FIRST COMMUNITY BANKSHARES INC /VA/ - Annual Report: 2010 (Form 10-K)

Unassociated Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2010

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)		(I.R.S. Employer Identification No.)

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

Registrant’s telephone number, including area code: (276) 326-9000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of exchange on which registered
Common Stock, $1.00 par value		NASDAQ Global Select

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨	Yes	þ	No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

¨	Yes	þ	No

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

þ	Yes	¨	No

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

¨	Yes	¨	No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer	¨		Accelerated filer	þ

Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨

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

¨	Yes	þ	No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

Approximately $198.96 million based on the closing sales price at June 30, 2010.

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

Class – Common Stock, $1.00 Par Value; 17,868,673 shares outstanding as of March 1, 2011.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the annual meeting of shareholders to be held on April 26, 2011, are incorporated by reference in Part III of this Form 10-K.

Table of Contents

		Page
	Part I

Item 1.	Business	3
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	19
Item 3.	Legal Proceedings	19
Item 4.	Reserved	19

	Part II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6.	Selected Financial Data	22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 8.	Financial Statements and Supplementary Data	48
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	98
Item 9A.	Controls and Procedures	98
Item 9B.	Other Information	99

	Part III

Item 10.	Directors, Executive Officers and Corporate Governance	99
Item 11.	Executive Compensation	100
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	100
Item 13	Certain Relationships and Related Transactions, and Director Independence	101
Item 14.	Principal Accounting Fees and Services	101

	Part IV

Item 15.	Exhibits, Financial Statement Schedules	101
	Signatures	104

PART I

ITEM 1.

Business.

Corporate Overview

First Community Bancshares, Inc. (the “Company”) is a financial holding company incorporated in the State of Nevada and serves as the holding company for First Community Bank, N. A. (the “Bank”). The Company also owns GreenPoint Insurance Group, Inc. (“GreenPoint”), a full-service insurance agency. The Bank owns Investment Planning Consultants (“IPC”), an investment advisory firm.

The Company’s banking operations are expected to remain the principal business and major source of revenue for the Company. The Company also considers and evaluates options for growth and expansion of the existing subsidiary banking operations. Although the Company is a corporate entity, legally separate and distinct from its affiliates, bank holding companies, such as the Company, are required to act as a source of financial strength for their subsidiary banks. The principal source of the Company’s income is dividends from the Bank. Dividend payments by the Bank are determined in relation to earnings, asset growth, and capital position and are subject to certain restrictions by regulatory agencies as described more fully under “Regulation and Supervision – The Bank” of this item.

Business Overview

Through its subsidiaries, the Company offers commercial and consumer banking services and products, as well as wealth management and insurance services. Those products and services include the following:

demand deposit accounts, savings and money market accounts, certificates of deposit, and individual retirement arrangements

commercial, consumer, real estate mortgage loans, and lines of credit

various debit card and automated teller machine card services

corporate and personal trust services

investment management services

life, health, and property and casualty insurance products

The Company provides financial services and conducts banking operations within the states of Virginia, West Virginia, North and South Carolina, and Tennessee. The Company serves a diverse customer base consisting of individual consumers and a wide variety of industries, including, among others, manufacturing, mining, services, construction, retail, healthcare, military and transportation. The Company is not dependent upon any single industry or customer. The Company had total consolidated assets of $2.24 billion at December 31, 2010, and conducts its banking operations through fifty-seven locations.

Operating Segments

The Company’s operations are managed along two reportable business segments consisting of community banking and insurance services. See Note 19 – Segment Information in the Notes to the Consolidated Financial Statements included in Item 8 hereof.

Competition

There is significant competition among banks in the Company’s market areas. In addition, the Company also competes with other providers of financial services, such as thrifts, savings and loan associations, credit unions, consumer finance companies, securities firms, insurance companies, insurance agencies, commercial finance and leasing companies, full service brokerage firms, and discount brokerage firms. Some of the Company’s competitors have greater resources and, as such, may have higher lending limits and may offer other services that are not provided by the Company. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Overview – Competition” in Item 7 hereof.

Employees

The Company and its subsidiaries employed 683 full-time equivalent employees at December 31, 2010. Management considers employee relations to be excellent.

Regulation and Supervision

General

The supervision and regulation of the Company and its subsidiaries by the banking agencies is intended primarily for the protection of depositors, the Deposit Insurance Fund (“DIF”) of the Federal Deposit Insurance Corporation (“FDIC”), and the banking system as a whole, and not for the protection of stockholders or creditors. The banking agencies have broad enforcement power over bank holding companies and banks, including the power to impose substantial fines and other penalties for violations of laws and regulations.

The following description summarizes some of the laws to which the Company and the Bank are subject. References in the following description to applicable statutes and regulations are brief summaries of these statutes and regulations, do not purport to be complete, and are qualified in their entirety by reference to such statutes and regulations. A change in statutes, regulations or regulatory policies applicable to the Company and its subsidiaries could have a material effect on the business of the Company.

Dodd-Frank Act

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act will likely result in dramatic changes across the financial regulatory system, some of which become effective immediately and some of which will not become effective until various future dates. Implementation of the Dodd-Frank Act will require many new rules to be made by various federal regulatory agencies over the next several years. Uncertainty remains until final rulemaking is complete as to the ultimate impact of the Dodd-Frank Act, which could have a material adverse impact either on the financial services industry as a whole or on the Bank’s business, results of operations, and financial condition. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits, and interchange fees could increase the costs associated with deposits and place limitations on certain revenues those deposits may generate. The Dodd-Frank Act includes provisions that, among other things, will:

Centralize responsibility for consumer financial protection by creating a new agency, the Bureau of Consumer Financial Protection (“CFPB”), responsible for implementing, examining, and enforcing compliance with federal consumer financial laws. In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB.

Create the Financial Stability Oversight Council that will recommend to the Federal Reserve Board increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity.

Provide mortgage reform provisions regarding a customer’s ability to repay, restricting variable-rate lending by requiring that the ability to repay variable-rate loans be determined by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans, new disclosures, and certain other revisions.

Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminate the ceiling on the size of the DIF, and increase the floor on the size of the DIF, which generally will require an increase in the level of assessments for institutions with assets in excess of $10 billion.

Make permanent the $250 thousand limit for federal deposit insurance and provide unlimited federal deposit insurance until January 1, 2013, for noninterest-bearing demand transaction accounts at all insured depository institutions.

Restrict the preemption of state law by federal law and disallow subsidiaries and affiliates of national banks, such as the Bank, from availing themselves of such preemption.

Require the Office of the Comptroller of the Currency (the “OCC”) to seek to make its capital requirements for national banks, such as the Bank, countercyclical so that capital requirements increase in times of economic expansion and decrease in times of economic contraction.

Require financial holding companies, such as the Company, to be well capitalized and well managed as of July 21, 2011. Bank holding companies and banks must also be both well capitalized and well managed in order to acquire banks located outside their home state.

Mandate certain corporate governance and executive compensation matters be implemented, including (i) an advisory vote on executive compensation by a public company’s stockholders; (ii) enhancement of independence requirements for compensation committee members; (iii) adoption of incentive-based compensation clawback policies for executive officers; and (iv) adoption of proxy access rules allowing stockholders of publicly traded companies to nominate candidates for election as a director and have those nominees included in a company's proxy materials.

Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transactions accounts.

Amend the Electronic Fund Transfer Act to, among other things, give the Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer.

Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company, its customers or the financial industry more generally. Some of the rules that have been proposed and, in some cases, adopted to comply with the Dodd-Frank Act’s mandates are discussed below.

The Company

The Company is a financial holding company pursuant to the Gramm-Leach-Bliley Act (“GLB Act”) and a bank holding company registered under the Bank Holding Company Act of 1956, as amended (“BHCA”). Accordingly, the Company is subject to supervision, regulation and examination by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”). The BHCA, the GLB Act, and other federal laws subject financial and bank holding companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations. The BHCA generally provides for “umbrella” regulation of financial holding companies, such as the Company, by the Federal Reserve Board, and for functional regulation of banking activities by bank regulators, securities activities by securities regulators, and insurance activities by insurance regulators.

Regulatory Restrictions on Dividends; Source of Strength. It is the policy of the Federal Reserve Board that bank holding companies should pay cash dividends on common stock only from income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividends that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiaries.

Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to each of its banking subsidiaries and commit resources to their support. The Dodd-Frank Act codified this policy as a statutory requirement. Under this requirement, the Company is expected to commit resources to support the Bank, including at times when the Company may not be in a financial position to provide such resources. As discussed below, a bank holding company in certain circumstances could be required to guarantee the capital plan of an undercapitalized banking subsidiary.

Scope of Permissible Activities. Under the BHCA, bank holding companies generally may not acquire a direct or indirect interest in or control of more than 5% of the voting shares of any company that is not a bank or bank holding company or engage in activities other than those of banking, managing or controlling banks or furnishing services to or performing services for its subsidiaries, except that it may engage in, directly or indirectly, certain activities that the Federal Reserve Board determined to be closely related to banking or managing and controlling banks as to be a proper incident thereto.

Notwithstanding the foregoing, the GLB Act eliminated the barriers to affiliations among banks, securities firms, insurance companies and other financial service providers and permits bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. The GLB Act defines “financial in nature” to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities and activities that the Federal Reserve Board has determined to be closely related to banking. No regulatory approval is generally required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.

Under the GLB Act, a bank holding company may become a financial holding company by filing a declaration with the Federal Reserve Board if each of its subsidiary banks is well-capitalized under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) prompt corrective action provisions, is well managed and has at least a satisfactory rating under the Community Reinvestment Act of 1977 (“CRA”). The Company elected financial holding company status in December 2006. Beginning in July 2011, the Company’s financial holding company status will also depend upon it maintaining its status as “well capitalized” and “well managed’ under applicable Federal Reserve Board regulations. If a financial holding company ceases to meet these requirements, the Federal Reserve Board may impose corrective capital and/or managerial requirements on the financial holding company and place limitations on its ability to conduct the broader financial activities permissible for financial holding companies. In addition, the Federal Reserve Board may require divestiture of the holding company’s depository institutions if the deficiencies persist.

Anti-Tying Restrictions. Bank holding companies and their affiliates are prohibited from tying the provision of certain services, such as extensions of credit, to other services offered by a holding company or its affiliates.

Stock Repurchases. A bank holding company is required to give the Federal Reserve Board prior notice of any redemption or repurchase of its own equity securities, if the consideration to be paid, together with the consideration paid for any repurchases or redemptions in the preceding year, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may oppose the transaction if it believes that the transaction would constitute an unsafe or unsound practice or would violate any law or regulation.

Capital Adequacy Requirements. The Federal Reserve Board has promulgated capital adequacy guidelines for use in its examination and supervision of bank holding companies. If a bank holding company’s capital falls below minimum required levels, then the bank holding company must implement a plan to increase its capital and its ability to pay dividends, or making acquisitions of new banks or engaging in certain other activities such as issuing brokered deposits may be restricted or prohibited.

The Federal Reserve Board currently uses two types of capital adequacy guidelines for holding companies, a two-tiered risk-based capital guideline and a leverage capital ratio guideline. The two-tiered risk-based capital guideline assigns risk weightings to all assets and certain off-balance sheet items of the holding company’s operations, and then establishes a minimum ratio of the holding company’s Tier 1 capital to the aggregate dollar amount of risk-weighted assets (which amount is usually less than the aggregate dollar amount of such assets without risk weighting) and a minimum ratio of the holding company’s total capital (Tier 1 capital plus Tier 2 capital, as adjusted) to the aggregate dollar amount of such risk-weighted assets. The leverage ratio guideline establishes a minimum ratio of the holding company’s Tier 1 capital to its total tangible assets (total assets less goodwill and certain identifiable intangibles), without risk-weighting.

Under both guidelines, Tier 1 capital is defined to include: common shareholders’ equity (including retained earnings), qualifying non-cumulative perpetual preferred stock and related surplus, qualifying cumulative perpetual preferred stock and related surplus, trust preferred securities, and minority interests in the equity accounts of consolidated subsidiaries (limited to a maximum of 25% of Tier 1 capital). Goodwill and most intangible assets are deducted from Tier 1 capital. For purposes of the total risk-based capital guidelines, Tier 2 capital (sometimes referred to as “supplementary capital”) is defined to include: (subject to limitations), perpetual preferred stock not included in Tier 1 capital, intermediate-term preferred stock and any related surplus, certain hybrid capital instruments, perpetual debt and mandatory convertible debt securities, allowances for loan and lease losses, and intermediate-term subordinated debt instruments (subject to limitations). The maximum amount of qualifying Tier 2 capital is 100% of qualifying Tier 1 capital. For purposes of the total capital guideline, total capital equals Tier 1 capital, plus qualifying Tier 2 capital, minus investments in unconsolidated subsidiaries, reciprocal holdings of bank holding company capital securities, and deferred tax assets and other deductions. The Federal Reserve Board’s current capital adequacy guidelines require that a bank holding company maintain a Tier 1 risk-based capital ratio of at least 4.00% and a total risk-based capital ratio of at least 8.00%. At December 31, 2010, the Company’s ratio of Tier 1 capital to total risk-weighted assets was 14.07% and its ratio of total capital to risk-weighted assets was 15.33%.

In addition to the risk-based capital guidelines, the Federal Reserve Board uses a leverage ratio as an additional tool to evaluate the capital adequacy of bank holding companies. The leverage ratio is a company’s Tier 1 capital divided by its average total consolidated assets. Certain highly rated bank holding companies may maintain a minimum leverage ratio of 3.00%, but other bank holding companies are required to maintain a leverage ratio of 4.00% or more, depending on their overall condition. At December 31, 2010, the Company’s leverage ratio was 9.44%.

The federal banking agencies’ risk-based and leverage ratios are minimum supervisory ratios generally applicable to banking organizations that meet certain specified criteria, assuming that they have the highest regulatory rating. Banking organizations not meeting these criteria are expected to operate with capital positions well above the minimum ratios. The federal bank regulatory agencies may set capital requirements for a particular banking organization that are higher than the minimum ratios when circumstances warrant. Federal Reserve Board guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets.

The current risk-based capital guidelines that apply to the Company and the Bank are based on the 1988 capital accord of the International Basel Committee on Banking Supervision, a committee of central banks and bank supervisors, as implemented by the Federal Reserve Board and the OCC. In 2004, the Basel Committee published a new capital accord, which is referred to as “Basel II,” to replace Basel I. Basel II provides two approaches for setting capital standards for credit risk: an internal ratings-based approach tailored to individual institutions’ circumstances and a standardized approach that bases risk weightings on external credit assessments to a much greater extent than permitted in existing risk-based capital guidelines, which became effective in 2008 for large or “core” international banks (total assets of $250 billion or more or consolidated foreign exposures of $10 billion or more). Other U.S. banking organizations can elect to adopt the requirements of this rule (if they meet applicable qualification requirements), but they are not required to apply them. Basel II emphasizes internal assessment of credit, market and operational risk, as well as supervisory assessment and market discipline in determining minimum capital requirements.

In December 2010 and January 2011, the Basel Committee published the final texts of reforms on capital and liquidity, which is referred to as “Basel III.” Although Basel III is intended to be implemented by participating countries for large, internationally active banks, its provisions are likely to be considered by United States banking regulators in developing new regulations applicable to other banks in the United States. Basel III will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity. The implementation of the Basel III final framework will commence January 1, 2013. On that date, banking institutions will be required to meet the following minimum capital ratios: (i) 3.5% Common Equity Tier 1 (generally consisting of common shares and retained earnings) to risk-weighted assets; (ii) 4.5% Tier 1 capital to risk-weighted assets; and (iii) 8.0% Total capital to risk-weighted assets.

When fully phased-in on January 1, 2019, and if implemented by the U.S. banking agencies, Basel III will require banks to maintain:

a minimum ratio of Common Equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer,”

a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer,

a minimum ratio of Total capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer, and

a minimum leverage ratio of 3%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures.

Basel III also includes the following significant provisions:

An additional countercyclical capital buffer to be imposed by applicable national banking regulators periodically at their discretion, with advance notice.

Restrictions on capital distributions and discretionary bonuses applicable when capital ratios fall within the buffer zone.

Deduction from common equity of deferred tax assets that depend on future profitability to be realized.

For capital instruments issued on or after January 13, 2013 (other than common equity), a loss-absorbency requirement that the instrument must be written off or converted to common equity if a triggering event occurs, either pursuant to applicable law or at the direction of the banking regulator. A triggering event is an event that would cause the banking organization to become nonviable without the write-off or conversion, or without an injection of capital from the public sector.

Since the Basel III framework is not self-executing, the rules and standards promulgated under Basel III require that the U.S. federal banking regulators adopt them prior to becoming effective in the U.S. Although U.S. federal banking regulators have expressed support for Basel III, the timing and scope of its implementation, as well as any potential modifications or adjustments that may result during the implementation process, are not yet known.

In addition to Basel III, the Dodd-Frank Act requires or permits the federal banking agencies to adopt regulations affecting banking institutions’ capital requirements in a number of respects, including potentially more stringent capital requirements for systemically important financial institutions. The Dodd-Frank Act requires the Federal Reserve Board, the OCC and the FDIC to adopt regulations imposing a continuing “floor” of the Basel I-based capital requirements in cases where the Basel II-based capital requirements and any changes in capital regulations resulting from Basel III otherwise would permit lower requirements. In December 2010, the Federal Reserve Board, the OCC and the FDIC issued a joint notice of proposed rulemaking that would implement this requirement.

Acquisitions by Bank Holding Companies. The BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve Board before it may acquire all or substantially all of the assets of any bank, or ownership or control of any voting shares of any bank, if after such acquisition it would own or control, directly or indirectly, more than 5% of the voting shares of such bank. In approving bank acquisitions by bank holding companies, the Federal Reserve Board is required to consider the financial and managerial resources and future prospects of the bank holding company and the banks concerned, the convenience and needs of the communities to be served, and various competitive factors.

Incentive Compensation. In June 2010, the Federal Reserve Board, the OCC and the FDIC issued their final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk taking. The final guidance,, which covers all employees that have the ability to materially affect the risk profile of an organization, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. The Federal Reserve Board indicated that all banking organizations are to evaluate their incentive compensation arrangements and related risk management, controls, and corporate governance processes and immediately address deficiencies in these arrangements or processes that are inconsistent with safety and soundness.

The Federal Reserve Board will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not “large, complex banking organizations.” These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

In February 2011, the Federal Reserve Board, the OCC and the FDIC approved a joint proposed rulemaking to implement Section 956 of the Dodd-Frank Act, which prohibits incentive-based compensation arrangements that encourage inappropriate risk taking by covered financial institutions and are deemed to be excessive, or that may lead to material losses.

The scope and content of the U.S. banking regulators’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future. It cannot be determined at this time whether compliance with such policies will adversely affect the Company’s ability to hire, retain and motivate its key employees.

The Bank

The Bank is a national association and is subject to supervision and regulation by the OCC. Since the deposits of the Bank are insured by the FDIC, the Bank is also subject to supervision and regulation by the FDIC. Because the Federal Reserve Board regulates the Company, and because the Bank is a member of the Federal Reserve System, the Federal Reserve Board also has regulatory authority which directly affects the Bank.

Restrictions on Transactions with Affiliates and Insiders. Transactions between the Bank and its nonbanking subsidiaries and/or affiliates, including the Company, are subject to Section 23A of the Federal Reserve Act. In general, Section 23A imposes limits on the amount of such transactions, and also requires certain levels of collateral for loans to affiliated parties. It also limits the amount of advances to third parties which are collateralized by the securities or obligations of the Company or its subsidiaries.

Affiliate transactions are also subject to Section 23B of the Federal Reserve Act which generally requires that certain transactions between the Bank and its affiliates be on terms substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions with or involving other nonaffiliated persons. The Federal Reserve Board has issued Regulation W which codifies prior regulations under Sections 23A and 23B of the Federal Reserve Act and interpretive guidance with respect to affiliate transactions.

The Dodd-Frank Act generally enhances the restrictions on transactions with affiliates under Sections 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered credit transactions must be satisfied. Insider transaction limitations are expanded through the strengthening of loan restrictions to insiders and the expansion of the types of transactions subject to the various limits, including derivatives transactions, repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions. Restrictions are also placed on certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution's board of directors.

The restrictions on loans to directors, executive officers, principal shareholders and their related interests contained in the Federal Reserve Act and Regulation O apply to all insured institutions and their subsidiaries and holding companies. These restrictions include limits on loans to one borrower and conditions that must be met before such a loan can be made. There is also an aggregate limitation on all loans to such persons. These loans cannot exceed the institution’s total unimpaired capital and surplus, and the FDIC may determine that a lesser amount is appropriate.

Restrictions on Distribution of Subsidiary Bank Dividends and Assets. Dividends paid by the Bank have provided the Company’s operating funds and for the foreseeable future it is anticipated that dividends paid by the Bank to the Company will continue to be the Company’s primary source of operating funds.

Capital adequacy requirements of the OCC limit the amount of dividends that may be paid by the Bank. The Bank cannot pay a dividend if, after paying the dividend, it would be classified as “undercapitalized.” See “Regulation and Supervision – The Bank – Capital Adequacy Requirements” for information on the capital requirements applicable to the Bank. In addition, without the OCC’s approval, dividends may not be paid by the Bank in an amount in any calendar year which exceeds its total net profits for that year, plus its retained profits for the preceding two years, less any required transfers to capital surplus. National banks also may not pay dividends in excess of total retained profits, including current year’s earnings after deducting bad debts in excess of reserves for loan losses. In some cases, the OCC may find a dividend payment that meets these statutory requirements to be an unsafe or unsound practice. As a result of securities impairments and a special dividend from the Bank in 2008, the Bank is limited as to the dividends it can pay. Accordingly, the Bank would need permission from the OCC prior to paying dividends through approximately December 31, 2011.

Because the Company is a legal entity separate and distinct from its subsidiaries, its right to participate in the distribution of assets of any subsidiary upon the subsidiary’s liquidation or reorganization will be subject to the prior claims of the subsidiary’s creditors. In the event of liquidation or other resolution of an insured depository institution, the claims of depositors and other general or subordinated creditors are entitled to a priority of payment over the claims of holders of any obligation of the institution to its shareholders, including any depository institution holding company or any shareholder or creditor thereof.

Examinations. Under the FDICIA, all insured institutions must undergo regular on-site examination by their appropriate banking agency and such agency may assess the institution for its costs of conducting the examination. The OCC periodically examines and evaluates national banks, such as the Bank. These examinations review areas such as capital adequacy, reserves, loan portfolio quality and management, consumer and other compliance issues, investments, information systems, disaster recovery and contingency planning and management practices. Based upon such an evaluation, the OCC may revalue the assets of a bank and require that it establish specific reserves to compensate for the difference between the OCC determined value and the book value of such assets.

Capital Adequacy Requirements. The OCC has adopted regulations establishing minimum requirements for the capital adequacy of insured national banks. The OCC may establish higher minimum requirements if, for example, a bank has previously received special attention or has a high susceptibility to interest rate risk.

The OCC’s risk-based capital guidelines generally require national banks to have a minimum ratio of Tier 1 capital to total risk-weighted assets of 4.00% and a ratio of total capital to total risk-weighted assets of 8.00%. The capital categories have the same definitions for the Bank as for the Company. See “Regulation and Supervision – The Company – Capital Adequacy Requirements” for additional information on the capital requirements applicable to the Bank. In 2010, the OCC issued an Individual Minimum Capital Ratio directive (“IMCR”) to the Bank which requires it to maintain a total risk-based capital ratio of 11.50% and a Tier 1 risk-based capital ratio of 10.00%. At December 31, 2010, the Bank’s ratio of Tier 1 capital to total risk-weighted assets was 12.92% and its ratio of total capital to total risk-weighted assets was 14.18%.

The OCC’s leverage guidelines require national banks to maintain Tier 1 capital of no less than 4.00% of average total assets, except in the case of certain highly rated banks for which the requirement is 3.00% of average total assets. As part of the OCC’s IMCR, the Bank is required to maintain a Tier 1 leverage ratio of 7.50%. At December 31, 2010, the Bank’s leverage ratio was 8.66%.

Corrective Measures for Capital Deficiencies. The federal banking regulators are required to take “prompt corrective action” with respect to capital-deficient institutions. Agency regulations define, for each capital category, the levels at which institutions are “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A “well-capitalized” institution has a total risk-based capital ratio of 10.0% or higher; a Tier 1 risk-based capital ratio of 6.0% or higher; a leverage ratio of 5.0% or higher; and is not subject to any written agreement, order or directive requiring it to maintain a specific capital level for any capital measure. An “adequately capitalized” institution has a total risk-based capital ratio of 8.0% or higher; a Tier 1 risk-based capital ratio of 4.0% or higher; a leverage ratio of 4.0% or higher (3.0% or higher if the bank was rated a composite 1 in its most recent examination report and is not experiencing significant growth); and does not meet the criteria for a well-capitalized bank. An “undercapitalized” institution has a total risk-based capital ratio that is less than 8.0%; a Tier 1 risk-based capital ratio of less than 4.0% or a leverage ratio of less than 4.0%. A “significantly undercapitalized” institution has a total risk-based capital ratio of less than 6.0%; a Tier 1 risk-based capital ratio of less than 3.0% or a leverage ratio of less than 3.0%. A “critically undercapitalized” institution’s tangible equity is equal to or less than 2.0% of average quarterly tangible assets. An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. A bank’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes. The Bank was classified as “well-capitalized” for purposes of the FDIC’s prompt corrective action regulation as of December 31, 2010.

In addition to requiring undercapitalized institutions to submit a capital restoration plan, agency regulations contain broad restrictions on certain activities of undercapitalized institutions including asset growth, acquisitions, branch establishment and expansion into new lines of business. With certain exceptions, an insured depository institution is prohibited from making capital distributions, including dividends, and is prohibited from paying management fees to control persons if the institution would be undercapitalized after any such distribution or payment.

As an institution’s capital decreases, the federal regulators’ enforcement powers become more severe. A significantly undercapitalized institution is subject to mandated capital raising activities, restrictions on interest rates paid and transactions with affiliates, removal of management and other restrictions. The FDIC has limited discretion in dealing with a critically undercapitalized institution and is generally required to appoint a receiver or conservator. Similarly, within 90 days of a national bank becoming critically undercapitalized, the OCC must appoint a receiver or conservator unless certain findings are made with respect to the institution’s continued viability.

Banks with risk-based capital and leverage ratios below the required minimums may also be subject to certain administrative actions, including the termination of deposit insurance upon notice and hearing, or a temporary suspension of insurance without a hearing in the event the institution has no tangible capital.

Deposit Insurance Assessments. The Bank’s deposits are insured up to applicable limits by the DIF of the FDIC and are subject to deposit insurance assessments to maintain the DIF. Currently the FDIC utilizes a risk-based assessment system to evaluate the risk of each financial institution based on three primary sources of information: (1) its supervisory rating, (2) its financial ratios, and (3) its long-term debt issuer rating, if the institution has one. The FDIC’s initial base assessment schedule can be adjusted up or down, and premiums for 2010 ranged from 12 basis points in the lowest risk category to 45 basis points for banks in the highest risk category.

The Dodd-Frank Act requires the FDIC to increase the DIF’s reserves against future losses, which will necessitate increased deposit insurance premiums that are to be borne primarily by institutions with assets of greater than $10 billion. In October 2010, the FDIC addressed plans to bolster the DIF by increasing the required reserve ratio for the industry to 1.35 percent (ratio of reserves to insured deposits) by September 30, 2020, as required by the Dodd-Frank Act. The FDIC also proposed to raise its industry target ratio of reserves to insured deposits to 2 percent, 65 basis points above the statutory minimum.

In February 2011, the FDIC adopted new rules that amend its current deposit insurance assessment regulations. The new rules implement a provision in the Dodd-Frank Act that changes the assessment base for deposit insurance premiums from one based on domestic deposits to one based on average consolidated total assets minus average tangible equity. The rules also change the assessment rate schedules for insured depository institutions so that approximately the same amount of revenue would be collected under the new assessment base as would be collected under the current rate schedule and the schedules previously proposed by the FDIC in October 2010. In addition, the new rules revise the risk-based assessment system for large insured depository institutions (generally, institutions with at least $10 billion in total assets) and “highly complex” institutions by requiring that the FDIC use a scorecard method to calculate assessment rates for all such institutions. The Bank will not be deemed a “highly complex” institution for these purposes.

Under the new rules, the FDIC set initial base assessment rates from 5 basis points in the lowest risk category to 35 basis points for banks in the higher risk category, which are effective April 1, 2011. The Company cannot provide any assurance as to the amount of any proposed increase in its deposit insurance premium rate, as such changes are dependent upon a variety of factors, some of which are beyond the Company’s control.

Under the Federal Deposit Insurance Act, as amended (the “FDIA”),, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

Safety and Soundness Standards. The FDIA, requires the federal bank regulatory agencies to prescribe standards, by regulations or guidelines, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial standards as the agencies deem appropriate. Guidelines adopted by the federal bank regulatory agencies establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal stockholder. In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of FDIA. See “Corrective Measures for Capital Deficiencies” above. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties.

Enforcement Powers. The FDIC and the other federal banking agencies have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties and appoint a conservator or receiver. Failure to comply with applicable laws, regulations and supervisory agreements could subject the Company or the Bank, as well as officers, directors and other institution-affiliated parties of these organizations, to administrative sanctions and potentially substantial civil money penalties. The appropriate federal banking agency may appoint the FDIC as conservator or receiver for a banking institution (or the FDIC may appoint itself, under certain circumstances) if any one or more of a number of circumstances exist, including, without limitation, the fact that the banking institution is undercapitalized and has no reasonable prospect of becoming adequately capitalized; fails to become adequately capitalized when required to do so; fails to submit a timely and acceptable capital restoration plan; or materially fails to implement an accepted capital restoration plan.

Consumer Laws and Regulations. In addition to the laws and regulations discussed herein, the Bank is also subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. While the list set forth herein is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, and the Fair Housing Act, and various state counterparts. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans to such customers. The Bank must comply with the applicable provisions of these consumer protection laws and regulations as part of their ongoing customer relations.

In addition, federal law currently contains extensive customer privacy protection provisions. Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information. These provisions also provide that, except for certain limited exceptions, a financial institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure.

USA PATRIOT Act of 2001. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“Patriot Act”) was enacted in October 2001. The Patriot Act has broadened existing anti-money laundering legislation while imposing new compliance and due diligence obligations on banks and other financial institutions, with a particular focus on detecting and reporting money laundering transactions involving domestic or international customers. The U.S. Treasury Department has issued and will continue to issue regulations clarifying the Patriot Act’s requirements. The Patriot Act requires all “financial institutions,” as defined, to establish \certain anti-money laundering compliance and due diligence programs. Recently, the regulatory agencies have intensified their examination procedures in light of the Patriot Act’s anti-money laundering and Bank Secrecy Act requirements. The Company believes that its controls and procedures were in compliance with the Patriot Act as of December 31, 2010.

Participation in the Troubled Asset Relief Program Capital Purchase Program

On November 21, 2008, the Company issued and sold to the U.S. Department of the Treasury (“Treasury”) (i) 41,500 shares of the Company’s Series A Preferred Stock and (ii) a warrant (the “Warrant”) to purchase 176,546 shares of the Company’s common stock, par value $1.00 per share (the “Common Stock”), for an aggregate purchase price of $41.50 million in cash. On June 5, 2009 the Company completed a public offering of its Common Stock that resulted in the reduction of the shares of Common Stock underlying the Warrant from 176,546 shares to 88,273 shares. On July 8, 2009, the Company repurchased from the Treasury all of the Series A Preferred Stock that it had issued to the Treasury in November 2008. The Company did not repurchase the Warrant.

The Warrant has a 10-year term and was immediately exercisable upon its issuance, with an initial per share exercise price of $35.26. Pursuant to the Purchase Agreement, Treasury has agreed not to exercise voting power with respect to any share of Common Stock issued upon exercise of the Warrant. In accordance with the terms of the Purchase Agreement, the Company registered the Warrant and the shares of Common Stock underlying the Warrant with the Securities and Exchange Commission (the “SEC”). The Warrant is not subject to any contractual restrictions on transfer. As required by the American Recovery and Reinvestment Act of 2009, the Secretary of the Treasury is required to liquidate the Warrant following the repurchase of the Series A Preferred Stock by the Company, which occurred in July 2009.

Available Information

Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is required to file annual, quarterly and current reports, proxy statements and other information with the SEC. Any document the Company files with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 for further information about the public reference room. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

The Company makes available, free of charge, on its website at www.fcbinc.com its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and all amendments thereto, as soon as reasonably practicable after the Company files such reports with, or furnishes them to, the SEC. Investors are encouraged to access these reports and the other information about the Company’s business on its website. Information found on the Company’s website is not part of this Annual Report on Form 10-K. The Company will also provide copies of its Annual Report on Form 10-K, free of charge, upon written request of its Investor Relations Department at the Company’s main address, P.O. Box 989, Bluefield, VA 24605.

Also posted on the Company’s website, and available in print upon request of any shareholder to the Company’s Investor Relations Department, are the charters of the standing committees of its Board of Directors, the Standards of Conduct governing the Company’s directors, officers, and employees, and the Company’s Insider Trading & Disclosure Policy.

Forward-Looking Statements

This Annual Report on Form 10-K may include “forward-looking statements,” 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 Federal Reserve Board; 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 noninterest 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 all-inclusive. If one or more of the factors affecting these forward-looking statements proves incorrect, then the Company’s actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking statements contained in this Annual Report on Form 10-K. Therefore, the Company cautions you not to place undue reliance on these forward-looking statements.

The Company does not intend to update these forward-looking statements, whether written or oral, to reflect change. All forward-looking statements attributable to the Company are expressly qualified by these cautionary statements.

ITEM 1A. Risk Factors.

The current economic environment poses significant challenges for the Company and could adversely affect its financial condition and results of operations.

There has been significant disruption and volatility in the financial and capital markets since 2007. The financial markets and the financial services industry in particular suffered unprecedented disruption, causing a number of institutions to fail or require government intervention to avoid failure. These conditions were largely the result of the erosion of the U.S. and global credit markets, including a significant and rapid deterioration in the mortgage lending and related real estate markets. Dramatic declines in the housing markets over the past several years, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions. As a consequence, the Company experienced losses in 2009 resulting primarily from substantial impairment charges on investment securities. Continued declines in real estate values, home sales volumes, and financial stress on borrowers as a result of the uncertain economic environment could have an adverse effect on the Company’s borrowers or its customers, which could adversely affect the Company’s financial condition and results of operations. Deterioration in local economic conditions, particularly within the Company’s geographic regions and markets, could drive losses beyond that which is provided for in its allowance for loan losses. The Company may also face the following risks in connection with these events:

Economic conditions that negatively affect housing prices and the job market have resulted, and may continue to result, in deterioration in credit quality of the Company’s loan portfolios, and such deterioration in credit quality has had, and could continue to have, a negative impact on the Company’s business.

Market developments may affect consumer confidence levels and may cause adverse changes in payment patterns, causing increases in delinquencies and default rates on loans and other credit facilities.

The processes the Company uses to estimate allowance for loan losses and reserves may no longer be reliable because they rely on complex judgments that may no longer be capable of accurate estimation.

The Company’s ability to assess the creditworthiness of its customers may be impaired if the models and approaches it uses to select, manage, and underwrite its customers become less predictive of future charge-offs.

The Company expects to face increased regulation of its industry, and compliance with such regulation may increase its costs, limit its ability to pursue business opportunities, and increase compliance challenges.

As the above conditions or similar ones continue to exist or worsen, the Company could experience continuing or increased adverse effects on its financial condition and results of operations.

The Company and its subsidiary business are subject to interest rate risk and variations in interest rates may negatively affect its financial performance.

The Company’s earnings and cash flows are largely dependent upon its net interest income. Net interest income is the difference between interest income earned on interest-earning assets, such as loans and securities, and interest expense paid on interest bearing liabilities, such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond the Company’s control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, could influence not only the interest the Company receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect (i) the Company’s ability to originate loans and obtain deposits, and (ii) the fair value of the Company’s financial assets and liabilities. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, the Company’s net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

The Bank’s allowance for loan losses may not be adequate to cover actual losses.

Like all financial institutions, the Bank maintains an allowance for loan losses to provide for probable losses. The Bank’s allowance for loan losses may not be adequate to cover actual loan losses, and future provisions for loan losses could materially and adversely affect the Bank’s operating results. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires the Bank to make significant estimates of current credit risks and future trends, all of which may undergo material changes. The Bank’s allowance for loan losses is determined by analyzing historical loan losses, current trends in delinquencies and charge-offs, plans for problem loan resolution, changes in the size and composition of the loan portfolio, and industry information. Also included in management’s estimates for loan losses are considerations with respect to the impact of economic events, the outcome of which are uncertain. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, that may be beyond the Bank’s control, and these losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review the Bank’s loans and allowance for loan losses. Although the Company believes that the Bank’s allowance for loan losses is adequate to provide for probable losses, there are no assurances that future increases in the allowance for loan losses will not be needed or that regulators will not require the Bank to increase its allowance. Either of these occurrences could materially and adversely affect the Company’s earnings and profitability.

The Company has experienced increases in the levels of non-performing assets and loan charge-offs in recent periods. The Company’s total non-performing assets amounted to $29.65 million at December 31, 2010, $23.50 million at December 31, 2009, and $14.09 million at December 31, 2008. The Company had $12.55 million of net loan charge-offs for the year ended December 31, 2010, compared to $9.31 million and $5.45 million in net loan charge-offs for the years ended December 31, 2009 and 2008, respectively. The Company’s provision for loan losses was $14.76 million for the year ended December 31, 2010, $15.80 million for the year ended December 31, 2009, and $9.23 million for the year ended December 31, 2008. At December 31, 2010, the ratios of the Company’s allowance for loan losses to non-accrual loans and to total loans outstanding were 136.41% and 1.91%, respectively. Additional increases in the Company’s non-performing assets or loan charge-offs may require it to increase its allowance for loan losses, which would have an adverse effect upon the Company’s future results of operations.

The declining real estate market could impact the Company’s business.

The Company’s business activities are conducted in Virginia, West Virginia, North Carolina, South Carolina, Tennessee and the surrounding regions. Over the past several years, the real estate market in these regions experienced declines with falling home prices and increased foreclosures. As the Company’s net charge-offs increased during this period and in recognition of the continued deterioration in the real estate market and the potential for further increases in non-performing assets, the Company increased its provision for loan losses over historical levels during 2008, 2009, and 2010. A continued downturn in this regional real estate market could hurt the Company’s business because of the geographic concentration within this regional area and because the vast majority of the Company’s loans are secured by real estate. If there is a further decline in real estate values, the collateral for the Company’s loans will provide less security. As a result, the Company’s ability to recover on defaulted loans by selling the underlying real estate will be diminished, and it will be more likely to suffer losses on defaulted loans.

The Company’s level of credit risk is increasing due to its focus on commercial and construction lending, and the concentration on small businesses and middle market customers with significant vulnerability to economic conditions.

As of December 31, 2010, the Company’s largest outstanding commercial business loan and largest outstanding commercial real estate loan amounted to $6.18 million and $9.85 million, respectively. At such date, the Company’s commercial business loans amounted to $447.37 million, or 32.27% of the Company’s total loan portfolio, and the Company’s commercial real estate loans amounted to $145.90 million, or 10.52% of the Company’s total loan portfolio. Commercial business and commercial real estate loans generally are considered riskier than single-family residential loans because they have larger balances to a single borrower or group of related borrowers. Commercial business and commercial real estate loans involve risks because the borrowers’ ability to repay the loans typically depends primarily on the successful operation of the businesses or the properties securing the loans. Most of the Company’s commercial business loans are made to small business or middle market customers who may have a significant vulnerability to economic conditions. Moreover, a portion of these loans have been made or acquired by the Company in recent years and the borrowers may not have experienced a complete business or economic cycle.

In addition to commercial real estate and commercial business loans, the Company holds a portfolio of construction loans. At December 31, 2010, the Company’s construction loans amounted to $61.04 million, or 4.40% of the Company’s total loan portfolio. Construction loans generally have a higher risk of loss than single-family residential mortgage loans due primarily to the critical nature of the initial estimates of a property’s value upon completion of construction compared to the estimated costs, including interest, of construction as well as other assumptions. If the estimates upon which construction loans are made prove to be inaccurate, the Company may be confronted with projects that, upon completion, have values which are below the loan amounts. The nature of the allowance for loan losses requires that the Company must use assumptions regarding, among other factors, individual loans and the economy. While the Company is not aware of any specific, material impediments impacting any of its builder/developer borrowers at this time, there continues to be nationwide reports of significant problems which have adversely affected many property developers and builders as well as the institutions that have provided those loans. If significant numbers of the builder/developers to which the Company has extended construction loans experience the type of difficulties that are being reported, it could have adverse consequences upon its future results of operations.

The Bank may suffer losses in its loan portfolio despite its underwriting practices.

The Bank seeks to mitigate the risks inherent in the Bank’s loan portfolio by adhering to specific underwriting practices. These practices include analysis of a borrower’s prior credit history, financial statements, tax returns and cash flow projections, valuation of collateral based on reports of independent appraisers and verification of liquid assets. Although the Bank believes that its underwriting criteria are appropriate for the various kinds of loans it makes, the Bank may incur losses on loans that meet its underwriting criteria, and these losses may exceed the amounts set aside as reserves in the Bank’s allowance for loan losses.

Changes in the fair value of the Company’s securities may reduce its stockholders’ equity and net income.

At December 31, 2010, $480.06 million of the Company’s securities were classified as available-for-sale. At such date, the aggregate unrealized losses on the Company’s available-for-sale securities were $28.45 million. The Company increases or decreases stockholders’ equity by the amount of the change in the unrealized gain or loss (the difference between the estimated fair value and the amortized cost) of the Company’s available-for-sale securities portfolio, net of the related tax benefit, under the category of accumulated other comprehensive income/loss. Therefore, a decline in the estimated fair value of this portfolio will result in a decline in reported stockholders’ equity, as well as book value per common share and tangible book value per common share. This decrease will occur even though the securities are not sold. In the case of debt securities, if these securities are never sold and there are no credit impairments, the decrease will be recovered at the maturity of the securities. In the case of equity securities which have no stated maturity, the declines in fair value may or may not be recovered over time.

The Company conducts periodic reviews and evaluations of its entire securities portfolio to determine if the decline in the fair value of any security below its cost basis is other-than-temporary. Factors which the Company considered in its analysis of debt securities include, but are not limited to, intent to sell the security, evidence available to determine if it is more likely than not that the Company will have to sell the securities before recovery of the amortized cost, and probable credit losses. Probable credit losses are evaluated based upon, but are not limited to: the present value of future cash flows, the severity and duration of the decline in fair value of the security below its amortized cost, the financial condition and near-term prospects of the issuer, whether the decline appears to be related to issuer conditions or general market or industry conditions, the payment structure of the security, failure of the security to make scheduled interest or principal payments, and changes to the rating of the security by rating agencies. The Company generally views changes in fair value for debt securities caused by changes in interest rates as temporary, which is consistent with the Company’s experience. If the Company deems such decline to be other-than-temporary, the security is written down to a new cost basis and the resulting loss is charged to earnings as a component of non-interest income. For the year ended December 31, 2010, the Company reported other-than-temporary impairment (“OTTI”) charges of $134 thousand on its debt securities portfolio.

Factors that the Company considers in its analysis of equity securities include, but are not limited to: intent to sell the security before recovery of the cost, the severity and duration of the decline in fair value of the security below its cost, the financial condition and near-term prospects of the issuer, and whether the decline appears to be related to issuer conditions or general market or industry conditions.

The Company continues to monitor the fair value of its entire securities portfolio as part of its ongoing OTTI evaluation process. No assurance can be given that the Company will not need to recognize OTTI charges related to securities in the future.

The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 may have a material effect on the Company’s operations.

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, which imposes significant regulatory and compliance changes. The key provisions of the Dodd-Frank Act that are anticipated to affect the Company’s operations include:

changes to regulatory capital requirements;

creation of new government regulatory agencies, including the Consumer Financial Protection Bureau;

limitation on federal preemption;

changes in insured depository institution regulations and assessments; and

mortgage loan origination and risk retention.

Many of the requirements of the Dodd-Frank Act will be implemented over time and most will be subject to the rulemaking process at various regulatory agencies. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on the Company’s operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. Failure to comply with the new requirements or with any future changes in laws or regulations may negatively impact our results of operations and financial condition.

The Company and its subsidiaries are subject to extensive regulation which could adversely affect them.

The Company and its subsidiaries’ operations are subject to extensive regulation and supervision by federal and state governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of the Company’s operations. Banking regulations governing the Company’s operations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not security holders. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Company in substantial and unpredictable ways. Such changes could subject the Company to additional costs, limit the types of financial services and products the Company may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on the Company’s business, financial condition and results of operations. While the Company has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. These laws, rules and regulations, or any other laws, rules or regulations that may be adopted in the future, could make compliance more difficult or expensive, restrict the Company’s ability to originate, broker or sell loans, further limit or restrict the amount of commissions, interest or other charges earned on loans originated or sold by the Bank and otherwise adversely affect the Company’s business, financial condition or prospects.

The financial services industry is likely to face increased regulation and supervision as a result of the recent financial crisis. Such additional regulation and supervision may increase the Company’s costs and limit its ability to pursue business opportunities. The affects of such recently enacted, and proposed, legislation and regulatory programs on the Company cannot reliably be determined at this time.

The Bank’s ability to pay dividends is subject to regulatory limitations which, to the extent the Company requires such dividends in the future, may affect the Company’s ability to pay its obligations and pay dividends.

The Company is a separate legal entity from the Bank and its subsidiaries and does not have significant operations of its own. The Company currently depends on the Bank’s cash and liquidity as well as dividends from the Bank to pay the Company’s operating expenses and dividends to its stockholders. No assurance can be made that in the future the Bank will have the capacity to pay the necessary dividends and that the Company will not require dividends from the Bank to satisfy the Company’s obligations. The availability of dividends from the Bank is limited by various statutes and regulations. In addition, the OCC issued a minimum capital ratio directive to the Bank that requires it to maintain heightened regulatory capital ratios which could impact the Bank’s ability to pay a dividend to the Company. It is possible, depending upon the financial condition of the Bank and other factors, that the OCC, the Bank’s primary regulator, could assert that payment of dividends or other payments by the Bank are an unsafe or unsound practice. In the event the Bank is unable to pay dividends sufficient to satisfy the Company’s obligations or is otherwise unable to pay dividends to the Company, the Company may not be able to service its obligations as they become due, including payments required to be made to the FCBI Capital Trust, a business trust subsidiary of the Company, or pay dividends on the Company’s Common Stock. Consequently, the inability to receive dividends from the Bank could adversely affect the Company’s financial condition, results of operations, cash flows and prospects. As a result of securities impairments in 2009, the Bank does not have retained profits from which it can pay dividends. Accordingly, the Bank would need permission from the OCC prior to paying dividends to the Company through approximately December 31, 2011.

The Company faces strong competition from other financial institutions, financial service companies and other organizations offering services similar to those offered by the Company and its subsidiaries, which could hurt the Company’s business.

The Company’s business operations are centered primarily in Virginia, West Virginia, North Carolina, South Carolina, and Tennessee. Increased competition within this region may result in reduced loan originations and deposits. Ultimately, the Company may not be able to compete successfully against current and future competitors. Many competitors offer the types of loans and banking services that the Bank offers. These competitors include other savings associations, national banks, regional banks and other community banks. The Company also faces competition from many other types of financial institutions, including finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In particular, the Bank’s competitors include other state and national banks and major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns.

Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of larger clients. These institutions, particularly to the extent they are more diversified than the Company, may be able to offer the same loan products and services that the Company offers at more competitive rates and prices. If the Company is unable to attract and retain banking clients, the Company may be unable to continue the Bank’s loan and deposit growth and the Company’s business, financial condition and prospects may be negatively affected.

Potential Acquisitions May Disrupt the Company’s Business and Dilute Stockholder Value

The Company may seek merger or acquisition partners that are culturally similar and have experienced management and possess either significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services. Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among other things:

Potential exposure to unknown or contingent liabilities of the target company.

Exposure to potential asset quality issues of the target company.

Difficulty, expense, and delays of integrating the operations and personnel of the target company.

Potential disruption to the Company’s business.

Potential diversion of the Company’s management’s time and attention.

The possible loss of key employees and customers of the target company.

Difficulty in estimating the value of the target company.

Potential changes in banking or tax laws or regulations that may affect the target company.

Unexpected costs and delays.

Risks that the acquired target company does not perform consistent with the Company’s growth and profitability expectations.

Risks associated with entering new markets or product areas where the Company has limited experience.

Risks that growth will strain the Company’s infrastructure, staff, internal controls and management, which may require additional personnel, time and expenditures.

Potential short-term decreases in profitability.

The Company regularly evaluates merger and acquisition opportunities and conducts due diligence activities related to possible transactions with other financial institutions and financial services companies. As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving the payment of cash or the issuance of debt or equity securities may occur at any time. Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some initial dilution of the Company’s tangible book value and net income per common share may occur in connection with any future transaction. Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on the Company’s financial condition and results of operations.

The Company may engage in FDIC-assisted transactions, which could present additional risks to its business.

The Company may have opportunities to acquire the assets and liabilities of failed banks in FDIC-assisted transactions, which present the risks of acquisitions discussed above, as well as some risks specific to these transactions. Because FDIC-assisted acquisitions provide for limited diligence and negotiation of terms, these transactions may require additional resources and time, including relating to servicing acquired problem loans and costs related to integration of personnel and operating systems, the establishment of processes to service acquired assets. Such transactions may also require the Company to raise additional capital, which may be dilutive to existing stockholders. If the Company is unable to manage these risks, FDIC-assisted acquisitions could have a material adverse effect on its business, financial condition and results of operations.

Attractive acquisition opportunities may not be available to us in the future.

The Company expects that other banking and financial companies, many of which have significantly greater resources, will compete with it to acquire financial services businesses. This competition could increase prices for potential acquisitions that the Company believes are attractive. Also, acquisitions are subject to various regulatory approvals. If the Company fails to receive the appropriate regulatory approvals, it will not be able to consummate an acquisition that it believes is in its best interests. Among other things, the Company’s regulators consider the Company’s capital, liquidity, profitability, regulatory compliance and levels of goodwill and intangibles when considering acquisition and expansion proposals. Any acquisition could be dilutive to the Company’s earnings and stockholders’ equity per share of the Company’s Common Stock.

The Company’s goodwill may be determined to be impaired.

As of December 31, 2010, the carrying amount of the Company’s goodwill was $84.91 million. The Company tests goodwill for impairment on an annual basis, or more frequently if necessary. Quoted market prices in active markets are the best evidence of fair value and are to be used as the basis for measuring impairment, when available. Other acceptable valuation methods include present-value measurements based on multiples of earnings or revenues, or similar performance measures. If the Company determines that the carrying amount of its goodwill exceeds its implied fair value, the Company would be required to write-down the value of the goodwill on its balance sheet. This, in turn, would result in a charge against earnings and, thus, a reduction in the Company’s stockholders’ equity and certain related capital measures. During 2010, the Company recognized a charge of $1.04 million to write-down the value of goodwill at its insurance agency subsidiary.

The Company may lose members of its management team and have difficulty attracting skilled personnel.

The Company’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people can be intense and the Company may not be able to hire such people or to retain them. The unexpected loss of services of key personnel of the Company could have a material adverse impact on its business because of their skills, knowledge of the Company’s market, years of industry experience and the difficulty of promptly finding qualified replacement personnel. In addition, recent regulatory proposals and guidance relating to compensation may negatively impact the Company’s ability to retain and attract skilled personnel.

Increases in FDIC deposit insurance premiums could adversely affect the Company’s earnings.

Market developments have significantly depleted the DIF of the FDIC and reduced the ratio of reserves to insured deposits. As a result of recent economic conditions and the enactment of the Dodd-Frank Act, the FDIC revised its assessment rates which raised deposit premiums for certain insured depository institutions. If these increases are insufficient for the DIF to meet its funding requirements, further special assessments or increases in deposit insurance premiums may be required. The Company is generally unable to control the amount of premiums that it is required to pay for FDIC insurance. If there are additional bank or financial institution failures, the FDIC may increase the deposit insurance assessment rates. Any future assessments, increases or required prepayments in FDIC insurance premiums may materially adversely affect the Company’s earnings and could have a material adverse effect on the value of its common stock.

The Company may seek to raise additional capital in the future, and such capital may not be available on acceptable terms or at all.

The Company may seek to raise additional capital in the future to provide it with sufficient capital resources and liquidity to meet its commitments, business needs, and growth objectives, particularly if its asset quality or earnings were to deteriorate significantly. The Company’s ability to raise additional capital, will depend on, among other things, conditions in the capital markets at that time, which are outside of its control, and its financial performance. Economic conditions and the loss of confidence in financial institutions may increase the Company’s cost of funding and limit access to certain customary sources of capital, including inter-bank borrowings, repurchase agreements and borrowings from the discount window of the Federal Reserve Bank. Any occurrence that may limit the Company’s access to the capital markets may adversely affect the Company’s capital costs and its ability to raise capital and, in turn, its liquidity. Accordingly, the Company cannot provide any assurance that additional capital will be available on acceptable terms or at all. An inability to raise additional capital on acceptable terms could have a materially adverse effect on the Company’s businesses, financial condition and results of operations.

Liquidity risk could impair the Company’s ability to fund its operations and jeopardize its financial condition.

Liquidity is essential to the Company’s business. An inability to raise funds through deposits, borrowings, equity and debt offerings and other sources could have a substantial negative effect on the Company’s liquidity. The Company’s access to funding sources in amounts adequate to finance its activities, or on terms attractive to the Company, could be impaired by factors that affect the Company specifically or the financial services industry in general. Factors that could detrimentally impact the Company’s access to liquidity sources include a reduction in its credit ratings, if any, an increase in costs of capital in financial capital markets, a decrease in the level of its business activity due to a market downturn or adverse regulatory action against the Company, or a decrease in depositor or investor confidence in it. The Company’s access to liquidity sources could also be impaired by factors that are not specific to it, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole.

The Company’s controls and procedures may fail or be circumvented.

Management regularly reviews and updates the Company’s internal controls over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations and financial condition.

The failure of other financial institutions could adversely affect the Company.

The Company’s ability to engage in routine funding transactions could be adversely affected by future failures of financial institutions and the actions and commercial soundness of other financial institutions. Financial institutions are interrelated as a result of trading, clearing, counterparty and other relationships. The Company has exposure to different industries and counterparties and routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, investment companies and other institutional clients. In certain of these transactions, the Company is required to post collateral to secure the obligations to the counterparties. In the event of a bankruptcy or insolvency proceeding involving one of such counterparties, the Company may experience delays in recovering the assets posted as collateral or may incur a loss to the extent that the counterparty was holding collateral in excess of the obligation to such counterparty.

In addition, many of these transactions expose the Company to credit risk in the event of a default by the Company’s counterparty or client. In addition, the credit risk may be exacerbated when the collateral held by the Company cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due to the Company. Any losses resulting from the Company’s routine funding transactions may materially and adversely affect its financial condition and results of operations.

The Company is subject to environmental liability risk associated with lending activities.

A significant portion of the Company’s loan portfolio is secured by real property. During the ordinary course of business, the Company may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, the Company may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require the Company to incur substantial expenses and may materially reduce the affected property’s value or limit the Company’s ability to use or sell the affected property. Although the Company has policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on the Company’s financial condition and results of operations.

ITEM 1B.

Unresolved Staff Comments.

The Company has no unresolved staff comments as of the filing date of this 2010 Annual Report on Form 10-K.

ITEM 2.

Properties.

The Company generally owns its offices, related facilities, and unimproved real property. The principal offices of the Company are located at One Community Place, Bluefield, Virginia, where the Company owns and occupies approximately 36,000 square feet of office space. As of December 31, 2010, the Company operated 57 banking offices located throughout the five states of Virginia, West Virginia, North and South Carolina, and Tennessee. The Company owns 43 of its banking offices while others are leased or are located on leased land. The Company also operates 10 insurance offices throughout North Carolina, West Virginia and Virginia, including its headquarters in High Point, North Carolina. The Company owns one of its insurance offices and leases the remaining locations. There are no mortgages or liens against any property of the Company. A complete listing of all branches and ATM sites can be found on the Internet at www.fcbresource.com. Information on such website is not part of this Annual Report on Form 10-K.

ITEM 3. Legal Proceedings.

The Company is currently a defendant in various legal actions and asserted claims involving lending and collection activities and other matters in the normal course of business. Although 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 or the results of operations of the Company.

ITEM 4.

Reserved.

PART II

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Common Stock Market Prices and Dividends

The number of common stockholders of record on February 22, 2011, was 2,794 and outstanding shares totaled 17,868,673. The number of common stockholders is measured by the number of recordholders. The Company’s common stock trades on the NASDAQ Global Select market under the symbol “FCBC”.

Cash dividends on common stock totaled $0.40 per share for 2010 and $0.30 per share in 2009. Total dividends paid on common stock for the years ended December 31, 2010, and December 31, 2009, totaled $7.12 million and $4.62 million, respectively. Total cash dividends paid on preferred stock for 2009 totaled $1.12 million. Details of the restrictions on cash dividends are set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in Item 6 hereof and Note 14 – Regulatory Capital Requirements and Restrictions of the Notes to Consolidated Financial Statements included in Item 8 hereof.

The following table sets forth the high and low stock prices and dividends paid per share on the Company’s common stock during the periods indicated.

	2010				2009
	High		Low		High		Low
Sales Price Per Share
First quarter	$	13.34	$	10.96	$	35.13	$	7.90
Second quarter		17.37		12.53		17.55		10.27
Third quarter		16.06		12.02		14.29		12.00
Fourth quarter		15.86		12.55		13.06		10.50

					2010		2009
Cash Dividends Per Share
First quarter					$	0.10	$	-
Second quarter						0.10		0.20
Third quarter						0.10		0.10
Fourth quarter						0.10		-
Total					$	0.40	$	0.30

Stock Repurchase Plans

The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act of the Company’s common stock during the fourth quarter of 2010.

					Total Number		Maximum
	Total				of Shares		Number of
	Number of		Average		Purchased as		Shares That May
	Shares		Price Paid		Part of a Publicly		Yet be Purchased
	Purchased		per Share		Announced Plan		Under the Plan (1)

October 1-31, 2010		-	$	-		-		851,779
November 1-30, 2010		-		-		-		874,593
December 1-31, 2010		-		-		-		883,513
Total		-	$	-		-

(1) The Company’s stock repurchase plan, as amended, authorized the purchase and retention of up to 1,100,000 shares. The plan has no expiration date and currently is in effect . No determination has been made to terminate the plan or to cease making purchases. The Company held 216,487 shares in treasury at December 31, 2010.

Total Return Analysis

The following chart was compiled by SNL Securities LC, and compares cumulative total shareholder return of the Company’s common stock for the five-year period ended December 31, 2010, with the cumulative total return of the S&P 500 Index, the NASDAQ Composite index, and the Asset Size & Regional Peer Group. The Asset Size & Regional Peer Group consists of 52 bank holding companies that are traded on the NASDAQ, OTC Bulletin Board, and pink sheets with total assets between $1 billion and $5 billion and are located in the Southeast Region of the United States. The cumulative returns include reinvestment of dividends by the Company.

	Period Ending
Index	12/31/05		12/31/06		12/31/07		12/31/08		12/31/09		12/31/10
First Community Bancshares, Inc.		100.00		131.01		109.13		123.59		43.75		55.84
S&P 500		100.00		115.79		122.16		76.96		97.33		111.99
NASDAQ Composite		100.00		110.39		122.15		73.32		106.57		125.91
Asset & Regional Peer Group**		100.00		112.68		82.26		74.08		51.78		55.79

** The Asset Size & Regional Peer Group consists of the following institutions: 1st United Bancorp, Inc., Ameris Bancorp, BancTrust Financial Group, Inc., Bank of the Ozarks, Inc., BNC Bancorp, Burke & Herbert Bank & Trust Company, Cadence Financial Corporation, Capital Bank Corporation, Capital City Bank Group, Inc., Cardinal Financial Corporation, Carter Bank & Trust, CenterState Banks, Inc., Centra Financial Holdings, Inc., City Holding Company, Colony Bankcorp, Inc., Commonwealth Bankshares, Inc., Eastern Virginia Bankshares, Inc., Fidelity Southern Corporation, First Bancorp, First M&F Corporation, First National Bank of Shelby, First Security Group, Inc., FNB United Corp., Great Florida Bank, Green Bankshares, Inc., Hampton Roads Bankshares, Inc., Home BancShares, Inc., Middleburg Financial Corporation, NewBridge Bancorp, PAB Bankshares, Inc., Palmetto Bancshares, Inc., Peoples Bancorp of North Carolina, Inc., Pinnacle Financial Partners, Inc., Premier Financial Bancorp, Inc., Renasant Corporation, Savannah Bancorp, Inc., SCBT Financial Corporation, Seacoast Banking Corporation of Florida, Simmons First National Corporation, Southeastern Bank Financial Corporation, Southern BancShares (N.C.), Inc., Southern Community Financial Corporation, State Bank Financial Corporation, StellarOne Corporation, Summit Financial Group, Inc., Tennessee Commerce Bancorp, Inc., TIB Financial Corp., TowneBank, Union First Market Bankshares Corporation, Virginia Commerce Bancorp, Inc., Wilson Bank Holding Company, and Yadkin Valley Financial Corporation.

ITEM 6.

Selected Financial Data.

The following consolidated selected financial data is derived from the Company’s audited financial statements as of and for the five years ended December 31, 2010. The following consolidated financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes included in this Annual Report on Form 10-K. All of the Company’s acquisitions during the five years ended December 31, 2010 were accounted for using the purchase method. Accordingly, the operating results of the acquired companies are included with the Company’s results of operations since their respective dates of acquisition.

	At or for the year ended December 31,
Five-Year Selected Financial Data	2010		2009			2008			2007		2006
(Dollars in Thousands, Except Per Share Data)
Balance Sheet Summary (at end of period)
Securities	$	484,701	$	493,511		$	529,393		$	676,195	$	528,389
Loans held for sale		4,694		11,576			1,024			811		781
Loans, net of unearned income		1,386,206		1,393,931			1,298,159			1,225,502		1,284,863
Allowance for loan losses		26,482		24,277			17,782			12,833		14,549
Total assets		2,244,238		2,273,283			2,132,187			2,149,838		2,033,698
Deposits		1,620,955		1,645,960			1,503,758			1,393,443		1,394,771
Borrowings		332,087		352,558			381,791			517,843		406,556
Total liabilities		1,974,360		2,021,016			1,912,972			1,932,740		1,820,968
Stockholders' equity		269,878		252,267			219,215			217,098		212,730

Summary of Earnings
Total interest income	$	103,582	$	107,934		$	110,765		$	127,591	$	120,026
Total interest expense		29,725		38,682			44,930			59,276		48,381
Net interest income		73,857		69,252			65,835			68,315		71,645
Provision for loan losses		14,757		15,801			9,226			717		2,706
Net interest income after provision for loan losses		59,100		53,451			56,609			67,598		68,939
Non-interest income		40,693		25,186			32,297			24,831		21,323
Investment securities impairment		185		78,863			29,923			-		-
Non-interest expense		69,943		66,624			60,516			50,463		49,837
Income (loss) before income taxes		29,665		(66,850	)		(1,533	)		41,966		40,425
Income tax expense (benefit)		7,818		(28,154	)		(3,487	)		12,334		11,477
Net income (loss)		21,847		(38,696	)		1,954			29,632		28,948
Dividends on preferred stock		-		2,160			255			-		-
Net income (loss) available to common shareholders		21,847		(40,856	)		1,699			29,632		28,948

	At or for the year ended December 31,
Five-Year Selected Financial Data-continued	2010			2009			2008			2007			2006

Per Share Data
Basic earnings (loss) per common share	$	1.23		$	(2.75	)	$	0.15		$	2.64		$	2.58
Diluted earnings (loss) per common share	$	1.23		$	(2.75	)	$	0.15		$	2.62		$	2.57

Cash dividends per common share	$	0.40		$	0.30		$	1.12		$	1.08		$	1.04
Book value per common share at year-end	$	15.11		$	14.20		$	15.36		$	19.61		$	18.92

Selected Ratios
Return on average assets		0.97	%		-1.83	%		0.08	%		1.39	%		1.46	%
Return on average equity		8.11	%		-16.73	%		0.86	%		13.54	%		14.32	%
Average equity to average assets		11.91	%		10.95	%		9.86	%		10.30	%		10.21	%
Dividend payout		32.52	%	NM			NM				40.91	%		40.31	%
Risk based capital to risk adjusted assets		15.33	%		13.81	%		12.94	%		12.34	%		12.69	%
Leverage ratio		9.44	%		8.51	%		9.70	%		8.09	%		8.50	%

NM — Not meaningful

ITEM 7.

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

Executive Overview

First Community Bancshares, Inc. is a financial holding company that, through its bank subsidiary, provides commercial banking services and has positioned itself as a regional community bank and a financial services alternative to larger banks which often provide less emphasis on personal relationships, and smaller community banks which lack the capital and resources to efficiently serve customer needs. The Company has focused its growth efforts on building financial partnerships and more enduring and complete relationships with businesses and individuals through a very personal and local approach to banking and financial services. The Company and its operations are guided by a strategic plan which includes growth through acquisitions and through office expansion in new market areas including strategically identified metro markets in Virginia, West Virginia, North Carolina, South Carolina, and Tennessee. While the Company’s mission remains that of a community bank, management believes that entry into new markets will accelerate the Company’s growth rate by diversifying the demographics of its customer base and customer prospects and by generally increasing its sales and service network.

Economy

The local economies in which the Company operates are diverse and span a five-state region. The economies of West Virginia and Southwest Virginia have significant exposure to extractive industries, such as coal, timber and natural gas, which become more active and lucrative when oil prices rise. The local economies in the central portion of North Carolina have suffered in recent years due to foreign competition in both furniture and textiles, as well as consolidation in the financial services industry. Despite these detractions, the economies in this region continue to benefit from national companies operating in the Triad, Central Piedmont, and central South Carolina areas. The Eastern Virginia local economies have, in recent years, benefited from key corporate and government activities and relocations. The economy in Eastern Tennessee continues to benefit from the stability of higher education, healthcare services and tourism.

Despite the stable and positive aspects of our regional economies, the Company’s markets have experienced significant declines in residential development and construction, not inconsistent with national trends. These declines have led to contraction in residential land development and construction, which have historically been important components of the Company’s lending activities. The economies of the Company’s Southwest Virginia and West Virginia markets have remained stable compared to the national economy and unemployment levels are generally lower than the national average at December 31, 2010.

Competition

As the Company competes for increased market share and growth in both loans and deposits, it continues to encounter strong competition from many sources. Many of the markets targeted by the Company are also being entered by other banks in nearby and distant markets. The expansion of banks, credit unions, and other non-depository financial companies over recent years has intensified competitive pressures on core deposit generation and retention. Competitive forces impact the Company through pressure on interest yields, product fees, and loan structure and terms; however, the Company has countered these pressures with its relationship style of banking, competitive pricing and a disciplined approach to loan underwriting.

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 is not available, valuation adjustments are estimated by management primarily through the use of financial modeling techniques and appraisal estimates.

The Company’s accounting policies are fundamental to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operation. The following is a summary of the Company’s more subjective and complex “critical accounting policies.” In addition, the disclosures presented in the Notes to the Consolidated Financial Statements and in Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 investment valuation, 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.

Investment Securities

Management performs an extensive review of the investment securities portfolio quarterly to determine the cause of declines in the fair value of each security within each segment of the portfolio. The Company uses inputs provided by an independent third party to determine the fair values of its investment securities portfolio. Inputs provided by the third party are reviewed and corroborated by management. Evaluations of the causes of the unrealized losses are performed to determine whether the impairment is temporary or other-than-temporary in nature. Considerations such as the Company’s intent and ability to hold the securities, recoverability of the invested amounts over the Company’s intended holding period, severity in pricing decline, credit rating, and receipt of amounts contractually due, among other factors, are applied in determining whether a security is other-than-temporarily impaired. If a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level management deems sufficient to absorb probable losses inherent in the portfolio, and is based on management’s evaluation of the risks in the loan portfolio and changes in the nature and volume of loan activity. The Company consistently applies a review process to periodically evaluate loans for changes in credit risk. This process serves as the primary means by which the Company evaluates the adequacy of the allowance for loan losses.

The Company determines the allowance for loan losses by making specific allocations to impaired loans that exhibit inherent weaknesses and various credit risk factors, and general allocations to commercial, residential real estate, and consumer loans are developed giving weight to risk ratings, historical loss trends and management’s judgment concerning those trends and other relevant factors. These factors may include, but are not limited to, actual versus estimated losses, regional and national economic conditions, business segment and portfolio concentrations, industry competition and consolidation, and the impact of government regulations. The foregoing analysis is performed by management to evaluate the portfolio and calculate an estimated valuation allowance through a quantitative and qualitative analysis that applies risk factors to those identified risk areas.

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

The use of various estimates and judgments in the Company’s ongoing evaluation of the required level of allowance can significantly impact the Company’s results of operations and financial condition and may result in either greater provisions against earnings to increase the allowance or reduced provisions based upon management’s current view of the portfolio and economic conditions and the application of revised estimates and assumptions. Differences between actual loan loss experience and estimates are reflected through adjustments, either increasing or decreasing the loan loss provision based upon current measurement criteria.

Acquisitions and Intangible Assets

The Company may, from time to time, engage in business combinations with other companies. Purchase accounting requires the recording of underlying assets and liabilities of the entity acquired at their fair market value. Any excess of the purchase price of the business over the net assets acquired and any identified intangibles is recorded as goodwill. In instances where the price of the acquired business is less than the net assets acquired, a gain on purchase is recorded. Fair values are assigned based on quoted prices for similar assets, if readily available, or appraisal by qualified independent parties for relevant asset and liability categories. Financial assets and liabilities are typically valued using discount models which apply current discount rates to streams of cash flow. All of these valuation methods require the use of assumptions which can result in alternate valuations and varying levels of goodwill and amounts of bargain purchase gain and, in some cases, amortization expense or accretion income.

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

Goodwill is recorded as the excess of the purchase price, if any, over the fair value of the revalued net assets. Goodwill is tested annually in the month of October for possible impairment by comparing the fair value of each segment to its book value, including goodwill (step 1). If the fair value of the segment is greater than its book value, no goodwill impairment exists. However, if the book value of the segment is greater than its determined fair value, goodwill impairment may exist and further testing is required to determine the amount, if any, of the actual impairment loss (step 2). The step 1 test utilizes a combination of two methods to determine the fair value of the reporting units. For both segments, a discounted cash flow model is created projecting cash flows from operations of the business segment, the results of which are weighted 70%. For the banking segment a market multiple model utilizes price to net income and price to tangible book value inputs for closed transactions and for certain common sized institutions and the results are weighted 30%. For the insurance segment the market multiple model primarily utilizes price to sales for closed transactions and certain similar industry public companies and the results are weighted 30%. The end results for both segments are then compared to the respective book values to consider if impairment is evident. To determine the overall reasonableness of the segment computations, the combined computed fair value is then compared to the overall market capitalization of the consolidated Company to determine the level of implied control premium.

The discounted cash flow analysis uses estimates in the form of growth and attrition rates, anticipated rates of return, and discount rates. These estimates have a direct bearing on the results of the impairment testing and serve as the basis for management’s conclusions as to potential impairment.

The results of the step 1 analysis performed at October 31, 2010, determined that no impairment was evident for the banking segment. For the insurance segment the step 1 analysis indicated an impairment. A step 2 analysis was performed for the insurance segment resulting in an impairment to goodwill of $1.04 million. An adjustment to the weighting of the results, deterioration in the market multiples used, further decline in the banking and retail insurance industry valuations, or further decline in our common stock price could provide evidence in the future of potential impairment.

Income Taxes

The establishment of provisions for federal and state income taxes is a complex area of accounting which also involves the use of judgments and estimates in applying relevant tax statutes. The Company operates in multiple state tax jurisdictions and this requires the appropriate allocation of income and expense to each state based on a variety of apportionment or allocation bases. The Company is also subject to audit by federal and state tax authorities. Results of these audits may produce indicated liabilities which differ from Company estimates and provisions. The Company continually evaluates its exposure to possible tax assessments arising from audits and records its estimate of possible exposure based on current facts and circumstances.

Deferred tax assets and liabilities are recognized for the tax effects of differing carrying values of assets and liabilities for tax and financial statement purposes that will reverse in future periods. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. When uncertainty exists concerning the recoverability of a deferred tax asset, the carrying value of the asset may be reduced by a valuation allowance. The amount of any valuation allowance established is based upon an estimate of the deferred tax asset that is more likely than not to be recovered. Increases or decreases in the valuation allowance result in increases or decreases to the provision for income taxes.

Recent Acquisitions and Branching Activity

In July 2009, the Company acquired TriStone Community Bank (“TriStone”), based in Winston-Salem, North Carolina. TriStone had two full service locations in Winston-Salem, North Carolina. At acquisition, TriStone had total assets of $166.82 million, total loans of $132.23 million and total deposits of $142.27 million. Each outstanding common share of TriStone was exchanged for .5262 shares of the Company’s Common Stock and the overall acquisition cost was $10.78 million. The acquisition of TriStone significantly augmented the Company’s market presence and human resources in the Winston-Salem, North Carolina market.

In November 2008, the Company acquired Coddle Creek Financial Corp. (“Coddle Creek”), headquartered in Mooresville, North Carolina. Coddle Creek had three full service branch offices located in Mooresville, Cornelius, and Huntersville, North Carolina. At acquisition, Coddle Creek had total assets of $158.66 million, total loans of $136.99 million and total deposits of $137.06 million. Under the terms of the merger agreement, shares of Coddle Creek common stock were exchanged for .9046 shares of the Company’s common stock and $19.60 in cash. The total deal value, including the cash-out of outstanding stock options, was $32.29 million. Concurrent with the Coddle Creek acquisition, Mooresville Savings Bank, Inc., SSB, the wholly-owned subsidiary of Coddle Creek, was merged into the Bank. As a result of the acquisition and preliminary purchase price allocation, $14.41 million in goodwill was recorded which represents the excess of the purchase price over the fair market value of the net assets acquired and identified intangibles.

GreenPoint Insurance Group (“GreenPoint”), a wholly-owned subsidiary of the Company, has acquired seven insurance agencies and sold one since its acquisition by the Company in September 2007. GreenPoint has issued aggregate cash consideration of $190 thousand and $803 thousand in 2010 and 2009, respectively, in connection with those acquisitions. Terms for acquisitions prior to 2010 call for issuing further cash consideration of $2.86 million if certain operating targets are met. If those targets are met, the value of the consideration ultimately paid will be added to the costs of the acquisitions. Acquisitions prior to 2010 added $692 thousand, $803 thousand, and $2.04 million of goodwill and intangibles to the Company’s balance sheet in 2010, 2009, and 2008, respectively. In 2010, GreenPoint acquired one insurance agency. Cash consideration of $190 thousand was provided at the closing date of the transaction. Acquisition terms call for further cash consideration of $760 thousand if certain operating targets are met. The fair value of these payments were booked at acquisition and added $477 thousand of goodwill and intangibles to the Company’s balance sheet during 2010.

Results Of Operations

2010 Compared To 2009

Net income available to common shareholders for 2010 was $21.85 million, an increase of $62.70 million from a net loss available to common shareholders of $40.86 million in 2009. Basic and diluted earnings per common share for 2010 were $1.23, compared with basic and diluted losses per common share of $2.75 in 2009. The 2009 net loss to common shareholders was impacted by pre-tax impairment charges and losses on the sale of securities amounting to $90.54 million. The Company’s return on average assets was 0.97% in 2010, compared to a negative 1.83% in 2009. Return on equity was 8.11% in 2010, compared to a negative 16.73% in 2009.

Net Interest Income

The primary source of the Company’s earnings is net interest income, the difference between income on earning assets and the cost of funds supporting those assets. Significant categories of earning assets are loans and securities while deposits and borrowings represent the major portion of interest bearing liabilities. Net interest income was $73.86 million for 2010, compared with $69.25 million for 2009, an increase of $4.61 million, or 6.65%. Tax equivalent net interest income totaled $77.22 million for 2010, an increase of $4.67 million, or 6.44%, from $72.55 million reported for 2009. The increase in tax equivalent net interest income was due primarily to decreases in time deposits and borrowing costs as a result of repricing opportunities throughout a sustained low rate environment.

For purposes of the following discussion, comparison of net interest income is performed on a tax equivalent basis, which provides a common basis for comparing yields on earning assets exempt from federal income taxes to those assets which are fully taxable (see the table titled Average Balance Sheets and Net Interest Income Analysis).

Average earning assets increased $40.59 million while average interest bearing liabilities increased $15.91 million during 2010 as compared to the prior year. The changes include the full year impact of the July 2009 TriStone acquisition. The yield on average earning assets decreased 33 basis points to 5.40% for 2010 from 5.73% for 2009. Short-term market interest rates remained low throughout 2010, as the Federal Reserve Board held the “range” of zero to 25 basis points as its target for federal funds. The prevailing low interest rate environment was the largest driver in the overall decrease in the Company’s yield on average earning assets.

Total cost of average interest bearing liabilities decreased 53 basis points to 1.67% during 2010. The Company’s time deposit portfolio experienced downward repricing during 2010, as many of the higher-rate certificates were renewed at lower rates, or not renewed. The net result was an increase of 20 basis points in the net interest rate spread, or the difference between interest income on earning assets and expense on interest bearing liabilities, for 2010 compared to 2009. The net interest rate spread for 2010 was 3.73% compared with 3.53% for 2009. The Company’s net interest margin, or net interest income to average earning assets, of 3.90% for 2010 represents an increase of 16 basis points from 3.74% in 2009.

Loan interest income increased $2.12 million during 2010 as compared with 2009 as average volume increased, while the yield on loans decreased 15 basis points during the same period. During 2010, the yield on available-for-sale securities decreased 81 basis points to 4.33% while the average balance decreased by $44.58 million as compared with 2009.

Average interest bearing balances that the Company maintains with third party banks increased $19.75 million during 2010 to $81.99 million, while the yield decreased 3 basis points to 0.24% during the same period. Interest-bearing balances with third party banks are comprised largely of excess liquidity bearing overnight market rates.

The average balances of interest-bearing deposits increased $30.37 million, or 2.16%, while the average rate paid during 2010 decreased 59 basis points when compared to the prior year. The average rate paid on interest bearing demand deposits increased 17 basis points, while the average rate paid on savings, which includes money market and savings accounts, decreased 12 basis points in 2010 compared with 2009. In 2010, average time deposits decreased $103.07 million while the average rate paid decreased 75 basis points to 2.12% as compared with 2009. The decrease can be attributed to customers moving to more liquid investment accounts and the non-renewal of certificates at lower interest rates. The level of average non-interest bearing demand deposits increased $6.48 million to $206.40 million in 2010 compared with the prior year.

The average balance of retail repurchase agreements, which consist of collateralized retail deposits and commercial treasury accounts, decreased $4.24 million in 2010, while the average rate paid on those funds decreased 36 basis points to 1.02% during the same period. There were no federal funds purchased on average during 2010. The average balance of wholesale repurchase agreements remained unchanged at $50.00 million between 2010 and 2009, while the rate decreased 10 basis points due to structure within those borrowings. The average balance of Federal Home Loan Bank (“FHLB”) advances and other borrowings decreased $10.22 million, or 4.99%, while the rate paid on those borrowings decreased 12 basis points in 2010 compared with 2009. Other borrowings include the Company’s trust preferred issuance of $15.46 million, which is indexed to 3-month LIBOR.

Average Balance Sheets and Net Interest Income Analysis

	2010							2009							2008
	Average				Average			Average				Average			Average				Average
	Balance		Interest (1)		Rate (1)			Balance		Interest (1)		Rate (1)			Balance		Interest (1)		Rate (1)
(Dollars in Thousands)
Earning Assets:
Loans held for investment: (2)	$	1,400,061	$	84,906		6.06	%	$	1,333,112	$	82,785		6.21	%	$	1,199,076	$	80,305		6.70	%
Available-for-sale securities		492,703		21,313		4.33	%		537,278		27,638		5.14	%		576,864		33,438		5.80	%
Held-to-maturity securities		6,299		533		8.46	%		7,828		643		8.21	%		10,302		849		8.24	%
Interest bearing deposits with banks		81,987		194		0.24	%		62,242		165		0.27	%		15,489		306		1.98	%
Total earning assets		1,981,050		106,946		5.40	%		1,940,460		111,231		5.73	%		1,801,731		114,898		6.38	%
Other assets		282,005							288,450							244,455
Total	$	2,263,055						$	2,228,910						$	2,046,186

Interest-bearing liabilities:
Demand deposits	$	252,471	$	980		0.39	%	$	205,997	$	443		0.22	%	$	174,809	$	292		0.17	%
Savings deposits		421,184		2,751		0.65	%		334,217		2,588		0.77	%		312,363		4,693		1.50	%
Time deposits		760,286		16,156		2.12	%		863,357		24,765		2.87	%		671,729		24,807		3.69	%
Total interest bearing deposits		1,433,941		19,887		1.39	%		1,403,571		27,796		1.98	%		1,158,901		29,792		2.57	%
Borrowings:
Federal funds purchased		-		-		-			-		-		-			15,942		362		2.27	%
Retail repurchase agreements		97,531		992		1.02	%		101,775		1,375		1.38	%		143,159		3,029		2.12	%
Wholesale repurchase agreements		50,000		1,872		3.74	%		50,000		1,922		3.84	%		50,000		1,630		3.26	%
FHLB borrowings and other debt		194,461		6,974		3.59	%		204,678		7,589		3.71	%		244,801		10,117		4.13	%
Total borrowings		341,992		9,838		2.88	%		356,453		10,886		3.05	%		453,902		15,138		3.34	%
Total interest bearing liabilities		1,775,933		29,725		1.67	%		1,760,024		38,682		2.20	%		1,612,803		44,930		2.79	%
Noninterest-bearing demand deposits		206,396							199,917							211,791
Other liabilities		11,280							24,832							19,850
Stockholders' equity		269,446							244,137							201,742
Total	$	2,263,055						$	2,228,910						$	2,046,186
Net interest income			$	77,221						$	72,549						$	69,968
Net interest rate spread (3)						3.73	%						3.53	%						3.59	%
Net interest margin (4)						3.90	%						3.74	%						3.88	%

(1)	Fully taxable equivalent at the rate of 35% ("FTE").

(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 tax equivalent yield on earning assets and cost of funds.

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

Rate and Volume Analysis of Interest

The following table summarizes the changes in tax equivalent interest earned and paid detailing the amounts attributable to (i) changes in volume (change in the average volume times the prior year’s average rate), (ii) changes in rate (changes in the average rate times the prior year’s average volume), and (iii) changes in rate/volume (change in the average column times the change in average rate).

	Twelve Months Ended												Twelve Months Ended
	December 31, 2010 Compared to 2009												December 31, 2009 Compared to 2008
	Dollar Increase/(Decrease) due to												Dollar Increase/(Decrease) due to
							Rate/												Rate/
(In Thousands)	Volume			Rate			Volume			Total			Volume			Rate			Volume			Total
Interest Earned On:
Loans (FTE)	$	4,158		$	(2,000	)	$	(37	)	$	2,121		$	8,980		$	(5,875	)	$	(625	)	$	2,480
Securities available-for-sale (FTE)		(2,291	)		(4,352	)		318			(6,325	)		(2,296	)		(3,807	)		303			(5,800	)
Securities held-to-maturity (FTE)		(126	)		20			(4	)		(110	)		(204	)		(3	)		1			(206	)
Interest-bearing deposits with other banks		53			(19	)		(5	)		29			926			(265	)		(802	)		(141	)
Total interest-earning assets		1,794			(6,351	)		272			(4,285	)		7,406			(9,951	)		(1,123	)		(3,667	)

Interest Paid On:
Demand deposits		102			350			85			537			53			87			11			151
Savings deposits		670			(401	)		(106	)		163			328			(2,280	)		(153	)		(2,105	)
Time deposits		(2,958	)		(6,475	)		824			(8,609	)		7,071			(5,508	)		(1,605	)		(42	)
Fed funds purchased		-			-			-			-			(363	)		-			1			(362	)
Retail repurchase agreements		(57	)		(336	)		10			(383	)		(877	)		(1,102	)		326			(1,654	)
Wholesale repurchase agreements		-			(50	)		(0	)		(50	)		-			290			2			292
FHLB borrowings and other long-term debt		(379	)		(246	)		10			(615	)		(1,657	)		(1,028	)		157			(2,528	)
Total interest-bearing liabilities		(2,622	)		(7,158	)		823			(8,957	)		4,555			(9,542	)		(1,261	)		(6,248	)

Change in net interest income,tax equivalent	$	4,416		$	807		$	(551	)	$	4,672		$	2,851		$	(409	)	$	139		$	2,581

Provision for Loan Losses

The provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level which, in management’s best estimate, is necessary to absorb probable losses within the existing loan portfolio. The provision for loan losses for 2010 was $14.76 million, a decrease of $1.04 million compared with 2009. The elevated loan loss provision is primarily attributable to high loss factors as net charge-offs increased during 2010. Qualitative risk factors remained high, reflective of the higher risk of inherent loan losses due to rising unemployment, recessionary pressures, and devaluations of various categories of collateral. Net charge-offs for 2010 and 2009 were $12.55 million and $9.31 million, respectively. Expressed as a percentage of average loans, net charge-offs increased to 0.90% for 2010 from 0.70% in 2009. See “Allowance for Loan Losses” of this item for additional information.

Noninterest Income

Noninterest income consists of all revenues which are not included in interest and fee income related to earning assets. Noninterest income for 2010, exclusive of the impact of OTTI charges, gains on the sale of securities, and acquisition gains, was $32.42 million, compared with $32.37 million in 2009. See “Financial Position – Available-for-Sale Securities” in Item 7 hereof for information on the changes and losses relating to the Company’s securities.

Wealth management income, which includes fees for trust services and commission and fee income generated by IPC, decreased $319 thousand in 2010 to $3.83 million compared with 2009, a result of a decrease in trust service revenues. Service charges on deposit accounts decreased $764 thousand in 2010 to $13.13 million compared with 2009, as a result of lower overall consumer spending leading to lower levels of certain activity charges. Other service charges, commissions and fees reflected an increase of $359 thousand in 2010 compared with 2009, due mainly to increased debit card interchange income, as the Company’s customers increasingly chose card-based payment delivery systems.

Insurance commissions earned in 2010 were $6.73 million, compared with $6.99 million in 2009. Income for the insurance subsidiary is derived primarily from commissions earned on the sale of policies.

Other operating income for 2010 was $3.66 million, an increase of $1.04 million from 2009. The largest components of the increase in other operating income for 2010 were increased revenue from secondary market mortgage operations of $797 thousand, a litigation settlement of $162 thousand, and a gain on the sale of real estate of $146 thousand.

During 2010, the Company recognized net securities gains of $8.27 million, an increase of $19.95 million from losses recognized in 2009. In December 2009, net security losses of $11.67 million included four pooled trust preferred securities sold by the Company that resulted in a loss of $14.82 million.

Noninterest Expense

Total noninterest expense was $69.94 million for 2010, an increase of $3.32 million over 2009. Salaries and benefits increased $3.14 million in 2010 compared to 2009. At December 31, 2010, the Company had total full-time equivalent employees of 683 compared to 646 at December 31, 2009. Full-time equivalent employees are calculated using the number of hours worked. GreenPoint accounted for 59 full-time equivalent employees at year-end 2010 compared with 57 at year-end 2009. Total full-time equivalent employees at the Bank and IPC increased by 37 full-time equivalent employees during 2010. Health insurance costs increased $1.39 million, or 87.70%, and 401(k) employer matching costs decreased $250 thousand, or 18.24%. The Company also deferred $296 thousand less in direct loan origination costs than in 2009 primarily due to lower origination volumes.

Occupancy expenses increased $549 thousand in 2010 to $6.44 million, compared with 2009, due to the full year effect of the acquisition of TriStone and bank building repairs.

FDIC premiums and assessments totaled $2.86 million, a decrease of $1.41 million from 2009. Included in the 2009 amount is a special assessment levied on all banks that approximated $988 thousand for the Company.

Other operating expenses increased $1.84 million in 2010 to $20.34 million, compared with 2009. The primary cause for the increase in other operating expenses was a $2.32 million increase in losses on sale of foreclosed properties, which was $3.08 million in 2010 compared to $763 thousand in 2009. Also contributing to the change in other operating expenses were increases in legal, travel, and interchange expenses of $270 thousand, $190 thousand, and $272 thousand, respectively, offset by decreases in consulting fees of $1.69 million. As of December 31, 2010, the Company recognized a goodwill impairment of $1.04 million at the insurance agency segment.

The Company uses an efficiency ratio that is a non-GAAP financial measure of operating expense control and efficiency of operations. Management believes this ratio better focuses attention on the core operating performance of the Company over time than does a GAAP-based ratio, and is highly useful in comparing period-to-period operating performance of the Company’s core business operations. It is used by management as part of its assessment of its performance in managing noninterest expenses. However, this measure is supplemental and is not a substitute for an analysis of performance based on GAAP measures. The reader is cautioned that the efficiency ratio used by the Company may not be comparable to efficiency ratios reported by other financial institutions.

In general, the efficiency ratio used by the Company is noninterest expenses as a percentage of net interest income plus noninterest income. Noninterest expenses used in the calculation exclude amortization of intangibles and non-recurring expenses. Income for the ratio is increased for the favorable effect of tax-exempt income (see Average Balance Sheets and Net Interest Income Analysis), and excludes securities gains and losses, which vary widely from period to period without appreciably affecting operating expenses, non-recurring gains and losses, and OTTI charges. The measure is different from the GAAP-based efficiency ratio, which also is presented in this report, which is calculated using noninterest expense and income amounts as shown on the face of the Consolidated Statements of Income. Both types of efficiency ratio calculations are set forth and are reconciled in the table below.

The (non-GAAP) efficiency ratios for continuing operations for 2010, 2009, and 2008 were 59.09%, 59.10%, and 57.54%, respectively. The following table details the components used in calculation of the efficiency ratios.

	2010			2009			2008
(Dollars in Thousands)
GAAP-based efficiency ratio
Noninterest expenses	$	69,943		$	66,624		$	60,516
Net interest income plus noninterest income	$	114,365		$	15,575		$	68,209

GAAP-based efficiency ratio		61.16	%		427.76	%		88.72	%

Non-GAAP efficiency ratio
Noninterest expenses — GAAP-based	$	69,943		$	66,624		$	60,516
Less non-GAAP adjustments:
Foreclosed property expense		(3,079	)		(763	)		(382	)
Amortization of intangibles		(1,032	)		(1,028	)		(689	)
Prepayment penalties on FHLB advances		-			(88	)		(1,647	)
Merger expenses		-			(1,726	)		-
FDIC special assessments		-			(988	)		-
Goodwill impairment		(1,039	)		-			-
Other non-core, non-recurring expense items		(4	)		(225	)		(51	)
Adjusted non-interest expenses		64,789			61,806			57,747

Net interest income plus noninterest income — GAAP-based		114,365			15,575			68,209
Plus non-GAAP adjustment:
Tax equivalency		3,364			3,297			4,133
Less non-GAAP adjustments:
Security (gains) losses		(8,273	)		11,673			(1,899	)
Other-than-temporary security impairments		185			78,863			29,923
Acquisition gains		-			(4,493	)		-
Other non-core, non-recurring income items		-			(340	)		-
Adjusted net interest income plus noninterest income		109,641			104,575			100,366

Non-GAAP efficiency ratio		59.09	%		59.10	%		57.54	%

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 the increases in the cash surrender values of life insurance policies.

Consolidated income taxes for 2010 were $7.82 million compared with an income tax benefit of $28.15 million in 2009. For the year ended 2010, the effective tax expense rate was 26.35%. The effective tax rate for 2009 was not meaningful due to the pre-tax loss.

2009 Compared To 2008

The net loss available to common shareholders for 2009 was $40.86 million, a decrease of $42.56 million from net income available to common shareholders of $1.70 million in 2008. Basic and diluted loss per common share for 2009 was $2.75, compared with basic and diluted earnings per common share of $0.15 in 2008. The significant decline in earnings in 2009 reflects pre-tax impairment charges and losses on the sale of securities amounting to $90.54 million. The Company’s return on average assets was a negative 1.83% in 2009 and 0.08% in 2008. Return on equity was a negative 16.73% in 2009 and 0.86% in 2008.

The Company acquired TriStone Community Bank, a $166.82 million bank, in July 2009. As a result of the acquisition, a gain of $4.49 million was recorded, which represents the excess fair market value of the net assets acquired and indentified intangibles over the purchase price. The net operations of TriStone were not significant to the Company’s 2009 results of operations.

Net Interest Income

Net interest income was $69.25 million for 2009, compared with $65.84 million for 2008. Tax equivalent net interest income totaled $72.55 million for 2009, an increase of $2.58 million from the $69.97 million reported for 2008.

Average earning assets increased $138.73 million while average interest bearing liabilities increased $147.22 million during 2009 as compared to the prior year in each case over the comparable period. The increases primarily reflect the acquisitions of TriStone and Coddle Creek. The yield on average earning assets decreased 65 basis points to 5.73% for 2009 from 6.38% for 2008. Short-term market interest rates remained low throughout 2009, as the Federal Reserve Board held the “range” of zero to 25 basis points as its target for federal funds. The prevailing low interest rate environment was the largest driver in the overall decrease in the Company’s yield on average earning assets.

Total cost of average interest bearing liabilities decreased 59 basis points to 2.20% during 2009. The Company’s time deposit portfolio experienced downward repricing during 2009, as many of the higher-rate certificates were renewed at lower rates, or not renewed. The net result was a decrease of 6 basis points in the net interest rate spread, or the difference between interest income on earning assets and expense on interest bearing liabilities, for 2009 compared to 2008. The net interest rate spread for 2009 was 3.53% compared with 3.59% for 2008. The Company’s net interest margin, or net interest income to average earning assets, of 3.74% for 2009 represents a decrease of 14 basis points from 3.88% in 2008.

Loan interest income increased $2.48 million during 2009 as compared with 2008 as volume increased, while the yield on loans decreased 49 basis points during the same period. During 2009, the yield on available-for-sale securities decreased 66 basis points to 5.14% while the average balance decreased by $39.59 million as compared with 2008.

Average interest bearing balances with banks increased $46.75 million during 2009 to $62.24 million, while the yield decreased 171 basis points to 0.27% during the same period. These balances consist primarily of overnight investments, and the yield as compared with 2008 on these balances is primarily affected by changes in the target federal funds rate. The Company determined that it was prudent to maintain a high level of liquidity as a measure of safety during the recessionary economic conditions experienced in 2009, particularly through the first two quarters of 2009, as a result of market volatility.

The average total cost of interest bearing deposits decreased 59 basis points in 2009 compared with 2008. The average rate paid on interest bearing demand deposits increased 5 basis points, while the average rate paid on savings, which includes money market and savings accounts, decreased 73 basis points in 2009 compared with 2008. In 2009, average time deposits increased $191.63 million while the average rate paid decreased 82 basis points to 2.87% as compared with 2008. The increase in time deposits reflects the full year impact of the acquisition of Coddle Creek and the partial year impact of the acquisition of TriStone. The level of average non-interest bearing demand deposits decreased $11.87 million to $199.92 million in 2009 compared with the prior year, but was offset by a $31.19 million increase in interest bearing demand deposits.

Average federal funds purchased decreased $15.94 million in 2009 compared with 2008 to a zero balance, as the Company experienced historically high levels of liquidity. Average retail repurchase agreements decreased $41.38 million in 2009, while the average rate paid on those funds decreased, as they are closely tied to the target federal funds rate and 3-month LIBOR. Average Federal Home Loan Bank (“FHLB”) advances and other borrowings decreased $40.12 million while the rate paid on those borrowings decreased 42 basis points in 2009 compared with 2008. The Company prepaid a $25.00 million FHLB advance in June 2009. Other borrowings include the Company’s trust preferred issuance of $15.46 million, which is indexed to 3-month LIBOR.

Provision for Loan Losses

The provision for loan losses for 2009 was $15.80 million, an increase of $6.58 million compared with 2008. The increase in loan loss provision is primarily attributable to rising loss factors as net charge-offs escalated during 2009. Qualitative risk factors were also higher, reflective of the higher risk of inherent loan losses due to rising unemployment, recessionary pressures, and devaluations of various categories of collateral, including real estate and marketable securities. Net charge-offs for 2009 and 2008 were $9.31 million and $5.45 million, respectively. Expressed as a percentage of average loans, net charge-offs increased to 0.70% for 2009 from 0.45% in 2008.

Noninterest Income

Noninterest income for 2009, exclusive of the $78.86 million OTTI charges, $11.67 million loss on the sale of securities, and $4.49 million in gain resulting from the TriStone acquisition, was $32.37 million, compared with $30.40 million in 2008. See “Financial Position – Available-for-Sale Securities” in Item 7 hereof for information on the changes and losses relating to the Company’s securities.

Wealth management income, which includes fees for trust services and commission and fee income generated by IPC, increased $47 thousand in 2009 compared with 2008, a result of the increases in revenues at IPC. Service charges on deposit accounts decreased $175 thousand as a result of lower overall consumer spending leading to lower levels of certain activity charges. Other service charges, commissions and fees reflected an increase of $467 thousand in 2009 compared with 2008, due mainly to increased debit card interchange income and ATM service fees, as the Company’s customers increasingly chose card-based payment delivery systems.

Insurance commissions earned in 2009 were $6.99 million, compared with $4.99 million in 2008. Income for the insurance subsidiary is derived primarily from commissions earned on the sale of policies. The increase is due largely to a sizeable acquisition of an insurance agency by GreenPoint located in Warrenton, Virginia, that was completed in December 2008.

Other operating income for 2009 was $2.62 million, a decrease of $371 thousand from 2008. The largest components of that difference are decreases in revenue from FHLB stock dividends and secondary market mortgage operations of $432 thousand and $207 thousand, respectively, net of a $340 thousand gain on the disposition of a GreenPoint office.

During 2009, the Company recognized net securities losses of $11.67 million, a decrease of $13.57 million from gains recognized in 2008. In December 2009, the Company sold four pooled trust preferred securities that resulted in a loss of $14.82 million.

Noninterest Expense

Total noninterest expense was $66.62 million for 2009, an increase of $6.11 million over 2008. Salaries and benefits increased $1.51 million. At December 31, 2009, the Company had total full-time equivalent employees of 646 compared to 638 at December 31, 2008. Full-time equivalent employees are calculated using the number of hours worked. GreenPoint accounted for 57 full-time equivalent employees at year-end 2009 compared with 50 at year-end 2008. Total full-time equivalent employees at the Bank and IPC remained relatively stable increasing by 19 full-time equivalent employees from the acquisition of TriStone. Health insurance costs decreased $732 thousand, or 31.59%, and 401(k) employer matching costs increased $139 thousand, or 11.36%. The Company also deferred $231 thousand less in direct loan origination costs than in 2008.

Occupancy expenses increased $787 thousand in 2009 compared with 2008, due to the full year effect of new branches, the full year impact of the acquisition of Coddle Creek, and the partial year effect of the acquisition of TriStone.

During 2009, the Company prepaid a $25.00 million FHLB advance. The expense associated with that prepayment was $88 thousand.

FDIC premiums and assessments totaled $4.26 million, an increase of $4.06 million from 2008. Included in the 2009 amount is a special assessment levied that approximated $988 thousand. The Company also incurred expenses related to the TriStone merger of $1.73 million.

Other operating expenses decreased $760 thousand in 2009 compared with 2008. Contributing to the change were decreases in advertising expenses, consulting fees, and legal fees of $689 thousand, $350 thousand, and $238 thousand, respectively, offset by increases in service fees of $433 thousand.

Income Tax Expense

Consolidated income taxes for 2009 were a benefit of $28.15 million compared with a benefit of $3.49 million in 2008. The effective tax rates for 2009 and 2008 were not meaningful due to a pre-tax loss and level of pre-tax income, respectively.

Financial Position

Available-for-Sale Securities

Available-for-sale securities were $480.06 million at December 31, 2010, compared with $486.06 million at December 31, 2009, a decrease of $5.99 million. The market value of securities available-for-sale as a percentage of amortized cost was 96.40% and 96.34% at December 31, 2010 and 2009, respectively. At December 31, 2010, the average life and duration of the portfolio were 6.8 years and 5.7, respectively. Average life and duration at December 31, 2009, were 6.0 years and 4.9, respectively.

Available-for-sale and held-to-maturity securities are reviewed quarterly for possible OTTI. 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, timing and amount of contractual cash flows, the expectation for that security’s performance, the creditworthiness of the issuer and the Company’s intent to hold the security to recovery or maturity. If a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized. In the instance of a debt security which is determined to be other-than-temporarily impaired, the Company determines the amount of the impairment due to credit and the amount due to other factors. The amount of impairment related to credit is recognized in the Consolidated Statements of Income and the remainder of the impairment is recognized in other comprehensive income.

During the years ended December 31, 2010 and 2009, the Company recognized credit-related OTTI charges in earnings of $134 thousand and $77.59 million, respectively, related to beneficial interest debt securities. In addition, the Company recognized impairment charges of $51 thousand and $1.27 million on certain equity holdings during 2010 and 2009, respectively.

The following table provides details regarding the type and credit ratings within the securities portfolios as of December 31, 2010.

							Unrealized
							Gains/(Losses)			OTTI (2)
	Par		Fair		Amortized		Recognized			in
	Value		Value		Cost		in AOCI (1)			AOCI (1)
(Amounts in Thousands)
Available for sale
U.S. Government agency securities	$	10,000	$	9,832	$	10,000	$	(168	)	$	-
Agency mortgage-backed securities		205,867		215,013		209,281		5,732			-
Non-Agency mortgage-backed securities
D		21,490		11,277		19,181		(7,904	)		(7,904	)
Total		21,490		11,277		19,181		(7,904	)		(7,904	)
States and political subdivisions
AAA		13,022		12,347		13,004		(657	)		-
AA		124,448		122,467		124,446		(1,979	)		-
A		28,942		29,498		28,886		612			-
BBB		6,116		6,174		6,068		106			-
Not rated		6,265		5,652		5,745		(93	)		-
Total		178,793		176,138		178,149		(2,011	)		-
Single-issue bank trust preferred securities
A		7,130		5,625		6,953		(1,328	)		-
BBB		15,300		11,986		14,966		(2,980	)		-
BB		34,125		23,633		33,675		(10,042	)		-
Total		56,555		41,244		55,594		(14,350	)		-
Pooled trust preferred securities
C		8,072		264		23		241			-
Total		8,072		264		23		241			-
Corporate FDIC insured
AAA		25,000		25,660		25,282		378			-
Total		25,000		25,660		25,282		378			-
Equity securities		-		636		495		141			-
Total	$	505,777	$	480,064	$	498,005	$	(17,941	)	$	(7,904	)

Held to maturity
States and political subdivisions
AA	$	3,370	$	3,397	$	3,346	$	51		$	-
A		654		646		631		15			-
BBB		660		661		660		1			-
Total	$	4,684	$	4,704	$	4,637	$	67		$	-

(1) Accumulated other comprehensive income

(2) Other-than-temporary impairment

Municipal ratings reflect the rating of the underlying issuers and do not take into account any insurance on the security. From September 2009 to December 2010, the Company sold $9.65 million of municipal securities as part of its monitoring process. The Company continued those efforts during the first two months of 2011. Generally, the securities sold did not exhibit any meaningful credit quality deterioration, rather were at risk of losing market value.

The following table details amortized cost and fair value of available-for-sale securities as of December 31, 2010, 2009, and 2008.

	December 31,
	2010				2009				2008
	Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value
(Amounts in Thousands)
U.S. Government agency securities	$	10,000	$	9,832	$	25,421	$	25,276	$	53,425	$	54,818
States and political subdivisions		178,149		176,138		133,185		135,601		163,042		159,419
Trust preferred securities:
Single-issue		55,594		41,244		55,624		41,110		55,491		33,542
Pooled		23		264		1,648		1,648		93,269		32,511
Total trust preferred securites		55,617		41,508		57,272		42,758		148,760		66,053
Corporate FDIC insured		25,282		25,660		-		-		-		-
Mortgage-backed securities:
Agency		209,281		215,013		260,220		264,218		212,315		216,962
Non-Agency prime residential		-		-		5,743		5,170		7,423		5,766
Non-Agency Alt-A residential		19,181		11,277		20,968		11,301		10,750		10,750
Total mortgage-backed securities		228,462		226,290		286,931		280,689		230,488		233,478
Equity securities		495		636		1,717		1,733		7,979		6,955
Total	$	498,005	$	480,064	$	504,526	$	486,057	$	603,694	$	520,723

At December 31, 2010, the Company held separate issuances of trust preferred securities from one issuer which had book and market values of $28.73 million and $19.56 million, respectively.

Held-to-Maturity Securities

Investment securities classified as held-to-maturity are comprised primarily of high grade state and municipal bonds. The portfolio totaled $4.64 million at December 31, 2010, compared with $7.45 million at December 31, 2009. This decrease is reflective of continuing maturities and calls within the portfolio. The market value of held-to-maturity investment securities was 101.44% and 101.68% of book value at December 31, 2010 and 2009, respectively.

The following table details amortized cost and fair value of held-to-maturity securities at December 31, 2010, 2009, and 2008.

	December 31,
	2010				2009				2008
	Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value
(Amounts in Thousands)
States and political subdivisions	$	4,637	$	4,704	$	7,454	$	7,579	$	8,670	$	8,802
Total	$	4,637	$	4,704	$	7,454	$	7,579	$	8,670	$	8,802

Loans Held for Sale

At December 31, 2010, the Company held $4.69 million of mortgage loans for sale to the secondary market. The gross notional amount of outstanding commitments to originate mortgage loans for customers at December 31, 2010, was $7.57 million on 48 loans. The Company sells these mortgages on a best efforts basis and generates non-interest income through origination fees, servicing release premiums, and yield spread gains.

Loans Held for Investment

Total loans held for investment decreased $7.73 million to $1.39 billion at December 31, 2010. The average loan to deposit ratio increased to 85.35% for 2010, compared with 83.14% for 2009. Average loans held for investment for 2010 of $1.40 billion increased $66.95 million when compared with the average loans held for investment for 2009 of $1.33 billion.

The held for investment loan portfolio continues to be well diversified among loan types and industry segments. The following table presents the various loan categories and changes in composition at year-end 2006 through 2010.

Loan Portfolio Summary

	December 31,
	2010		2009		2008		2007		2006
(Amounts in Thousands)
Commercial loans
Construction — commercial	$	42,694	$	47,469	$	58,264	$	72,805	$	64,287
Land development		16,650		22,832		20,671		30,017		36,972
Other land loans		24,468		32,566		28,590		27,497		23,065
Commercial and industrial		94,123		95,115		83,632		93,850		104,306
Multi-family residential		67,824		65,603		46,754		37,691		40,448
Non-farm, non-residential		351,904		343,975		315,547		313,845		345,517
Agricultural		1,342		1,251		1,402		2,410		2,338
Farmland		36,954		41,034		45,337		34,575		35,101
Total commercial loans		635,959		649,845		600,197		612,690		652,034
Real estate loans
Home equity lines		111,620		111,597		90,556		67,628		59,861
Single family residential mortgage		549,157		545,770		512,017		430,718		446,512
Owner-occupied construction		18,349		22,028		23,085		32,991		34,242
Total real estate loans		679,126		679,395		625,658		531,337		540,615
Consumer loans		63,475		60,090		66,258		75,451		88,677
Other		7,646		4,601		6,046		6,027		3,549
Total loans		1,386,206		1,393,931		1,298,159		1,225,505		1,284,875
Less unearned income		-		-		1		3		13
		1,386,206		1,393,931		1,298,158		1,225,502		1,284,862
Less allowance for loan losses		26,482		24,277		17,782		12,833		14,549
Net loans	$	1,359,724	$	1,369,654	$	1,280,376	$	1,212,669	$	1,270,313

The Company maintained no foreign loans in the periods presented. The Company’s loans are made primarily in the five-state region in which it operates. The Company had no concentrations of loans to one borrower representing 10% or more of outstanding loans at December 31, 2010. At December 31, 2010, the Company had 11.23% of outstanding loans concentrated in the lessors of residential buildings segment.

At December 31, 2010, commercial loans comprised 45.88% of the total loan portfolio. Commercial loans include loans to small to mid-size industrial, commercial, and service companies that include, but are not limited to, coal mining companies, natural gas producers, automobile dealers, and retail and wholesale merchants. Commercial real estate projects represent a variety of sectors of the commercial real estate market, including single family and apartment lessors, commercial real estate lessors, residential land developers and hotel/motel operators. Underwriting standards require that comprehensive reviews and independent evaluations be performed on credits exceeding predefined size limits on commercial loans. Updates to these loan reviews are done periodically or on an annual basis depending on the size of the loan relationship.

At December 31, 2010, retail oriented real estate loans comprised 48.99% of the total loan portfolio. Residential real estate loans include loans to individuals within the Company’s market footprint for the acquisition or construction of owner-occupied homes, as well as, home equity loans and lines of credit. Underwriting standards require that borrowers meet certain credit, income and collateral standards to qualify.

The following table details the maturities and rate sensitivity of the Company’s loan portfolio at December 31, 2010.

	Remaining Maturities
			Over One
	One Year		to		Over Five
	and Less		Five Years		Years		Total
(Amounts in Thousands)
Commercial loans
Construction — commercial	$	9,020	$	33,674	$	-	$	42,694
Land development		12,550		4,050		50		16,650
Other land loans		10,320		13,584		564		24,468
Commercial and industrial		36,827		51,652		5,644		94,123
Multi-family residential		22,056		39,281		6,487		67,824
Non-farm, non-residential		60,749		252,750		38,405		351,904
Agricultural		539		776		27		1,342
Farmland		6,334		22,457		8,163		36,954
Total commercial loans		158,395		418,224		59,340		635,959
Consumer real estate loans
Home equity lines		6,023		25,251		80,346		111,620
Single family residential mortgage		37,263		138,483		373,411		549,157
Owner-occupied construction		9,835		6,527		1,987		18,349
Total consumer real estate loans		53,121		170,261		455,744		679,126
Consumer loans		20,724		40,086		2,665		63,475
Other		7,646		-		-		7,646
	$	239,886	$	628,571	$	517,749	$	1,386,206
Rate Sensitivity:
Predetermined rate	$	107,849	$	457,495	$	195,575	$	760,919
Floating or adjustable rate		132,037		158,633		334,617		625,287
	$	239,886	$	616,128	$	530,192	$	1,386,206

The balance in owner-occupied construction with remaining maturities of over five years is derived from loans that a had one time closing that has not converted to principal and interest payments.

Allowance for Loan Losses

The allowance for loan losses is increased by charges to earnings in the form of provisions and by recoveries of prior loan charge-offs, and decreased by loan charge-offs. The provisions are calculated to bring the allowance to a level, which, according to a systematic process of measurement, is reflective of the amount that management deems adequate to absorb probable losses. Additional information regarding the determination of the allowance for loan losses can be found in Note 1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Item 8 hereof.

The allowance for loan losses was $26.48 million at December 31, 2010, compared with $24.28 million at December 31, 2009, an increase of $2.21 million. The increase in the allowance was primarily influenced by the effect of net charge-off activity during the year, which totaled $12.55 million as of December 31, 2010, as compared to $9.31 million as of December 31, 2009.

The allowance for loan loss methodology utilizes a rolling five year average loss history that is adjusted for current qualitative or environmental factors that management deem likely to cause estimated credit losses as of the evaluation date to differ from the historical loss experience. These factors may include, but are not limited to, actual versus estimated losses, regional and national economic conditions, including unemployment trends, business segment and portfolio concentrations, industry competition, interest rate trends, and the impact of government regulations. Management considers the allowance adequate based upon its analysis of the portfolio as of December 31, 2010; however, no assurance can be made that additions to the allowance for loan losses will not be required in future periods.

The following table details loan charge-offs and recoveries by loan type for the five years ended December 31, 2006, through 2010.

	Years Ended December 31,
	2010			2009			2008			2007			2006
(Dollars in Thousands)
Allowance for loan losses at beginning of period	$	24,277		$	17,782		$	12,833		$	14,549		$	14,736
Acquisition balances		-			-			1,169			-			-
Charge-offs:
Construction — commercial		1,342			173			605			75			51
Land development		736			925			1,430			-			-
Other land loans		633			443			44			-			-
Commercial and industrial		2,900			3,263			939			741			895
Multi-family residential		697			-			51			53			-
Non-farm, non-residential		1,666			1,076			555			983			602
Agricultural		6			7			60			-			-
Farmland		-			50			-			97			25
Home equity lines		1,089			395			333			116			-
Single family residential mortgage		3,259			1,899			1,292			846			1,579
Owner-occupied construction		4			101			126			-			-
Consumer loans		514			1,043			952			843			1,211
Other		756			980			984			541			180
Total charge-offs		13,602			10,355			7,371			4,295			4,543
Recoveries:
Construction — commercial		17			21			5			3			1
Land development		9			-			-			-			-
Other land loans		11			-			-			-			-
Commercial and industrial		83			459			572			442			461
Multi-family residential		12			-			-			9			-
Non-farm, non-residential		144			106			763			238			384
Agricultural		32			4			1			-			-
Farmland		31			-			-			31			36
Home equity lines		12			1			-			40			-
Single family residential mortgage		91			110			121			527			275
Owner-occupied construction		6			2			-			-			-
Consumer loans		163			346			243			356			450
Other		439			-			220			216			43
Total recoveries		1,050			1,049			1,925			1,862			1,650
Net charge-offs		12,552			9,306			5,446			2,433			2,893
Provision charged to operations		14,757			15,801			9,226			717			2,706
Allowance for loan losses at end of period	$	26,482		$	24,277		$	17,782		$	12,833		$	14,549

Ratio of net charge-offs to average loans outstanding		0.90	%		0.70	%		0.45	%		0.19	%		0.22	%
Ratio of allowance for loan losses to total loans outstanding		1.91	%		1.74	%		1.37	%		1.05	%		1.13	%

The following tables detail the allocation of the allowance for loan losses and the percent of loans in each category to total loans for the five years ended December 31, 2010. The Company modified its loan loss reserve methodology during 2008 to increase the number of individual loan categories being analyzed, which results in different loan segmentation for 2007 and 2006.

	December 31,
	2010				2009				2008
(Dollars in Thousands)
Construction — commercial	$	1,472	5	%	$	1,191	5	%	$	867	5	%
Land development		1,772	7	%		2,175	9	%		1,296	7	%
Other land loans		747	3	%		648	3	%		71	0	%
Commercial and industrial		4,511	17	%		5,096	21	%		2,519	15	%
Multi-family residential		1,081	4	%		449	2	%		117	1	%
Non-farm, non-residential		2,846	12	%		3,931	17	%		3,154	18	%
Agricultural		19	0	%		42	0	%		31	0	%
Farmland		70	0	%		75	0	%		49	0	%
Home equity lines		2,138	8	%		1,198	5	%		749	4	%
Single family residential mortgage		9,869	37	%		6,953	29	%		6,019	35	%
Owner-occupied construction		193	1	%		186	1	%		431	3	%
Consumer loans		1,764	6	%		1,990	8	%		2,029	12	%
Unallocated		-				343				450
Total	$	26,482	100	%	$	24,277	100	%	$	17,782	100	%

	December 31,
	2007				2006
(Dollars in Thousands)
Commercial, financial and agricultural	$	7,118	39	%	$	8,153	41	%
Real estate — construction		409	13	%		378	12	%
Real estate — mortgage		3,613	41	%		3,745	39	%
Installment loans to individuals		1,693	7	%		2,273	8	%
Total	$	12,833	100	%	$	14,549	100	%

Risk Elements

Non-performing assets include loans on non-accrual status, newly restructured loans, loans contractually past due 90 days or more and still accruing interest, and other real estate owned (“OREO”). The levels of non-performing assets for the last five years ending December 31, 2010, are presented in the following table.

	December 31,
	2010			2009			2008			2007			2006
(Dollars in Thousands)
Non-accrual loans	$	19,414		$	17,527		$	12,763		$	2,923		$	3,813
Restructured loans		5,325			1,390			-			-			-
Loans 90 days or more past due and still accruing interest		-			-			-			-			-
Total non-performing loans		24,739			18,917			12,763			2,923			3,813

Other real estate owned		4,910			4,578			1,326			545			258
Total non-performing assets	$	29,649		$	23,495		$	14,089		$	3,468		$	4,071

Restructured loans performing in accordance with modified terms	$	3,911		$	2,062		$	113		$	245		$	272

Non-performing loans as a percentage of total loans		1.78	%		1.36	%		0.98	%		0.24	%		0.30	%
Non-performing assets as a percentage of total loans and other real estate owned		2.13	%		1.68	%		1.08	%		0.28	%		0.32	%
Allowance for loan losses as a percentage of non-performing loans		107.0	%		128.3	%		139.3	%		439.0	%		381.6	%
Allowance for loan losses as a percentage of non-performing assets		89.3	%		103.3	%		126.2	%		370.0	%		357.4	%

Total non-performing assets were $29.65 million at December 31, 2010, compared with $23.50 million at December 31, 2009, an increase of $6.15 million. Non-performing assets increased during 2010 as the broad economy and borrowers continued to suffer through recessionary conditions. Included in non-performing assets are $5.33 million of unseasoned loan restructurings at December 31, 2010. During 2010, the Company was more active in restructuring loan terms for creditworthy customers. Approximately $828 thousand of the 2010 provision for loan losses was related to lowering the interest rate for borrowers under restructured terms. Non-accrual loans increased by $1.89 million to $19.41 million at December 31, 2010, compared with $17.53 million at December 31, 2009. A majority of the increase in non-accrual loans can be attributed to a $2.59 million increase in the commercial and industrial segment and a $1.48 million increase in the multi-family residential segment. These increases were offset by a $1.14 million decrease in the commercial construction segment and a $1.35 million decrease in the land development segment.

Ongoing activity within the classification and categories of non-performing loans includes collections on delinquencies, foreclosures, loan restructurings, and movements into or out of the non-performing classification as a result of changing customer business conditions. There were no loans 90 days past due and still accruing at December 31, 2010 and 2009. OREO was $4.91 million at December 31, 2010, an increase of $332 thousand from December 31, 2009, and is carried at the lesser of estimated net realizable value or cost. OREO increased from December 31, 2009, as non-performing loans were converted to foreclosed real estate. The principal components of OREO at December 31, 2010, are owner-occupied commercial real estate, residential real estate, and acquisition and development loans of $1.55 million, $1.30 million, and $884 thousand, respectively. OREO located in Winston-Salem and Mooresville, North Carolina; Richmond, Virginia; and Tennessee accounts for 27.71%, 25.24%, and 20.30%, respectively, of total OREO. The present foreclosure process in North Carolina prohibits more timely resolution of real estate secured loans within that state. At December 31, 2010, OREO consisted of 34 properties with an average value of $225 thousand and an average age of 8 months.

Certain loans included in the non-accrual category have been written down to the estimated realizable value or have been assigned specific reserves within the allowance for loan losses based upon management’s estimate of loss upon ultimate resolution.

The Company has considered all loans determined to be impaired in the evaluation of the adequacy of the allowance for loan losses at December 31, 2010. The following table presents additional detail of non-performing and restructured loans for the five years ended December 31, 2010. Additional information regarding non-performing loans can be found in Note 5 – Allowance for Loan Losses of the Notes to Consolidated Financial Statements included in Item 8 hereof.

	December 31,
	2010		2009		2008		2007		2006
(Amounts in Thousands)
Non-accruing loans	$	19,414	$	17,527	$	12,763	$	2,923	$	3,813
Restructured loans		5,325		1,390		-		-		-
Loans past due over 90 days and still accruing interest		-		-		-		-		-
Restructured loans performing in accordance with modified terms		3,911		2,062		113		245		272
Gross interest income which would have been recorded under original terms of non-accruing and restructured loans		1,341		698		458		301		397
Actual interest income during the period		757		395		89		179		286

Although total delinquent loans increased during 2010, the Company has not experienced the significant credit quality deterioration experienced by many of its peers. Non-performing loans, comprised of non-accrual loans and unseasoned loan restructurings, measured 1.78% and 1.36% of total loans as of December 31, 2010 and 2009, respectively. By way of comparison, the Company’s Federal Reserve Board peer group of bank holding companies with total assets between $1 and $3 billion at September 30, 2010, had non-performing loans measured at 3.71% of total loans.

The primary composition of non-accrual loans is: 32.78% single family residential mortgage; 24.06% non-farm, non-residential commercial; 20.22% commercial and industrial; and 12.69% multi-family residential. Approximately $3.76 million, or 19.35%, of non-accrual loans is attributed to the TriStone loan portfolio that was acquired during the third quarter of 2009.

The Company’s provision for loan losses and the allowance for loan losses remained elevated during 2010 due to the weakness in the real estate market and the recessionary economic conditions experienced during the year. As a result of the increase in charge-offs and weakness in the broader economy, the Company deemed it appropriate to maintain increased key qualitative factors that adjust upward the historical loss rates in its allowance model. Those increases have resulted in increases in the allowance as a percentage of total loans.

As of December 31, 2010, there were no outstanding commitments to lend additional dollars to borrowers related to restructured loans.

The Company maintains an active and robust problem credit identification system. When a credit is identified as exhibiting characteristics of weakening, the Company will assess the credit for potential impairment. Examples of weakening include delinquency and deterioration of the borrower’s capacity to repay as determined by our ongoing credit review function. As part of the impairment review, the Company evaluates the current collateral value. It is the Company’s standard practice to obtain updated third party collateral valuations to assist management in measuring potential impairment of a credit and the amount of the impairment to be recorded, if any.

Internal collateral valuations are generally performed within two to four weeks of the original identification of potential impairment and receipt of the third party valuation. The internal valuation is performed by comparing the original appraisal to current local real estate market conditions and experience and considers liquidation costs. The result of the internal valuation is compared to the outstanding loan balance, and, if warranted, a specific impairment reserve will be established at the completion of the internal evaluation.

A third party evaluation is typically received within thirty to forty-five days of the completion of the internal evaluation. Once received, the third party evaluation is reviewed by Special Assets staff and/or Credit Appraisal staff for reasonableness. Once the evaluation is reviewed and accepted, discounts to fair market value are applied based upon such factors as the bank’s historical liquidation experience of like collateral, and an estimated net realizable value is established. That estimated net realizable value is then compared to the outstanding loan balance to determine the amount of specific impairment reserve. The specific impairment reserve, if necessary, is adjusted to reflect the results of the updated evaluation. A specific impairment reserve is generally maintained on impaired loans during the time period while awaiting receipt of the third party evaluation as well as on impaired loans that continue to make some form of payment and liquidation is not imminent. Impaired loans not meeting the aforementioned criteria and that do not have a specific impairment reserve typically have been previously written down through a partial charge-off to their net realizable value.

The Company’s Special Assets staff assumes the management and monitoring of all loans determined to be impaired. While awaiting the completion of the third party appraisal, the Company generally begins to complete the tasks necessary to gain control of the collateral and prepare for liquidation, including, but not limited to engagement of counsel, inspection of collateral, and continued communication with the borrower, if appropriate. Special Assets staff also regularly reviews the relationship to identify any potential adverse developments during this time.

Generally, the only difference between current appraised value, adjusted for liquidation costs, and the carrying amount of the loan less the specific reserve is any downward adjustment to the appraised value that the Company’s Special Assets staff determines appropriate. These differences generally consist of costs to sell the property, as well as a deflator for the devaluation of property when banks are the sellers, and we deem these fair value adjustments.

Based on prior experience, the Bank does not generally return loans to performing status after the loans have been partially charged off. Generally, credits identified as impaired move quickly through the process towards ultimate resolution of the problem credit.

Deposits

Total deposits were $1.62 billion at December 31, 2010, a decrease of $25.01 million from $1.65 billion at December 31, 2009. Non-interest bearing demand deposits decreased by $3.09 million while interest bearing demand deposits increased $30.51 million during 2010. Savings deposits, which consist of money market accounts and savings accounts, increased $45.17 million while time deposits decreased $97.59 million during 2010.

Average total deposits increased to $1.64 billion during 2010 as compared to $1.60 billion during 2009. Average interest bearing demand deposits increased $46.47 million during 2010 to $252.47 million. Average non-interest bearing demand deposits increased $6.48 million to $206.40 million and savings deposits increased $86.97 million to $421.18 million during 2010. Average time deposits decreased $103.07 million in 2010. In 2010, the average rate paid on interest bearing deposits was 1.39%, down 59 basis points from 1.98% in 2009. Throughout 2010, the Company decreased its higher-rate certificates of deposit and money market accounts.

Borrowings

The Company’s borrowings consist primarily of overnight federal funds purchased from the FHLB and other sources, securities sold under agreements to repurchase, and term FHLB borrowings. This category of liabilities represents wholesale sources of funding and liquidity for the Company.

Short-term borrowings decreased on average $4.24 million for 2010 compared with the prior year as a result of decreasing funding needs and strong deposit inflows. There were no federal funds purchased at December 31, 2010 and 2009. Repurchase agreements were $140.89 million and $153.63 million at December 31, 2010 and 2009, respectively. Retail repurchase agreements are sold to customers as an alternative to available deposit products and commercial treasury accounts. At December 31, 2010 and 2009, wholesale repurchase agreements totaled $50.00 million. The weighted average rate of those long-term, wholesale repurchase agreements was 3.71% at December 31, 2010 and 2009, respectively. The underlying securities included in retail repurchase agreements remain under the Company’s control during the effective period of the agreements.

Short-term borrowings include overnight federal funds and repurchase agreements. Balances and weighted average rates paid on short-term borrowings used in daily operations are summarized as follows:

	2010					2009					2008
	Amount		Rate			Amount		Rate			Amount		Rate
(Dollars in Thousands)
At year-end	$	90,894		0.77	%	$	103,634		1.22	%	$	115,914		1.49	%
Average during the year		97,532		1.02	%		101,775		1.35	%		159,101		2.13	%
Maximum month-end balance		108,643					106,407					232,110

At December 31, 2010, FHLB borrowings included $175.00 million in convertible and callable advances. The weighted average interest rate of all FHLB advances was 2.39% and 2.41% at December 31, 2010 and 2009, respectively. $50.00 million of the advances are hedged by an interest rate swap to achieve a fixed rate of 4.34%. After considering the effect of the interest rate swap, the weighted average interest rate of all FHLB advances was 3.63% at December 31, 2010. At December 31, 2010, the FHLB advances had maturities between six and eleven years.

Also included in other indebtedness is $15.46 million of junior subordinated debentures issued by the Company in October 2003 through FCBI Capital Trust, an unconsolidated trust subsidiary, with an interest rate of three-month LIBOR plus 2.95%. The debentures mature in October 2033 and are currently callable at the option of the Company.

Stockholders’ Equity

Total stockholders’ equity increased $17.61 million, or 6.98%, from $252.27 million at December 31, 2009, to $269.88 million at December 31, 2010. The increase in stockholders’ equity was primarily the result of net income of $21.85 million for the year ended December 31, 2010, which was partially offset by $7.12 million of dividends paid to common shareholders, and decrease in treasury stock of $3.15 million due to the Company contributing treasury stock as its matching contribution to the 401(k) plan during 2010.

Risk-Based Capital

Risk-based capital guidelines and the leverage ratio measure capital adequacy of banking institutions. At December 31, 2010, the Company’s Tier I risk-based capital ratio was 14.07% compared with 12.56% in 2009. The Company’s total risk-based capital-to-asset ratio was 15.33% at December 31, 2010, compared with 13.81% at December 31, 2009. Both of these ratios are well above the current minimum level of 8% prescribed for bank holding companies by the Federal Reserve Board. The leverage ratio is the measurement of total tangible equity to total assets. The Company’s leverage ratio at December 31, 2010, was 9.44% versus 8.51% at December 31, 2009, both of which are well above the minimum levels prescribed by the Federal Reserve Board.

The OCC has issued an Individual Minimum Capital Ratio directive to the Bank which requires it to maintain a total risk-based capital ratio of 11.50%, a Tier 1 risk-based capital ratio of 10.00%, and a Tier 1 leverage ratio of 7.50%. The Bank’s total risk-based capital, Tier 1 risk-based capital, and Tier 1 leverage ratios were 14.18%, 12.92%, and 8.66%, respectively, at December 31, 2010. See Note 14 – Regulatory Capital Requirements and Restrictions in the Notes to Consolidated Financial Statements in Item 8 hereof.

Liquidity and Capital Resources

Liquidity represents the Company’s ability to respond to demands for funds and is primarily derived from maturing investment securities, overnight investments, periodic repayment of loan principal, and the Company’s ability to generate new deposits. The Company also has the ability to attract short-term sources of funds and draw on credit lines that have been established at financial institutions to meet cash needs.

Total liquidity of $586.41 million at December 31, 2010, is comprised of the following: unencumbered cash on hand and deposits with other financial institutions of $111.12 million; unpledged available-for-sale securities of $177.39 million; held-to-maturity securities due within one year of $1.07 million; FHLB credit availability of $202.28 million; and federal funds lines availability of $94.55 million.

Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally used to pay down borrowings. On a longer-term basis, the Company maintains a strategy of investing in securities, mortgage-backed obligations and loans with varying maturities. The Company uses these funds to meet ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, fund loan commitments and maintain a portfolio of securities.

The Company also maintains policies and procedures regarding liquidity contingency planning. The procedures call for liquidity monitoring through trending and ratio analysis, as well as forecasting budgeted and stressed scenarios. The procedures provide guidance for potential action to be taken when certain liquidity thresholds are met.

Since the Company is a holding company and does not conduct significant operations, its primary sources of liquidity are dividends upstreamed from the Bank and borrowings from outside sources. Banking regulations limit the amount of dividends that may be paid by the Bank. See Note 14 – Regulatory Capital Requirements and Restrictions of the Notes to Consolidated Financial Statements included in Item 8 hereof regarding such dividends. At December 31, 2010, the Company had liquid assets, including cash and investment securities, totaling $21.37 million.

At December 31, 2010, approved loan commitments outstanding amounted to $209.98 million and certificates of deposit scheduled to mature in one year or less totaled $463.53 million. Management believes that the Company has adequate resources to fund outstanding commitments and could either adjust rates on certificates of deposit in order to retain or attract deposits in changing interest rate environments or replace such deposits with advances from the FHLB or other funds providers if it proved to be cost effective to do so.

The following table presents contractual cash obligations as of December 31, 2010.

	Total Payments Due by Period
			Less than		One to		Three to		More than
	Total		One year		Three Years		Five Years		Five Years
(Amounts in Thousands)
Deposits without a stated maturity (1)	$	894,118	$	894,118	$	-	$	-	$	-
Overnight security repurchase agreements		77,654		77,654		-		-		-
Certificates of deposit (2)(3)		752,453		473,410		139,914		137,818		1,311
Term security repurchase agreements		74,908		8,784		10,540		4,013		51,571
FHLB advances (2) (3)		201,519		4,210		8,360		8,360		180,589
Trust preferred indebtedness		27,882		807		1,177		1,153		24,745
Leases		4,780		964		1,522		716		1,578
Other commitments		903		903		-		-		-
Total	$	2,034,217	$	1,460,850	$	161,513	$	152,060	$	259,794

(1)	Excludes interest.

(2)

Includes interest on both fixed and variable rate obligations. The interest associated with variable rate obligations is based upon interest rates in effect at December 31, 2010. The interest to be paid on variable rate obligations is affected by changes in market interest rates, which materially affect the contractual obligation amounts to be paid.

(3)	Excludes carrying value adjustments such as unamortized premiums or discounts.

The following table presents detailed information regarding the Company’s off-balance sheet arrangements at December 31, 2010.

	Amount of Commitment Expiration Per Period
			Less than		One to		Three to		More than
	Total		One Year (1)		Three Years		Five Years		Five Years
(Amounts in Thousands)
Commitments to extend credit
Construction — commercial	$	24,915	$	19,562	$	850	$	2,987	$	1,516
Land development		3,986		16		3		3,967		-
Commercial and industrial		31,298		23,038		7,388		841		31
Multi-family residential		342		170		10		162		-
Non-farm, non-residential		10,972		6,335		1,523		2,524		590
Agricultural		428		373		55		-		-
Farmland		1,575		1,308		171		96		-
Home equity lines		78,862		4,390		5,953		16,589		51,930
Single family residential mortgage		2,456		642		1,130		335		349
Owner-occupied construction		5,348		3,723		6		85		1,534
Consumer loans		49,801		49,656		97		35		13
Total unused commitments	$	209,983	$	109,213	$	17,186	$	27,621	$	55,963

Financial letters of credit	$	358	$	348	$	-	$	-	$	10
Performance letters of credit		3,684		3,309		31		280		64
Total letters of credit	$	4,042	$	3,657	$	31	$	280	$	74

(1)	Lines of credit with no stated maturity date are included in commitments for less than one year.

The Company has a pay fixed and receive variable interest rate swap that effectively fixes $50.00 million of FHLB borrowings at 4.34% for a period of five years, which ended January 6, 2011. The derivative transaction is effective and performing as originally expected.

Wealth Management Services

As part of its community banking services, the Company offers trust management and estate administration services through its Trust and Financial Services Division (“Trust Division”). The Trust Division reported a total market value of assets under management of $426 million and $411 million at December 31, 2010 and 2009, respectively. The Trust Division manages inter vivos trusts and trusts under will, develops and administers employee benefit plans and individual retirement plans and manages and settles estates. Fiduciary fees for these services are charged on a schedule related to the size, nature and complexity of the account.

The Company also offers investment advisory services through the Bank’s wholly-owned subsidiary, IPC, which reported assets under management of $433 million and $414 million at December 31, 2010 and 2009, respectively. Revenues consist primarily of commissions on assets under management and investment advisory fees.

Insurance Services

The Company offers insurance services through its subsidiary GreenPoint. Revenues are primarily derived from commissions paid on policies sold. Commission revenue was $6.73 million for 2010 compared to $6.99 million for 2009. See Note 19 – Segment Information of the Notes to the Consolidated Financial Statements include in Item 8 hereof.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.

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 its interest-earning assets reprice differently than its 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 the result of “embedded options”, often called 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 (“IRR”) exposure to insulate net interest income and net earnings from fluctuations in the general level of interest rates. To measure its exposure to IRR, 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 results of these simulations indicate the existence and severity of IRR 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, 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. Specific strategies for management of IRR have included shortening the amortized maturity of new fixed rate loans, increasing the volume of adjustable rate loans to reduce the repricing term of the Bank’s interest-earning assets, and monitoring the term structure of liabilities to maintain a balanced mix of maturity and repricing to mitigate the potential exposure. 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. Based upon the latest simulation, the Company believes that it is in a relatively neutral position with respect to sensitivity to interest rate risk.

The Company has established policy limits for tolerance of interest rate risk based on the income simulation compared with forecasted results. 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 impact of immediate and sustained rate shocks in the interest rate environment on net interest income and the economic value of equity as of December 31, 2010 and 2009. The model simulates plus 300 and minus 100 basis point changes from the base case rate simulation. This table, which illustrates the prospective effects of hypothetical interest rate changes, is based upon numerous assumptions including relative and estimated levels of key interest rates over a twelve-month time period. This modeling technique, although useful, does not take into account all strategies that management might undertake in response to a sudden and sustained rate shock as depicted. Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to prepayment and refinancing levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal and external variables. As of December 31, 2010, the Federal Open Market Committee maintained a target range for federal funds of 0 to 25 basis points, rendering a complete downward shock of 200 basis points as not realistic and not meaningful. In the downward rate shocks presented, benchmark interest rates are dropped with floors near 0%.

Rate Sensitivity Analysis
		December 31, 2010 Simulation
(Dollars in Thousands)		Change in						Change in
Increase (Decrease) in		Net Interest			Percent			Market Value			Percent
Interest Rates (Basis Points)		Income			Change			of Equity			Change

300		$	932			1.2		$	(10,634	)		(3.6	)
200			121			0.2			(1,530	)		(0.5	)
100			329			0.4			4,734			1.6
(100	)		(105	)		(0.1	)		(21,503	)		(7.3	)

		December 31, 2009 Simulation
(Dollars in Thousands)		Change in						Change in
Increase (Decrease) in		Net Interest			Percent			Market Value			Percent
Interest Rates (Basis Points)		Income			Change			of Equity			Change

200		$	(1,405	)		(1.9	)	$	(18,634	)		(6.9	)
100			(866	)		(1.2	)		(7,715	)		(2.9	)
(100	)		2,117			2.9			16,087			5.9

ITEM 8.

Financial Statements and Supplementary Data.

Consolidated Financial Statements

Consolidated Balance Sheets	49
Consolidated Statements of Operations	50
Consolidated Statements of Cash Flows	51
Consolidated Statements of Changes in Stockholders’ Equity	52
Notes to Consolidated Financial Statements	53
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements	95
Management’s Assessment of Internal Control Over Financial Reporting	96
Report of Independent Registered Public Accounting Firm on Management’s Assessment of Internal Control Over Financial Reporting	97

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
(Dollars in Thousands)	2010			2009
Assets
Cash and due from banks	$	28,816		$	36,265
Federal funds sold		81,526			61,376
Interest-bearing balances with banks		1,847			3,700
Total cash and cash equivalents		112,189			101,341
Securities available for sale		480,064			486,057
Securities held to maturity		4,637			7,454
Loans held for sale		4,694			11,576
Loans held for investment, net of unearned income		1,386,206			1,393,931
Less allowance for loan losses		26,482			24,277
Net loans held for investment		1,359,724			1,369,654
Premises and equipment, net		56,244			56,946
Other real estate owned		4,910			4,578
Interest receivable		7,675			8,610
Goodwill		84,914			84,648
Other intangible assets		5,725			6,413
Other assets		123,462			136,006
Total assets	$	2,244,238		$	2,273,283

Liabilities
Deposits:
Non-interest bearing	$	205,151		$	208,244
Interest bearing		1,415,804			1,437,716
Total deposits		1,620,955			1,645,960
Interest, taxes and other liabilities		21,318			22,498
Securities sold under agreements to repurchase		140,894			153,634
FHLB borrowings and other indebtedness		191,193			198,924
Total liabilities		1,974,360			2,021,016

Stockholders' Equity
Preferred stock, par value undesignated; 1,000,000 shares authorized; no shares outstanding at December 31, 2010 or December 31, 2009		-			-
Common stock, $1 par value; shares authorized: 50,000,000; shares issued: 18,082,822 at 2010 and 18,082,822 at 2009; shares outstanding: 17,866,335 at 2010 and 17,765,164 at 2009		18,083			18,083
Additional paid-in capital		189,239			190,967
Retained earnings		81,486			66,760
Treasury stock, at cost		(6,740	)		(9,891	)
Accumulated other comprehensive loss		(12,190	)		(13,652	)
Total stockholders' equity		269,878			252,267

Total liabilities and stockholders' equity	$	2,244,238		$	2,273,283

See Notes to Consolidated Financial Statements.

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31,
(Dollars in Thousands, Except Share and Per Share Data)	2010			2009			2008
Interest Income
Interest and fees on loans	$	84,741		$	82,704		$	80,224
Interest on securities-taxable		12,704			19,093			22,714
Interest on securities-nontaxable		5,943			5,972			7,521
Interest on federal funds sold and deposits in banks		194			165			306
Total interest income		103,582			107,934			110,765
Interest Expense
Interest on deposits		19,887			27,796			29,792
Interest on short-term borrowings		2,883			3,297			5,252
Interest on long-term debt		6,955			7,589			9,886
Total interest expense		29,725			38,682			44,930
Net Interest Income		73,857			69,252			65,835
Provision for loan losses		14,757			15,801			9,226
Net interest income after provision for loan losses		59,100			53,451			56,609
Noninterest Income
Wealth management income		3,828			4,147			4,100
Service charges on deposit accounts		13,128			13,892			14,067
Other service charges, commissions and fees		5,074			4,715			4,248
Insurance commissions		6,727			6,988			4,988
Total impairment losses on securities		(185	)		(88,435	)		(29,923	)
Portion of loss recognized in other comprehensive income		-			9,572			-
Net impairment losses recognized in earnings		(185	)		(78,863	)		(29,923	)
Net gains (losses) on sale of securities		8,273			(11,673	)		1,899
Gain on acquisition		-			4,493			-
Other operating income		3,663			2,624			2,995
Total noninterest income		40,508			(53,677	)		2,374
Noninterest Expense
Salaries and employee benefits		34,528			31,385			29,876
Occupancy expense of bank premises		6,438			5,889			5,102
Furniture and equipment expense		3,713			3,746			3,740
Amortization of intangible assets		1,032			1,028			689
Prepayment penalties on FHLB advances		-			88			1,647
FDIC premiums and assessments		2,856			4,262			202
Merger related expenses		-			1,726			-
Goodwill impairment		1,039			-			-
Other operating expense		20,337			18,500			19,260
Total noninterest expense		69,943			66,624			60,516
Income (loss) before income taxes		29,665			(66,850	)		(1,533	)
Income tax expense (benefit)		7,818			(28,154	)		(3,487	)
Net income (loss)		21,847			(38,696	)		1,954
Dividends on preferred stock		-			2,160			255
Net income (loss) available to common shareholders	$	21,847		$	(40,856	)	$	1,699

Basic earnings (loss) per common share	$	1.23		$	(2.75	)	$	0.15
Diluted earnings (loss) per common share	$	1.23		$	(2.75	)	$	0.15

Dividends declared per common share	$	0.40		$	0.30		$	1.12

Weighted average basic shares outstanding		17,802,009			14,868,547			11,058,076
Weighted average diluted shares outstanding		17,822,944			14,868,547			11,134,025

See Notes to Consolidated Financial Statements.

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
(Amounts in Thousands)	2010			2009			2008
Cash flows from operating activities
Net income (loss)	$	21,847		$	(38,696	)	$	1,954
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		14,757			15,801			9,226
Depreciation and amortization of premises and equipment		4,091			4,028			3,885
Intangible amortization		1,032			1,028			689
Goodwill impairment		1,039			-			-
Net investment amortization and accretion		1,112			1,234			(161	)
(Gains) losses on the sale of investments and other assets		(8,141	)		11,599			(1,839	)
Net gain on acquisitions		-			(4,493	)		-
Mortgage loans originated for sale		(49,762	)		(35,249	)		(32,704	)
Proceeds from sale of mortgage loans		57,479			27,464			32,672
Gain on sale of loans		(835	)		(83	)		(181	)
Equity-based compensation expense		58			153			260
Deferred income tax expense (benefit)		13,008			(18,866	)		(13,324	)
Decrease in interest receivable		935			2,071			3,071
Excess tax benefit from stock-based compensation		(9	)		(2	)		(85	)
Prepayment penalty		-			88			1,647
Contribution of treasury stock to 401(k) plan		1,044			1,414			1,208
FDIC prepayment		-			(10,885	)		-
Net impairment losses recognized in earnings		185			78,863			29,923
Net changes in other assets and liabilities		(2,317	)		(20,338	)		(2,651	)
Net cash provided by operating activities		55,523			15,131			33,590

Cash flows from investing activities
Proceeds from sales of securities available for sale		170,752			167,071			128,888
Proceeds from maturities and calls of securities available for sale		90,633			77,178			87,144
Proceeds from maturities and calls of held to maturity securities		2,825			1,238			3,417
Purchase of securities available for sale		(248,101	)		(218,961	)		(171,446	)
Net (increase) decrease in loans made to customers		(5,437	)		18,902			58,473
Net redemption of FHLB stock		1,459			351			4,013
Cash (used in) provided by divestitures and acquisitions, net		(667	)		21,749			(4,661	)
Purchase of premises and equipment		(3,743	)		(4,380	)		(6,040	)
Proceeds from sale of equipment		163			327			21
Net cash provided by investing activities		7,884			63,475			99,809

Cash flows from financing activities
Net increase (decrease) in demand and savings deposits		72,586			71,436			(52,079	)
Net (decrease) increase in time deposits		(97,591	)		(71,931	)		24,788
Net decrease in FHLB and other borrrowings		(7,731	)		(25,130	)		(76,039	)
FHLB debt prepayment fees		-			(88	)		(1,647	)
Net decrease in federal funds purchased		-			-			(18,500	)
Net decrease in securities sold under agreement to repurchase		(12,740	)		(12,280	)		(41,513	)
Redemption of preferred stock		-			(41,500	)		-
Net proceeds from the issuance of common stock		-			61,668			-
Net proceeds from the issuance of preferred stock		-			-			41,409
Proceeds from the exercise of stock options		29			21			464
Excess tax benefit from stock-based compensation		9			2			85
Acquisition of treasury stock		-			(167	)		(4,222	)
Preferred dividends paid		-			(1,116	)		-
Common dividends paid		(7,121	)		(4,619	)		(12,452	)
Net cash used in financing activities		(52,559	)		(23,704	)		(139,706	)

Net increase (decrease) in cash and cash equivalents		10,848			54,902			(6,307	)
Cash and cash equivalents at beginning of year		101,341			46,439			52,746
Cash and cash equivalents at end of year	$	112,189		$	101,341		$	46,439

Supplemental information — Noncash items
Transfers of loans to other real estate	$	6,793		$	6,490		$	2,653
Cumulative effect adjustment, net of tax	$	-		$	6,131		$	-

(See Note 1 for detail of income taxes and interest paid and Note 2 for supplemental information regarding detail of cash paid in acquisitions.)

See Notes to Consolidated Financial Statements

FIRST COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

															Accumulated
						Additional									Other
	Preferred			Common		Paid-in			Retained			Treasury			Comprehensive
(Dollars in Thousands)	Stock			Stock		Capital			Earnings			Stock			(Loss) Income			Total
Balance January 1, 2008	$	-		$	11,499	$	108,825		$	117,670		$	(13,613	)	$	(7,283	)	$	217,098
Comprehensive loss:
Net income	$	-		$	-	$	-		$	1,954		$	-		$	-		$	1,954
Other comprehensive loss — see note 17		-			-		-			-			-			(45,234	)		(45,234	)
Comprehensive loss		-			-		-			1,954			-			(45,234	)		(43,280	)
Cumulative effect of change in accounting principle										(813	)								(813	)
Preferred stock issuance, net		40,395			-		(91	)		-			-			-			40,304
Common stock warrant issuance		-			-		1,105			-			-			-			1,105
Preferred dividend, net		24			-		-			(255	)		-			-			(231	)
Common dividends declared — $1.12 per share		-			-		-			(12,452	)		-			-			(12,452	)
Purchase of 132,100 treasury shares at $31.96 per share		-			-		-			-			(4,222	)		-			(4,222	)
Acquisition of Coddle Creek — 552,216 shares		-			552		18,588			-			-			-			19,140
Acquisition of GreenPoint Insurance Group — 7,728 shares		-			-		22			-			245			-			267
Acquisition of Investment Planning Consultants — 8,361 shares		-			-		(26	)		-			266			-			240
Contribution of treasury stock to 401(k) plan — 37,775 shares		-			-		8			-			1,200			-			1,208
Equity-based compensation		-			-		244			-			16			-			260
Tax benefit from exercise of stock options		-			-		127			-			-			-			127
Common stock options exercised — 22,323 shares		-			-		(276	)		-			740			-			464
Balance December 31, 2008	$	40,419		$	12,051	$	128,526		$	106,104		$	(15,368	)	$	(52,517	)	$	219,215

Cumulative effect of change in accounting principle	$	-		$	-	$	-		$	6,131		$	-		$	(6,131	)	$	-
Comprehensive income:
Net loss		-			-		-			(38,696	)		-			-			(38,696	)
Other comprehensive income — see note 17		-			-		-			-			-			44,996			44,996
Comprehensive income		-			-		-			(32,565	)		-			38,865			6,300
Preferred dividend, net		1,081			-		(37	)		(2,160	)		-			-			(1,116	)
Common dividends declared — $0.30 per share		-			-		-			(4,619	)		-			-			(4,619	)
Redemption of preferred stock		(41,500	)		-		-			-			-			-			(41,500	)
Purchase of 13,500 treasury shares at $12.29 per share		-			-		-			-			(167	)		-			(167	)
Acquisition of GreenPoint Insurance Group — 22,008 shares		-			-		(404	)		-			685			-			281
Acquisition of Investment Planning Consultants — 43,054 shares		-			-		(851	)		-			1,341			-			490
Acquisition of TriStone Community Bank — 741,588 shares		-			742		9,385			-			-			-			10,127
Equity-based compensation		-			-		115			-			38			-			153
Common stock issuance, net — 5,290,000 shares		-			5,290		56,378			-			-			-			61,668
Contribution of treasury stock to 401(k) plan — 111,365 shares		-			-		(2,103	)		-			3,517			-			1,414
Common stock options exercised — 2,000 shares		-			-		(42	)		-			63			-			21
Balance December 31, 2009	$	-		$	18,083	$	190,967		$	66,760		$	(9,891	)	$	(13,652	)	$	252,267

Comprehensive income:
Net income		-			-		-			21,847			-			-			21,847
Other comprehensive income — see note 17		-			-		-			-			-			1,462			1,462
Comprehensive income		-			-		-			21,847			-			1,462			23,309
Common dividends declared — $0.40 per share		-			-		-			(7,121	)		-			-			(7,121	)
Acquisition of GreenPoint Insurance Group — 22,814 shares		-			-		(419	)		-			711			-			292
Equity-based compensation		-			-		33			-			25			-			58
Contribution of treasury stock to 401(k) plan — 74,926 shares		-			-		(1,289	)		-			2,333			-			1,044
Common stock options exercised — 2,631 shares		-			-		(53	)		-			82			-			29
Balance December 31, 2010	$	-		$	18,083	$	189,239		$	81,486		$	(6,740	)	$	(12,190	)	$	269,878

See Notes to Consolidated Financial Statements

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The accounting and reporting policies of First Community Bancshares, Inc. and subsidiaries (“First Community” or the “Company”) conform to accounting principles generally accepted in the United States (“U.S. GAAP”) and to predominant practices within the banking industry. In preparing financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. Assets held in an agency or fiduciary capacity are not assets of the Company and are not included in the accompanying consolidated balance sheets.

Accounting Standards Codification

The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) became effective on July 1, 2009. At that date, the ASC became FASB’s officially recognized source of authoritative U.S. GAAP applicable to all public and non-public non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants, and Emerging Issues Task Force guidance and related literature. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to U.S. GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.

Principles of Consolidation

The consolidated financial statements of First Community include the accounts of all wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Effective January 1, 2008, the Company operates within two business segments, community banking and insurance services.

Use of Estimates

In preparing consolidated financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Financial statement items requiring the significant use of estimates and assumptions include, but are not limited to, fair values of investment securities, fair value adjustment of acquired businesses and the establishment of the allowance for loan losses. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks, time deposits with other banks, federal funds sold, and interest bearing balances on deposit with the Federal Home Loan Bank (“FHLB”) that are available for immediate withdrawal. Interest and income taxes paid were as follows:

	2010		2009		2008
(Amounts in Thousands)
Interest	$	30,609	$	39,871	$	46,381
Income Taxes		5,300		9,318		8,777

Pursuant to agreements with the Federal Reserve Bank of Richmond, the Company maintains a cash balance of $250 thousand in lieu of charges for check clearing and other services. The Company maintained a cash deposit of $1.07 million at December 31, 2010, with a counterparty to collateralize an interest rate swap.

Investment Securities

Securities to be held for indefinite periods of time, including securities that management intends to use as part of its asset/liability management strategy and that may be sold in response to changes in interest rates, changes in prepayment risk, or other similar factors, are classified as available-for-sale and are recorded at estimated fair value. Unrealized appreciation or depreciation in fair value above or below amortized cost is included in stockholders’ equity, net of income taxes, and is entitled “Other Comprehensive Income (Loss).” Premiums and discounts are amortized or accreted to income over the life of the security. Gain or loss on sale is based on the specific identification method.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Investments in debt securities that management has determined it does not intend to sell and has asserted that it is not more likely than not that it will have to sell are carried at amortized cost. Premiums and discounts are amortized to expense and accreted to income over the lives of the securities. Gain or loss on the call or maturity of investment securities, if any, is recorded based on the specific identification method. Investments that management has determined it does intend to sell and has asserted that it is more likely than not that it will have to sell are carried at the lower of amortized cost or market value.

The Company performs an extensive review of the investment securities portfolio quarterly to determine the cause of declines in the fair value of each security within each segment of the portfolio. The Company uses inputs provided by an independent third party to determine the fair values of its investment securities portfolio. Inputs provided by the third party are reviewed by management. Evaluations of the causes of the unrealized losses are performed to determine whether the impairment is temporary or other-than-temporary in nature. Considerations such as whether the Company determines it has the intent to sell the security or whether it is more likely than not it will be required to sell the security, recoverability of the invested amounts over the Company’s intended holding period, severity in pricing decline and receipt of amounts contractually due, for example, are applied in determining whether a security is other-than-temporarily impaired. If a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized. In the instance of a debt security which is determined to be other-than-temporarily impaired, the Company determines the amount of the impairment due to credit and the amount due to other factors. The amount of impairment related to credit is recognized in the Consolidated Statements of Income and the remainder of the impairment is recognized in other comprehensive income.

Loans Held for Sale

Loans held for sale primarily consist of one-to-four family residential loans originated for sale in the secondary market and are carried at the lower of cost or estimated fair value determined on an aggregate basis. The long-term, fixed rate loans are sold to investors on a best efforts basis such that the Company does not absorb the interest rate risk involved in the loans. The fair value of loans held for sale is determined by reference to quoted prices for loans with similar coupon rates and terms.

The Company enters into rate-lock commitments it makes to customers with the intention to sell the loan in the secondary market. The derivatives arising from the rate-lock commitments are recorded at fair value in other assets and liabilities and changes in that fair value are included in other income. The fair value of the rate-lock commitment derivatives are determined by reference to quoted prices for loans with similar coupon rates and terms. Gains and losses on the sale of those loans are included in other income.

Loans Held for Investment

Loans held for investment are carried at the principal amount outstanding less any write-downs which may be necessary to reduce individual loans to net realizable value. Individually significant loans are evaluated for impairment when evidence of impairment exists. Impairment allowances are recorded through specific additions to the allowance for loan losses. Loans are considered past due when principal or interest becomes contractually delinquent by 30 days or more. Consumer loans are charged off against the allowance for loan losses when the loan becomes 120 days past due (180 days if secured by residential real estate). All other loans are charged off against the allowance for loan losses after collection attempts have been exhausted, which generally is within 120 days. Recoveries of loans charged off are credited to the allowance for loan losses in the period received.

Allowance for Loan Losses

The Company determines the allowance for loan losses by making specific allocations to impaired loans that exhibit inherent weaknesses and various credit risk factors, and general allocations to commercial loans, consumer residential real estate, and consumer loans are developed giving weight to risk ratings, historical loss trends and management’s judgment concerning those trends and other relevant factors. The general allocations are determined through a methodology that utilizes a rolling five year average loss history that is adjusted for current qualitative or environmental factors that management deem likely to cause estimated credit losses as of the evaluation date to differ from the historical loss experience. These factors may include, but are not limited to, actual versus estimated losses, regional and national economic conditions, including unemployment trends, business segment and portfolio concentrations, industry competition, interest rate trends, and the impact of government regulations. The foregoing analysis is performed by management to evaluate the portfolio and calculate an estimated valuation allowance through a quantitative and qualitative analysis that applies risk factors to those identified risk areas.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

This risk management evaluation is applied at both the portfolio level for non-impaired loans and the individual loan level for impaired commercial loans while the level of consumer and residential mortgage loan allowance is determined primarily on a total portfolio level based on a review of historical loss percentages and other qualitative factors including concentrations, industry specific factors and economic conditions. The commercial portfolio requires more specific analysis of individually significant loans and the borrower’s underlying cash flow, business conditions, capacity for debt repayment and the valuation of secondary sources of payment, such as collateral. This analysis may result in specifically identified weaknesses and corresponding specific impairment allowances. While allocations are made to specific loans and classifications within the various categories of loans, the allowance for loan losses is available for all loan losses.

The use of various estimates and judgments in the Company’s ongoing evaluation of the required level of allowance can significantly impact the Company’s results of operations and financial condition and may result in either greater provisions against earnings to increase the allowance or reduced provisions based upon management’s current view of portfolio and economic conditions and the application of revised estimates and assumptions. Differences between actual loan loss experience and estimates are reflected through adjustments either increasing or decreasing the allowance based upon current measurement criteria.

Long-term Investments

Certain long-term equity investments representing less than 20% ownership are accounted for under the cost method, are carried at cost, and are included in other assets. At December 31, 2010, these equity investments totaled $1.86 million. These investments in operating companies represent required long-term investments in insurance, investment and service company affiliates or consortiums which serve as vehicles for the delivery of various support services. In accordance with the cost method, dividends received are recorded as current period revenues and there is no recognition of the Company’s proportionate share of net operating income or loss. The Company has determined that fair value measurement is not practical, and further, nothing has come to the attention of the Company that would indicate impairment of any of these investments.

As a condition to membership in the FHLB system, the Company is required to subscribe to a minimum level of stock in the FHLB of Atlanta (“FHLBA”). The Company feels this ownership position provides access to relatively inexpensive wholesale and overnight funding. The Company accounts for FHLBA and Federal Reserve Bank stock as a long-term investment in other assets. At December 31, 2010 and 2009, the Company owned $12.24 million and $13.70 million in FHLBA stock, respectively, which is classified as other assets. The Company’s policy is to review for impairment at each reporting period. During the year ended December 31, 2010, FHLBA repurchased excess activity-based stock from the Company and paid quarterly dividends. At December 31, 2010, FHLBA was in compliance with all of its regulatory capital requirements. Based on the Company’s review, it believes that as of December 31, 2010 and 2009, its FHLBA stock was not impaired.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Depreciation and amortization are computed on the straight-line method over estimated useful lives. Useful lives range from 5 to 10 years for furniture, fixtures, and equipment; three to five years for software, hardware, and data handling equipment; and 10 to 40 years for buildings and building improvements. Land improvements are amortized over a period of 20 years, and leasehold improvements are amortized over the lesser of the useful life or the term of the lease plus the first optional renewal period, when renewal is reasonably assured. Maintenance and repairs are charged to current operations while improvements that extend the economic useful life of the underlying asset are capitalized. Disposition gains and losses are reflected in current operations.

The Company leases various properties within its branch network. Leases generally have initial terms of up to 20 years and most contain options to renew with reasonable increases in rent. All leases are accounted for as operating leases.

Other Real Estate Owned

Other real estate owned and acquired through foreclosure is stated at the lower of cost or fair value less estimated costs to sell. Loan losses arising from the acquisition of such properties are charged against the allowance for loan losses. Expenses incurred in connection with operating the properties, subsequent write-downs and gains or losses upon sale are included in other noninterest expense.

Goodwill and Other Intangible Assets

The excess of the cost of an acquired company over the fair value of the net assets and identified intangibles acquired is recorded as goodwill. The net carrying amount of goodwill was $84.91 million and $84.65 million at December 31, 2010 and 2009, respectively. A portion of the purchase price in certain transactions has been allocated to values associated with the future earnings potential of acquired deposits and is being amortized over the estimated lives of the deposits, ranging from one to eight years while the weighted average remaining life of these core deposits is 6.44 years. As of December 31, 2010 and 2009, the balance of core deposit intangibles was $2.85 million and $3.50 million, respectively, net of corresponding accumulated amortization was $5.09 million and $4.44 million, respectively. The acquisition of GreenPoint, and its continued acquisitions, added $1.31 million of goodwill for the period ended December 31, 2010. The annual amortization expense of all intangible assets for 2011 and the succeeding four years are $1.05 million, $855 thousand, $811 thousand, $758 thousand, and $758 thousand, respectively.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company reviews and tests goodwill for potential impairment on an annual basis in October. Goodwill is tested for impairment by comparing the fair value of each segment to its book value (step 1), including goodwill. If the fair value of the segment is greater than its book value, no goodwill impairment exists. However, if the book value of the segment is greater than its determined fair value, goodwill impairment may exist and further testing is required to determine the amount, if any, of the actual impairment loss (step 2). The step 1 test utilizes a combination of two methods to determine the fair value of the reporting units. For both segments, a discounted cash flow model uses estimates in the form of growth and attrition rates of return and discount rates to project cash flows from operations of the business segment, the results of which are weighted 70%. For the banking segment, a market multiple model utilizes price to net income and price to tangible book value inputs for closed transactions and for certain common sized institutions and the results are weighted 30%. For the insurance segment, the market multiple model primarily utilizes price to sales for closed transactions and certain similar industry public companies and the results are weighted 30%. The end results for both segments are then compared to the respective book values to consider if impairment is evident. To determine the overall reasonableness of the segment computations, the combined computed fair value is then compared to the overall market capitalization of the consolidated Company to determine the level of implied control premium. The analysis performed for 2010 indicated an impairment of goodwill at the insurance agency subsidiary of $1.04 million.

The progression of the Company’s goodwill and intangible assets for continuing operations for the three years ended December 31, 2010, is detailed in the following table:

				Other
				Intangible
(Amounts in Thousands)	Goodwill			Assets
Balance at December 31, 2007	$	66,310		$	3,746
Acquisitions		15,990			3,362
Other Adjustments		892			-
Amortization		-			(689	)
Balance at December 31, 2008	$	83,192		$	6,419
Acquisitions and dispositions, net		1,456			1,022
Amortization		-			(1,028	)
Balance at December 31, 2009	$	84,648		$	6,413
Acquisitions and dispositions, net		1,305			344
Amortization		-			(1,032	)
Impairment		(1,039	)		-
Balance at December 31, 2010	$	84,914		$	5,725

Other Assets

In addition to deferred tax assets, other assets included $42.24 million and $40.97 million in the cash surrender value of life insurance policies owned by the Company of December 31, 2010 and 2009, respectively, and $12.24 million and $13.70 million in FHLBA stock at December 31, 2010 and 2009, respectively.

In connection with the bank-owned life insurance, the Company has also entered into Life Insurance Endorsement Method Split Dollar Agreements with certain of the individuals whose lives are insured. Under these agreements, the Company shares 80% of death benefits (after recovery of cash surrender value) with the designated beneficiaries of the plan participants under life insurance contracts. The Company, as owner of the policies, retains a 20% interest in life proceeds and a 100% interest in the cash surrender value of the policies. Split Dollar Agreements totaled $1.19 million and $763 thousand at December 31, 2010 and 2009, respectively. Expenses associated with split dollar agreements were $72 thousand and $89 thousand in 2010 and 2009, respectively.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are generally accounted for as collateralized financing transactions. Securities, generally U.S. government and federal agency securities, pledged as collateral under these arrangements cannot be sold or repledged by the secured party. The fair value of the collateral provided to a third party is continually monitored, and additional collateral is provided as appropriate.

Loan Interest Income Recognition

Accrual of interest on loans is based generally on the daily amount of principal outstanding. Loans are considered past due when either principal or interest payments are delinquent by 30 or more days. It is the Company’s policy to discontinue the accrual of interest on loans based on the payment status and evaluation of the related collateral and the financial strength of the borrower. The accrual of interest income is normally discontinued when a loan becomes 90 days past due as to principal or interest. Management may elect to continue the accrual of interest when the loan is well secured and in process of collection. When interest accruals are discontinued, interest accrued and not collected in the current year is reversed from income and interest accrued and not collected from prior years is charged to the allowance for loan losses. Interest income realized on impaired loans is recognized upon receipt if the impaired loan is on a non-accrual basis. Accrual of interest on non-accrual loans may be resumed if the loan is brought current and follows a period of substantial performance, including six months of regular principal and interest payments. Accrual of interest on impaired loans is generally continued unless the loan becomes delinquent 90 days or more.

Loan Fee Income

Loan origination and underwriting fees are reduced by direct costs associated with loan processing, including salaries, review of legal documents and obtainment of appraisals. Net origination fees and costs are deferred and amortized over the life of the related loan. Loan commitment fees are deferred and amortized over the related commitment period. Net deferred loan fees were $1.15 million and $632 thousand at December 31, 2010 and 2009, respectively

Advertising Expenses

Advertising costs are generally expensed as incurred. Amounts recognized for the three years ended December 31, 2010, are detailed in Note 15 – Other Operating Expenses of the Notes to Consolidated Financial Statements included in Item 8 hereof.

Equity-Based Compensation

The cost of employee services received in exchange for equity instruments including options and restricted stock awards generally are measured at fair value at the grant date. The effect of option shares on earnings per share relates to the dilutive effect of the underlying options outstanding. To the extent the granted exercise share price is less than the current market price, or “in the money,” there is an economic incentive for the options to be exercised and an increase in the dilutive effect on earnings per share.

Income Taxes

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, income on bank-owned life insurance, and tax credits generated by investments in low income housing and rehabilitation of historic structures.

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, 2007 through 2009 are currently open to audit under statutes of limitation by the Internal Revenue Service and various state tax departments.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Earnings Per Share

Basic earnings per share are determined by dividing net income available to common shareholders by the weighted average number of shares outstanding. Diluted earnings per share are determined by dividing net income available to common shareholders by the weighted average shares outstanding, which includes the dilutive effect of stock options, warrants and contingently issuable shares. The dilutive effects of stock options, warrants, and contingently issuable shares are not considered for the year ended December 31, 2009, because of the reported net loss available to common shareholders. Basic and diluted net income per common share calculations follow:

	For the Year Ended December 31,
	2010		2009			2008
(Amounts in Thousands, Except Share and Per Share Data)
Net income (loss) available to common shareholders	$	21,847	$	(40,856	)	$	1,699

Weighted average shares outstanding		17,802,009		14,868,547			11,058,076
Dilutive shares for stock options		12,463		-			53,680
Contingently issuable shares		8,472		-			22,269
Weighted average dilutive shares outstanding		17,822,944		14,868,547			11,134,025

Basic earnings (loss) per share	$	1.23	$	(2.75	)	$	0.15
Diluted earnings (loss) per share	$	1.23	$	(2.75	)	$	0.15

For the years ended December 31, 2010, 2009 and 2008, options and warrants to purchase 483,558, 488,689, and 206,996 shares, respectively, of common stock were outstanding but were not included in the computation of diluted earnings per common share because the exercise price was greater than the market price of the Company’s common stock or the Company incurred losses; accordingly, they would have an anti-dilutive effect.

Variable Interest Entities

The Company maintains ownership positions in various entities which it deems variable interest entities (“VIE’s”). These VIE’s include certain tax credit limited partnerships and other limited liability companies which provide aviation services, insurance brokerage, title insurance and other financial and related services. Based on the Company’s analysis, it is a non-primary beneficiary; accordingly, these entities do not meet the criteria for consolidation. The carrying value of VIE’s was $1.86 million and $1.81 million at December 31, 2010 and 2009, respectively. The Company’s maximum possible loss exposure was $1.86 million and $1.62 million at December 31, 2010 and 2009, respectively. Management does not believe net losses, if any, resulting from its involvement with the entities discussed above will be material.

Derivative Instruments

The Company enters into derivative transactions principally to protect against the risk of adverse price or interest rate movements on the value of certain assets and liabilities and on future cash flows. In addition, certain contracts and commitments are defined as derivatives under generally accepted accounting principles.

All derivative instruments are carried at fair value on the balance sheet. Special hedge accounting provisions are provided, which permit the change in the fair value of the hedged item related to the risk being hedged to be recognized in earnings in the same period and in the same income statement line as the change in the fair value of the derivative.

Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking each hedged transaction.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Accounting Standards Updates

Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 310, Receivables. New authoritative accounting guidance under ASC Topic 310 amends prior guidance to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables by providing additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. The new authoritative guidance is effective for interim and annual reporting periods ending on or after December 15, 2010, for public entities. The Company adopted the provisions of the new authoritative accounting guidance under ASC Topic 310 during the fourth quarter of 2010. Other than the additional disclosures, the adoption of the new guidance had no significant impact on the Company’s financial statements.

FASB ASC Topic 805, Business Combinations. On January 1, 2009, new accounting guidance under ASC Topic 805, “Business Combinations,” became applicable to the Company’s accounting for business combinations closing on or after January 1, 2009. ASC Topic 805 requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition date. Any contingent consideration is also required to be recognized and measured at fair value on the date of acquisition. Acquisition-related costs are to be expensed as incurred. Assets acquired and liabilities assumed in a business combination that arise from contingencies are to be recognized at fair value if fair value can be reasonably estimated. ASC Topic 805 also expands required disclosures regarding the nature and financial effect of business combinations. In 2009, the Company recorded the acquisition of TriStone Community Bank in accordance with the new accounting guidance.

FASB ASC Topic 810, Consolidation. New accounting guidance amended prior guidance to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance became effective for the Company on January 1, 2009 and did not have a significant impact on the Company’s financial statements.

FASB ASC Topic 820, Fair Value Measurements and Disclosures. New authoritative guidance under ASC Topic 820, “Fair Value Measurements and Disclosures,” amends prior guidance that requires entities to disclose additional information regarding assets and liabilities that are transferred between levels of the fair value hierarchy. Entities are also required to disclose information in the Level 3 roll forward about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, existing guidance pertaining to the level of disaggregation at which fair value disclosures should be made and the requirements to disclose information about the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements is further clarified. The Company adopted the new authoritative accounting guidance under ASC Topic 820 in the first quarter of 2010 and new disclosures are presented in Note 12 – Fair Value of the Notes to Consolidated Financial Statements. Other than the additional disclosures, the adoption of the new guidance had no significant impact on the Company’s financial statements.

FASB ASC Topic 860, Transfers and Servicing. New authoritative accounting guidance under ASC Topic 860, “Transfers and Servicing,” amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The authoritative accounting guidance eliminates the concept of a “qualifying special purpose entity” and changes the requirements for derecognizing financial assets. The authoritative accounting guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The Company adopted the new authoritative accounting guidance under ASC Topic 860 effective January 1, 2010, and it had no significant impact on the Company’s financial statements.

Note 2. Merger, Acquisitions and Branching Activity

In July 2009, the Company acquired TriStone Community Bank (“TriStone”), based in Winston-Salem, North Carolina. TriStone had two full service locations in Winston-Salem, North Carolina. At acquisition, TriStone had total assets of $166.82 million, total loans of $132.23 million and total deposits of $142.27 million. Shares of TriStone were exchanged for .5262 shares of the Company’s common stock and the overall acquisition cost was $10.78 million. The acquisition of TriStone significantly augmented the Company’s market presence and human resources in the Winston-Salem, North Carolina region. The Company recorded a $4.49 million gain on the acquisition of TriStone.

In November 2008, the Company acquired Coddle Creek Financial Corp. (“Coddle Creek”), headquartered in Mooresville, North Carolina. Coddle Creek had three full service branch offices located in Mooresville, Cornelius, and Huntersville, North Carolina. At acquisition, Coddle Creek had total assets of $158.66 million, total loans of $136.99 million and total deposits of $137.06 million. Under the terms of the merger agreement, shares of Coddle Creek common stock were exchanged for .9046 shares of the Company’s common stock and $19.60 in cash. The total deal value, including the cash-out of outstanding stock options, was $32.29 million. Concurrent with the Coddle Creek acquisition, Mooresville Savings Bank, Inc., SSB, the wholly-owned subsidiary of Coddle Creek, was merged into First Community Bank, N. A. (the “Bank”), the wholly-owned subsidiary of the Company. As a result of the acquisition and preliminary purchase price allocation, $14.41 million in goodwill was recorded which represents the excess of the purchase price over the fair market value of the net assets acquired and identified intangibles.

In September 2007, the Company acquired GreenPoint Insurance Group (“GreenPoint”), an insurance agency located in High Point, North Carolina. In connection with the acquisition, the Company has issued an aggregate of 101,638 shares to the former shareholders of GreenPoint. Under the terms of the stock purchase agreement, former shareholders of GreenPoint are entitled to additional consideration aggregating up to $615 thousand 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. It 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 has added $13.15 million of goodwill and intangibles to the Company’s balance sheet, net of amortization of $12.14 million.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

GreenPoint has acquired seven insurance agencies and sold one since its acquisition by the Company. GreenPoint issued aggregate cash consideration of $190 thousand and $803 thousand in 2010 and 2009, respectively, in connection with those acquisitions. Terms for acquisitions prior to 2010 call for issuing further cash consideration of $2.86 million if certain operating targets are met. If those targets are met, the value of the consideration ultimately paid will be added to the costs of the acquisitions. Acquisitions prior to 2010 added $692 thousand, $803 thousand, and $2.04 million of goodwill and intangibles to the Company’s balance sheet in 2010, 2009, and 2008, respectively. In 2010, GreenPoint acquired one insurance agency. Cash consideration of $190 thousand was provided at the closing date of the transaction. Acquisition terms call for further cash consideration of $760 thousand if certain operating targets are met. The fair value of these payments was booked at acquisition and added $477 thousand of goodwill and intangibles to the Company’s balance sheet during 2010.

The following table summarizes the net cash provided by or used in acquisitions and divestitures during the three years ended December 31, 2010. Net cash paid (received) for acquisition includes transactions that occurred during the current and prior years,

	2010		2009			2008
(Amounts in Thousands)
Fair value of investments acquired	$	-	$	7,837		$	1,269
Fair value of loans acquired		-		129,937			136,035
Fair value of premises and equipment acquired		-		1,797			4,505
Fair value of other assets		-		26,746			23,872
Fair value of deposits assumed		-		(142,697	)		(137,606	)
Fair value of other liabilities assumed		-		(9,008	)		(4,967	)
Purchase price in excess of (less than) net assets acquired		1,650		(3,037	)		15,991
Total purchase price		1,650		11,575			39,099

Less non-cash purchase price		768		11,579			19,647
Less cash acquired		-		21,295			14,792
Net cash paid (received) for acquisition	$	882	$	(21,299	)	$	4,660

Book value of assets sold	$	-	$	(110	)	$	-
Book value of liabilities sold		-		-			-
Sales price in excess of net liabilities assumed		-		(340	)		-
Total sales price		-		(450	)		-

Add cash on hand sold		-		-			-
Less amount due remaining on books		-		-			-
Net cash paid received for divestiture	$	-	$	(450	)	$	-

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 3. Investment Securities

The amortized cost and estimated fair value of securities, with gross unrealized gains and losses, classified as available-for-sale are as follows:

	December 31, 2010
	Amortized		Unrealized		Unrealized			Fair		OTTI in
	Cost		Gains		Losses			Value		AOCI (1)
(Amounts in Thousands)
U.S. Government agency securities	$	10,000	$	-	$	(168	)	$	9,832	$	-
States and political subdivisions		178,149		2,649		(4,660	)		176,138		-
Trust preferred securities:
Single Issue		55,594		-		(14,350	)		41,244		-
Pooled		23		241		-			264		-
Total trust preferred securities		55,617		241		(14,350	)		41,508		-
Corporate FDIC insured		25,282		378		-			25,660		-
Mortgage-backed securities:
Agency		209,281		7,039		(1,307	)		215,013		-
Non-Agency Alt-A residential		19,181		-		(7,904	)		11,277		(7,904	)
Total mortgage-backed securities		228,462		7,039		(9,211	)		226,290		(7,904	)
Equity securities		495		206		(65	)		636		-
Total	$	498,005	$	10,513	$	(28,454	)	$	480,064	$	(7,904	)

(1) Other-than-temporary impairment in accumulated other comprehensive income

	December 31, 2009
	Amortized		Unrealized		Unrealized			Fair		OTTI in
	Cost		Gains		Losses			Value		AOCI (1)
(Amounts in Thousands)
U.S. Government agency securities	$	25,421	$	10	$	(155	)	$	25,276	$	-
States and political subdivisions		133,185		3,309		(893	)		135,601		-
Trust preferred securities:
Single Issue		55,624		-		(14,514	)		41,110		-
Pooled		1,648		-		-			1,648		-
Total trust preferred securities		57,272		-		(14,514	)		42,758		-
Mortgage-backed securities:
Agency		260,220		5,399		(1,401	)		264,218		-
Non-Agency prime residential		5,743		-		(573	)		5,170		-
Non-Agency Alt-A residential		20,968		-		(9,667	)		11,301		(9,667	)
Total mortgage-backed securities		286,931		5,399		(11,641	)		280,689		(9,667	)
Equity securities		1,717		207		(191	)		1,733		-
Total	$	504,526	$	8,925	$	(27,394	)	$	486,057	$	(9,667	)

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The amortized cost and estimated fair value of available-for-sale securities by contractual maturity, at December 31, 2010, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	U.S.			States									Tax
	Government			and									Equivalent
	Agencies &			Political			Corporate						Purchase
(Dollars in Thousands)	Corporations			Subdivisions			Notes			Total			Yield
Available-for-Sale
Amortized cost maturity:
Within one year	$	-		$	185		$	-		$	185			7.33	%
After one year through five years		-			17,779			25,282			43,061			3.28	%
After five years through ten years		-			52,340			-			52,340			6.16	%
After ten years		10,000			107,845			55,617			173,462			4.10	%
Amortized cost	$	10,000		$	178,149		$	80,899			269,048
Mortgage-backed securities											228,462			4.20	%
Equity securities											495			1.40	%
Total amortized cost										$	498,005
Tax equivalent purchase yield		3.68	%		5.75	%		1.41	%		4.37	%
Average contractual maturity (in years)		12.38			10.61			12.24			11.16

Fair value maturity:
Within one year	$	-		$	187		$	-		$	187
After one year through five years		-			18,455			25,660			44,115
After five years through ten years		-			54,027			-			54,027
After ten years		9,832			103,469			41,508			154,809
Fair value	$	9,832		$	176,138		$	67,168			253,138
Mortgage-backed securities											226,290
Equity securities											636
Total fair value										$	480,064

The amortized cost and estimated fair value of securities, with gross unrealized gains and losses, classified as held-to-maturity are as follows:

	December 31, 2010
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
(Amounts in Thousands)
States and political subdivisions	$	4,637	$	67	$	-	$	4,704
Total	$	4,637	$	67	$	-	$	4,704

	December 31, 2009
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
(Amounts in Thousands)
States and political subdivisions	$	7,454	$	125	$	-	$	7,579
Total	$	7,454	$	125	$	-	$	7,579

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The amortized cost and estimated fair value of securities by contractual maturity, at December 31, 2010, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	States			Tax
	and			Equivalent
	Political			Purchase
(Dollars in Thousands)	Subdivisions			Yield
Held-to-Maturity
Amortized cost maturity:
Within one year	$	1,069			8.44	%
After one year through five years		2,782			8.31	%
After five years through ten years		786			8.32	%
After ten years		-
Total amortized cost	$	4,637
Tax equivalent purchase yield		8.34	%
Average contractual maturity (in years)		2.72

Fair value maturity:
Within one year	$	1,081
After one year through five years		2,825
After five years through ten years		798
After ten years		-
Total fair value	$	4,704

The carrying value of securities pledged to secure public deposits and for other purposes required by law were $302.67 million and $354.92 million at December 31, 2010 and 2009, respectively.

In 2010, gross gains on the sale of securities were $8.97 million while gross losses were $695 thousand. In 2009, gross gains on the sale of securities were $11.67 million while gross losses were $4.11 million. In 2008, gross gains on the sale of securities were $2.84 million while gross losses were $411 thousand.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables reflect those investments, both available-for-sale and held-to-maturity, in a continuous unrealized loss position for less than 12 months and for 12 months or longer at December 31, 2010 and 2009. There were 14 securities in a continuous unrealized loss position for 12 or more months for which the Company does not intend to sell any and has determined that it is more likely than not going to be required to sell at December 31, 2010, until the security matures or recovers in value.

	December 31, 2010
	Less than 12 Months					12 Months or longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Losses			Value		Losses			Value		Losses
(Amounts in Thousands)
U.S. Government agency securities	$	9,832	$	(168	)	$	-	$	-		$	9,832	$	(168	)
States and political subdivisions		80,420		(4,660	)		-		-			80,420		(4,660	)
Trust preferred securities:
Single issue		3,390		(1,517	)		37,854		(12,833	)		41,244		(14,350	)
Mortgage-backed securities:
Agency		71,613		(1,307	)		18		-			71,631		(1,307	)
Alt-A residential		-		-			11,277		(7,904	)		11,277		(7,904	)
Total mortgage-backed securities		71,613		(1,307	)		11,295		(7,904	)		82,908		(9,211	)
Equity securities		155		(55	)		93		(10	)		248		(65	)
Total	$	165,410	$	(7,707	)	$	49,242	$	(20,747	)	$	214,652	$	(28,454	)

	December 31, 2009
	Less than 12 Months					12 Months or longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Losses			Value		Losses			Value		Losses
(Amounts in Thousands)
U.S. Government agency securities	$	23,271	$	(155	)	$	-	$	-		$	23,271	$	(155	)
States and political subdivisions		13,864		(270	)		16,285		(623	)		30,149		(893	)
Trust preferred securities:
Single issue		-		-			41,111		(14,514	)		41,111		(14,514	)
Mortgage-backed securities:
Agency		83,491		(1,400	)		34		(1	)		83,525		(1,401	)
Prime residential		-		-			5,169		(573	)		5,169		(573	)
Alt-A residential		11,301		(9,667	)		-		-			11,301		(9,667	)
Total mortgage-backed securities		94,792		(11,067	)		5,203		(574	)		99,995		(11,641	)
Equity securities		86		(60	)		731		(131	)		817		(191	)
Total	$	132,013	$	(11,552	)	$	63,330	$	(15,842	)	$	195,343	$	(27,394	)

At December 31, 2010, the combined depreciation in value of the 214 individual securities in an unrealized loss position was 5.93% of the combined reported value of the aggregate securities portfolio. At December 31, 2009, the combined depreciation in value of the 89 individual securities in an unrealized loss position was 5.64% of the combined reported value of the aggregate securities portfolio.

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

For non-beneficial interest debt securities, the Company analyzes several qualitative factors such as the severity and duration of the impairment, adverse conditions within the issuing industry, prospects for the issuer, performance of the security, changes in rating by rating agencies and other qualitative factors to determine if the impairment will be recovered. Non-beneficial interest debt securities consist of U.S. government agency securities, states and political subdivisions, single issue trust preferred securities, and FDIC-backed securities. If it is determined that there is evidence that the impairment will not be recovered, the Company performs a present value calculation to determine the amount of credit related impairment and records any credit related OTTI through earnings and the non-credit related OTTI through other comprehensive income (“OCI”). During the years ended December 31, 2010 and 2009, no OTTI charges were incurred related to non-beneficial interest debt securities. The temporary impairment on these securities is primarily related to changes in interest rates, certain disruptions in the credit markets, and other current economic factors.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

During the years ended December 31, 2010 and 2009, the Company incurred credit-related OTTI charges related to beneficial interest debt securities of $134 thousand and $77.59 million, respectively. For the beneficial interest debt securities not deemed to have incurred an OTTI, the Company has concluded that the primary difference in the fair value of the securities and credit impairment evident in their cash flow models is the significantly higher rate of return demanded by market participants in an illiquid and inactive market as compared to the rate of return received when the Company purchased the securities in a normally functioning market.

As of December 31, 2010, the Company determined that it cannot assert its intent to hold its remaining pooled trust preferred security to recovery or maturity, that it is more likely than not it will need to sell the security in order to, among other reasons, convert deferred tax assets to current tax receivables. Accordingly, the Company carries this security at the lower of its adjusted cost basis or market value. The security continues to remain categorized as available for sale.

For the non-Agency Alt-A residential MBS, the Company models cash flows using the following assumptions: voluntary constant prepayment speed of 5, a customized constant default rate scenario that assumes 20% of the remaining underlying mortgages will default within the next 3 years, and a loss severity of 60.

The table below provides a cumulative roll forward of credit losses recognized in earnings for debt securities for which a portion of an OTTI is recognized in OCI:

	Year Ended		Year Ended
	December 31, 2010		December 31, 2009
(In Thousands)
Estimated credit losses,beginning balance*	$	4,251	$	4,251
Additions for credit losses on securities not previously recognized		-		-
Additions for credit losses on securities previously recognized		-		-
Reduction for increases in cash flows		-		-
Reduction for securities management no longer intends to hold to recovery		-		-
Reduction for securities sold/realized losses		-		-
Estimated credit losses, ending balance	$	4,251	$	4,251

* The beginning balance includes credit related losses included in OTTI charges recognized on debt securities in prior periods.

For equity securities, the Company reviews for OTTI based upon the prospects of the underlying companies, analysts’ expectations, and certain other qualitative factors to determine if impairment is recoverable over a foreseeable period of time. During the year ended December 31, 2010 and 2009, the Company recognized OTTI charges of $51 thousand and $1.27 million, respectively, on certain of its equity positions.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 4. Loans

Loans, net of unearned income, consist of the following at December 31:

	2010		2009
(Amounts in Thousands)
Commercial loans
Construction — commercial	$	42,694	$	47,469
Land development		16,650		22,832
Other land loans		24,468		32,566
Commercial and industrial		94,123		95,115
Multi-family residential		67,824		65,603
Non-farm, non-residential		351,904		343,975
Agricultural		1,342		1,251
Farmland		36,954		41,034
Total commercial loans		635,959		649,845
Consumer real estate loans
Home equity lines		111,620		111,597
Single family residential mortgage		549,157		545,770
Owner-occupied construction		18,349		22,028
Total consumer real estate loans		679,126		679,395
Consumer and other loans
Consumer loans		63,475		60,090
Other		7,646		4,601
Total consumer and other loans		71,121		64,691
Total loans	$	1,386,206	$	1,393,931

Loans Held for Sale	$	4,694	$	11,576

Off-Balance Sheet Financial Instruments

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest rate risk beyond the 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 are commitments to extend credit (including availability of lines of credit) of $209.98 million and standby letters of credit and financial guarantees written of $4.04 million at December 31, 2010. Additionally, the Company had gross notional amounts of outstanding commitments to lend related to secondary market mortgage loans of $7.57 million at December 31, 2010.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Related Party Loans

In the normal course of business, the Company’s subsidiary bank has made loans to directors and executive officers of the Company and its subsidiaries and their affiliates (collectively referred to as “related parties”). All loans and commitments made to such officers and directors and to companies in which they are officers, or have significant ownership interest, have been made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons not related to the Company. The aggregate dollar amount of such loans was $12.46 million and $11.37 million at December 31, 2010 and 2009, respectively. During 2010, $4.69 million in new loans and increases were made and repayments on such loans to officers and directors totaled $3.52 million. Changes in composition of the Company’s subsidiary board members and executive officers resulted in increases of $2 thousand.

Overdrafts

At December 31, 2010 and 2009, customer overdrafts totaling $1.46 million and $1.56 million, respectively, were reclassified as loans.

Note 5. Allowance for Loan Losses and Credit Quality

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. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including, among other things, the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

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

Activity in the allowance for loan losses was as follows:

	2010			2009			2008
(Amounts in Thousands)
Balance at January 1	$	24,277		$	17,782		$	12,833
Provision for loan losses		14,757			15,801			9,226
Acquisition balance		-			-			1,169
Loans charged off		(13,602	)		(10,355	)		(7,371	)
Recoveries credited to allowance		1,050			1,049			1,925
Net charge-offs		(12,552	)		(9,306	)		(5,446	)
Balance at December 31	$	26,482		$	24,277		$	17,782

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table details the allocation of the allowance for loan losses by segment as of December 31, 2010.

	2010
(Dollars in Thousands)
Commercial loans		12,518
Consumer real estate loans		12,200
Consumer and other loans		1,764
Total	$	26,482

The Company identifies loans for potential impairment through a variety of means including, but not limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information. If it is determined that it is probable that the Company will not collect all principal and interest amounts contractually due, the loan is generally deemed to be impaired. The following table presents the Company’s recorded investment in loans considered to be impaired and related information on those impaired loans for the period ended December 31, 2010. The table does not include acquired, impaired loans.

	Recorded Investment With Allowance		Recorded Investment With No Allowance		Total Recorded Investment		Related Allowance		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized
(Amounts in Thousands)
Construction -- commercial	$	-	$	285	$	285	$	-	$	732	$	730	$	3
Land development		-		50		50		5		144		143		2
Other land loans		113		323		436		-		855		266		20
Commercial and industrial		-		3,518		3,518		-		5,384		6,237		10
Multi-family residential		723		2,526		3,249		257		3,432		3,448		126
Non-farm, non-residential		1,070		3,824		4,894		158		6,125		5,809		79
Home equity lines		95		1,302		1,397		34		1,693		1,703		40
Single family residential mortgage		8,801		7,992		16,793		1,870		18,430		18,006		640
Owner-occupied construction		-		6		6		-		6		6		-
Consumer loans		-		98		98		-		102		111		5
	$	10,802	$	19,924	$	30,726	$	2,324	$	36,903	$	36,459	$	925

The following table presents the Company’s investment in loans considered to be impaired and related information on those impaired loans for the periods ended December 31, 2009:

	2009
(Amounts in Thousands)
Recorded investment in loans considered to be impaired:
Recorded investment in impaired loans with a related allowance	$	13,241
Recorded investment in impaired loans with no related allowance		13,371
Total recorded investment in loans considered to be impaired		26,612
Loans considered to be impaired that were on a non-accrual basis		17,014
Allowance for loan losses related to loans considered to be impaired		2,932
Average recorded investment in impaired loans		15,928
Total interest income recognized on impaired loans		1,335

As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk rating of commercial loans, the level of classified commercial loans, net charge-offs, non-performing loans and general economic conditions. The Company’s loan review function generally reviews all commercial loan relationships greater than $2.00 million on an annual basis and at various times through the year. Smaller commercial and retail loans are sampled for review throughout the year by our internal loan review department. Through the loan review process, loans are identified for upgrade or downgrade in risk rating and changed to reflect current information as part of the process.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. A description of the general characteristics of the risk grades is as follows:

Pass – This grade includes loans to borrowers of acceptable credit quality and risk. The Company further differentiates within this grade based upon borrower characteristics which include: capital strength, earnings stability, leverage, and industry.

Special Mention –This grade includes loans that require more than a normal degree of supervision and attention. These loans have all the characteristics of an adequate asset, but due to being adversely affected by economic or financial conditions have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date.

Substandard – This grade includes loans that have well defined weaknesses which make payment default or principal exposure possible, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business to meet the repayment terms.

Doubtful – This grade includes loans that are placed on non-accrual status. These loans have all the weaknesses inherent in a “substandard’ loan with the added factor that the weaknesses are so severe that collection or liquidation in full, on the basis of current existing facts, conditions and values, is extremely unlikely, but because of certain specific pending factors, the amount of loss cannot yet be determined.

Loss – This grade includes loans that are to be charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the asset has no recovery or salvage value, but simply that it is not practical or desirable to defer writing off all or some portion of the loan, even though partial recovery may be affected in the future.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables present the Company’s investment in loans by credit quality indicator at December 31, 2010 and 2009.

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
(Amounts in Thousands)
2010
Construction — commercial	$	40,497	$	663	$	1,534	$	-	$	-	$	42,694
Land development		14,458		1,226		966		-		-		16,650
Other land loans		16,723		6,138		1,607		-		-		24,468
Commercial and industrial		87,156		1,756		5,211		654		-		94,777
Multi-family residential		61,059		2,553		4,212		-		-		67,824
Non-farm, non-residential		316,026		18,942		16,936		-		-		351,904
Agricultural		1,318		-		24		-		-		1,342
Farmland		33,042		2,569		1,343		-		-		36,954
Home equity lines		106,803		1,923		2,894		-		-		111,620
Single family residential mortgage		498,830		15,224		34,449		-		-		548,503
Owner-occupied construction		17,389		789		171		-		-		18,349
Consumer loans		62,676		306		493		-		-		63,475
Other		7,635		11		-		-		-		7,646
Total loans	$	1,263,612	$	52,100	$	69,840	$	654	$	-	$	1,386,206

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
(Amounts in Thousands)
2009
Construction — commercial	$	43,973	$	918	$	2,578	$	-	$	-	$	47,469
Land development		17,229		1,383		4,220		-		-		22,832
Other land loans		22,877		5,506		4,183		-		-		32,566
Commercial and industrial		79,739		4,600		10,776		-		-		95,115
Multi-family residential		60,230		3,719		1,654		-		-		65,603
Non-farm, non-residential		300,357		24,480		19,138		-		-		343,975
Agricultural		1,002		4		245		-		-		1,251
Farmland		39,386		567		1,081		-		-		41,034
Home equity lines		106,475		1,908		3,214		-		-		111,597
Single family residential mortgage		498,799		18,829		27,682		460		-		545,770
Owner-occupied construction		21,379		450		199		-		-		22,028
Consumer loans		59,207		393		490		-		-		60,090
Other		4,601		-		-		-		-		4,601
Total loans	$	1,255,254	$	62,757	$	75,460	$	460	$	-	$	1,393,931

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table details the Company’s recorded investment in loans related to each balance in the allowance for possible loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology.

	2010
	Loans Individually Evaluated for Impairment		Allowance for Loans Individually Evaluated		Loans Collectively Evaluated for Impairment		Allowance for Loans Collectively Evaluated		Acquired, Impaired Loans Evaluated for Impairment		Allowance for Acquired, Impaired Loans Evaluated
(Amounts in Thousands)
Commercial loans
Construction -- commercial	$	285	$	-	$	42,409	$	1,472	$	-	$	-
Land development		50		5		16,600		1,767		-		-
Other land loans		436		-		23,520		747		512		-
Commercial and industrial		3,518		-		90,084		4,511		521		-
Multi-family residential		3,249		257		64,575		824		-		-
Non-farm, non-residential		4,894		158		346,586		2,688		424		-
Agricultural		-		-		1,342		19		-		-
Farmland		-		-		36,954		70		-		-
Total commercial loans		12,432		420		622,070		12,098		1,457		-
Consumer real estate loans
Home equity lines		1,397		34		110,223		2,104		-		-
Single family residential mortgage		16,793		1,870		530,600		7,999		1,764		-
Owner-occupied construction		6		-		18,343		193		-		-
Total consumer real estate loans		18,196		1,904		659,166		10,296		1,764		-
Consumer and other loans
Consumer loans		98		-		63,377		1,764		-		-
Other		-		-		7,646		-		-		-
Total consumer and other loans		98		-		71,023		1,764		-		-
Total loans	$	30,726	$	2,324	$	1,352,259	$	24,158	$	3,221	$	-

Acquired, Impaired Loans

Loans acquired in a business combination closing after January 1, 2009, are recorded at estimated fair value on their purchase date and prohibit the carryover of the related allowance for loan losses, which include loans purchased in the TriStone acquisition. Purchased impaired loans are accounted for under the Loans and Debt Securities Acquired with Deteriorated Credit Quality Topic 310-30 of FASB ASC when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. Evidence of credit quality deterioration as of the purchase date may include measures such as credit scores, decline in collateral value, past due and nonaccrual status. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference which is included in the carrying amount of the loans. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges, or a reversal of the nonaccretable difference with a positive impact on interest income prospectively. Further, any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows. Purchased performing loans are recorded at fair value, including a credit component. The fair value adjustment is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for loan losses established at the acquisition date for acquired performing loans. A provision for loan losses is recorded for any credit deterioration in these loans subsequent to the acquisition.

The carrying amount of acquired loans at July 31, 2009, consisted of loans with credit deterioration, or impaired loans, and loans with no credit deterioration, or performing loans. The following table presents the acquired performing loans receivable at the acquisition date of July 31, 2009. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition or beyond.

(In thousands)
Contractually required principal payments to balance sheet received	$	125,366
Fair value of adjustment for credit, interest rate, and liquidity		(472	)
Fair value of loans receivable, with no credit deterioration	$	124,894

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the required detail regarding acquired impaired loans for the period. The Company has estimated the cash flows to be collected on the loans and discounted those cash flows at a market rate of interest. The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the nonaccretable difference. The nonaccretable difference includes estimated future credit losses expected to be incurred over the life of the loan. The Company has not noted any further deterioration in the acquired impaired loans.

	TriStone			Other			Total
(In thousands)
Balance, January 1, 2009	$	-		$	-		$	-
Contractually required principal payments to balance sheet receivable		6,862			8,790			15,652
Nonaccretable difference		(1,670	)		(2,488	)		(4,158	)
Present value of cash flows expected to be collected		5,192			6,302			11,494
Accretable difference		(149	)		(891	)		(1,040	)
Fair value of acquired impaired loans		5,043			5,411			10,454
Principal payments received		(1,240	)		(1,215	)		(2,455	)
Accretion		35			-			35
Balance, December 31, 2009	$	3,838		$	4,196		$	8,034

Balance, January 1, 2010	$	3,838		$	4,196		$	8,034
Principal payments received		(1,034	)		(2,900	)		(3,934	)
Accretion		61			-			61
Other		448			-			448
Charge-offs		(499	)		(889	)		(1,388	)
Balance, December 31, 2010	$	2,814		$	407		$	3,221

The remaining balance of the accretable difference at December 31, 2010 and 2009, was $1.01 million and $944 thousand, respectively.

Non-accrual and Past Due Loans

Non-accrual loans consisted of the following at December 31:

	2010		2009
(Amounts in Thousands)
Construction -- commercial	$	285	$	1,421
Land development		50		1,403
Other land loans		321		658
Commercial and industrial		3,518		1,331
Multi-family residential		2,463		979
Non-farm, non-residential		4,670		4,532
Agricultural		-		188
Farmland		-		10
Home equity lines		868		582
Single family residential mortgage		6,364		6,323
Owner-occupied construction		6		37
Consumer loans		99		63
Total		18,644		17,527
Acquired, impaired loans		770		-
Total non-accrual loans	$	19,414	$	17,527

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the aging of the recorded investment in past due loans as of December 31, 2010. There were no loans past due 90 days and still accruing interest at December 31, 2010, and 2009. Non-accural loans are included in the appropriate delinquency category.

							Total		Current		Total
	30 - 59 Days		60-89 Days		90+ Days		Past Due		Loans		Loans
(Amounts in Thousands)
Construction -- commercial	$	531	$	-	$	122	$	653	$	42,041	$	42,694
Land development		-		-		50		50		16,600		16,650
Other land loans		-		-		684		684		23,784		24,468
Commercial and industrial		3,648		121		356		4,125		89,998		94,123
Multi-family residential		956		-		1,793		2,749		65,075		67,824
Non-farm, non-residential		3,251		2,056		3,249		8,556		343,348		351,904
Agricultural		19		-		-		19		1,323		1,342
Farmland		110		-		-		110		36,844		36,954
Home equity lines		682		250		608		1,540		110,080		111,620
Single family residential mortgage		10,287		1,741		4,213		16,241		532,916		549,157
Owner-occupied construction		855		326		6		1,187		17,162		18,349
Consumer loans		433		47		31		511		62,964		63,475
Other		-		-		-		-		7,646		7,646
Total loans	$	20,772	$	4,541	$	11,112	$	36,425	$	1,349,781	$	1,386,206

Note 6. Premises and Equipment

Premises and equipment are comprised of the following as of December 31:

	2010		2009
(Amounts in Thousands)
Land	$	19,113	$	19,158
Bank premises		51,526		50,845
Equipment		33,050		32,542
		103,689		102,545
Less: accumulated depreciation and amortization		47,445		45,599
Total	$	56,244	$	56,946

Total depreciation and amortization expense for the three years ended December 31, 2010, was $4.09 million, $4.03 million, and $3.88 million, respectively.

The Company enters into land and building leases for the operation of banking and loan production offices, operations centers and for the operation of automated teller machines. All such leases qualify as operating leases. Following is a schedule by year of future minimum lease payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2010:

(Amounts in Thousands)	Amount
Year ended December 31:
2011	$	964
2012		802
2013		720
2014		392
2015		324
Later years		1,578
Total	$	4,780

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Total lease expense for the three years ended December 31, 2010, was $1.20 million, $1.03 million, and $1.01 million, respectively. Certain portions of the above listed leases have been sublet to third parties for properties not currently being used by the Company. The impact of the future lease payments to be received and the non-cancelable subleases are as follows:

(Amounts in Thousands)	Amount
Year ended December 31:
2011	$	297
2012		219
2013		200
2014		21
2015		21
Later years		233
Total	$	991

Related Party Leases

Included in total lease expense are leases with related parties totaling $160 thousand and $120 thousand at December 31, 2010 and 2009, respectively

Note 7. Deposits

The following is a summary of interest bearing deposits by type as of December 31:

	2010		2009
(Amounts in Thousands)
Interest bearing demand deposits	$	262,420	$	231,907
Money market accounts		217,362		199,229
Savings deposits		209,185		182,152
Certificates of deposit		619,776		718,552
Individual Retirement Accounts		107,061		105,876
Total	$	1,415,804	$	1,437,716

At December 31, 2010, the scheduled maturities of certificates of deposit were as follows:

	Amount
(Amounts in Thousands)
2011	$	463,531
2012		73,588
2013		55,259
2014		34,087
2015 and thereafter		100,372
	$	726,837

Time deposits of $100 thousand or more were $332.09 million and $372.56 million at December 31, 2010 and 2009, respectively. At December 31, 2010, the scheduled maturities of certificates of deposit of $100 thousand or more were as follows:

	Amount
(Amounts in Thousands)
Three months or less	$	62,285
Over three to six months		85,356
Over six to twelve months		67,313
Over twelve months		117,138
Total	$	332,092

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Related Party Deposits

Included in total deposits are deposits by related parties totaling $15.28 million and $18.13 million at December 31, 2010 and 2009, respectively.

Note 8. Borrowings

The following table details borrowings as of December 31:

	2010		2009
(Amounts in Thousands)
Securities sold under agreements to repurchase	$	140,894	$	153,634
FHLB borrowings		175,000		183,177
Subordinated debt		15,464		15,464
Other debt		729		283
Total	$	332,087	$	352,558

Securities sold under agreements to repurchase consist of $90.89 million and $103.63 million of retail overnight and term repurchase agreements at December 31, 2010 and 2009, respectively, and $50.00 million of wholesale repurchase agreements at both December 31, 2010 and 2009. The wholesale repurchase agreements had a weighted average maturity of 5.9 years at December 31, 2010, and are collateralized with agency mortgage-backed securities.

The Company’s banking subsidiary, First Community Bank (the “Bank”), is a member of the FHLB which provides credit in the form of short-term and long-term advances collateralized by various mortgage assets. At December 31, 2010, credit availability with the FHLB totaled $202.28 million. Advances from the FHLB are secured by qualifying loans of $324.35 million. The FHLB advances are subject to restrictions or penalties in the event of prepayment.

FHLB borrowings included $175.00 million in convertible and callable advances at December 31, 2010 and 2009, and an additional $8.18 million of fixed term borrowings at December 31, 2009. The callable advances may be called, or redeemed, at quarterly intervals after various lockout periods. These call options may substantially shorten the lives of these instruments. If these advances are called, the debt may be paid in full or converted to another FHLB credit product. The weighted average contractual rate of all FHLB advances was 2.39% and 2.41% at December 31, 2010 and 2009, respectively.

At December 31, 2010, the FHLB advances have approximate contractual final maturities between six and eleven years. The scheduled maturities of the advances are as follows:

	Amount
(Amounts in Thousands)
2011	$	-
2012		-
2013		-
2014		-
2015		-
2016 and thereafter		175,000
	$	175,000

In January 2006, the Company entered into a five year derivative swap instrument where it receives LIBOR-based variable interest payments and pays fixed interest payments. The notional amount of the derivative swap is $50.00 million and effectively fixes a portion of the FHLB borrowings at 4.34%. After considering the effect of the interest rate swap, the effective weighted average interest rate of the FHLB borrowings was 3.63% and 3.59% at December 31, 2010 and 2009, respectively.

Also included in borrowings is $15.46 million of junior subordinated debentures (the “Debentures”) issued by the Company in October 2003 to an unconsolidated trust subsidiary, FCBI Capital Trust (the “Trust”), with an interest rate of three-month LIBOR plus 2.95%. The Trust was able to purchase the Debentures through the issuance of trust preferred securities which had substantially identical terms as the Debentures. The Debentures mature on October 8, 2033, and are currently callable. The net proceeds from the offering were contributed as capital to the Bank to support further growth.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Despite the fact that the accounts of the Trust are not included in the Company’s consolidated financial statements, the trust preferred securities issued by the Trust are included in the Tier 1 capital of the Company for regulatory capital purposes. Federal Reserve Board rules limit the aggregate amount of restricted core capital elements (which includes trust preferred securities, among other things) that may be included in the Tier 1 capital of most bank holding companies to 25% of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability. The current quantitative limits do not preclude the Company from including the $15.46 million in trust preferred securities outstanding in Tier 1 capital as of December 31, 2010.

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

Note 9. Income Taxes

The components of income tax expense (benefit) from continuing operations consist of the following:

	Years Ended December 31,
(Amounts in Thousands)	2010			2009			2008
Current tax expense (benefit)
Federal	$	(5,268	)	$	(9,534	)	$	8,577
State		78			246			1,260
		(5,190	)		(9,288	)		9,837
Deferred tax expense (benefit)
Federal		12,397			(17,608	)		(11,981	)
State		611			(1,258	)		(1,343	)
		13,008			(18,866	)		(13,324	)

Total income tax expense (benefit)	$	7,818		$	(28,154	)	$	(3,487	)

Deferred income taxes related to continuing operations reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting versus tax purposes. The tax effects of significant items comprising the Company’s net deferred tax assets as of December 31, 2010 and 2009 are as follows:

	2010		2009
(Amounts in Thousands)
Deferred tax assets:
Allowance for loan losses	$	9,931	$	8,427
Unrealized losses on AFS securities		6,728		6,926
Unrealized loss on derivative security		586		794
Securities impairments		5,150		23,912
Deferred compensation		4,570		4,175
State net operating loss carryforward		1,699		902
Alternative minimum tax credit		2,782		-
Other		3,099		2,342
Total deferred tax assets	$	34,545	$	47,478

Deferred tax liabilities:
Intangible assets	$	6,254	$	6,295
Odd days interest deferral		1,723		1,358
Fixed assets		2,564		2,446
Other		1,222		1,564
Total deferred tax liabilities		11,763		11,663
Net deferred tax assets	$	22,782	$	35,815

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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, as well as the utilization of available tax credits. State and municipal bond income represent the most significant permanent tax difference.

The reconciliation of the statutory federal tax rate and the effective tax rates from continuing operations for the three years ended December 31, 2010, is as follows:

	For Years Ended
	2010			2009			2008

Tax at statutory rate		35.00	%		35.00	%		35.00	%
Increase resulting from:
Tax-exempt interest income, net of nondeductible expense		(6.79	)		2.88			154.30
State income taxes, net of federal benefit		2.32			0.65			2.21
Gain on acquisition, net of acquisition related costs		0.00			2.24			0.00
Other, net		(4.18	)		1.29			34.42
Effective tax rate		26.35	%		42.06	%		225.93	%

Note 10. Employee Benefits

Employee Stock Ownership and Savings Plan

The Company maintains an Employee Stock Ownership and Savings Plan (“KSOP”). Coverage under the plan is provided to all employees meeting minimum eligibility requirements.

Employer Stock Fund: Annual contributions to the stock portion of the plan were made through 2006 at the discretion of the Board of Directors, and allocated to plan participants on the basis of relative compensation. The plan was frozen to future contributions for periods after 2006. Substantially all plan assets are invested in common stock of the Company. The Company reports the contributions to the plan as a component of salaries and benefits. All contributions made after 2006 have been made to the employee savings feature of the plan. Accordingly, there were no contributions to the Employer Stock Fund in 2010, 2009, or 2008. The Employer Stock Fund held 583,256 and 504,801 shares of the Company’s common stock at December 31, 2010 and 2009, respectively.

Employee Savings Plan: The Company provides a 401(k) savings feature within the KSOP that is available to substantially all employees meeting minimum eligibility requirements. Under the 401(k) feature, the Company makes matching contributions to employee deferrals at levels determined by the board on an annual basis. The cost of the Company’s 100% matching contributions to qualified deferrals under the 401(k) savings component of the KSOP were $1.12 million, $1.37 million, and $1.23 million in 2010, 2009 and 2008, respectively. In 2010, 2009, and 2008, the Company made its matching contribution in Company common stock.

Employee Welfare Plan

The Company provides various medical, dental, vision, life, accidental death and dismemberment and long-term disability insurance benefits to all full-time employees who elect coverage under this program. The health plan is managed by a third party administrator. Monthly employer and employee contributions are made to a tax-exempt employer benefits trust against which the third party administrator processes and pays claims. Stop-loss insurance coverage limits the Company’s risk of loss to $85 thousand and $4.30 million for individual and aggregate claims, respectively. Total Company expenses under the plan were $2.98 million, $1.59 million, and $2.32 million in 2010, 2009, and 2008, respectively.

Deferred Compensation Plan

The Company has deferred compensation agreements with certain current and former officers providing for benefit payments over various periods commencing at retirement or death. The liability at December 31, 2010 and 2009, was $467 thousand and $474 thousand, respectively. The annual expenses associated with these agreements were $60 thousand for 2010, 2009 and 2008. The obligation is based upon the present value of the expected payments and estimated life expectancies of the individuals.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company maintains a life insurance contract on the life of one of the participants covered under these agreements. Proceeds derived from death benefits are intended to provide reimbursement of plan benefits paid over the post employment lives of the participants. Premiums on the insurance contract are currently paid through policy dividends on the cash surrender values of $1.29 million, $1.20 million, and $1.12 million at December 31, 2010, 2009, and 2008, respectively.

Executive Retention Plan

The Company maintains an Executive Retention Plan for key members of senior management. The Executive Retention Plan provides for a defined benefit at normal retirement targeted at 35% of projected final base salary. Benefits under the Executive Retention Plan become payable at age 60. The associated benefit accrued as of year-end 2010 and 2009 was $4.07 million and $3.41 million, respectively, while the associated expense incurred in connection with the Executive Retention Plan was $424 thousand, $402 thousand, and $426 thousand for 2010, 2009, and 2008, respectively.

Projected benefit payments are expected to be paid as follows:

	Amount
(Amounts in Thousands)
2011	$	59
2012		170
2013		225
2014		225
2015		225
2016 through 2020		1,413

The following sets forth the components of the net periodic benefit cost of the Company’s domestic non-contributory defined benefit plan for the years ended December 31, 2010 and 2009.

	Year Ended		Year Ended
	December 31, 2010		December 31, 2009
(In Thousands)
Service cost	$	213	$	213
Interest cost		211		189
Net periodic cost	$	424	$	402

The discount rates assumed as of December 31, 2010, were lowered from 6.00% to 5.50%. The Executive Retention Plan is an unfunded plan, and as such there are no plan assets. At December 31, 2010, the actuarial benefit plan obligation was $4.07 million.

Directors Supplemental Retirement Plan

The Company maintains a Directors Supplemental Retirement Plan (the “Directors Plan”) for its non-employee directors. The Directors Plan provides for a benefit upon retirement from service on the Board at specified ages depending upon length of service or death. Benefits under the Directors Plan become payable at age 70, 75, and 78 depending upon the individual director’s age and original date of election to the Board. The associated benefit accrued as of year-end 2010 and 2009 was $1.60 million and $1.45 million, respectively, while the associated expense incurred in connection with the Directors Plan was $259 thousand, $158 thousand and $161 thousand for 2010, 2009, and 2008, respectively.

Note 11. Equity-Based Compensation

Stock Options

The Company maintains share-based compensation plans to promote the long-term success of the Company by encouraging officers, employees, directors and individuals performing services for the Company to focus on critical long-range objectives.

At the 2004 Annual Meeting, the Company’s shareholders ratified approval of the 2004 Omnibus Stock Option Plan (“2004 Plan”) which made available up to 200,000 shares for potential grants of incentive stock options, non-qualified stock options, restricted stock awards or performance awards. Non-qualified and incentive stock options, as well as restricted and unrestricted stock may continue to be awarded under the 2004 Plan. Vesting under the 2004 Plan is generally over a three-year period.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In 2001, the Company instituted a plan to grant stock options to non-employee directors (the “Directors Option Plan”). The options granted pursuant to the Directors Option Plan expire at the earlier of ten years from the date of grant or two years after the optionee ceases to serve as a director of the Company. Options not exercised within the appropriate time shall expire and be deemed cancelled. Options under the Directors Option Plan were granted in the form of non-statutory stock options with the aggregate number of shares of common stock available for grant under the Directors Option Plan set at 108,900 shares (adjusted for the 10% stock dividends paid in 2002 and 2003).

In 1999, the Company instituted the 1999 Stock Option Plan (the “1999 Plan”). Options under the 1999 Plan were granted in the form of non-statutory stock options with the aggregate number of shares of common stock available for grant under the Plan set at 332,750 (adjusted for 10% stock dividends paid in 2002 and 2003). The options granted under the 1999 Plan represent the rights to acquire the option shares with deemed grant dates of January 1st for each year beginning with the initial year granted and the following four anniversaries. All stock options granted pursuant to the 1999 Plan vest ratably on the first through the seventh anniversary dates of the deemed grant date. The option price of each stock option is equal to the fair market value (as defined by the 1999 Plan) of the Company’s common stock on the date of each deemed grant during the five-year grant period. Vested stock options granted pursuant to the 1999 Plan are exercisable during employment and for a period of five years after the date of the grantee’s retirement, provided retirement occurs at or after age 62. If employment is terminated other than by early retirement, disability, or death, vested options must be exercised within 90 days after the effective date of termination. Any option not exercised within such period will be deemed cancelled.

The Company also has options from various option plans other than described above (the Prior Plans); however, no common shares of the Company are available for grants under the Prior Plans. Awards outstanding under the Prior Plans will remain in effect in accordance with their respective terms.

The cash flows from the tax benefits resulting from tax deductions in excess of the compensation expense recognized for those options and restricted stock (“excess tax benefits”) are classified as financing cash flows. Excess tax benefits totaling $9 thousand, $2 thousand, and $85 thousand are classified as financing cash inflows for 2010, 2009, and 2008, respectively.

During the three years ended December 31, 2010, the Company recognized pre-tax compensation expense related to total equity-based compensation of $58 thousand, $153 thousand, and $260 thousand, respectively. The Company recognizes equity-based compensation on a straight line pro-rata basis, so that the percentage of the total expense recognized for an award is never less than the percentage of the award that has vested.

As of December 31, 2010, there was $44 thousand in unrecognized compensation cost related to unvested stock options. That cost is expected to be recognized over a weighted average period of 1.1 years. The actual compensation cost recognized will differ from this estimate due to a number of items, including new awards granted and changes in estimated forfeitures.

A summary of the Company’s stock option activity, and related information for the year ended December 31, 2010, is as follows:

			Weighted		Weighted Average
			Average		Remaining		Aggregate
	Option		Exercise		Contractual		Intrinsic
	Shares		Price		Term (Years)		Value
(Dollars in Thousands)
Outstanding at January 1, 2010		413,480	$	22.71
Exercised		2,631		7.61
Forfeited		7,631		24.40
Outstanding at December 31, 2010		403,218	$	22.81		7.1	$	-
Exercisable at December 31, 2010		393,219	$	23.00		7.1	$	-

The fair value of options was estimated at the date of grant using the Black-Scholes-Merton option pricing model and certain assumptions. Expected volatility is based on the weekly historical volatility of the Company’s stock price over the expected term of the option. Expected dividend yield is based on the ratio of the most recent dividend rate paid per share of the Company’s common stock to recent trading price of the Company’s common stock. The expected term is generally calculated using the “shortcut method.” The risk-free interest rate is based on the U.S. Treasury yield curve at the time of grant for the period equal to the expected term of the option.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The fair values of grants made during the three years ended December 31, 2010, were estimated using the following weighted average assumptions:

	2010		2009			2008

Volatility		-		44.83	%		29.11	%
Expected dividend yield		-		2.71	%		3.64	%
Expected term (in years)		-		6.20			10.00
Risk-free rate		-		2.81	%		2.96	%

There were no grants made during the year ended December 31, 2010. The weighted average grant-date fair value of options granted during the years ended December 31, 2009 and 2008, were $5.33 and $7.74, respectively. The aggregate intrinsic value of options exercised during the years ended December 31, 2009 and 2008, were $5 thousand and $310 thousand, respectively.

Stock Awards

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

The following table summarizes the changes in the Company’s nonvested shares of the Company’s common stock for the year ended December 31, 2010.

			Weighted Average
			Grant-Date
	Shares		Fair Value

Nonvested at January 1, 2010		1,800	$	22.67
Granted		3,000		15.85
Vested		800		36.42
Forfeited		300		11.67
Nonvested at December 31, 2010		3,700	$	15.06

As of December 31, 2010, there was $44 thousand in unrecognized compensation cost related to unvested stock awards. That cost is expected to be recognized over a weighted average period of 1.8 years. The actual compensation cost recognized will differ from this estimate due to a number of items, including new awards granted and changes in estimated forfeitures.

Note 12. Litigation, Commitments and Contingencies

Litigation

In the normal course of business, the Company is a defendant in various legal actions and asserted claims, most of which involve lending, collection and employment matters. While the Company and 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, singly or in the aggregate, should not have a material adverse affect on the financial condition, results of operations or cash flows of the Company.

Commitments and Contingencies

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Financial instruments, whose contract amounts represent credit risk at December 31, 2010 and 2009, are commitments to extend credit (including availability of lines of credit) of $209.98 million and $233.72 million, respectively, and standby letters of credit and financial guarantees of $4.04 million and $9.80 million, respectively. The Company maintains a liability of $370 thousand, which represents its reserve for unfunded commitments.

The Company has issued, through the Trust, $15.00 million of trust preferred securities in a private placement. In connection with the issuance of the trust preferred securities, the Company has committed to irrevocably and unconditionally guarantee the following payments or distributions with respect to the trust preferred securities to the holders thereof to the extent that the Trust has not made such payments or distributions and has the funds therefore: (i) accrued and unpaid distributions, (ii) the redemption price, and (iii) upon a dissolution or termination of the Trust, the lesser of the liquidation amount and all accrued and unpaid distributions and the amount of assets of the Trust remaining available for distribution.

Note 13. Derivative Instruments and Hedging Activities

The Company uses derivative instruments primarily to protect against the risk of adverse price or interest rate movements on the value of certain assets and liabilities and on future cash flows. These derivatives may consist of interest rate swaps, floors, caps, collars, futures, forward contracts, and written and purchased options. Derivative instruments represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional amount and an underlying asset as specified in the contract.

The primary derivatives that the Company uses are interest rate swaps and interest rate lock commitments (“IRLCs”). Generally, these instruments help the Company manage exposure to market risk and meet customer financing needs. Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors, such as interest rates, market-driven loan rates and prices or other economic factors.

The Company entered into an interest rate swap derivative accounted for as a cash flow hedge in January 2006. The $50.00 million notional amount pay fixed, receive variable interest rate swap was a liability with an estimated fair value of $31 thousand and $2.12 million at December 31, 2010 and 2009, respectively. The Company pays a fixed rate of 4.34% and receives a LIBOR-based floating rate from the counterparty. Any gains and losses associated with the market value fluctuations of the interest rate swap are included in OCI.

The following table presents the aggregate contractual, or notional, amounts of derivative financial instruments as of the dates indicated:

	December 31, 2010		December 31, 2009
(In Thousands)
Interest rate swap	$	50,000	$	50,000
IRLC's		7,566		4,636

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As of December 31, 2010 and 2009, the fair values of the Company’s derivatives were as follows:

	Asset Derivatives
	December 31, 2010			December 31, 2009
	Balance Sheet	Fair		Balance Sheet	Fair
(In Thousands)	Location	Value		Location	Value
Derivatives not designated as hedges
IRLC's	Other assets	$	28	Other assets	$	2
Total		$	28		$	2

	Liability Derivatives
	December 31, 2010			December 31, 2009
	Balance Sheet	Fair		Balance Sheet	Fair
(In Thousands)	Location	Value		Location	Value
Derivatives designated as hedges
Interest rate swap	Other liabilities	$	31	Other liabilities	$	2,117
Total		$	31		$	2,117

Derivatives not designated as hedges
IRLC's	Other liabilities	$	59	Other liabilities	$	74
Total		$	59		$	74

Total derivatives		$	90		$	2,191

Interest Rate Swaps. The Company uses interest rate swap contracts to modify its exposure to interest rate risk. The Company currently employs a cash flow hedging strategy to effectively convert certain floating-rate liabilities into fixed rate instruments. The interest rate swap is accounted for under the “short-cut” method. Changes in fair value of the interest rate swap are reported as a component of OCI. The Company does not currently employ fair value hedging strategies.

Interest Rate Lock Commitments. In the normal course of business, the Company sells originated mortgage loans into the secondary mortgage loan market. During the period of loan origination and prior to the sale of the loans in the secondary market, the Company has exposure to movements in interest rates associated with mortgage loans that are in the “mortgage pipeline.” A pipeline loan is one on which the potential borrower has set the interest rate for the loan by entering into an IRLC. Once a mortgage loan is closed and funded, it is included within loans held for sale and awaits sale and delivery into the secondary market. During the term of an IRLC, the Company has the risk that interest rates will change from the rate quoted to the borrower.

The Company’s balance of mortgage loans held for sale is subject to changes in fair value, due to fluctuations in interest rates from the loan closing date through the date of sale of the loan into the secondary market. Typically, the fair value of the warehouse declines in value when interest rates increase and rises in value when interest rates decrease.

Effect of Derivatives and Hedging Activities on the Income Statement. For the years ended December 31, 2010 and 2009, the Company has determined there was no amount of ineffectiveness on cash flow hedges. The following table details gains and losses recognized in income on non-designated hedging instruments for the periods ended December 31, 2010 and 2009.

		Amount of Gain/(Loss)
Derivatives Not	Location of Gain/(Loss)	Recognized in Income on Derivative
Designated as Hedging	Recognized in Income on	Year Ended December 31,
Instruments	Derivative	2010		2009
(In Thousands)
IRLC's	Other income	$	41	$	(94	)
Total		$	41	$	(94	)

Counterparty Credit Risk. Like other financial instruments, derivatives contain an element of “credit risk.” Credit risk is the possibility that the Company will incur a loss because a counterparty, which may be a bank, a broker-dealer or a customer, fails to meet its contractual obligations. This risk is measured as the expected positive replacement value of contracts. All derivative contracts may be executed only with exchanges or counterparties approved by the Company’s Asset/Liability Management Committee. The Company reviews its counterparty risk regularly and has determined that as of December 31, 2010 and 2009, there was no significant counterparty credit risk.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 14. Regulatory Capital Requirements and Restrictions

The primary source of funds for dividends paid by the Company is dividends received from the Bank. Dividends paid by the Bank are subject to restrictions by banking regulations. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels. As described below, the Bank is required to maintain heightened regulatory capital ratios. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years.

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, which applies only to the Bank, the Bank must meet specific capital guidelines that involve quantitative measures of the entity’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios for total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined).

To be categorized as well capitalized, the Bank must maintain minimum total capital to risk-weighted assets, Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets (leverage) ratios established by banking regulators. In 2010, the Office of the Comptroller of the Currency (the “OCC”) issued an Individual Minimum Capital Ratio directive to the Bank which requires the Bank to maintain a total capital to risk-weighted assets ratio of 11.50%, a Tier 1 capital to risk-weighted assets ratio of 10.00% and a Tier 1 capital to average assets (leverage) ratio of 7.50%. Failure of the Bank to maintain these minimum capital ratios will be deemed by the OCC to constitute an unsafe and unsound banking practice and could subject the Bank to additional regulatory action. As of December 31, 2010, the Company and the Bank met all capital adequacy requirements to which they are subject. As of December 31, 2010 and 2009, the most recent notifications from regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since those notifications that management believes have changed the institution’s category.

The Company’s and the Bank’s capital ratios as of December 31, 2010 and 2009, are presented in the following tables.

	December 31, 2010
											To Be Well
						For Capital					Capitalized Under					Individual Minimum
						Adequacy					Prompt Corrective					Capital Ratio
	Actual					Purposes					Action Provisions					Directive
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
(Dollars in Thousands)
Total Capital to Risk-Weighted Assets
First Community Bancshares, Inc.	$	224,932		15.33	%	$	117,349		8.00	%		N/A		N/A			N/A		N/A
First Community Bank, N. A.		207,143		14.18	%		116,892		8.00	%	$	146,115		10.00	%	$	168,032		11.50	%
Tier 1 Capital to Risk-Weighted Assets
First Community Bancshares, Inc.		206,428		14.07	%		58,675		4.00	%		N/A		N/A			N/A		N/A
First Community Bank, N. A.		188,771		12.92	%		58,446		4.00	%		87,669		6.00	%		146,115		10.00	%
Tier 1 Capital to Average Assets (Leverage)
First Community Bancshares, Inc.		206,428		9.44	%		87,468		4.00	%		N/A		N/A			N/A		N/A
First Community Bank, N. A.		188,771		8.66	%		87,155		4.00	%		108,944		5.00	%		163,416		7.50	%

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	December 31, 2009
											To Be Well
						For Capital					Capitalized Under
						Adequacy					Prompt Corrective
	Actual					Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
(Dollars in Thousands)
Total Capital to Risk-Weighted Assets
First Community Bancshares, Inc.	$	208,837		13.81	%	$	120,969		8.00	%		N/A		N/A
First Community Bank, N. A.		176,302		11.76	%		119,726		8.00	%	$	149,657		10.00	%
Tier 1 Capital to Risk-Weighted Assets
First Community Bancshares, Inc.		189,858		12.56	%		60,484		4.00	%		N/A		N/A
First Community Bank, N. A.		157,152		10.50	%		59,863		4.00	%		89,795		6.00	%
Tier 1 Capital to Average Assets (Leverage)
First Community Bancshares, Inc.		189,858		8.51	%		89,290		4.00	%		N/A		N/A
First Community Bank, N. A.		157,152		7.09	%		88,709		4.00	%		110,887		5.00	%

Note 15. Other Operating Income and Expense

Other operating income and expense include certain costs, the total of which exceeds one percent of combined interest income and noninterest income, that are presented in the following table for the years indicated:

	Years Ended December 31,
	2010		2009		2008
(Amounts in Thousands)
Income
Credited dividends on life insurance	$	867	$	819	$	746
Expenses
Service fees		3,315		3,767		3,557
Professional fees		1,999		1,759		1,878
Advertising and public relations		1,584		1,633		2,166
Telephone and data communications		1,468		1,399		1,505
Office supplies		1,369		1,323		1,426
ATM processing expenses		1,248		975		986
Non-employee production commissions		526		648		310

Related Party Fees

Included in other operating expense are legal fees paid to related parties totaling $208 thousand, $86 thousand, and $147 thousand in 2010, 2009, and 2008, respectively.

Note 16. Fair Value

Financial Instruments Measured at Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal, or most advantageous, market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.

The fair value hierarchy is as follows:

Level 1 Inputs –

Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Level 2 Inputs –

Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, such as interest rates, volatilities, prepayment speeds, and credit risks, or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3 Inputs –

Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s assets and liabilities carried at fair value. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon third party models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities Available-for-Sale: Securities classified as available-for-sale are reported at fair value utilizing Level 1, Level 2, and Level 3 inputs. Securities are classified as Level 1 within the valuation hierarchy when quoted prices are available in an active market. This includes securities whose value is based on quoted market prices in active markets for identical assets. The Company also uses Level 1 inputs for the valuation of equity securities traded in active markets.

Securities are classified as Level 2 within the valuation hierarchy when the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other things. Level 2 inputs are used to value U.S. Agency securities, mortgage-backed securities, municipal securities, FDIC-backed securities, single-issue trust preferred securities, pooled trust preferred securities, and certain equity securities that are not actively traded.

Securities are classified as Level 3 within the valuation hierarchy in certain cases when there is limited activity or less transparency to the valuation inputs. In the absence of observable or corroborated market data, internally developed estimates that incorporate market-based assumptions are used when such information is available.

Fair value models may be required when trading activity has declined significantly or does not exist, prices are not current or pricing variations are significant. The Company’s fair value from third party models utilizes modeling software that uses market participant data and knowledge of the structures of each individual security to develop cash flows specific to each security. The fair values of the securities are determined by using the cash flows developed by the fair value model and applying appropriate market observable discount rates. The discount rates are developed by determining credit spreads above a benchmark rate, such as LIBOR, and adding premiums for illiquidity developed based on a comparison of initial issuance spread to LIBOR versus a financial sector curve for recently issued debt to LIBOR. Specific securities that have increased uncertainty regarding the receipt of cash flows are discounted at higher rates due to the addition of a deal specific credit premium. Finally, internal fair value model pricing and external pricing observations are combined by assigning weights to each pricing observation. Pricing is reviewed for reasonableness based on the direction of the specific markets and the general economic indicators.

Other Assets and Associated Liabilities: Securities held for trading purposes are recorded at fair value and included in “other assets” on the consolidated balance sheets. Securities held for trading purposes include assets related to employee deferred compensation plans. The assets associated with these plans are generally invested in equities and classified as Level 1. Deferred compensation liabilities, also classified as Level 1, are carried at the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets.

Derivatives: Derivatives are reported at fair value utilizing Level 2 inputs. The Company obtains dealer quotations based on observable data to value its derivatives.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Impaired Loans: Certain impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on appraisals adjusted for customized discounting criteria.

The Company maintains an active and robust problem credit identification system. When a credit is identified as exhibiting characteristics of weakening, the Company will assess the credit for potential impairment. Examples of weakening include delinquency and deterioration of the borrower’s capacity to repay as determined by the Company’s regular credit review function. As part of the impairment review, the Company will evaluate the current collateral value. It is the Company’s standard practice to obtain updated third party collateral valuations to assist management in measuring potential impairment of a credit and the amount of the impairment to be recorded.

A third party evaluation is typically received within thirty to forty-five days of the completion of the internal evaluation. Once received, the third party evaluation is reviewed by Special Assets staff and/or Credit Appraisal staff for reasonableness. Once the evaluation is reviewed and accepted, discounts to fair market value are applied based upon such factors as the bank’s historical liquidation experience of like collateral, and an estimated net realizable value is established. That estimated net realizable value is then compared to the outstanding loan balance to determine the amount of specific impairment reserve. The specific impairment reserve, if necessary, is adjusted to reflect the results of the updated evaluation. A specific impairment reserve is generally maintained on impaired loans during the time period while awaiting receipt of the third party evaluation as well as on impaired loans that continue to make some form of payment and liquidation is not imminent. Impaired loans not meeting the aforementioned criteria and that do not have a specific impairment reserve have usually been previously written down through a partial charge-off, to their net realizable value.

Generally, the only difference between current appraised value, adjusted for liquidation costs, and the carrying amount of the loan less the specific reserve is any downward adjustment to the appraised value that the Company’s Special Assets staff determine appropriate. These differences are generally made up of costs to sell the property, as well as a deflator for the devaluation of property seen when banks are the sellers, and the Company deemed these adjustments as fair value adjustments.

Other Real Estate Owned. The fair value of the Company’s other real estate owned is determined using current and prior appraisals, estimates of costs to sell, and proprietary qualitative adjustments. Accordingly, other real estate owned is stated at a Level 3 fair value.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis as of December 31, 2010 and 2009, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

	December 31, 2010
	Fair Value Measurements Using						Total
(In Thousands)	Level 1		Level 2		Level 3		Fair Value
Available-for-sale securities:
Agency securities	$	-	$	9,832	$	-	$	9,832
Agency mortgage-backed securities		-		215,013		-		215,013
Non-Agency Alt-A residential MBS		-		11,277		-		11,277
Municipal securities		-		176,138		-		176,138
FDIC-backed securities		-		25,660		-		25,660
Single issue trust preferred securities		-		41,244		-		41,244
Pooled trust preferred securities		-		264		-		264
Equity securities		616		20		-		636
Total available-for-sale securities	$	616	$	479,448	$	-	$	480,064
Deferred compensation assets	$	3,192	$	-	$	-	$	3,192
Derivative assets
Interest rate lock commitments	$	-	$	28	$	-	$	28
Total derivative assets	$	-	$	28	$	-	$	28
Deferred compensation liabilities	$	3,192	$	-	$	-	$	3,192
Derivative liabilities
Interest rate swap	$	-	$	31	$	-	$	31
Interest rate lock commitments		-		59		-		59
Total derivative liabilities	$	-	$	90	$	-	$	90

	December 31, 2009
	Fair Value Measurements Using						Total
(In Thousands)	Level 1		Level 2		Level 3		Fair Value
Available-for-sale securities:
Agency securities	$	-	$	25,276	$	-	$	25,276
Agency mortgage-backed securities		-		264,218		-		264,218
Non-Agency prime residential MBS		-		5,170		-		5,170
Non-Agency Alt-A residential MBS		-		11,301		-		11,301
Municipal securities		-		135,601		-		135,601
Single issue trust preferred securities		-		41,110		-		41,110
Pooled trust preferred securities		-		-		1,648		1,648
Equity securities		1,713		20		-		1,733
Total available-for-sale securities	$	1,713	$	482,696	$	1,648	$	486,057
Deferred compensation assets	$	2,872	$	-	$	-	$	2,872
Derivative assets
Interest rate lock commitments	$	-	$	2	$	-	$	2
Total derivative assets	$	-	$	2	$	-	$	2
Deferred compensation liabilities	$	2,872	$	-	$	-	$	2,872
Derivative liabilities
Interest rate swap	$	-	$	2,117	$	-	$	2,117
Interest rate lock commitments		-		74		-		74
Total derivative liabilities	$	-	$	2,191	$	-	$	2,191

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents additional information about financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and 2009 for which Level 3 inputs are utilized to determine fair value:

	Fair Value Measurements
	Using Significant
	Unobservable Inputs
	Available-for-Sale Securities
	Pooled Trust Preferred Securities
	December 31,
(In Thousands)	2010			2009
Beginning balance	$	1,648		$	28,067
Transfers into Level 3		-			-
Transfers out of Level 3		(3,574	)		-
Total gains or losses
Included in earnings (or changes in net assets)		-			(26,419	)
Included in other comprehensive income		1,926			-
Purchases, issuances, sales, and settlements
Purchases		-			-
Issuances		-			-
Sales		-			-
Settlements		-			-
Ending balance	$	-		$	1,648

During the first quarter of 2010, the Company changed the fair value of pooled trust preferred securities from Level 3 to Level 2 pricing resulting in a transfer of $3.57 million out of Level 3. The Company was successful in obtaining a quote from a qualified market participant, and although the market for these securities is increasing, it still remains inactive.

Certain financial and non-financial assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment. Items subjected to nonrecurring fair value adjustments at December 31, 2010, and December 31, 2009, are as follows:

	December 31, 2010
	Fair Value Measurements Using						Total
	Level 1		Level 2		Level 3		Fair Value
(In Thousands)
Impaired loans	$	-	$	-	$	10,906	$	10,906
Restructured loans		-		-		5,771		5,771
Other real estate owned		-		-		4,910		4,910

	December 31, 2009
	Fair Value Measurements Using						Total
	Level 1		Level 2		Level 3		Fair Value
(In Thousands)
Impaired loans	$	-	$	-	$	11,702	$	11,702
Other real estate owned		-		-		4,578		4,578

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Fair Value of Financial Instruments

Fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practical to estimate the value is based upon the characteristics of the instruments and relevant market information. Financial instruments include cash, evidence of ownership in an entity, or contracts that convey or impose on an entity that contractual right or obligation to either receive or deliver cash for another financial instrument. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price if one exists.

	December 31, 2010				December 31, 2009
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
(Amounts in Thousands)
Assets
Cash and cash equivalents	$	112,189	$	112,189	$	101,341	$	101,341
Investment securities		484,701		484,768		493,511		493,636
Loans held for sale		4,694		4,700		11,576		11,580
Loans held for investment less allowance		1,359,724		1,370,173		1,369,654		1,362,814
Accrued interest receivable		7,675		7,675		8,610		8,610
Bank owned life insurance		42,241		42,241		40,972		40,972
Derivative financial assets		28		28		2		2
Deferred compensation assets		3,192		3,192		2,872		2,872

Liabilities
Demand deposits	$	205,151	$	205,151	$	208,244	$	208,244
Interest-bearing demand deposits		262,420		262,420		231,907		231,907
Savings deposits		426,547		426,547		381,381		381,381
Time deposits		726,837		735,332		824,428		834,546
Securities sold under agreements to repurchase		140,894		161,100		153,634		156,653
Accrued interest payable		3,264		3,264		4,130		4,130
FHLB and other indebtedness		191,193		203,539		198,924		208,334
Derivative financial liabilities		90		90		2,191		2,191
Deferred compensation liabilities		3,192		3,192		2,872		2,872

The following summary presents the methodologies and assumptions used to estimate the fair value of the Company’s financial instruments presented below. The information used to determine fair value is highly subjective and judgmental in nature and, therefore, the results may not be precise. Subjective factors include, among other things, estimates of cash flows, risk characteristics, credit quality, and interest rates, all of which are subject to change. Since the fair value is estimated as of the balance sheet date, the amounts that will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different.

Cash and Cash Equivalents: The book values of cash and due from banks and federal funds sold and purchased are considered to be equal to fair value as a result of the short-term nature of these items.

Investment Securities and Deferred Compensation Assets and Liabilities: Fair values are determined in the same manner as described above.

Loans: The estimated fair value of loans held for investment is measured based upon discounted future cash flows using current rates for similar loans. No estimate for market illiquidity has been made. Loans held for sale are recorded at lower of cost or estimated fair value. The fair value of loans held for sale is determined based upon the market sales price of similar loans.

Accrued Interest Receivable and Payable: The book value is considered to be equal to the fair value due to the short-term nature of the instrument.

Bank-owned Life Insurance: The fair value is determined by stated contract values.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Derivative Financial Instruments: The estimated fair value of derivative financial instruments is based upon the current market price for similar instruments.

Deposits and Securities Sold Under Agreements to Repurchase: Deposits without a stated maturity, including demand, interest bearing demand, and savings accounts, are reported at their carrying value. No value has been assigned to the franchise value of these deposits. For other types of deposits and repurchase agreements with fixed maturities and rates, fair value has been estimated by discounting future cash flows based on interest rates currently being offered on instruments with similar characteristics and maturities.

FHLB and Other Indebtedness: Fair value has been estimated based on interest rates currently available to the Company for borrowings with similar characteristics and maturities. The fair value for trust preferred obligations has been estimated based on credit spreads seen in the marketplace for like issues.

Commitments to Extend Credit, Standby Letters of Credit, and Financial Guarantees: The amount of off-balance sheet commitments to extend credit, standby letters of credit, and financial guarantees is considered equal to fair value. Because of the uncertainty involved in attempting to assess the likelihood and timing of commitments being drawn upon, coupled with the lack of an established market and the wide diversity of fee structures, the Company does not believe it is meaningful to provide an estimate of fair value that differs from the given value of the commitment.

Note 17. Comprehensive Income (Loss)

The components of the Company’s comprehensive income (loss), net of income taxes, as of December 31, 2010, 2009, and 2008, were as follows:

	December 31,
	2010			2009			2008
(In Thousands)
Net income (loss)	$	21,847		$	(38,696	)	$	1,954
Other comprehensive income (loss)
Unrealized gain (loss) on securities available-for-sale
with other-than-temporary impairment		194			(28	)		-
Unrealized gain (loss) on securities available-for-sale
without other-than-temporary impairment		8,419			(9,351	)		-
Unrealized loss on securities available-for-sale
prior to adoption of ASC Topic 320		-			-			(102,303	)
Reclassification adjustment for (gains) losses
realized in net income		(8,273	)		11,673			30,100
Reclassification adjustment for credit related
other-than-temporary impairments recognized
in earnings		185			78,863			-
Cumulative effect of change in accounting principle		-			(9,771	)		-
Unrealized gain (loss) on derivative securities		2,078			1,073			(2,007	)
Change related to employee benefit plans		(273	)		(752	)		(1,180	)
Income tax effect		(868	)		(26,711	)		30,156
Total other comprehensive income (loss)		1,462			44,996			(45,234	)
Comprehensive income (loss)	$	23,309		$	6,300		$	(43,280	)

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The components of the Company’s accumulated other comprehensive loss, net of income taxes, as of December 31, 2010 and 2009, were as follows:

	Unrealized			Unrealized Loss			Benefit			Accumulated
	Loss			on Cash Flow			Plan			Comprehensive
	on Securities			Hedge Derivative			Liability			Loss
(Amounts in Thousands)
December 31, 2010	$	(11,213	)	$	(20	)	$	(957	)	$	(12,190	)
December 31, 2009	$	(11,543	)	$	(1,323	)	$	(786	)	$	(13,652	)
December 31, 2008	$	(49,813	)	$	(1,996	)	$	(708	)	$	(52,517	)

Note 18. Parent Company Financial Information

Condensed financial information related to First Community Bancshares, Inc. as of December 31, 2010 and 2009, and for each of the years ended December 31, 2010, 2009, and 2008, is as follows:

	December 31,
Condensed Balance Sheets	2010			2009
(Amounts in Thousands)
Assets
Cash	$	11,706		$	17,426
Securities available for sale		9,663			10,142
Investment in subsidiary		266,673			233,072
Other assets		4,325			4,563
Total assets	$	292,367		$	265,203
Liabilities
Other liabilities	$	7,025		$	310
Long-term debt		15,464			15,464
Total liabilities		22,489			15,774
Stockholders' Equity
Preferred stock		-			-
Common stock		18,083			18,083
Additional paid-in capital		189,239			190,967
Retained earnings		79,844			63,922
Treasury stock		(6,740	)		(9,891	)
Accumulated other comprehensive loss		(10,548	)		(13,652	)
Total stockholders' equity		269,878			249,429
Total liabilities and stockholders' equity	$	292,367		$	265,203

	Years Ended December 31,
Condensed Statements of Income	2010			2009			2008
(Amounts in Thousands)
Cash dividends received from subsidiary bank	$	-		$	4,027		$	22,383
Other income		2,134			3,774			2,104
Operating expense		(1,556	)		(3,030	)		(2,200	)
Income tax (expense) benefit		(223	)		(2,691	)		24
Equity in undistributed earnings (loss) of subsidiary		21,492			(40,776	)		(20,357	)
Net income (loss)		21,847			(38,696	)		1,954
Dividends on preferred stock		-			2,160			255
Net income (loss) available to common shareholders	$	21,847		$	(40,856	)	$	1,699

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Years Ended December 31,
Condensed Statements of Cash Flows	2010			2009			2008
(Amounts in Thousands)
Cash flows from operating activities
Net income (loss)	$	21,847		$	(38,696	)	$	1,954
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed (earnings) loss of subsidiary		(21,492	)		40,776			20,357
Loss on sale of securities		1			60			625
Decrease (increase) in other assets		238			661			(2,059	)
Increase (decrease) in other liabilities		6,715			881			(7	)
Other, net		(82	)		1,081			2,471
Net cash provided by operating activities		7,227			4,763			23,341

Cash flows from investing activities
Purchase of securities available for sale		-			(931	)		(13,117	)
Proceeds from sale of securities available for sale		535			4,402			3,324
Investment in subsidiary		(7,500	)		(10,000	)		(40,000	)
Other, net		-			1,000			(1,042	)
Net cash used in investing activities		(6,965	)		(5,529	)		(50,835	)

Cash flows from financing activities
Issuance of preferred stock		-			-			41,500
Redemption of preferred stock		-			(41,500	)		-
Issuance of common stock		29			61,688			606
Acquisition of treasury stock		-			(167	)		(4,222	)
Common dividends paid		(7,121	)		(4,620	)		(12,452	)
Preferred dividends paid		-			(1,116	)		-
Other, net		1,110			1,869			1,220
Net cash (used in) provided by financing activities		(5,982	)		16,154			26,652
Net (decrease) increase in cash and cash equivalents		(5,720	)		15,388			(842	)
Cash and cash equivalents at beginning of year		17,426			2,038			2,880
Cash and cash equivalents at end of year	$	11,706		$	17,426		$	2,038

Note 19. Segment Information

The Company operates within two business segments, community banking and insurance services. The Community Banking segment includes both commercial and consumer lending and deposit services. This segment provides customers with such products as commercial loans, real estate loans, business financing and consumer loans. This segment also provides customers with several choices of deposit products including demand deposit accounts, savings accounts and certificates of deposit. In addition, the Community Banking segment provides wealth management services to a broad range of customers. The Insurance Services segment is a full-service insurance agency providing commercial and personal lines of insurance.

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table sets forth information about the reportable operating segments and reconciliation of this information to the consolidated financial statements at and for the years ended December 31, 2010 and 2009.

	December 31, 2010
	Community		Insurance			Parent/
	Banking		Services			Elimination			Total
(In Thousands)
Net interest income (loss)	$	74,072	$	(125	)	$	(90	)	$	73,857
Provision for loan losses		14,757		-			-			14,757
Noninterest income		34,132		6,816			(440	)		40,508
Noninterest expense		63,983		6,856			(896	)		69,943
Income (loss) before income taxes		29,464		(165	)		366			29,665
Provision for income tax expense		7,308		345			165			7,818
Net income (loss)	$	22,156	$	(510	)	$	201		$	21,847

End of period goodwill and other intangibles	$	78,696	$	11,943		$	-		$	90,639
End of period assets	$	2,227,760	$	12,445		$	4,033		$	2,244,238

	December 31, 2009
	Community			Insurance			Parent/
	Banking			Services			Elimination			Total
(In Thousands)
Net interest income (loss)	$	69,364		$	(73	)	$	(39	)	$	69,252
Provision for loan losses		15,801			-			-			15,801
Noninterest income		(60,839	)		7,427			(265	)		(53,677	)
Noninterest expense		61,523			6,139			(1,038	)		66,624
Income (loss) before income taxes		(68,799	)		1,215			734			(66,850	)
Provision for income tax (benefit) expense		(30,568	)		506			1,908			(28,154	)
Net income (loss)	$	(38,231	)	$	709		$	(1,174	)	$	(38,696	)

End of period goodwill and other intangibles	$	79,419		$	11,642		$	-		$	91,061
End of period assets	$	2,247,396		$	12,230		$	13,657		$	2,273,283

FIRST COMMUNITY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 20. Supplemental Financial Data (Unaudited)

Quarterly earnings for the years ended December 31, 2010 and 2009, are as follows:

	Quarter Ended
2010	March 31		June 30		Sept 30		Dec 31
(Amounts in Thousands, Except Per Share Data)
Interest income	$	26,612	$	26,155	$	25,840	$	24,975
Interest expense		7,993		7,613		7,243		6,876
Net interest income		18,619		18,542		18,597		18,099
Provision for loan losses		3,665		3,596		3,810		3,686
Net interest income after provision for loan losses		14,954		14,946		14,787		14,413
Other income		8,328		7,703		8,364		7,840
Net securities gains		250		1,201		2,574		4,248
Other expenses		16,072		16,598		17,429		19,844
Income before income taxes		7,460		7,252		8,296		6,657
Income tax		2,182		2,121		1,743		1,772
Net income available to common shareholders	$	5,278	$	5,131	$	6,553	$	4,885
Per share:
Basic earnings	$	0.30	$	0.29	$	0.37	$	0.27
Diluted earnings	$	0.30	$	0.29	$	0.37	$	0.27
Dividends	$	0.10	$	0.10	$	0.10	$	0.10

Weighted average basic shares outstanding		17,766		17,787		17,808		17,846
Weighted average diluted shares outstanding		17,784		17,805		17,833		17,892

	Quarter Ended
2009	March 31		June 30		Sept 30			Dec 31
(Amounts in Thousands, Except Per Share Data)
Interest income	$	26,863	$	26,189	$	27,130		$	27,752
Interest expense		10,430		9,868		9,594			8,790
Net interest income		16,433		16,321		17,536			18,962
Provision for loan losses		2,148		2,552		3,819			7,282
Net interest income after provision for loan losses		14,285		13,769		13,717			11,680
Other income		8,006		3,867		(18,150	)		(35,734	)
Net securities gains (losses)		411		1,653		866			(14,603	)
Other expenses		15,187		16,041		17,768			17,621
Income (loss) before income taxes		7,515		3,248		(21,335	)		(56,278	)
Income tax (benefit)		2,323		843		(9,783	)		(21,537	)
Net income (loss)		5,192		2,405		(11,552	)		(34,741	)
Preferred dividends		571		578		1,011			-
Net income (loss) available to common shareholders	$	4,621	$	1,827	$	(12,563	)	$	(34,741	)
Per share:
Basic earnings (loss)	$	0.40	$	0.14	$	(0.72	)	$	(1.96	)
Diluted earnings (loss)	$	0.40	$	0.14	$	(0.72	)	$	(1.96	)
Dividends	$	-	$	0.20	$	0.10		$	-

Weighted average basic shares outstanding		11,568		12,696		17,427			17,687
Weighted average diluted shares outstanding		11,617		12,741		17,427			17,687

- Report of Independent Registered Public Accounting Firm -

To the Audit Committee of the Board of Directors and the Stockholders

First Community Bancshares, Inc.

We have audited the accompanying consolidated balance sheets of First Community Bancshares, Inc. and its Subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Community Bancshares, Inc. and its Subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

The Company adopted, in 2009, new business combination and investment impairment accounting standards.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 11, 2011, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Asheville, North Carolina

March 11, 2011

-Management’s Assessment of Internal Control Over Financial Reporting-

First Community Bancshares, Inc. (the “Company”) is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this Annual Report on Form 10-K. The consolidated financial statements and notes included in this Annual Report on Form 10-K have been prepared in conformity with U.S. generally accepted accounting principles and necessarily include some amounts that are based on management’s best estimates and judgments.

We, as management of the Company, are responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with U.S. generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that its system of internal control over financial reporting was effective as of December 31, 2010.

Dixon Hughes PLLC, independent registered public accounting firm, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. The Report of Independent Registered Public Accounting Firm, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010, appears hereafter in Item 8 of this Annual Report on Form 10-K.

Dated this 11th day of March, 2011.

/s/ John M. Mendez		/s/ David D. Brown
John M. Mendez		David D. Brown
President and Chief Executive Officer		Chief Financial Officer

- Report of Independent Registered Public Accounting Firm -

To the Audit Committee of the Board of Directors and the Stockholders

First Community Bancshares, Inc.

We have audited First Community Bancshares, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, First Community Bancshares, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of First Community Bancshares, Inc. as of and for the year ended December 31, 2010, and our report, dated March 11, 2011, expressed an unqualified opinion on those consolidated financial statements. The Company adopted, in 2009, new business combination and investment impairment accounting standards.

Asheville, North Carolina

March 11, 2011

ITEM 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

ITEM 9A.

Controls and Procedures.

Restatement and Remediation of Material Weakness

As a result of a routine internal audit during the second quarter of 2010, the Company determined there was a computational error in the model that it uses to calculate the quantitative basis for its allowance for loan losses. Based on the Company’s modeling using the corrected computations, the Company, in consultation with the Audit Committee of its Board of Directors, filed with the Securities and Exchange Commission amendments to its Form 10-Ks for each of the years ended December 31, 2009 and 2008 and its Form 10-Qs for each of the quarters ended March 31, 2009, June 30, 2009, September 30, 2009, and March 31, 2010, for the purpose of restating the financial statements and other financial information in those reports to reflect the correction of the computational error in the model (the “Restatement”).

We believe that we have fully remediated the material weakness in our internal control over financial reporting with respect to the calculation of the allowance for loan losses as of December 31, 2010. The remedial actions undertaken by the Company included:

implementing additional management and oversight controls to review documentation related to the calculation of the allowance for loan losses;

discontinuing practices and processes where sustainable controls did not exist and automating other critical functions within the process; and

retesting our internal controls with respect to the deficiencies related to the material weakness to ensure they are operating effectively.

Evaluation of Disclosure Controls and Procedures

In connection with the Restatement, under the direction of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we reevaluated our disclosure controls and procedures. The Company identified a material weakness in our internal control over financial reporting with respect to ensuring the appropriate calculation of its allowance for loan losses. Specifically, during a process enhancement to the model that calculates the allowance for loan losses, the quarterly average loss rate was not annualized. Control procedures in place during the periods covered by the Restatement for reviewing the quantitative model for calculating the allowance for loan losses did not timely identify this error and, as such, the Company did not have adequately designed procedures. Solely as a result of this material weakness, we concluded that our disclosure controls and procedures were not effective as of December 31, 2008, March 31, 2009, June 30, 2009, September 30, 2009, December 31, 2009, March 31, 2010, and June 30, 2010.

In connection with this Annual Report on Form 10-K, under the direction of the Company’s CEO and CFO, the Company has evaluated the disclosure controls and procedures currently in effect, including the remedial actions discussed above. Based upon that evaluation, the CEO and CFO concluded that, as of December 31, 2010, the Company’s disclosure controls and procedures were effective.

Disclosure controls and procedures are Company controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

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.

The Company assesses the adequacy of its internal control over financial reporting quarterly and enhances its controls in response to internal control assessments and internal and external audit and regulatory recommendations. Except as described above, there were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2010, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company’s Management’s Report on Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting Firm on Management’s Assessment of Internal Control Over Financial Reporting are each hereby incorporated by reference from Item 8 of this Annual Report on Form 10-K.

ITEM 9B.

Other Information.

None.

PART III

ITEM 10.

Directors, Executive Officers and Corporate Governance.

The required information concerning directors and executive officers has been omitted in accordance with General Instruction G. Such information regarding directors and executive officers will be set forth under the headings of “Election of Directors,” “Continuing Directors,” and “Executive Officers who are not Directors” of the Proxy Statement relating to the 2011 Annual Meeting of Stockholders (the “2011 Annual Meeting”) to be held on April 26, 2011, and is incorporated herein by reference.

Information relating to compliance with Section 16(a) of the Exchange Act has been omitted in accordance with General Instruction G. Such information will be set forth under the heading of “Section 16(a) Beneficial Ownership Reporting Compliance” of the Proxy Statement relating to the 2011 Annual Meeting and is incorporated herein by reference.

The Company has adopted Standards of Conduct that apply to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, as well as all employees and directors of the Company. A copy of the Company’s Standards of Conduct is available on the Company’s website at www.fcbinc.com. There have been no waivers of the standards of conduct related to any of the above officers.

Information relating to the Audit Committee and the Audit Committee Financial Expert has been omitted in accordance with General Instruction G. Such information regarding the Audit Committee and the Audit Committee Financial Expert will be set forth under the heading “Report of the Audit Committee” of the Proxy Statement relating to the 2011 Annual Meeting and is incorporated herein by reference.

Since the last report on Form 10-K, filed on March 4, 2010, the Company has not made any material changes to the procedures by which stockholders may recommend nominees to the Company’s board of directors.

BOARD OF DIRECTORS, FIRST COMMUNITY BANCSHARES, INC.

Franklin P. Hall		John M. Mendez
Businessman; Senior Partner, Hall & Hall Family Law Firm;		President and Chief Executive Officer, First Community
Former Commissioner, Virginia Department of Alcoholic		Bancshares, Inc.; Chief Executive Officer, First Community
Beverage Control; Former Chairman, The Commonwealth		Bank, N. A.
Bank; Former Minority Leader, Virginia House of Delegates
		A. A. Modena
		Past Executive Vice President and Secretary, First Community
Allen T. Hamner, Ph.D.		Bancshares, Inc.; Past President and Chief Executive Officer,
Retired Professor of Chemistry, West Virginia Wesleyan		The Flat Top National Bank of Bluefield
College
		Robert E. Perkinson, Jr.
Richard S. Johnson		Past Vice President-Operations, MAPCO Coal, Inc. — Virginia
President, The Wilton Companies		Region

I. Norris Kantor		William P. Stafford
Of Counsel, Katz, Kantor & Perkins, Attorneys at Law; Board		President, Princeton Machinery Service, Inc.
of Governors, Bluefield State College

John M. Mendez		William P. Stafford, II
		Attorney at Law, Brewster, Morhous, Cameron, Caruth, Moore,
		Kersey & Stafford, PLLC

EXECUTIVE OFFICERS, FIRST COMMUNITY BANCSHARES, INC.

John M. Mendez		E. Stephen Lilly
President and Chief Executive Officer		Chief Operating Officer

David D. Brown		Robert L. Buzzo
Chief Financial Officer		Vice President and Secretary

Robert L. Schumacher
General Counsel

BOARD OF DIRECTORS, FIRST COMMUNITY BANK, N. A.

W. C. Blankenship, Jr.			I. Norris Kantor
Agent, State Farm Insurance			Of Counsel, Katz, Kantor & Perkins, Attorneys at Law; Board
			of Governors, Bluefield State College
Juanita G. Bryan
Homemaker			John M. Mendez
			President and Chief Executive Officer, First Community
Robert L. Buzzo			Bancshares, Inc.; Chief Executive Officer, First Community
Vice President and Secretary, First Community Bancshares,			Bank, N. A.
Inc.; President, First Community Bank, N. A.
			A. A. Modena
C. William Davis			Past Executive Vice President and Secretary, First
Attorney at Law, Richardson & Davis			Community Bancshares, Inc.; Past President and
			Chief Executive Officer, The Flat Top National Bank
Samuel L. Elmore			of Bluefield
Senior Vice President – Commercial Lending for Raleigh
County, W.Va. Market, First Community Bank, N. A.			Robert E. Perkinson, Jr.
			Past Vice President-Operations, MAPCO Coal, Inc. — Virginia
T. Vernon Foster			Region
President of J. La’Verne Print Communications; Past Director,
TriStone Community Bank; Director of Business Solutions,			William P. Stafford
University of Louisville, College of Business			President, Princeton Machinery Service, Inc.

Franklin P. Hall			William P. Stafford, II
Businessman; Senior Partner, Hall & Hall Family Law Firm;			Attorney at Law, Brewster, Morhous, Cameron, Caruth, Moore,
Former Commissioner, Virginia Department of Alcoholic			Kersey & Stafford, PLLC
Beverage Control; Former Chairman, The Commonwealth
Bank; Former Minority Leader, Virginia House of Delegates			Frank C. Tinder
			President, Tinder Enterprises, Inc. and Tinco Leasing
Allen T. Hamner, Ph.D.			Corporation; Realtor, Premier Realty
Retired Professor of Chemistry, West Virginia Wesleyan
College			Dale F. Woody
			President, Woody Lumber Company
Richard S. Johnson
President, The Wilton Companies

ITEM 11.

Executive Compensation.

The information called for by Item 11 has been omitted in accordance with General Instruction G. Such information will be set forth under the heading of “Compensation Discussion and Analysis” of the Proxy Statement relating to the 2011 Annual Meeting and is incorporated herein by reference.

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The required information concerning security ownership of certain beneficial owners and management has been omitted in accordance with General Instruction G. Such information appears under the heading of “Information on Stock Ownership” of the Proxy Statement relating to the 2011 Annual Meeting and is incorporated herein by reference.

100

Equity Compensation Plan Information

Information regarding compensation plans under which the Company’s equity securities are authorized for issuance as of December 31, 2010, is included in the table which follows.

Number of securities

remaining available

to be issued upon

Weighted-average

for future issuance

exercise of

exercise price of

under equity

outstanding

compensation plans

options, warrants

(excluding securities

Plan category

and rights

reflected in column (a))

(a)

(b)

(c)

Equity compensation plans approved

by security holders

54,125

25.11

82,343

Equity compensation plans not approved

by security holders

351,593

22.21

71,801

Total

405,718

154,144

For additional information regarding equity compensation plans, see Note 10 – Employee Benefits of the Notes to Consolidated Financial Statements included in Item 8 hereof.

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence.

The information called for by Item 13 has been omitted in accordance with General Instruction G. Such information will be set forth under the heading of “Related Party Transactions” of the Proxy Statement relating to the 2011 Annual Meeting and is incorporated herein by reference.

ITEM 14.

Principal Accounting Fees and Services.

The information called for by Item 14 has been omitted in accordance with General Instruction G. Such information will be set forth under the heading of “Independent Auditor” of the Proxy Statement relating to the 2011 Annual Meeting and is incorporated herein by reference.

PART IV

ITEM 15.

Exhibits, Financial Statement Schedules.

(a) Documents Filed as Part of this Report

(1) Financial Statements

Not Applicable

(2) Financial Statement Schedules

Not Applicable

(b) Exhibits

Exhibit No.		Exhibit

3(i)		Articles of Incorporation of First Community Bancshares, Inc. (31)
3(ii)		Bylaws of First Community Bancshares, Inc., as amended. (17)
3.1		Certificate of Designation Series A Preferred Stock (22)
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)
4.5		Reserved.

101

4.6		Warrant to purchase 88,273 shares of Common Stock of First Community Bancshares, Inc. (29)
4.7		Reserved
4.8		Reserved
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, as amended. (18)
10.2**		First Community Bancshares, Inc. 2001 Non-Qualified Directors Stock Option Plan. (5)
10.3**		Employment Agreement dated December 16, 2008, between First Community Bancshares, Inc. and John M. Mendez. (6) and Waiver Agreement (27)
10.4**		First Community Bancshares, Inc. 2000 Executive Retention Plan, as amended. (24)
10.5**		First Community Bancshares, Inc. Split Dollar Plan and Agreement. (8)
10.6**		First Community Bancshares, Inc. 2001 Directors Supplemental Retirement Plan, as amended. (24)
10.6.1**		Reserved
10.7**		First Community Bancshares, Inc. Wrap Plan. (7)
10.8		Reserved.
10.9**		Form of Indemnification Agreement between First Community Bancshares, Inc., its Directors and Certain Executive Officers. (9)
10.10**		Form of Indemnification Agreement between First Community Bank, N. A, its Directors and Certain Executive Officers. (9)
10.11		Reserved.
10.12**		First Community Bancshares, Inc. 2004 Omnibus Stock Option Plan (10) and Form of Award Agreement. (13)
10.13		Reserved.
10.14**		First Community Bancshares, Inc. Directors Deferred Compensation Plan. (7)
10.15**		Reserved
10.16**		Employment Agreement dated November 30, 2006, between First Community Bank, N. A. and Ronald L. Campbell. (19)
10.17**		Employment Agreement dated September 28, 2007, between GreenPoint Insurance Group, Inc. and Shawn C. Cummings. (20)
10.18		Securities Purchase Agreement by and between the United States Department of the Treasury and First Community Bancshares, Inc. dated November 21, 2008. (22)
10.19**		Employment Agreement dated December 16, 2008, between First Community Bancshares, Inc. and David D. Brown. (23)
10.20**		Employment Agreement dated December 16, 2008, between First Community Bancshares, Inc. and Robert L. Buzzo. (26)
10.21**		Employment Agreement dated December 16, 2008, between First Community Bancshares, Inc. and E. Stephen Lilly. (26)
10.22**		Employment Agreement dated December 16, 2008, between First Community Bank, N. A. and Gary R. Mills. (26)
10.23**		Employment Agreement dated December 16, 2008, between First Community Bank, N. A. and Martyn A. Pell. (26)
10.24**		Employment Agreement dated December 16, 2008, between First Community Bank, N. A. and Robert. L. Schumacher. (26)
10.25**		Employment Agreement dated July 31, 2009, between First Community Bank, N. A. and Simpson O. Brown. (25)
10.26**		Employment Agreement dated July 31, 2009, between First Community Bank, N. A. and Mark R. Evans. (25)
11		Statement regarding computation of earnings per share. (16)
12*		Computation of Ratios.
21		Subsidiaries of Registrant – Reference is made to “Item 1. Business” for the required information.
23.1*		Consent of Dixon Hughes PLLC, Independent Registered Public Accounting Firm for First Community Bancshares, Inc.
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 Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Furnished herewith.

**	Indicates a management contract or compensation plan.

(1)	Incorporated by reference from the Quarterly Report on Form 10-Q for the period ended June 30, 2010, filed on August 16, 2010

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

102

(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)	Incorporated by reference from Exhibit 10.1 of the Current Report on Form 8-K dated and filed December 16, 2008. The Registrant has entered into substantially identical agreements with Robert L. Buzzo and E. Stephen Lilly, with the only differences being with respect to title and salary.

(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 Exhibit 10.5 of the Annual Report on Form 10-K for the period ended December 31, 1999, and filed on April 4, 2000, and amended on April 13, 2000.

(9)

Form of indemnification agreement entered into by the Company 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, David D. 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 15, 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 the Current Report on Form 8-K dated October 24, 2006, and filed October 25, 2006.

(16)	Incorporated by reference from Note 1 of the Notes to Consolidated Financial Statements included herein.

(17)	Incorporated by reference from Exhibit 3.1 of the Current Report on Form 8-K dated February 14, 2008, filed on February 20, 2008.

(18)	Incorporated by reference from Exhibit 10.1.1 of the Quarterly Report on Form 10-Q for the period ended March 31, 2004, filed on May 7, 2004.

(19)	Incorporated by reference from Exhibit 2.1 of the Form S-3 registration statement filed May 2, 2007.

(20)	Incorporated by reference from the Exhibit 10.17 of the Annual Report on Form 10-K for the period ended December 31, 2007, filed on March 13, 2008.

(21)

Reserved.

(22)	Incorporated by reference from the Current Report on Form 8-K dated November 21, 2008, and filed November 24, 2008.

(23)	Incorporated by reference from Exhibit 10.2 of the Current Report on Form 8-K dated and filed December 16, 2008.

(24)	Incorporated by reference from Exhibit 10.3 of the Current Report on Form 8-K dated December 16, 2010, and filed December 17, 2010.

(25)	Incorporated by reference from Exhibit 2.1 of the Current Report on Form 8-K dated April 2, 2009 and filed April 3, 2009.

(26)	Incorporated by reference from the Current Report on Form 8-K dated and filed July 6, 2009.

(27)	Incorporated by reference from Exhibit 10.2 on Form 8-K dated December 16, 2010, and filed December 17, 2010.

(28)

Reserved.

(29)

Reserved.

(30)

Reserved.

(31)	Incorporated by reference from Exhibit 3(i) of the Quarterly Report on Form 10-Q for the period dated June 30, 2010, and filed August 16, 2010.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 11th day of March, 2011.

First Community Bancshares, Inc.

(Registrant)

By:	/s/ John M. Mendez	By:	/s/ David D. Brown
	John M. Mendez		David D. Brown
	President and Chief Executive Officer		Chief Financial Officer
	(Principal Executive Officer)		(Principal Financial Officer and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ John M. Mendez	Director, President and Chief Executive Officer	March 11, 2011
John M. Mendez

/s/ David D. Brown	Chief Financial Officer	March 11, 2011
David D. Brown

/s/ Franklin P. Hall	Director	March 11, 2011
Franklin P. Hall

/s/ Allen T. Hamner	Director	March 11, 2011
Allen T. Hamner

/s/ Richard S. Johnson	Director	March 11, 2011
Richard S. Johnson

/s/ Robert E. Perkinson, Jr.	Director	March 11, 2011
Robert E. Perkinson, Jr.

/s/ William P. Stafford	Director	March 11, 2011
William P. Stafford

/s/ William P. Stafford, II	Chairman of the Board of Directors	March 11, 2011
William P. Stafford, II

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