%		2,617		49		7.43	%		1,339		24		7.11	%

Total		1,265,628		23,530		7.54	%		1,335,080		23,936		7.27	%		1,246,530		23,497		7.48	%		1,305,839		24,586		7.47	%
Securities available for sale:
Taxable		370,897		4,976		5.44	%		251,530		2,873		4.63	%		480,767		6,766		5.58	%		269,061		3,490		5.15	%
Tax-exempt		161,721		2,561		6.42	%		152,136		2,359		6.29	%		185,432		2,949		6.31	%		154,221		2,482		6.39	%

Total		532,618		7,537		5.74	%		403,666		5,232		5.26	%		666,199		9,715		5.79	%		423,282		5,972		5.60	%
Securities held to maturity:
Taxable		382		5		5.31	%		390		5		5.20	%		377		6		6.31	%		385		6		6.18	%
Tax-exempt		19,383		382		7.99	%		22,897		449		7.95	%		12,214		248		8.06	%		20,013		406		8.05	%

Total		19,765		387		7.94	%		23,287		454		7.91	%		12,591		254		8.00	%		20,398		412		8.01	%
Interest-bearing deposits		23,224		274		4.78	%		28,837		295		4.15	%		33,538		404		4.78	%		24,758		289		4.63	%

Total Earning Assets		1,841,235		31,728		6.99	%		1,790,870		29,917		6.77	%		1,958,858		33,870		6.86	%		1,774,277		31,259		6.99	%
Other assets		195,771							168,730							212,178							195,726

TOTAL ASSETS	$	2,037,006						$	1,959,600						$	2,171,036						$	1,970,003


LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits:
Demand deposits	$	145,960	$	112		0.31	%	$	146,467	$	106		0.29	%	$	145,324	$	119		0.32	%	$	144,034	$	120		0.33	%
Savings deposits		319,660		1,674		2.12	%		359,804		1,632		1.84	%		344,866		2,088		2.40	%		336,611		1,773		2.09	%
Time deposits		697,115		7,514		4.37	%		676,229		5,910		3.54	%		698,280		7,876		4.47	%		675,098		6,867		4.04	%

Total interest-bearing deposits		1,162,735		9,300		3.24	%		1,182,500		7,648		2.62	%		1,188,470		10,083		3.37	%		1,155,743		8,760		3.01	%
Federal funds purchased and repurchase agreements		214,455		2,034		3.85	%		130,579		961		2.98	%
Borrowings:
Federal funds purchased																751		10		5.28	%		2,050		14		2.71	%
Retail repurchase agreements																173,630		1,516		3.46	%		148,676		1,250		3.34	%
Wholesale repurchase agreements																50,000		556		4.41	%		1,087		12		4.38	%
FHLB borrowings and other long-term debt		194,271		2,337		4.88	%		200,042		2,249		4.56	%		291,394		3,424		4.66	%		200,096		2,448		4.85	%

Total borrowings																515,775		5,506		4.24	%		351,909		3,724		4.20	%

Total interest-bearing liabilities		1,571,461		13,671		3.53	%		1,513,121		10,858		2.91	%		1,704,245		15,589		3.63	%		1,507,652		12,484		3.29	%

Non-interestbearing demand deposits		229,574							231,630							229,452							240,528
Other liabilities		19,164							17,851							19,290							18,901
Stockholders’ Equity		216,807							196,998							218,049							202,922

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,037,006						$	1,959,600						$	2,171,036						$	1,970,003

Net Interest Income, Tax Equivalent			$	18,057						$	19,059						$	18,281						$	18,775

Net Interest Rate Spread (3)						3.46	%						3.86	%						3.23	%						3.70	%

Net Interest Margin (4)						3.98	%						4.32	%						3.70	%						4.20	%

Table II

AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS


	Nine Months Ended							Nine Months Ended
	September 30, 2007							September 30, 2006
	Average				Yield/			Average				Yield/
	Balance		Interest(1)		Rate(1)			Balance		Interest(1)		Rate(1)
	(Dollars in Thousands)
ASSETS
Loans: (2)
Taxable	$	1,253,069	$	70,325		7.50	%	$	1,321,656	$	72,953		7.38	%
Tax-exempt		2,140		120		7.50	%		1,466		85		7.75	%

Total		1,255,209		70,445		7.50	%		1,323,122		73,038		7.38	%
Securities available for sale:
Taxable		430,792		17,765		5.51	%		259,540		9,581		4.94	%
Tax-exempt		178,980		8,502		6.35	%		151,417		7,208		6.36	%

Total		609,772		26,267		5.76	%		410,957		16,789		5.46	%
Securities held to maturity:
Taxable		379		18		6.35	%		388		17		5.86	%
Tax-exempt		15,792		947		8.02	%		21,289		1,283		8.06	%

Total		16,171		965		7.98	%		21,677		1,300		8.02	%
Interest-bearing deposits		29,726		1,073		4.83	%		31,637		1,063		4.49	%

Total Earning Assets		1,910,878		98,750		6.91	%		1,787,393		92,190		6.90	%
Other assets		203,831							184,092

TOTAL ASSETS	$	2,114,709						$	1,971,485


LIABILITIES
Interest-bearing liabilities:
Demand deposits	$	146,283	$	349		0.32	%	$	146,325	$	338		0.31	%
Savings deposits		329,854		5,537		2.24	%		350,662		5,166		1.97	%
Time deposits		700,006		23,245		4.44	%		678,178		19,229		3.79	%

Total interest-bearng deposits		1,176,143		29,131		3.31	%		1,175,165		24,733		2.81	%
Borrowings:
Federal funds purchased		5,447		229		5.62	%		2,731		109		5.34	%
Retail repurchase agreements		167,154		4,441		3.55	%		136,619		3,257		3.19	%
Wholesale repurchase agreements		50,000		1,651		4.41	%		366		12		4.38	%
FHLB borrowings and other long-term debt		247,428		8,773		4.74	%		201,437		7,083		4.70	%

Total borrowings		470,029		15,094		4.29	%		341,153		10,461		4.10	%

Total interest-bearing liabilities		1,646,172		44,225		3.59	%		1,516,318		35,194		3.10	%

Non-interestbearing demand deposits		231,187							237,517
Other liabilities		19,064							18,175
Stockholders’ Equity		218,286							199,475

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,114,709						$	1,971,485

Net Interest Income, Tax Equivalent			$	54,525						$	56,996

Net Interest Rate Spread (3)						3.32	%						3.80	%

Net Interest Margin (4)						3.81	%						4.26	%


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

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

- 21 -

The following table summarizes the changes in tax-equivalent 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									Three Months Ended									Nine Months Ended
	March 31, 2007,									September 30, 2007									September 30, 2007
	Compared to 2006									Compared to 2006									Compared to 2006
	$ Increase/(Decrease) due to									$ Increase/(Decrease) due to									$ Increase/(Decrease) due to
(Amounts in thousands)	Volume			Rate			Total
(In Thousands)										Volume			Rate			Total			Volume			Rate			Total
Interest Earned On:
Loans (1)	$	(1,272	)	$	866		$	(406	)	$	(1,118	)	$	29		$	(1,089	)	$	(3,747	)	$	1,154		$	(2,593	)
Securities available for sale (1)		1,688			617			2,305			3,248			495			3,743			7,634			1,844			9,478
Securities held to maturity (1)		(69	)		2			(67	)		(158	)		—			(158	)		(332	)		(3	)		(335	)
Interest-bearing deposits with other banks		(62	)		41			(21	)		102			13			115			(64	)		74			10

Total interest-earning assets		285			1,526			1,811			2,074			537			2,611			3,491			3,069			6,560


Interest Paid On:
Demand deposits		—			6			6			1			(2	)		(1	)		—			11			11
Savings deposits		(194	)		236			42			43			272			315			(307	)		678			371
Time deposits		188			1,416			1,604			236			773			1,009			619			3,397			4,016
Fed funds purchased and repurchase agreements		740			333			1,073
Fed funds purchased											(9	)		5			(4	)		108			12			120
Retail repurchase agreements											210			56			266			675			509			1,184
Wholesale repurchase agreements											540			4			544			1,627			12			1,639
FHLB borrowings and other long-term debt		(66	)		154			88			1,117			(141	)		976			1,617			73			1,690

Total interest-bearing liabilities		668			2,145			2,813			2,138			967			3,105			4,339			4,692			9,031


Change in net interest income, tax-equivalent	$	(383	)	$	(619	)	$	(1,002	)	$	(64	)	$	(430	)	$	(494	)	$	(848	)	$	(1,623	)	$	(2,471	)

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 for the ~~first~~third quarter of 2007 was ~~$5.22~~$6.02 million compared ~~to $5.15~~with $5.10 million in the same period of 2006, an increase of ~~1.30%~~$922 thousand, or 18.09%. Wealth management revenues increased ~~$335~~$285 thousand to $908 thousand, reflective of the additional revenues generated by the IPC acquisition. Service charges on deposit accounts increased $395 thousand, or 15.13%, to $3.01 million. Other service charges, commissions, and fees increased $152 thousand, or 20.27%. Other operating income was relatively even at $1.15 million, an increase of $34 thousand compared with 2006.

Non-interest income for the first nine months of 2007 was $16.78 million compared with $15.77 million in 2006, an increase of $1.02 million, 6.44%. Wealth management revenues increased $893 thousand to $2.93 million, also reflective of the addition of IPC. In the first ~~quarter~~nine months of 2007, ~~other~~service charges on deposit accounts increased $394 thousand, or 5.13%, to $8.08 million. Other service charges, commissions, and fees increased ~~$130~~$408 thousand, or ~~17.57%, compared to the same period of 2006.~~18.54%. Other operating income was ~~$789 thousand,~~$2.96 million, a decrease of ~~$359~~$828 thousand compared towith 2006. ~~However,~~The first ~~quarter~~nine months of 2006 included a $702 thousand gain on the sale of the Drakes Branch, Virginia, banking office and a $676 thousand partial recovery from a ~~decade-old payment systems fraud.~~fraud claim that is more than a decade old.

During the third quarter and first ~~quarter~~nine months of 2007, securities gains of ~~$129~~$50 thousand and $209 thousand, respectively, were realized, compared with ~~$160~~a loss of $6 thousand and a gain of $60 thousand in the ~~first quarter of~~respective comparable periods in 2006.

Non-interest Expense

Non-interest expense totaled ~~$12.16~~$12.84 million for the quarter ended ~~March 31,~~September 30, 2007, ~~decreasing $1.18 million,~~an increase of $623 thousand, or ~~8.81%~~5.10%, from the same period in 2006. Salaries and benefits for the current quarter increased $393 thousand compared to 2006. Within that increase, actual wages increased only $88 thousand, or 1.61%, from 2006. Increases in executive retirement plan accruals, incentive compensation accruals, and commissions expense made up the remainder of the increase. Other non-interest expense total $4.41 million for the third quarter of 2007, an increase of $346 thousand, or 8.51%, from $4.06 million for the third quarter of 2006. The ~~quarterly~~increase between comparable periods is due mostly to increases in legal expense and new account promotions. Occupancy and furniture and fixtures expenses remained relatively stable between the comparable periods.

Year-to-date non-interest expense totaled $37.07 million compared with $38.13 million for the same period in 2006, a decrease of $1.07 million, or 2.79%. The decrease is the result of the Company’s ~~continuing efforts~~measures to control ~~costs. First~~costs and capture efficiencies available from recent acquisitions and changes in the Company’s organization structure. Those cost control efforts began in earnest in the second quarter of 2006 and focused on consolidation of backroom operations and a reduction of branch staffing levels. The results of those cost control measures are decreases in year-to-date salaries and benefits ~~decreased $1.49~~of $1.71 million, or ~~18.86%~~8.23%, from the comparable prior year period. ~~All other~~Occupancy and furniture and fixtures expenses, as well as intangible amortization, remained relatively stable between the comparable periods. Other operating expenses increased ~~only $315~~$870 thousand, or 7.69%, between the comparable ~~periods.~~periods, and include the aforementioned increases in legal and new account promotion expenses as well as certain consulting expenses associated with changes in the Company’s retail operations.

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 income on state and municipal securities which are exempt from federal income tax, certain dividend payments which are deductible by the Company, and tax credits generated by investments in low income housing and historic rehabilitations.

For the ~~first~~third quarter of 2007, income taxes were ~~$2.95~~$3.01 million compared ~~to $2.63~~with $2.88 million for the ~~first~~third quarter of 2006. For the quarters ended ~~March 31,~~September 30, 2007 and 2006, the effective tax rates were ~~29.27%~~29.16% and ~~27.74%~~28.59%, respectively. For the first nine months of 2007, income taxes were $9.01 million compared with $8.51 million for the first nine months of 2006.

- 23 -

For the nine-month periods ended September 30, 2007 and 2006, the effective tax rates were 29.16% and 28.52%, respectively. The effective tax rate was higher during the ~~current quarter~~first nine months of 2007 due mostly to lower ~~proportions~~levels of ~~tax-free municipal security interest income~~available tax credits than in the comparable ~~periods~~period of 2006.

FINANCIAL CONDITION

Total assets at ~~March 31,~~September 30, 2007, increased ~~$82.10~~$140.95 million to ~~$2.12~~$2.17 billion from December 31, 2006, an annualized growth rate of ~~16.37%~~9.27%. The growth reflects ~~increases in short-term funding sources,~~deposit growth, capitalized earnings, and additional borrowings, which were ~~invested~~deployed in various ~~debt securities. Subsequent to quarter end, the Company borrowed an additional $100 million in FHLB advances with attractive interest rates, which replaced the short-term funding.~~fixed income investments.

Securities

Available-for-sale securities were ~~$612.98~~$671.36 million at ~~March 31,~~September 30, 2007, compared towith $508.37 million at December 31, 2006, an increase of ~~$104.61~~$162.99 million. The Company has continued to reinvest net paydowns from the loan portfolio ~~in additional~~through the purchase of state and federal securities, various mortgage-backed securities, and single-issue and pooled trust preferred securities.

Held-to-maturity securities declined to ~~$19.27~~$12.55 million at ~~March 31,~~September 30, 2007, reflective of continuing paydowns, maturities, and calls within the portfolio. The market value of investment securities held-to-maturity was ~~101.37%~~101.82% and 101.65% of book value at ~~March 31,~~September 30, 2007, and December 31, 2006, respectively.

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-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,~~September 30, 2007, 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.

~~- 20 -~~

Loan Portfolio

Loans Held for Sale:The ~~$1.07~~$2.29 million balance of loans held for sale at ~~March 31,~~September 30, 2007, represents 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,~~September 30, 2007, was ~~$11.44~~$8.10 million on 7461 loans.

Loans Held for Investment:Total loans held for investment were ~~$1.26~~$1.24 billion at ~~March 31,~~September 30, 2007, ~~a slight decline~~declines of $45.66 million and $60.01 million from ~~$1.28 billion at~~ December 31 and September 30, 2006, ~~and $1.33 billion at March 31, 2006.~~respectively. The average loan to deposit ratio decreased to ~~90.90%~~87.91% for the ~~first~~third quarter of 2007, compared towith 92.97% for the fourth quarter of 2006 and ~~94.41%~~93.52% for the ~~first~~third quarter of 2006. The 2007 year-to-date average loans of ~~$1.27~~$1.26 billion decreased ~~$69.45~~$67.91 million when compared towith the average for the first ~~three~~nine months of 2006 of ~~$1.34~~$1.32 billion.

Over the course of the last three years, the Company has taken aggressive measures to tighten its commercial underwriting standards. The more stringent underwriting has led to excellent credit quality, but coupled with the loss of commercial loan officers has resulted in the decreases in the loan portfolio. The Company also continues to realize net payoffs in the area consumer finance, as it competes with credit card lenders.

- 24 -

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,~~September 30, 2007, December 31, 2006, and ~~March 31,~~September 30, 2006.


	March 31, 2007					December 31, 2006					March 31, 2006					September 30, 2007					December 31, 2006					September 30, 2006
(Dollars in thousands)	Amount		Percent			Amount		Percent			Amount		Percent
(Dollars in Thousands)																Amount		Percent			Amount		Percent			Amount		Percent
Loans Held for Investment
Commercial and agricultural	$	99,960		7.94	%	$	106,645		8.30	%	$	107,995		8.12	%	$	94,168		7.60	%	$	106,645		8.30	%	$	105,624		8.13	%
Commercial real estate		414,696		32.94	%		421,067		32.77	%		439,635		33.06	%		396,147		31.97	%		421,067		32.77	%		425,622		32.76	%
Residential real estate		499,621		39.69	%		506,370		39.41	%		512,776		38.56	%		500,760		40.41	%		506,370		39.41	%		509,940		39.25	%
Construction		154,440		12.27	%		158,566		12.34	%		165,271		12.44	%		167,089		13.48	%		158,566		12.34	%		160,840		12.38	%
Consumer		86,506		6.87	%		88,666		6.90	%		101,807		7.66	%		77,724		6.27	%		88,666		6.90	%		95,000		7.31	%
Other		3,624		0.29	%		3,549		0.28	%		2,182		0.16	%		3,319		0.27	%		3,549		0.28	%		2,194		0.17	%

Total	$	1,258,847		100.00	%	$	1,284,863		100.00	%	$	1,329,666		100.00	%	$	1,239,207		100.00	%	$	1,284,863		100.00	%	$	1,299,220		100.00	%


Loans Held for Sale	$	1,068				$	781				$	848				$	2,294				$	781				$	1,046

At ~~March 31,~~September 30, 2007, non-accrual loans ~~increased $261~~decreased $944 thousand from December 31, 2006, and ~~increased $1.56 million~~decreased $788 thousand from ~~March 31,~~September 30, 2006. 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 was ~~$600~~$211 thousand at ~~March 31,~~September 30, 2007, and is carried at the lesser of estimated net realizable value or cost.

Deposits and Other Borrowings

Total deposits increased by ~~$24.81~~$8.27 million during the first ~~three~~nine months of 2007. Non interest-bearing demand deposits decreased by ~~$2.52~~$20.47 million and interest-bearing demand deposits increased ~~$8.16~~$3.14 million. Savings increased ~~$7.78~~$30.78 million and time deposits ~~increased $11.40~~decreased $5.18 million.

Securities sold under repurchase agreements increased ~~$19.01~~$25.60 million in the first ~~three~~nine months of ~~2007.~~2007 to $226.78 million. There were ~~$45.00~~$15.60 million inof federal funds purchased outstanding at September 30, 2007.

The Company borrowed an additional $100.00 million in FHLB advances during the second quarter. The weighted-average interest rate of the 10-year callable advances is 4.18%. The advances effectively refinanced and lowered the borrowing cost

- 25 -

of the federal funds purchased position of $45.00 million at March 31, 2007. The remaining funds were invested in securities and deposited in bank accounts bearing interest rates approximating the target federal funds rate.

Stockholders’ Equity

Total stockholders’ equity increased ~~$5.11~~$4.43 million from December 31, 2006, as the Company continued to balance capital adequacy and returns to stockholders. The increase in equity was due mainly to net earnings of ~~$7.12~~$21.88 million, less dividends paid to stockholders of ~~$3.04~~$9.09 million, net ~~changes~~increases of ~~$800 thousand to~~$2.13 million in treasury stock, and other comprehensive ~~income~~loss of ~~$263 thousand.~~$6.22 million.

The Company repurchased 108,300 shares in the third quarter of 2007 and a total of 163,500 shares since December 31, 2006. The share repurchases are part of an overall treasury share repurchase plan. The Company has availability under the plan to purchase approximately 226,532 additional shares.

Risk-based capital guidelines and the 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 ~~March 31,~~September 30, 2007, the Company’s total capital to risk-weighted assets ratio was ~~13.03%~~12.01% versus 12.69% at December 31, 2006. The Company’s Tier 1 capital to risk-weighted assets ratio was ~~12.00%~~11.37% at ~~March 31,~~September 30, 2007, compared towith 11.60% at December 31, 2006. The Company’s Tier 1 leverage ratio at ~~March 31,~~September 30, 2007, was ~~8.62%~~8.02% compared towith 8.50% at December 31, 2006. All of the Company’s regulatory capital ratios exceed the current well-capitalized levels prescribed for banks.

- 2226 -

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

Liquidity and Capital Resources

At ~~March 31,~~September 30, 2007, the Company maintained a significant level of liquidity in the form of cash and cash equivalent balances of ~~$59.48~~$59.30 million, investment securities available-for-sale of ~~$612.98~~$671.36 million, and FHLB credit availability of approximately ~~$184.55~~$143.41 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 (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 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, 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 net interest income given the current interest rate environment.

The Company’s primary component of operational revenue, 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 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 interest rate risk exposure to insulate net interest income and net earnings from fluctuations in the general level of interest rates. To measure its exposure to interest rate risk, quarterly simulations of net interest income are performed using financial models that project net interest income through a range of possible interest rate environments including rising, declining, most likely and flat rate scenarios. 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 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 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 management’s strategies. However, the earnings simulation model is currently the best tool available to management for managing interest rate risk.

Specific strategies for management of 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 repricing structures to mitigate the potential exposure. Based upon the latest simulation, the Company believes that it has shifted ~~slightly~~more towards a liability

- 2327 -

sensitive position. Absent adequate management, liability sensitive positions can negatively impact net interest income in a rising rate environment, or alternatively, positively impact net interest income in a declining 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 net interest income for the next twelve months based on a comparison of net interest income simulations in various interest rate scenarios. In addition, the policy addresses exposure limits to changes in the economic value of 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 projected impact on the next twelve ~~month’s~~months’ net interest income and the economic value of equity as of ~~March 31,~~September 30, 2007, and December 31, 2006, of immediate and sustained rate shocks in the interest rate environments of plus and minus 100 and 200 basis points from the base simulation, assuming no remedial measures are ~~affected.~~effected.

Rate Sensitivity Analysis


(Dollars in thousands)	March 31, 2007
(Dollars in Thousands)													September 30, 2007
	Change in						Change in						Change in						Change in
Increase (Decrease) in	Net Interest			%			Econcomic Value			%			Net Interest			%			Econcomic Value			%
Interest Rates (Basis Points)	Income			Change			of Equity			Change			Income			Change			of Equity			Change

200	$	(3,222	)		(4.3	)	$	(29,987	)		(9.8	)	$	(5,833	)		(7.8	)	$	(40,051	)		(12.4	)
100		(1,503	)		(2.0	)		(15,214	)		(5.0	)		(2,929	)		(3.9	)		(23,000	)		(7.1	)
(100)		464			0.6			(2,029	)		(0.7	)		1,410			1.9			(3,027	)		(0.9	)
(200)		(324	)		(0.4	)		(14,146	)		(4.6	)		1,372			1.8			(17,264	)		(5.4	)

PART I. ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) along with the Company’s Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures pursuant to the Securities Exchange Act of 1934 (“Exchange Act”) Rule 13a-15(b). Based on that evaluation, the Company’s CEO along with the Company’s CFO concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.

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

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal controls over financial reporting during the quarter ended ~~March 31,~~September 30, 2007, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. For management’s assessment over financial reporting, refer to the Company’s Annual Report on Form 10-K, “Management’s Assessment of Internal Control Over Financial Reporting.”

- 2529 -

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is currently a defendant in various legal actions and asserted claims 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, 2006.

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

(a) Not Applicable

(b) Not Applicable

The following table sets forth open market purchases by the Company of its equity securities during the three months ended ~~March 31,~~September 30, 2007.

~~Maximum~~

~~Total Number of~~

~~Number of~~

~~Total # of~~

~~Average~~

~~Shares Purchased~~

~~Shares That May~~

~~Shares~~

~~Price Paid~~

~~as Part of Publicly~~

~~Yet be Purchased~~

~~Purchased~~

~~per Share~~

~~Announced Plan~~

~~Under the Plan~~

~~January 1-31, 2007~~

—

~~302,430~~

~~February 1-28, 2007~~

—

~~319,534~~

~~March 1-31, 2007~~

—

~~322,284~~

~~Total~~

—


							Maximum
					Total Number of		Number of
	Total # of		Average		Shares Purchased		Shares That May
	Shares		Price Paid		as Part of Publicly		Yet be Purchased
	Purchased		per Share		Announced Plan		Under the Plan
July 1-31, 2007		27,500	$	29.60		27,500		258,244
August 1-31, 2007		48,300		29.45		48,300		209,944
September 1-30, 2007		32,500		32.90		32,500		226,532

Total		108,300	$	30.52		108,300

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 held ~~227,716~~323,468 shares in treasury at ~~March 31,~~September 30, 2007.

ITEM 3. Defaults Upon Senior Securities

Not Applicable

~~- 26 -~~

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

	~~(a)~~		~~The Annual Meeting of Stockholders was held on April 24, 2007.~~

	~~(b)~~		~~The following directors were elected to serve a three-year term through the date of the 2010 Annual Meeting of Stockholders:~~

			~~Allen T. Hamner, B. W. Harvey, John M. Mendez~~

			~~The following directors’ terms continued after the Annual Meeting:~~

			~~Harold V. Groome, Jr., I. Norris Kantor, A. A. Modena, Robert E. Perkinson, Jr., William P. Stafford, and William P. Stafford, II~~

	~~(c)~~		Three proposals were voted upon at the annual meeting, which included: 1) the election of the aforementioned directors as the Class of 2010; 2) amend the Articles of Incorporation to allow director nominees over the age of 70 to stand for election or re-election to the Board of Directors, and 3) ratification of the selection of Dixon Hughes PLLC, Asheville, North Carolina, as independent registered public accountants for the year ending December 31, 2007. The results of the proposals and voting are as follows:


~~Proposal 1.~~		~~Election of Directors:~~

Votes
Votes For Withheld
Allen T. Hamner 8,701,174 223,195
B. W. Harvey 8,477,036 447,333
John M. Mendez 8,705,538 218,831


~~Proposal 2.~~		~~Amendment of the Articles of Incorporation to allow director nominees over the age of 70 to stand for election or re-election to the Board of Directors~~


~~Votes For~~			~~7,924,086~~
~~Votes Against~~			~~909,702~~
~~Votes Abstained~~			~~78,429~~
~~Broker Non-votes~~			~~12,512~~


~~Proposal 3.~~		~~Ratification of the selection of Dixon Hughes PLLC as independent registered public accountants:~~


~~Votes For~~			~~8,799,141~~
~~Votes Against~~			~~87,466~~
~~Votes Abstained~~			~~37,762~~

Not Applicable

ITEM 5. Other Information

Not Applicable

- 2730 -

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. (17)

	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 First Community Bancshares, Inc. 1999 Stock Option Plan. (11)

	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 19, 2004). (14)

	10.7	—	First Community Bancshares, Inc. Wrap Plan. (7)

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

	10.9	—	Form of Indemnification Agreement between First Community Bancshares, 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)

	10.11	—	Reserved.

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

	10.13	—	Reserved.

	10.14	—	First Community Bancshares, Inc. Directors Deferred Compensation Plan. (7)

	10.15	—	First Community Bancshares, Inc. Deferred Compensation and Supplemental Bonus Plan For Key
			Employees. (15)

	31.1	—	Rule 13a-14(a)/a5d-14(a) Certification of Chief Executive Officer

	31.2	—	Rule 13a-14(a)/a5d-14(a) Certification of Chief Financial Officer

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

- 2831 -


(1)		~~Reserved.~~Incorporated by reference from the Quarterly Report on Form 10-Q for the period ended March 31, 2007, filed on May 10, 2007.

(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 Item 1.01 of the Current Report on Form 8-K dated August 22, 2006, and filed August 23, 2006.

(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.~~Reserved.

(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, E. Stephen Lilly, ~~and~~ David D. ~~Brown.~~Brown, and Gary R. Mills. 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.

(15)		Incorporated by reference from Item 1.01 of the Current Report on Form 8-K dated October 24, 2006, and filed October 25, 2006.

(16)		Reserved.

(17)		Incorporated by reference from the Quarterly Report on Form 10-Q for the period ended September 30, 2006, filed on November 8, 2006.

(18)		Reserved.

- 2932 -


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Consolidated Balance Sheets as of ~~March 31,~~September 30, 2007 (Unaudited), and December 31, 2006			3
Consolidated Statements of Income for the ~~Three-Month~~Three- and Nine-Month Periods Ended ~~March 31,~~September 30, 2007 and 2006 (Unaudited)			4
Consolidated Statements of Cash Flows for the ~~Three-Month Periods~~Nine Months Ended ~~March 31,~~September 30, 2007 and 2006 (Unaudited)			5
Consolidated Statements of Changes in Stockholders’ Equity for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2007 and 2006 (Unaudited)			6
Notes to Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15

Item 3. Quantitative and Qualitative Disclosures about Market Risk			2327

Item 4. Controls and Procedures			2529

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			2630

Item 1A. Risk Factors			2630

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			2630

Item 3. Defaults Upon Senior Securities			2630

Item 4. Submission of Matters to a Vote of Security Holders			2730

Item 5. Other Information			2730

Item 6. Exhibits			2831

SIGNATURES			3033

EXHIBIT INDEX			3134
~~EX-3(I)~~Exhibit 31.1
~~EX-31.1~~Exhibit 31.2
~~EX-31.2~~
~~EX-32~~Exhibit 32


	March 31, 2007									September 30, 2007
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
(Amounts in thousands)	Cost		Gains		Losses			Value
(In Thousands)										Cost		Gains		Losses			Value
U.S. Government agency securities	$	137,781	$	102	$	(1,208	)	$	136,675	$	136,788	$	292	$	(428	)	$	136,652
States and political subdivisions		188,476		2,265		(1,189	)		189,552		187,661		1,632		(2,285	)		187,008
Corporate notes		85,031		559		(186	)		85,404		164,880		—		(8,620	)		156,260
Mortgage-backed securities		193,472		339		(1,730	)		192,081		183,553		398		(2,376	)		181,575
Equities		7,580		1,831		(146	)		9,265		8,282		1,832		(249	)		9,865

Total	$	612,340	$	5,096	$	(4,459	)	$	612,977	$	681,164	$	4,154	$	(13,958	)	$	671,360


	December 31, 2006
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U.S. Government agency securities	$	117,777	$	—	$	(1,716	)	$	116,061
States and political subdivisions		152,189		2,379		(521	)		154,047
Corporate notes		85,080		350		(397	)		85,033
Mortgage-backed securities		146,444		206		(1,896	)		144,754
Equities		6,933		1,615		(73	)		8,475

Total	$	508,423	$	4,550	$	(4,603	)	$	508,370


	December 31, 2006
	Less than 12 Months					12 Months or longer					Total					December 31, 2006
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Less than 12 Months					12 Months or longer					Total
	Value		Losses			Value		Losses			Value		Losses			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities																Value		Losses			Value		Losses			Value		Losses

U. S. Government agency securities	$	60,416	$	(517	)	$	55,645	$	(1,199	)	$	116,061	$	(1,716	)	$	60,416	$	(517	)	$	55,645	$	(1,199	)	$	116,061	$	(1,716	)
States and political subdivisions		10,732		(34	)		36,797		(489	)		47,529		(523	)		10,732		(34	)		36,797		(489	)		47,529		(523	)
Other securities		28,339		(213	)		27,698		(185	)		56,037		(398	)
Corporate Notes																	28,339		(213	)		27,698		(185	)		56,037		(398	)
Mortgage-backed securities		50,093		(223	)		66,620		(1,673	)		116,713		(1,896	)		50,093		(223	)		66,620		(1,673	)		116,713		(1,896	)
Equity securities		2,186		(70	)		32		(3	)		2,218		(73	)		2,186		(70	)		32		(3	)		2,218		(73	)

Total	$	151,766	$	(1,057	)	$	186,792	$	(3,549	)	$	338,558	$	(4,606	)	$	151,766	$	(1,057	)	$	186,792	$	(3,549	)	$	338,558	$	(4,606	)


	For the Three Months Ended						For the Three Months Ended						For the Nine Months Ended
	March 31,						September 30,						September 30,
(Amounts in thousands)	2007			2006
(In Thousands)							2007			2006			2007			2006
Allowance for loan losses
Beginning balance	$	14,549		$	14,736		$	13,934		$	14,710		$	14,549		$	14,736
Provision for loan losses		—			408			—			579			—			1,798
Charge-offs		(893	)		(715	)		(1,009	)		(832	)		(2,813	)		(2,936	)
Recoveries		854			368			265			489			1,454			1,348

Net charge-offs		(39	)		(347	)		(744	)		(343	)		(1,359	)		(1,588	)

Ending balance	$	14,510		$	14,797		$	13,190		$	14,946		$	13,190		$	14,946


	March 31		December 31,		September 30,		December 31,
(Amounts in thousands)	2007		2006
(In Thousands)					2007		2006
Interest-bearing demand deposits	$	148,735	$	140,578	$	143,719	$	140,578
Savings deposits		325,454		317,678		348,457		317,678
Certificates of deposit		703,141		691,744		686,564		691,744

Total	$	1,177,330	$	1,150,000	$	1,178,740	$	1,150,000


			Votes
	Votes For		Withheld
Allen T. Hamner		8,701,174		223,195
B. W. Harvey		8,477,036		447,333
John M. Mendez		8,705,538		218,831


~~First Community Bancshares, Inc.~~

~~DATE: May 10, 2007~~

/s/ John M. Mendez John M. Mendez
President & Chief Executive Officer
(Principal Executive Officer)

DATE: ~~May 10,~~November 9, 2007

/s/ David D. Brown David D. Brown
Chief Financial Officer
(Principal Accounting Officer)


Exhibit No.		Exhibit

~~3(i)~~		~~Articles of Incorporation of First Community Bancshares, Inc., as amended~~

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 pursuant to 18 USC Section 1350