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, 2006 Commission file number 0-18868  Premier Community Bankshares, Inc. (Exact name of registrant as specified in its charter)  Virginia
(State or other jurisdiction
of incorporation or organization)
        54-1560968
(I.R.S. Employer
Identification No.)4095 Valley Pike
Winchester, Virginia
(Address of principal executive offices)
        22602
(Zip Code)  Registrants telephone number, including area code(540) 869-6600  Securities registered pursuant to Section 12(b) of the Act: Title of each class
        Name of each exchange
on which registeredCommon Stock, par value $1.00 per share
        The Nasdaq Stock Market  Securities registered pursuant to Section 12(g) of the Act: None (Title of class)  Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso Nox Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso Nox 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.  Yesx  Noo 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 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, or a non-accelerated filer.  See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.  (Check one): Large accelerated filero
        Accelerated filerx
        Non-accelerated fileroIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yeso
  Nox 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:$106,621,304 Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date.5,705,213 shares of common stock as of February 7, 2007  DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for the 2007 Annual Meeting of Shareholders  Part III       TABLE OF CONTENTS  Page Part I  Item 1.
        Business
        3  Item 1A.
        Risk Factors
        11  Item 1B.
        Unresolved Staff Comments
        14  Item 2.
        Properties
        15  Item 3.
        Legal Proceedings
        17  Item 4.
        Submission of Matters to a Vote of Security Holders
        17  Part II  Item 5.
        Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
        18  Item 6.
        Selected Financial Data
        20  Item 7.
        Managements Discussion and Analysis of Financial Conditionand Results of Operation
        21  Item 7A.
        Quantitative and Qualitative Disclosures About Market Risk
        42  Item 8.
        Financial Statements and Supplementary Data
        44  Item 9.
        Changes in and Disagreements With Accountants onAccounting and Financial Disclosure
        83  Item 9A.
        Controls and Procedures
        83  Item 9B.
        Other Information
        83  Part III  Item 10.
        Directors, Executive Officers and Corporate Governance
        84  Item 11.
        Executive Compensation
        84  Item 12.
        Security Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters
        84  Item 13.
        Certain Relationships and Related Transactions, and Director Independence
        84  Item 14.
        Principal Accounting Fees and Services
        84  Part IV  Item 15.
        Exhibits, Financial Statement Schedules
        85    2       PART I  Item 1. Business  General  Premier Community Bankshares, Inc. (the Corporation or we) is a bank holding company that was incorporated in June 1989.  We own all of the outstanding stock of Marathon Bank, which was incorporated in August 1987, Rockingham Heritage Bank, which was incorporated in June 1989, and Premier Bank, Inc., which was incorporated in March 2004 and opened for business in July 2005.  On July 1, 2006, the Corporation completed a merger with Albemarle First Bank in Charlottesville, Virginia.  Albemarle was merged into Rockingham Heritage Bank and operates as a division thereof.  Our headquarters are in Frederick County, Virginia.  The Corporation is a holding company for Marathon Bank, Rockingham Heritage Bank, and Premier Bank, and is not directly engaged in the operation of any other business.  All of our business is conducted through Marathon Bank, Rockingham Heritage Bank, and Premier Bank.  Our subsidiary banks operate autonomously, with separate local identities, management teams and decision-making processes, and without strict operating control from the holding company.  Each bank has full responsibility for day-to-day operations, with minimal support from the holding company level.  As a result, each bank can tailor its services and products to the needs of its community.  The board of directors of the holding company does monitor the financial and operational performance of all three banks.  Marathon Bank and Rockingham Heritage Bank, which are chartered under Virginia law, conduct a general banking business.  Both banks deposits are insured by the Federal Deposit Insurance Corporation and both are members of the Federal Reserve System. Premier Bank is chartered under West Virginia law, and conducts a general banking business.  Premier Bank is a state nonmember bank and is not a member of the Federal Reserve System.  Premier Banks deposits are insured by the Federal Deposit Insurance Corporation.  We offer checking accounts, savings and time deposits, and commercial, real estate, personal, home improvement, automobile and other installment and term loans.  We also offer travelers checks, safe deposit, collection, notary public, discount brokerage service, and other customary bank services (other than trust services).  The three principal types of loans that we make are commercial and industrial loans, real estate loans and loans to individuals for household, family, and other consumer costs.  Our banking offices include drive-up facilities.  There are automated teller machines located at many branch locations and throughout our market area.  There are also many automated teller machines contracted for surcharge-free use by our customers throughout our trade area.  Recent Developments On January 26, 2007,we entered into an Agreement and Plan of Reorganization (the Agreement) with United Bankshares, Inc. (United). The Agreement sets forth the terms and conditions of Uniteds acquisition of the Corporation through the merger of the Corporation with and into a subsidiary of United (the Merger). Under the terms of the Agreement, United will issue to the shareholders of the Corporation, for each share of the Corporations common stock that they own, 0.93 shares of Uniteds common stock or $34.00 in cash, subject to the limitation that no less than 50% and no more than 65% of the total consideration will be in the form of stock. Shareholders of the Corporation may elect to receive Uniteds common stock, cash, or a combination of common stock and cash for their shares of the Corporations common stock, subject to pro ration in the event that the aggregate stock elections are less than the 50% minimum or exceed the 65% maximum. In addition, at the effective time of the Merger, each outstanding option to purchase shares of the Corporations common stock under any of the Corporations stock plans shall vest pursuant to its terms and shall be converted into an option to acquire the number of shares of Uniteds common stock equal to the number of shares of the Corporations common stock underlying the option multiplied by 0.93. The exercise price of each option will be adjusted accordingly.  3       The Agreement also provides for the merger of The Marathon Bank, Rockingham Heritage Bank and Premier Bank with and into United Bank, a wholly-owned subsidiary of United, immediately after the effective time of the Merger. Consummation of the Merger is subject to a number of customary conditions including the approval of the Merger by the Corporations shareholders and the receipt of all required regulatory approvals. The Merger is expected to be completed in the second quarter or early third quarter of 2007. The Agreement provides that, if either party terminates the Agreement because the Corporations shareholders did not approve it and at that time there is a current proposal for a business combination involving the Corporation or any of its subsidiaries from another party, or because the Corporations board of directors failed to recommend that shareholders approve and adopt the Agreement, the Corporation will pay United a break-up fee of $8 million.  Filings with the SEC  The Corporation files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports under the Securities Exchange Act of 1934 with the Securities and Exchange Commission.  These reports are posted and are available at no cost on the Corporations website, www.premiercommunitybankshares.com, as soon as reasonably practicable after the Corporation files such documents with the SEC.  The Corporations filings are also available through the SECs website at www.sec.gov.  Principal Market Areas  Our business in the area served by Marathon Bank (the counties of Frederick, Clarke, Shenandoah, Warren and the city of Winchester and town of Front Royal, Virginia), Rockingham Heritage Bank (Rockingham and Augusta counties, and the cities of Harrisonburg, Waynesboro, Staunton, and Charlottesville, Virginia) and Premier Bank (Morgan, Jefferson, and Berkeley counties, and the cities of Martinsburg and Shepherdstown, West Virginia) is highly competitive with respect to both loans and deposits.  In our primary service area, there are numerous commercial banks (including large, multi-state banks with multiple offices) offering services ranging from deposits and real estate loans to full service banking.  Certain of the commercial banks in this service area have higher lending limits than us and may provide various services for their customers that we do not offer.  The following represents our deposit market share data according to the Federal Deposit Insurance Corporation as of June 30, 2006:  City/County
        Deposit Market Share  VirginiaAlbemarle County
        11.7%Augusta County
        11.6%City of Charlottesville
        .4%Frederick County
        16.7%Greene County
        13.4%City of Harrisonburg
        13.7%Rockingham County
        6.3%Shenandoah County
        11.4%Warren County
        14.6%City of Waynesboro
        8.0%City of Winchester
        9.5%West VirginiaJefferson County
        5.0%  Credit Policies  The principal risk associated with each of the categories of loans in our portfolio is the creditworthiness of our borrowers.  Within each category, such risk is increased or decreased, depending on prevailing economic conditions.   4       In an effort to manage the risk, our policy gives loan amount approval limits to individual loan officers based on their position and experience.  The risk associated with real estate mortgage loans and consumer loans varies, based on employment levels, consumer confidence, fluctuations in the value of real estate and other conditions that affect the ability of borrowers to repay indebtedness.  The risk associated with real estate construction loans varies, based on the supply and demand for the type of real estate under construction.  We have written policies and procedures to help manage credit risk.   Our loan review process includes formulation of portfolio management strategy, guidelines for underwriting standards and risk assessment, procedures for ongoing identification and management of credit deterioration, and regular portfolio reviews to establish loss exposure and to ascertain compliance with our policies.  Marathon Bank uses an in-house management loan committee and a directors loan committee to approve loans.  The in-house loan committee, which consists of the president or senior vice president and two vice presidents, meets weekly to review loans which exceed individual loan authorities for loans that are intended to be held in the portfolio.  This committee approves unsecured loans up to $400,000, secured loans with non-negotiable collateral up to $500,000 and secured loans with negotiable collateral up to $1,000,000.  The directors loan committee, which is made up of six directors, approves loans up to the legal lending limit.   The directors loan committee also reviews lending policies proposed by management.  Rockingham Heritage Banks loan approval structure is similar to Marathon Banks.  Rockingham Heritage Banks officer loan committee, which consists of the president or chief lending officer and two additional senior lending officers, approves loans in excess of individual loan officers lending authorities.  These individual authorities vary up to $500,000.  Loans in excess of $1,000,000 and up to the banks legal lending limit are approved by a directors loan committee, which consists of the president and three outside directors.  The directors loan committee also reviews loan policies and procedures, delinquent loans and other potential problem loans.  Premier Bank uses an in-house management loan committee, an executive committee, and its bank board of directors to approve loans.  The in-house loan committee, which consists of the president or executive vice president and two vice presidents, meets weekly to review loans that exceed individual loan authorities for loans that are intended to be held in the portfolio.  This committee approves unsecured loans up to $400,000, secured loans with non-negotiable collateral up to $500,000 and secured loans with negotiable collateral up to $1,000,000.  The executive committee, which is made up of four directors, approves unsecured loans up to $500,000 and secured loans up to $750,000.   The full board of directors approves loans up to the legal lending limit and reviews lending policies proposed by management.  In the experience of the subsidiary banks, residential loan originations come primarily from walk-in customers, real estate brokers and builders.  Commercial real estate loan originations are obtained through broker referrals, direct solicitation of developers and continued business from customers.  All completed loan applications are reviewed by our salaried loan officers.  As part of the application process, information is obtained concerning the income, financial condition, employment and credit history of the applicant.  If commercial real estate is involved, information is also obtained concerning cash flow after debt service.  Loan quality is analyzed based on each subsidiary banks experience and guidelines with respect to credit underwriting, as well as the guidelines issued by the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association and other purchasers of loans,
depending on the type of loan involved.  The non-conforming one-to-four-family adjustable-rate mortgage loans that
 we originate, however, are not readily salable in the secondary market because they do not meet all of the secondary marketing guidelines. Real estate is appraised by independent fee appraisers who have been pre-approved by the bank and/or board of directors.  In the normal course of business, we make various commitments that are disclosed but not reflected in our annual financial statements, including commitments to extend credit.  At December 31, 2006, commitments to extend credit, standby letters of credit and unfunded commitments under lines of credit totaled $211.9 million.    5       Commercial Real Estate Lending  Commercial real estate loans are secured by various types of commercial real estate in our market area, including multi-family residential buildings, commercial buildings and offices, small shopping centers and churches.  At December 31, 2006, commercial real estate loans aggregated $184.1 million or 24.4% of our gross loans.  In our underwriting of commercial real estate, we may lend up to 100% of the secured propertys appraised value, although our loan to original appraised value ratio on such properties is 80% or less in most cases.  Commercial real estate lending entails significant additional risk, compared with residential mortgage lending.  Commercial real estate loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers.  Additionally, the payment experience on loans secured by income producing properties is typically dependent on the successful operation of a business or a real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or in the economy generally.  Our commercial real estate loan underwriting criteria require an examination of debt service coverage ratios, the borrowers creditworthiness and
prior credit history and reputation, and we generally require personal guarantees or endorsements of borrowers.  We also carefully consider the location of the security property.  One-to-Four-Family Residential Real Estate Lending  We make loans secured by one-to-four-family residences, substantially all of which are located in our market area.  We evaluate both the borrowers ability to make principal and interest payments and the value of the property that will secure the loan. We make loans in amounts of up to 100% of the appraised value of the underlying real estate.  Loans are made with a loan to value up to 95% for conventional mortgage loans and up to 100% for loans guaranteed by either the Federal Housing Authority or the Veterans Administration.  For conventional loans in excess of 80% loan to value, private mortgage insurance is secured insuring the mortgage loans to 75% loan to value.  Generally if the loans are not made to credit standards of FHLMC, additional fees and rate are charged.  Although, due to competitive market pressures, we do originate long-term, fixed-rate mortgage loans, we currently underwrite and document all such loans to permit their sale in the secondary mortgage market. Certain loans that may not qualify for sale into the secondary market are structured as balloon notes payable in full within a five-year period and are held in our portfolio.  At December 31, 2006, loans secured by one-to-four family residences aggregated $172.9 million or 22.9% of our gross loans.  All one-to-four-family real estate mortgage loans being originated by us contain a due-on-sale clause providing that we may declare the unpaid principal balance due and payable upon the sale of the mortgage property.  It is our policy to enforce these due-on-sale clauses concerning fixed-rate loans.  We require, in connection with the origination of residential real estate loans, title opinions or title insurance and fire and casualty insurance coverage, as well as flood insurance where appropriate, to protect our interest.  The cost of this insurance coverage is paid by the borrower.  Premier Bank makes adjustable rate mortgages, in addition to fixed rate mortgage loans.  One-to-four-family residential adjustable-rate mortgage loans have interest rates that adjust every one or three years, generally in accordance with the rates on one-year and three-year U.S. Treasury bills.  These loans generally limit interest rate increases for each rate adjustment period and have an established ceiling rate at the time the loans are made.  To compete with other lenders in our market area, we may make one-year loans at interest rates that, for the first year, are below the index rate that would otherwise apply to these loans.  There are unquantifiable risks resulting from potential increased costs to the borrower as a result of re-pricing.  It is possible, therefore, that, during periods of rising interest rates, that the risk of defaults on these loans may increase due to the upward adjustment of
interest costs to borrowers.  Marathon Bank and Rockingham Heritage Bank do not make adjustable rate mortgages.  Construction Lending  We make local construction loans, both residential and commercial, and land development loans.  At December 31, 2006, construction and land development loans outstanding were $202.3 million, or 26.8%, of gross loans.  All of these loans are concentrated in our local market area.  The average life of a construction loan is approximately nine  6       months. While some loan rates are fixed, many re-price monthly to meet the market, based on the prime rate.  Because the interest charged on these loans floats with the market, they help us in managing our interest rate risk.  Construction lending entails significant additional risks, compared with residential mortgage lending.  Construction loans often involve larger loan balances concentrated with single borrowers or groups of related borrowers.  Construction loans involve additional risks attributable to the fact that loan funds are advanced upon the security of the home or land under construction, which is of uncertain value prior to the completion of construction.  Thus, it is more difficult to evaluate accurately the total loan funds required to complete a project and related loan-to-value ratios.  To minimize the risks associated with construction lending, we limit most of our loan amounts to 80.0% of
appraised value, in addition to our usual credit analysis of our borrowers.  We also obtain a first lien on the property as security for our construction loans and personal guarantees from the borrowers principal owners.  Consumer Lending  We offer various secured and unsecured consumer loans, including unsecured personal loans and lines of credit, automobile loans, deposit account loans, installment and demand loans, letters of credit, and home equity loans.  At December 31, 2006, we had consumer loans of $28.0 million or 3.7% of gross loans.  Such loans are generally made to customers with whom we had a pre-existing relationship.  We originate all of our consumer loans in our market area and intend to continue our consumer lending in this geographic area.  Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans, which are unsecured, such as lines of credit, or secured by rapidly depreciable assets such as automobiles.  In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation.  The remaining deficiency often does not warrant further substantial collection efforts against the borrower.  In addition, consumer loan collections are dependent on the borrowers continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.  Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans.  Such loans may also give rise to claims and defenses by a consumer loan borrower against an assignee of such loan such as us, and a borrower may be able to assert against such assignee claims and defenses which it has against the seller of the underlying collateral.  We add general provisions to our loan loss allowance at the time that the loans are originated.  Consumer loan delinquencies often increase over time as the loans age.  We have very few unsecured consumer loans.  The underwriting standards that we employ for consumer loans include a determination of the applicants payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan.  The stability of the applicants monthly income may be determined by verification of gross monthly income for primary employment, and additionally from any verifiable secondary income.  Although creditworthiness of the applicant is of primary consideration, the underwriting process also includes an analysis of the value of the security in relation to the proposed loan amount.  Commercial Loans  Commercial business loans generally have a higher degree of risk than residential mortgage loans, but have commensurately higher yields.  To manage these risks, we generally secure appropriate collateral and monitor the financial condition of our business borrowers.  Residential mortgage loans generally are made on the basis of the borrowers ability to make repayment from his employment and other income and are secured by real estate whose value tends to be easily ascertainable.  In contrast, commercial business loans typically are made on the basis of the borrowers ability to make repayment from cash flow from its business and are secured by business assets, such as commercial real estate, accounts receivable, equipment and inventory.  As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself.
Further, the collateral for commercial business loans may depreciate over time and cannot be appraised with as much precision as residential real estate.  Our standard operating procedure includes a credit review and monitoring
process to review the cash flow of commercial borrowers.  At December 31, 2006, commercial loans totaled $107.1 million, or 14.2% of gross loans.  7       Employees  As of December 31, 2006, we had 317 total employees, 266 of which were full-time employees. None of our employees are covered by any collective bargaining agreement, and relations with employees are considered good.  Supervision and Regulation  General.  As a bank holding company, the Corporation is subject to regulation under the Bank Holding Company Act of 1956, as amended (the BHCA), and the examination and reporting requirements of the Board of Governors of the Federal Reserve System (the Federal Reserve Board).  Under the BHCA, a bank holding company may not directly or indirectly acquire ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank or merge or consolidate with another bank holding company without the prior approval of the Federal Reserve Board.  The BHCA also generally limits the activities of a bank holding company to that of banking, managing or controlling banks, or any other activity that is determined to be so closely related to banking or to managing or controlling banks that an exception is allowed for those activities.  As state-chartered banks, Marathon Bank and Rockingham Heritage Bank are subject to regulation, supervision and examination by the Virginia State Corporation Commissions Bureau of Financial Institutions.  They also are subject to regulation, supervision and examination by the Federal Reserve Board.  State and federal law also governs the activities in which Marathon Bank, Rockingham Heritage Bank, and Premier Bank engage, the investments that they make and the aggregate amount of loans that may be granted to one borrower.  Various consumer and compliance laws and regulations also affect the operations of each of Marathon Bank, Rockingham Heritage Bank, and Premier Bank.  Premier Bank is also a state-chartered bank, but it is not a member of the Federal Reserve.  As a result, Premier Bank is subject to regulation, supervision and examination by West Virginias Division of Banking and the Federal
Deposit Insurance Corporation.  The earnings of the Corporations subsidiaries, and therefore the earnings of the Corporation, are affected by general economic conditions, management policies, changes in state and federal legislation and actions of various regulatory authorities, including those referred to above.  The following description summarizes the significant federal and state laws to which the Corporation and Marathon Bank, Rockingham Heritage Bank, and Premier Bank are subject.  To the extent that statutory or regulatory provisions or proposals are described, the description is qualified in its entirety by reference to the particular statutory or regulatory provisions or proposals.  Payment of Dividends.  The Corporation is a legal entity separate and distinct from its banking and other subsidiaries.  The subsidiary banks are subject to laws and regulations that limit the amount of dividends that they can pay to the Corporation.  In addition, the Corporation and its subsidiary banks are subject to various regulatory restrictions relating to the payment of dividends, including requirements to maintain capital at or above regulatory minimums.  Banking regulators have indicated that banking organizations should generally pay dividends only if the organizations net income available to common shareholders over the past three years has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the organizations capital needs, asset quality and overall financial
condition.  The Corporation does not expect that any of these laws, regulations or policies will materially affect the ability of the subsidiary banks to pay dividends.  Insurance of Accounts, Assessments and Regulation by the FDIC.The deposits of Marathon Bank, Rockingham Heritage Bank, and Premier Bank are insured by the Federal Deposit Insurance Corporation (the FDIC) up to the limits set forth under applicable law.  These deposits are also subject to the deposit insurance assessments of the Bank Insurance Fund (BIF) of the FDIC.  Our banks pay insurance premiums on deposits in accordance with a deposit premium assessment system in accordance with the recently enacted Federal Deposit Insurance Reform Act of 2005 (FDIRA), which required that the FDIC revise its current risk-based deposit premium system by November 2006. On July 11, 2006, the FDIC issued a notice of proposed rulemaking with respect to the changes required by the Federal Deposit Insurance Reform Act. This proposed rulemaking would impose deposit insurance premium assessments based upon perceived risks to the Deposit Insurance Fund, by evaluating an institutions CAMELS (Capital, Assets, Management, Earnings, Liquidity and Sensitivity to market risk) ratios and other financial ratios and then determining insurance premiums based upon the likelihood an institution could be downgraded to a CAMELS 3 or worse in the succeeding  8       year. As a result, institutions deemed to pose less risk would pay lower premiums than those institutions deemed to pose more risk, which would pay more. On November 2, 2006, the FDIC adopted final regulations implementing FDIRA. Under the new risk-based assessments, most financial institutions will pay an assessment of between $0.05 and $0.07 for every $100 of domestic deposits annually beginning in 2007.  The FDIC is authorized to prohibit any BIF-insured institution from engaging in any activity that the FDIC determines by regulation or order to pose a serious threat to the respective insurance fund.  Also, the FDIC may initiate enforcement actions against banks, after first giving the institutions primary regulatory authority an opportunity to take such action.  The FDIC may terminate the deposit insurance of any depository institution if it determines, after a hearing, that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed in writing by the FDIC.  It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital.  If deposit insurance is
terminated, the deposits at the institution at the time of termination, less subsequent withdrawals, shall continue to be insured for a period from six months to two years, as determined by the FDIC.  Management is not aware of any existing circumstances that could result in termination of any deposit insurance of the subsidiary banks.  Capital.  The Federal Reserve Board has issued risk-based and leverage capital guidelines applicable to banking organizations that it supervises.  Under the risk-based capital requirements, the Corporation and Marathon Bank and Rockingham Heritage Bank are each generally required to maintain a minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) of 8%.  At least half of the total capital must be composed of common equity, retained earnings and qualifying perpetual preferred stock, less certain intangibles (Tier 1 capital).  The remainder may consist of certain subordinated debt, certain hybrid capital instruments and other qualifying preferred stock and a limited amount of the loan loss allowance (Tier 2 capital, which, together with Tier 1 capital, composes total capital).  In addition, each of the federal banking regulatory agencies has established minimum leverage capital requirements for banking organizations.  Under these requirements, banking organizations must maintain a minimum ratio of Tier 1 capital to adjusted average quarterly assets equal to 3% to 5%, subject to federal bank regulatory evaluation of an organizations overall safety and soundness.  The risk-based capital standards of the Federal Reserve Board explicitly identify concentrations of credit risk and the risk arising from non-traditional activities, as well as an institutions ability to manage these risks, as important factors to be taken into account by the agency in assessing an institutions overall capital adequacy.  The capital guidelines also provide that an institutions exposure to a decline in the economic value of its capital due to changes in interest rates be considered by the agency as a factor in evaluating a banking organizations capital adequacy.  Premier Bank is subject to similar guidelines that the FDIC has issued.  Other Safety and Soundness Regulations.  There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance funds in the event that the depository institution is insolvent or is in danger of becoming insolvent.  For example, under the requirements of the Federal Reserve Board with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so otherwise.  In addition, the cross-guarantee provisions of federal law require insured depository institutions
under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the FDIC as a result of the insolvency of commonly controlled insured depository institutions or for any assistance provided by the FDIC to commonly controlled insured depository institutions in danger of failure.  The FDIC may decline to enforce the cross-guarantee provision if it determines that a waiver is in the best interests of the deposit insurance funds.  The FDICs claim for reimbursement under the cross guarantee provisions is superior to claims of shareholders of the insured depository institution or its holding company but is subordinate to claims of depositors, secured creditors and nonaffiliated holders of subordinated debt of the commonly controlled insured depository institutions.  The federal banking agencies also have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions.  The extent of these powers depends upon whether the  9       institution in question is well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized or critically undercapitalized, as defined by the law.  As of December 31, 2006, each of the Corporation and its subsidiary banks were classified as well capitalized.  State banking regulators also have broad enforcement powers over Marathon Bank, Rockingham Heritage Bank, and Premier Bank, including the power to impose fines and other civil and criminal penalties, and to appoint a conservator.  Community Reinvestment.The requirements of the Community Reinvestment Act are also applicable to each bank.  The act imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those institutions.  A financial institutions efforts in meeting community needs currently are evaluated as part of the examination process pursuant to twelve assessment factors.  These factors are also considered in evaluating mergers, acquisitions and applications to open a branch or facility.  Gramm-Leach-Bliley Act of 1999.  The Gramm-Leach-Bliley Act of 1999 (the Act) was signed into law on November 12, 1999.  The Act covers a broad range of issues, including a repeal of most of the restrictions on affiliations among depository institutions, securities firms and insurance companies.  Most of the Acts provisions require the federal bank regulatory agencies and other regulatory bodies to adopt regulations to implement the Act, and for that reason an assessment of the full impact on the Corporation of the Act must await completion of that regulatory process.  The Act repeals sections 20 and 32 of the Glass-Stegall Act, thus permitting unrestricted affiliations between banks and securities firms.  The Act also permits bank holding companies to elect to become financial holding companies.  A financial holding company may engage in or acquire companies that engage in a broad range of financial services, including securities activities such as underwriting, dealing, brokerage, investment and merchant banking and insurance underwriting, sales and brokerage activities.  In order to become a financial holding company, the bank holding company and all of its affiliated depository institutions must be well-capitalized, well-managed, and have at least a satisfactory Community Reinvestment Act rating.  The Act provides that the states continue to have the authority to regulate insurance activities, but prohibits the states in most instances from preventing or significantly interfering with the ability of a bank, directly or through an affiliate, to engage insurance sales, solicitations or cross-marketing activities.  Although the states generally must regulate bank insurance activities in a nondiscriminatory manner, the states may continue to adopt and enforce rules that specifically regulate bank insurance activities in certain areas identified in the Act.  The Act directs the federal bank regulatory agencies to adopt insurance consumer protection regulations that apply to sales practices, solicitations, advertising and disclosures.  The Act adopts a system of functional regulation under which the Federal Reserve Board is confirmed as the umbrella regulator for financial holding companies, but financial holding company affiliates are to be principally regulated by functional regulators such as the FDIC for state nonmember bank affiliates, the Securities and Exchange Commission for securities affiliates and state insurance regulators for insurance affiliates.  The Act repeals the broad exemption of banks from the definitions of broker and dealer for purposes of the Securities Exchange Act of 1934, as amended, but identifies a set of specific activities, including traditional bank trust and fiduciary activities, in which a bank may engage without being deemed a broker, and a set of activities in which a bank may engage without being deemed a dealer.  The Act also makes conforming changes in the
definitions of broker and dealer for purposes of the Investment Company Act of 1940, as amended, and the Investment Advisers Act of 1940, as amended.  The Act 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.  The Act provides that, except for certain limited exceptions, an 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.  An institution may not disclose to a non-affiliated third party, other than to a consumer reporting agency, customer account numbers or other similar account  10       identifiers for marketing purposes.  The Act also provides that the states may adopt customer privacy protections that are more strict than those contained in the Act.  The Act also makes a criminal offense, except in limited circumstances, obtaining or attempting to obtain customer information of a financial nature by fraudulent or deceptive means.  Item 1A. Risk Factors  An investment in our common stock involves significant risks.  You should carefully read and consider the factors listed below before you invest.  These risk factors may adversely affect our financial condition, including future earnings.  You should read this section together with the other information in this Annual Report on Form 10-K.  Our profitability depends significantly on economic conditions in our market area.  Our success depends to a large degree on the general economic conditions in the northern Virginia area.  The local economic conditions in this area have a significant impact on the loans that we make to our borrowers, the ability of our borrowers to repay these loans and the value of the collateral securing these loans.  A significant decline in general economic conditions caused by inflation, recession, unemployment or other factors beyond our control would impact these local economic conditions and could negatively affect our financial condition and performance.  In recent years, there has been a proliferation of technology and communications business in our market area.  The current recession in those industries has had a significant adverse impact on a number of those businesses.  While we do not have significant credit exposure to these businesses, the recession in these industries could have a negative impact on local economic conditions and real estate collateral values generally, which could negatively affect our profitability.  We have significant credit exposure in our commercial lending area, for loans secured by real estate and residential construction loans.  Although there are no real signs of a housing bubble in our market area, and we do not anticipate one, the decline of the real estate and housing markets in our area could negatively affect our financial condition and performance.  The inability to operate Premier Bank successfully may adversely affect our results of operations and financial condition.  Premier Bank opened as our third banking subsidiary in July 2005.  The business of the bank is subject to the risks inherent in the establishment of any new business enterprise.  As a result, we are unable to give any assurance as to the ultimate success of Premier Bank.  In addition, we do not expect Premier Bank to be profitable in the initial years of operation due to substantial start-up expenditures that a new bank generally incurs and the time that it will take to develop its deposit base and loan portfolio.  As a result, the expense involved in operating Premier Bank may adversely affect our results of operations and financial condition.  In addition, Premier Bank will encounter strong competition from commercial banks and other financial institutions that are well established in the banks market area.  Most competitors have substantially greater resources and lending limits than the bank will have and offer certain services, such as extensive branch networks and trust services, that the bank either does not expect to provide or will not provide initially.  Competition for deposit services will also be strong.  Our organizational structure of subsidiary banks that operate independently limits cost savings that would otherwise enhance our profitability.  Our subsidiary banks operate autonomously, with separate local identities, management teams and decision-making processes, and without strict operating control from the holding company.  Each bank has full responsibility for day-to-day operations, with minimal support from the holding company level.  While we believe that this structure is fundamentally important in building relationships with our customers, this structure does not emphasize a centralization of operating functions, such as accounting, marketing, human resources, loan review and regulatory compliance.  As a result, our banks may experience operating costs that, in the aggregate, are higher than the  11       operating costs of a bank holding company that has centralized operating functions.  These higher operating costs may limit the profitability that we could achieve with a less autonomous subsidiary structure.  A loss of our senior officers could impair our relationship with our customers and adversely affect our business.  Many community banks attract customers based on the personal relationships that the banks officers and customers establish with each other and the confidence that the customers have in the officers.  We depend on the performance of John K. Stephens, our Chairman and President and Chief Executive Officer of Rockingham Heritage Bank, and Donald L. Unger, our President and Chief Executive Officer.  Mr. Stephens and Mr. Unger each have over 37 years of experience in the banking industry and have numerous contacts in our market area.  We believe that their extent of experience and contacts provide us with an advantage over other community banks in our market, who have chief executive officers with less experience and fewer contacts.  The loss of the services of any of Mr. Stephens or Mr. Unger, or the failure of either to perform management functions in the manner anticipated by our board of directors, could have a material adverse effect on our business.  Our success will be dependent upon the boards ability to attract and retain quality personnel, including these individuals.  We have attempted to reduce our risk by carrying key man life insurance on these individuals and including a non-competition covenant in employment agreements with these individuals.  We may not be able to maintain and manage our growth, which may adversely affect our results of operations and financial condition.  During the last two years, we have experienced significant growth, and our business strategy calls for continued expansion.  Our ability to continue to grow depends, in part, upon our ability to open new branch offices, attract deposits to those locations, and identify loan and investment opportunities.  Our ability to manage growth successfully also will depend on whether we can maintain capital levels adequate to support our growth and maintain cost controls and asset quality.  If we are unable to sustain our growth, our earnings could be adversely affected.  If we grow too quickly, however, and are not able to control costs and maintain asset quality, rapid growth also could adversely affect our financial performance.  In addition to new branch offices, our growth may be enhanced through acquisitions of other financial institutions, but we may not be able successfully to identify and attract suitable acquisition candidates and complete acquisitions.  Our strategic plan includes the evaluation and acquisition of other financial institutions, such as our recent acquisition of Albemarle First Bank.  While we generally expect our revenues to increase over time from internal growth, we would also expect that growth through acquisitions would increase our revenues.  There can be no assurance, however, that we will be able to identify and attract suitable acquisition candidates successfully that will permit us to expand into new or existing markets.  We are unable to predict whether or when any prospective acquisition candidates will become available or the likelihood that any acquisition will be completed once negotiations have commenced.  We compete for acquisition and expansion opportunities with financial institutions that have substantially greater resources than we do.  The failure to acquire other institutions may adversely affect the expected growth in our revenues.  If we need additional capital in the future, we may not be able to obtain it on terms that are favorable and that may limit our growth.  Our business strategy calls for continued growth.  We anticipate that we will support this growth through additional deposits at new branch locations and investment opportunities.  It is possible that we may need to raise additional capital to support our future growth.  Our ability to raise capital through the sale of additional securities will depend primarily upon our financial condition and the condition of financial markets at that time.  We cannot make any assurance that additional capital would be available on terms satisfactory to us at all.  The failure to raise additional capital on terms that are favorable to us may force us to limit our growth strategy.  12       Risks Associated with the Merger  As a result of our agreement to merge with United Bankshares, Inc., we face the additional risks identified below.  We will be subject to business uncertainties and contractual restrictions while the Merger is pending.  Uncertainty about the effect of the Merger on employees and customers may have an adverse effect on us and potentially on United.  These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is consummated, and could cause customers and others that deal with us to seek to change existing banking or other relationships.  Employee retention may be particularly challenging during the pendency of the Merger, as employees may experience uncertainty about their future roles with United.  If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with United, Uniteds business following the Merger could be harmed. In addition, the Merger agreement restricts us from making certain acquisitions and taking other specified actions until the Merger occurs.  These restrictions may prevent us from pursuing
attractive business opportunities that may arise prior to the completion of the Merger.  The failure to obtain required approvals and satisfy closing conditions in a timely manner may delay completion of the Merger.  Completion of the Merger is conditioned upon the receipt of all governmental authorizations, consents, orders and approvals, including the required approvals from banking regulators.  We and United have not yet filed any of the required regulatory applications or notices necessary to complete the Merger with each of the applicable regulatory authorities.  Neither we nor United can be sure as to whether or when regulatory approvals will be obtained or that the regulatory approvals will be obtained without conditions.  Such conditions may delay completion of the Merger, exposing you to the risks and uncertainties described above for a longer period of time, or may be detrimental to us or United.  The merger agreement limits our ability to pursue alternatives to the Merger.  The merger agreement contains provisions that could adversely impact competing proposals to acquire us.  These provisions include the prohibition generally on our soliciting any acquisition proposal or offer for a competing transaction and the requirement that we pay a termination fee of $8 million in cash if the merger agreement is terminated in specified circumstances in connection with an alternative transaction.  In addition, even if our board of directors determines that a competing proposal to acquire us is superior, and thus fails to recommend that our shareholders approve the Merger, we will pay the termination fee of $8 million if the merger agreement is terminated.  United required us to agree to these provisions as a condition to Uniteds willingness to enter into the merger agreement. These provisions, however, might discourage a third party that might have an interest in acquiring us from considering or proposing that acquisition, even if that party were prepared to pay consideration with a higher value than the current proposed merger consideration.  Furthermore, the termination fee may result in a potential competing acquiror proposing to pay a lower per share price to acquire us than it might otherwise have proposed to pay.  Failure to complete the Merger could negatively impact our stock price and our future business and financial results.  Although we have agreed that our board of directors will, subject to fiduciary exceptions, recommend that its shareholders approve the merger agreement, there is no assurance that the merger agreement and the Merger will be approved, and there is no assurance that the other conditions to the completion of the Merger will be satisfied.  If the Merger is not completed, we will be subject to several risks, including the following:  
        We may be required to pay United a termination fee of $8 million in cash in the aggregate if the Merger agreement is terminated under certain circumstances; 
        The current market price of our common stock may reflect a market assumption that the Merger will occur, and a failure to complete the Merger could result in a negative perception by the stock market of us generally and a resulting decline in the market price of our common stock;   13     
        Certain costs relating to the Merger (such as legal, accounting and financial advisory fees) are payable by us whether or not the Merger is completed; 
        There may be substantial disruption to our business and a distraction of its management and employees from day-to-day operations, because matters related to the Merger (including integration planning) may require substantial commitments of time and resources, which could otherwise have been devoted to other opportunities that could have been beneficial to us; 
        Our business could be adversely affected if it is unable to retain key employees or attract qualified replacements; and 
        We would continue to face the risks that we currently face as an independent company, as further described elsewhere in this Form 10-K.  In addition, we would not realize any of the expected benefits of having completed the Merger.  If the Merger is not completed, these risks may materialize and materially adversely affect our business, financial results, financial condition and stock price.  Item1B. UnresolvedStaff Comments  None.   14       Item 2. Properties  The following table provides certain information with respect to our properties:  Location
        Date Facility
Opened
        Ownership and
Leasing ArrangementsPremier Community Bankshares, Inc.:Corporate Headquarters
238 Prosperity Drive
Winchester, Virginia
        2006
        Lease expires in 2007, subject to option to renew for one additional five-year term.Marathon:Main Office
4095 Valley Pike
Winchester, Virginia
        1988
        Owned by Marathon.Front Royal Branch
300 Warren Avenue, Post Office Plaza
Front Royal, Virginia
        1993
        Lease expires in 2016, subject to Marathons option to renew for two additional five-year terms.Winchester Branch
1041 Berryville Avenue
Winchester, Virginia
        1995
        Lease expires in 2009.Sunnyside Branch
1447 North Frederick Pike
Winchester, Virginia
        1997
        Lease expires in 2011, subject to Marathons option to renew for one additional five-year term.Woodstock Branch
1014 South Main Street
Woodstock, Virginia
        1997
        Lease on real estate expires in 2007, subject to Marathons option to renew for three additional five-year terms.  Marathon owns the building.Old Town Branch
139 North Cameron Street
Winchester, Virginia
        2002
        Owned by Marathon.522 South Branch
199 Front Royal Pike
Winchester, Virginia
        2003
        Owned by Marathon.Front Royal Branch II
1729 Shenandoah Avenue
Front Royal, Virginia
        2003
        Owned by Marathon.Operations Center
175 Front Royal Pike
Winchester, Virginia
        2003
        Lease expires in 2013, subject to Marathons option to renew for four additional five-year terms.Human Resources Offices
4046-2 Valley Pike
Winchester, Virginia
        2004
        Lease is on a month to month basis.    15        Valley Avenue Branch
2252 Valley Avenue
Winchester, Virginia
        2005
        Lease expires 2020, subject to Marathons option to renew for three additional five-year terms.Route 50 West Branch
2051 Northwestern Pike
Winchester, Virginia
        2006
        Owned by Marathon.Strasburg Branch
120 Ox Bow Drive
Strasburg, Virginia
        2006
        Owned by Marathon.Rockingham Heritage:Main Office
110 University Boulevard
Harrisonburg, Virginia
        1991
        Owned by Rockingham.South Main Branch
1980 South Main Street
Harrisonburg, Virginia
        1996
        Owned by Rockingham.Elkton Branch
410 West Spotswood Trail
Elkton, Virginia
        1998
        Owned by Rockingham.Red Front Supermarket Branch
677 Chicago Avenue
Harrisonburg, Virginia
        1993
        Lease expires in 2007, with automatic renewal for one additional five-year term.Weyers Cave Branch
54 Franklin Street
Weyers Cave, Virginia
        2000
        Lease expires in 2010, subject to Rockinghams option to renew for three additional five-year terms.Waynesboro Branch
2556 Jefferson Highway
Waynesboro, Virginia
        2000
        Lease expires in 2009, subject to Rockinghams option to renew for three additional five-year terms.Staunton Branch
49 Lee-Jackson Highway
Staunton, Virginia
        2001
        Lease expires in 2011, subject to Rockinghams option to renew for three additional five-year terms.Bridgewater Branch
309 N. Main Street
Bridgewater, Virginia
        2004
        Owned by Rockingham.Operations Center
370 Neff Avenue
Harrisonburg, Virginia
        2004
        Four separate leased areas.  All are either currently month to month or will become month to month in May 2007.Broadway Branch
361 South Main Street
Broadway, Virginia
        2006
        Owned by Rockingham.   16        Main Office (formerly Albemarle)
1265 Seminole Trail
Charlottesville, Virginia
        2006
        Owned by Rockingham.Downtown Mall Office (formerly Albermarle)
100 Fifth Street, S.E.
Charlottesville, Virginia
        2006
        Lease expires in 2011.Ruckersville Office (formerly Albemarle)
8260 Seminole Trail
Ruckersville, Virginia
        2006
        Owned by Rockingham.Premier Bank:Operations Center
Suite 397-3
Mid-Atlantic Parkway
Martinsburg, West Virginia
        2003
        Lease is on a month to month basis.Shepherdstown Branch
7867 Martinsburg Pike
Shepherdstown, West Virginia
        2005
        Owned by Premier Bank.Martinsburg Branch
24 District Way
Martinsburg, West Virginia
        2006
        Owned by Premier Bank.Charles Town Branch (future growth)
71 Jefferson Crossing Way
Charles Town, West Virginia
        2006
        Lease expires in 2016.  The Corporation intends to renew the respective leases that expire in 2007, as disclosed above.  We believe that all of our properties are maintained in good operating condition and are suitable and adequate for our operational needs.  Item 3.  Legal Proceedings  In the course of normal operations, the Corporation and its subsidiaries are parties to various legal proceedings.  Based upon information currently available, and after consultations with legal counsel, management believes that such legal proceedings will not have a material adverse effect on the Corporations business, financial position, or results of operations.  Item 4.  Submission of Matters to a Vote of Security Holders  No matters were submitted to a vote of security holders of the Corporation during the fourth quarter of the fiscal year covered by this report, through a solicitation of proxies or otherwise.   17       PART II  Item 5.  Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities  Market Prices  The Corporations common stock is traded on the Nasdaq Capital Market (formerly known as the Nasdaq SmallCap Market) under the symbol PREM.  The following table sets forth for the periods indicated the high and low prices per share of the Corporations common stock as reported on the Nasdaq Capital Market, along with the quarterly cash dividends per share declared.  The per share prices do not include adjustments for markups, markdowns or commissions.  Sales Price
        Cash
DividendHigh
        Low
        Declared2006First Quarter
        $ 22.62
        $ 21.00
        $  --Second Quarter
        22.00
        20.56
        --Third Quarter
        21.25
        19.05
        --Fourth Quarter
        21.44
        20.11
        0.262005First Quarter
        $ 21.66
        $ 19.00
        $  --Second Quarter
        23.75
        18.94
        --Third Quarter
        21.15
        19.75
        --Fourth Quarter
        24.00
        19.01
        0.25  At December 31, 2006, the Corporation had approximately 3,253 shareholders of record.  Dividend Policy  Our future dividend policy is subject to the discretion of the board of directors and will depend upon a number of factors, including future consolidated earnings, financial condition, liquidity and capital requirements of both us and the subsidiary banks, applicable governmental regulations and policies and other factors deemed relevant by our board of directors.  Our ability to distribute cash dividends will depend primarily on the abilities of our subsidiary banks to pay dividends to us.  As state member banks, both Marathon Bank and Rockingham Heritage Bank are subject to certain restrictions imposed by the reserve and capital requirements of federal and Virginia banking statutes and regulations.  Premier Bank is subject to certain restrictions imposed by the reserve and capital requirements of the FDIC and West Virginia banking statutes and regulations.  Furthermore, neither we nor the banks may declare or pay a cash dividend on any of our capital stock if we are insolvent or if the payment of the dividend would render us insolvent or unable to pay our obligations as they become due in the ordinary course of business.  For additional information on these limitations, see Government Supervision and Regulation  Payment of Dividends in Item 1 above.  Stock Repurchases  The Corporation did not repurchase any shares of its common stock during the fourth quarter of 2006.    18       Stock Performance Graph  The following graph compares the cumulative total return to the shareholders of the Corporation for the last five fiscal years with the total return on the Nasdaq Composite Index and the SNL Southeast Bank Index, as reported by SNL Financial LC, assuming an investment of $100 in shares of Common Stock on December 31, 2001, and the reinvestment of dividends.       Period EndingIndex
        12/31/01
        12/31/02
        12/31/03
        12/31/04
        12/31/05
        12/31/06Premier Community Bankshares
        100.00
        122.20
        212.91
        249.44
        283.17
        253.63NASDAQ Composite
        100.00
        68.76
        103.67
        113.16
        115.57
        127.58SNL Southeast Bank Index
        100.00
        110.46
        138.72
        164.50
        168.39
        197.45       19       Item 6. Selected Financial Data  The following selected consolidated financial data is based upon the Corporations audited financial statements and related notes and should be read in conjunction with such financial statements and notes.  Year Ended2006
        2005
        2004
        2003
        2002(In Thousands Except Per Share Data)Income Statement DataInterest income
        $55,551
        $40,146
        $31,452
        $26,512
        $23,114Interest expense
        23,659
        13,290
        8,971
        8,293
        8,468Net interest income
        31,892
        26,856
        22,481
        18,219
        14,646Provision for loan losses
        661
        842
        1,020
        919
        1,100Net interest income after provision
        31,231
        26,014
        21,461
        17,300
        13,546Non-interest income
        5,371
        4,600
        4,439
        3,654
        2,440Non-interest expense
        24,918
        20,118
        16,573
        13,213
        9,527Income before income taxes
        11,684
        10,496
        9,327
        7,741
        6,459Income taxes
        3,839
        3,355
        2,984
        2,485
        2,095Net income
        7,845
        7,141
        6,343
        5,256
        4,364Per Share DataNet income-basic
        1.47
        1.45
        1.30
        1.14
        0.96Net income-diluted
        1.44
        1.41
        1.26
        1.11
        0.94Cash dividends declared
        0.26
        0.25
        0.21
        0.18
        0.15Book value per share
        12.58
        10.15
        9.00
        7.96
        6.55Balance Sheet DataAssets
        $900,711
        $674,396
        $576,150
        $463,202
        $393,755Loans, net
        747,444
        573,405
        486,865
        382,459
        312,554Securities
        40,094
        30,379
        27,314
        24,051
        25,296Deposits
        728,274
        562,880
        483,933
        397,345
        345,062Shareholders equity
        71,713
        50,289
        44,262
        38,877
        29,824Shares outstanding (actual)
        5,699,842
        4,955,648
        4,919,548
        4,881,084
        4,555,484Performance RatiosReturn on average assets
        0.96%
        1.13%
        1.20%
        1.22%
        1.27%Return on average equity
        11.94%
        14.97%
        15.20%
        15.86%
        15.63%Equity to assets
        7.96%
        7.46%
        7.69%
        7.68%
        8.13%Net interest margin
        4.43%
        4.62%
        4.65%
        4.63%
        4.67%Efficiency ratio
        68.26%
        63.50%
        61.04%
        59.90%
        55.30%Allowance for loan losses to loans
        0.94%
        0.97%
        1.02%
        1.06%
        1.06%Asset Quality RatiosNet charge-offs to average loans outstanding
        0.01%
        0.04%
        0.03%
        0.04%
        0.08%Non-performing loans to period-end loans
        0.27%
        0.10%
        0.23%
        0.13%
        0.20%Non-performing assets to total assets
        0.23%
        0.13%
        0.22%
        0.12%
        0.18%Allowance for loan losses to non-performing loans
        347.46%
        910.58%
        447.05%
        825.75%
        529.30%Capital and Liquidity RatiosRisk-based:Tier 1 capital
        9.50%
        11.71%
        11.85%
        13.68%
        11.51%Total capital
        13.27%
        13.54%
        12.89%
        14.80%
        12.56%Average loans to average deposits
        104.04%
        101.28%
        97.98%
        93.29%
        92.00%Average shares outstanding:Basic
        5,322,973
        4,939,847
        4,893,442
        4,602,466
        4,537,185Diluted
        5,452,692
        5,076,610
        5,048,797
        4,745,089
        4,621,088   20       Item 7.  Managements Discussion and Analysis of Financial Condition and Results of Operation  General  The following commentary discusses major components of our business and presents an overview of our consolidated financial position at December 31, 2006, and 2005, as well as results of operations for the periods ended December 31, 2006, 2005, and 2004. This discussion should be reviewed in conjunction with the consolidated financial statements and accompanying notes and other statistical information presented elsewhere in this Annual Report on Form 10-K.  Our subsidiary banks operate autonomously, with separate local identities, management teams and decision-making processes, and without strict operating control from the holding company.  The following commentary is being presented on a consolidated basis.  We are not aware of any current recommendations by any regulatory authorities that, if they were implemented, would have a material effect on our liquidity, capital resources or results of operations.  Overview  The Corporation is a Virginia multi-bank holding company headquartered in Winchester, Virginia.  The Corporation owns Marathon Bank, Rockingham Heritage Bank and its subsidiary, RHB Services, Inc., and Premier Bank, Inc.  The Corporation and its subsidiaries are engaged in the business of offering banking services to the general public. The Corporation offers checking accounts, savings and time deposits, and commercial, real estate, personal, home improvement, automobile and other installment and term loans.  The Corporation also offers financial services, travelers checks, safe deposit boxes, collection, notary public and other customary bank services (with the exception of trust services) to its customers.  The three principal types of loans made by the Corporation are: (1) commercial and industrial loans; (2) real estate loans; and (3) loans to individuals for household, family and other consumer expenditures.  Net interest income is our primary source of revenue.  We define revenue as net interest income plus non-interest income.  As discussed further in the interest rate sensitivity section, we manage our balance sheet and interest rate risk to both maximize and stabilize net interest income.  We do this by monitoring the spread between the interest rates we earn on interest earning assets such as loans, and the interest rates we pay on interest bearing liabilities such as deposit accounts.  We attempt to minimize our exposure to interest rate risk, but are unable to eliminate it.  In addition to management of interest rate risk, we analyze our loan portfolio for credit risk.  Risk of loan defaults and foreclosures are unavoidable in the banking industry, and we try to limit our exposure to this risk by carefully underwriting and monitoring our extension of credit.  In addition to net interest income, non-interest
income is an increasingly important source of income for our Corporation.  Non-interest income is derived chiefly from service charges on deposit accounts, (such as charges for non-sufficient funds and ATM fees,) as well as commissions and fees from bank services, such as mortgage originations and debit and credit card processing.  Caution About Forward Looking Statements  We make forward looking statements in this Annual Report on Form 10-K that are subject to risks and uncertainties.  These forward looking statements include statements regarding our profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals.  The words believes, expects, may, will, should, projects, contemplates, anticipates, forecasts, intends, or other similar words or terms are intended to identify forward looking statements.  These forward looking statements are subject to significant uncertainties because they are based upon or are affected by factors including, but not limited to:  
        the ability to successfully manage our growth or implement our growth strategies if we are unable to identify attractive markets, locations or opportunities to expand in the future;  21       
               the ability to obtain the required shareholder approval or the required regulatory approvals for the merger with United; 
        the ability to consummate the merger with United; 
        personnel and business risks associated with any potential uncertainty regarding the merger with United; 
        maintaining capital levels adequate to support our growth; 
        maintaining cost controls and asset qualities as we open or acquire new branches; 
        reliance on our management team, including our ability to attract and retain key personnel; 
        the successful management of interest rate risk; 
        successful completion of the merger with United; 
        changes in general economic and business conditions in our market area; 
        changes in interest rates and interest rate policies; 
        risks inherent in making loans such as repayment risks and fluctuating collateral values; 
        competition with other banks and financial institutions, and companies outside of the banking industry, including those companies that have substantially greater access to capital and other resources; 
        demand, development and acceptance of new products and services; 
        problems with technology utilized by us; 
        changing trends in customer profiles and behavior; 
        changes in banking and other laws and regulations applicable to us; and 
        other factors discussed in Item 1A,  Risk Factors, above.  Because of these uncertainties, our actual future results may be materially different from the results indicated by these forward looking statements.  In addition, our past results of operations do not necessarily indicate our future results.  Financial Overview  At December 31, 2006 we had total assets of $900.7 million, net loans of $747.4 million, deposits of $728.3 million and shareholders equity of $71.7 million.  The increase in assets was 33.6% over the amount at December 31, 2005, while net loans and deposits increased 30.4% and 29.4%, respectively, for the same period.  A slight majority of this growth was attributable to the acquisition of Albemarle First Bank as discussed above.  Loans acquired from Albemarle at December 31, 2006 totaled $97.1 million and represented 17.0% of the loan growth from 2005 compared to 2006.  Deposits assumed totaled $101.6 million at December 31, 2006 and represented 18.1% of the deposit growth from 2005 to 2006.  Our earnings per share, on a fully diluted basis, for the year ended December 31, 2006 was $1.44, which represented an increase of $0.03, or 2.1%, over earnings per share, on a fully diluted basis, of $1.41 for the same period 2005.  The increase is partially attributable to a 20.1% increase in net interest income over the same periods, due to strong growth in our earning assets.  The increase is also attributable to a 16.8% increase in non-interest income, as service charge income and other fees provided recurring sources of income.  These increases are offset by additional average shares outstanding which were issued in conjunction with the acquisition of Albemarle.  Average shares year over year increased from 4,939,847 at December 31, 2006 to 5,322,973 at December 31, 2006.  Our return on average equity was 11.94% for the year ended December 31, 2006 compared to 14.97% for the year ended December 31, 2005.  This decline is mainly attributable to the increase in outstanding shares issued as part of the Albemarle transaction and the related dilution to earnings from this transaction.   Additionally, a number of new branches have opened during the latter part of 2005 and 2006, and related expenses are now being reflected in our results.  We believe these branches will provide for our future growth; however, new branches are typically a drag on earnings until enough deposit activity can be generated to fund earning assets, in addition to non-interest income transactions.    As part of this increased branching activity, the de novo expansion in West Virginia and the acquisition of Albemarle, our efficiency ratio has increased in the past year, rising from 63.50% for the year ended
December 31, 2005 to 66.51 for the year ended December 31, 2006.  The efficiency ratio is a non-GAAP (Generally Accepted Accounting Principles) financial measurement which we believe provides investors with important information regarding our operational efficiency.  We compute our  22       efficiency ratio by dividing non-interest expense by the sum of the net interest income on a tax-equivalent basis and non-interest income, net of securities gains or losses.  Critical Accounting Policies  General  The financial condition and results of operations presented in the consolidated financial statements, the accompanying notes to the consolidated financial statements and this section are, to a large degree, dependent upon our accounting policies.  The selection and application of these accounting policies involve judgments, estimates, and uncertainties that are susceptible to change.  We discuss below the accounting policy that we believe is the most important to the portrayal and understanding of our financial condition and results of operations.  This critical accounting policy requires our most difficult, subjective and complex judgments about matters that are inherently uncertain.  In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood.  Allowance for Loan Losses  The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio.  The allowance is based on two basic principles of accounting:  
        SFAS 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimatable and 
        SFAS 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.  Our allowance for loan losses is determined by evaluating our loan portfolio on at least a quarterly basis.   Particular attention is paid to individual loan performance, collateral values, borrower financial conditionand overall economicconditions.  The evaluation includes a close review of the internal watch list and other non-performing loans.  Management uses three steps in calculating the balance of the allowance.  The first step is the specific classification which examines problem loans and applies a weight factor to each category.  The weight factor is based upon historical data and the loans within each category are reviewed on a monthly basis to determine changes in their status.  The second step applies a predetermined rate against total loans with unspecified reserves.  Again, this rate is based upon experience and can change over time.  The third step is
an unallocated allowance which is determined by economic events and conditions that may have a real, but as yet undetermined, impact upon the portfolio.  Each of these steps is based on data that can be subjective and the actual losses may be greater or less than the amount of the allowance.  However, management feels that the allowance represents a reasonable assessment of the risk imbedded in the portfolio.  Premier Bank, due to its de novo nature, has begun to build its allowance for loan losses by reserving 1% of gross outstanding loans.  Once Premier Bank has been open long enough to have historical information upon which to rely, the allowance for loan losses will be calculated the same way as the other subsidiary banks.  Financial Condition  Total Assets  The Corporations assets grew at a 33.6% pace, ending the year at $900.7 million.  Total loans at year-end 2006, were $754.6 million of which $612.4 million were loans secured by real estate.  The remaining loans consisted of $107.1 million in commercial loans, $28.0 million in consumer installment loans and $7.1 million in all other loans.  Net loans for 2006, were $747.4 million, an increase of $174.0 million or 30.3% from the December 31, 2005 balance of $573.4 million.  The loan to deposit ratio was 103.6% at December 31, 2006 and 102.9% at December  23       31, 2005.  Steady loan demand in an expanding market and the loans acquired through the purchase of Albemarle generated the loan growth experienced for 2006.  The investment portfolio increased 32.0% to $40.1 million at year-end 2006 compared to $30.4 million at December 31, 2005.  Federal funds sold increased $6.1 million to $25.4 million at December 31, 2006 compared to $19.3 million at December 31, 2005.  Total interest earning assets increased $192.3 million or 30.6% from December 31, 2005 to December 31, 2006.  This increase was primarily the result of the increase in outstanding loan balances.  Liabilities  Total deposits increased to $728.3 million at December 31, 2006, from $562.9 million at December 31, 2005, which is an increase of $165.4 million or 29.4%.  Non-interest bearing deposits have increased slightly to $96.6 million as of December 31, 2006, an increase of $7.2 million or 8.1% from year-end 2005.  During this period interest bearing checking and savings accounts increased $47.9 million or 32.1% to $196.9 million.  The balance in time deposits was $434.7 million at the end of 2006 reflecting an increase of $110.3 million or 34.0% over 2005.  As of December 31, 2006 non-interest bearing deposits represented 13.3% of total deposits as compared to 15.9% at year-end 2005.  Low cost interest bearing deposits including savings and interest bearing checking were 27.0% of total deposits, a slight increase from 26.5% at December 31, 2005. Time deposits represented 59.7% of total deposits at December 31,
2006, as compared to 57.6% at year-end 2005.  The migration of deposits from non-interest bearing and low-cost interest bearing to the higher cost time deposits is a result of customers shifting their investments in lower yielding investments to higher yielding investments as the Federal Reserve has increased interest rates by 425 basis points since June 2004.  Advances from the Federal Home Loan Bank were $55.0 million at December 31, 2006, up from $30.0 million at December 31, 2005.  In addition, we had $39.3 million in outstanding trust preferred capital notes at December 31, 2006, an increase of 81.1% from the $21.7 million balance at year-end 2005.  This is a result of the issuance of $14.4 million in trust preferred capital notes during the second quarter of 2006 and the issuance of $10.3 million in trust preferred capital notes during the fourth quarter of 2006, offset by the repayment of Premier Statutory Trust I in the amount of $7.2 million in December 2006.  Shareholders Equity  Total equity increased $21.4 million or 42.6% during 2006.  This increase was due to net income of $7.8 million for the year plus exercised stock options of $450 thousand plus an unrealized gain on available for sale securities of $27 thousand and offset by dividends declared of $1.5 million.  Shareholders equity also increased by $14.5 million due to the acquisition of Albemarle.  The primary capital to assets ratio is 8.0% at December 31, 2006.  Net Income  Net income for the year ended 2006 was $7.8 million compared to $7.1 million for the same period in 2005. This is an increase of $704 thousand or 9.9% over the same period 2005.  Albemarle First contributed approximately  $1.0 million to net income from the period July 1, 2006 to December 31, 2006.  The provision for income tax expense increased $484 thousand from $3.4 million in 2005 to $3.8 million in 2006. The return on average assets was 0.96% for 2006 as compared to 1.13% for the same period in 2005.  For 2006, the return on average equity was 11.94%, down from 14.97% for 2005.  Net income for the year ended 2005 was $7.1 million compared to $6.3 million for the same period in 2004. This is an increase of $798 thousand or 12.6% over the same period 2004. The provision for income tax expense increased $371 thousand from $3.0 million in 2004 to $3.4 million in 2005. The return on average assets was 1.13% for 2005 as compared to 1.20% for the same period 2004.  For 2005, the return on average equity was 14.97%, down from 15.20% for 2004.    24       Net Interest Income  Net interest income is the difference between interest income and interest expense and represents our gross profit margin. The net interest margin represents net interest income divided by average earning assets. It reflects the average effective rate that we earned on our earning assets.  Net interest margin is affected by changes in both average interest rates and average volumes of interest earning assets and interest bearing liabilities.  Net interest income for the year ended December 31, 2006 was $31.9 million, $5.0 million or 18.7% higher than the year ended 2005. Albemarle First contributed $2.7 million to net interest income from July 1, 2006 to December 31, 2006. This increase is the result of the organic growth in interest earning assets and the acquisition of Albemarles earning assets in the amount of $192.3 million during 2006.  Our net interest margin compressed during the year from 4.62% for the year ended December 31, 2005 to 4.43% for the year ended December 31, 2006 mainly attributable to an inverted yield curve and higher cost of deposits.  As is the case with most financial institutions, the Corporation is liability sensitive for interest bearing balances re-pricing or maturing within one year.  Net interest income for the year ended December 31, 2005 was $26.9 million, $4.4 million or 19.5% higher than the year ended 2004. This increase is the result of the growth in interest earning assets of $90.9 million in 2005.  The combination of growth and rate changes had the effect of decreasing the net interest margin from 4.65% for the year ended December 31, 2004 to 4.62% for the year ended December 31, 2005.  As is the case with most financial institutions, the Corporation is liability sensitive for interest bearing balances re-pricing or maturing within one year.  Interest and dividend income totaled $55.6 million for the year ended December 31, 2006, $15.4 million or 38.4% higher than the year ended December 31, 2005.  Albemarle contributed $4.2 million to interest and dividend income from July 1, 2006 to December 31, 2006.  Interest and fees on loans of $52.7 million, which was an increase of 37.9% over the $38.2 million in interest and fees on loans recognized in 2005, comprised the vast majority of interest income. Interest income from investment securities was $1.8 million for 2006, a marginal increase from the 2005 year-end amount of $1.3 million. Interest income on federal funds increased $268 thousand or 46.4%.  Interest and dividend income totaled $40.1 million for the year ended December 31, 2005, $8.7 million or 27.6% higher than the year ended December 31, 2004.  Interest and fees on loans of $38.2 million, which was an increase of 27.3% over the $30.0 million in interest and fees on loans recognized in 2004, comprised the vast majority of interest income. Interest income from investment securities was $1.3 million for 2005, a marginal increase from the 2004 year-end amount of $1.2 million.  Interest income on federal funds increased $319 thousand or 122.2%.  Total interest expense for the year ended December 31, 2006 was $23.7 million, $10.4 million or 78.0% higher than the year ended 2005.  Interest paid on deposits for 2006 increased by $7.9 million or 70.5% over the same period in 2005.  Albemarle contributed $1.5 million to this total in conjunction with the deposits assumed as part of the acquisition.  The additional expense was generated by an overall increase of $158.2 million in total interest bearing deposits during the year, combined with the increase in interest rates previously discussed.  Interest on borrowings increased by $2.4 million or 119.5% compared to the same period last year. This increase was primarily the result of interest expense related to the additional trust preferred capital notes issued during the second and fourth quarters.  Total interest expense for the year ended December 31, 2005 was $13.3 million, $4.3 million or 48.1% higher than the year ended 2004.  Interest paid on deposits for 2005 increased by $3.4 million or 44.0% over the same period in 2004.  The additional expense was generated by an increase of $77.8 million in total interest bearing deposits during the year, combined with the increase in interest rates previously discussed.  Interest on borrowings increased by $893 thousand or 75.2% over the same period last year. This increase was primarily the result of interest expense related to the additional trust preferred capital notes issued during the third quarter of 2005.      25       The following table illustrates average balances of total earning assets and total interest-bearing liabilities for the periods indicated and shows the average distribution of assets, liabilities, shareholders equity, and the related income, expense, and corresponding weighted average yields and costs.  The average balances used for the purpose of this table and other statistical disclosures were calculated by using the daily average balances.  Average Yields and Costs(In thousands)
        December 31, 2006
        December 31, 2005
        December 31, 2004Average
        Earnings/
        Yield/
        Average
        Earnings/
        Yield/
        Average
        Earnings/
        Yield/Assets:
        Balances
        Expense
        Rate
        Balances
        Expense
        Rate
        Balances
        Expense
        RateInterest Earning AssetsLoans, net (1)
        $667,806
        $52,737
        7.90%
        $538,112
        $38,230
        7.10%
        $447,297
        $30,077
        6.72%Interest-bearing deposits
        3,152
        191
        6.06%
        1,854
        48
        2.59%
        273
        3
        1.10%Securities (2)
        35,783
        1,965
        5.49%
        27,888
        1,514
        5.43%
        25,156
        1,386
        5.51%Federal funds sold
        17,252
        848
        4.92%
        18,048
        580
        3.21%
        16,605
        261
        1.57%Total interest earning assets
        $723,993
        $55,741
        7.70%
        $585,902
        $40,372
        6.89%
        $489,331
        $31,727
        6.48%Non-Interest Earning AssetsCash and due from banks
        22,120
        
        
        21,058
        
        
        22,879Bank premises and equipment
        21,580
        
        
        14,430
        
        
        11,742Intangible assets
        7,883
        
        
        -
        
        
        -Other assets
        18,112
        
        
        12,487
        
        
        7,996Allowance for loan losses
        (6,157)
        
        
        (5,262)
        
        
        (4,676)Total assets
        $787,531
        
        
        $628,615
        
        
        $527,272Liabilities and Shareholders EquityLiabilitiesInterest-bearing deposits
        547,787
        19,110
        3.49%
        444,640
        11,209
        2.52%
        374,291
        7,783
        2.08%Borrowed funds
        79,523
        4,549
        5.72%
        46,200
        2,081
        4.50%
        37,211
        1,188
        3.19%Total interest-bearing liabilities
        $627,310
        $23,659
        3.77%
        $490,840
        $13,290
        2.71%
        $411,502
        $8,971
        2.18%Non-Interest Bearing Liabilities:Liabilities:Demand deposits
        $  94,081
        
        
        $  86,847
        
        
        $  71,362Other liabilities
        5,692
        
        
        3,234
        
        
        2,676Total liabilities
        727,083
        
        
        580,921
        
        
        485,540Shareholders equity
        60,448
        
        
        47,694
        
        
        41,732Total liabilities and shareholders equity
        $787,531
        
        
        $628,615
        
        
        $527,272Net Interest Earnings
        
        $   32,082
        
        
        $   27,082
        
        
        $   22,756Net Interest Yield on Earnings Assets
        
        
        4.43%
        
        
        4.62%
        
        
        4.65%(1) Non-accrual loans are included in the average balance of this category.(2) Amounts are shown on a tax equivalent basis.    26       The following table represents the variances of earning assets and interest-bearing liabilities for the periods indicated.  The total variance for each category is broken down between volume variance and rate variance which

provides an analysis of the impact that growth and changes in interest rates have upon the balance sheet structure.  (In thousands)
        December 31, 2006 vs. 2005
        December 31, 2005 vs. 2004Due to
        Change in
        
        Due to
        Change inInterest Earned On:
        Volume
        Rate
        Total
        Volume
        Rate
        TotalLoans
        $9,872
        $4,635
        $14,507
        $6,378
        $1,775
        $8,153Interest-bearing deposits
        49
        94
        143
        36
        9
        45Securities
        434
        17
        451
        148
        (20)
        128Federal funds sold
        (26)
        294
        268
        24
        295
        319Total interest earned on interestbearing assets
        $10,329
        $5,040
        $15,369
        $6,586
        $2,059
        $8,645Interest Paid On:Interest-bearing deposits
        $2,964
        $4,937
        $7,901
        $1,615
        $1,811
        $3,426Borrowed funds
        1,793
        675
        2,468
        330
        563
        893Total interest paid on interestbearing liabilities
        $4,757
        $5,612
        $10,369
        $1,945
        $2,374
        $4,319Net interest income
        $5,572
        ($572)
        $5,000
        $4,641
        ($315)
        $4,326   For discussion on our interest sensitivity, see Item 7A below.   27       The following table presents the amounts of our interest sensitive assets and liabilities that mature or re-price at December 31, 2006.  (In thousands)
        
        90 Days
        
        Over1-90 Days
        to 1 Year
        1-5 Years
        5 Years
        TotalEarning assetsFed funds sold and interest bearing deposits in other banks
        $5,379
        $0
        $20,000
        $1,535
        $26,914Securities
        1,145
        6,213
        12,336
        20,401
        40,094Loans
        293,215
        97,134
        345,900
        18,314
        754,563Total earning assets
        $299,739
        $103,347
        $378,236
        $40,250
        $821,571Interest  bearing liabilitiesInterest  bearing demand
        $79,762
        $0
        $0
        $0
        $79,762Savings
        16,537
        0
        18,968
        0
        35,505Money market savings
        81,684
        0
        0
        0
        81,684Certificates of deposit
        84,394
        239,016
        111,268
        0
        434,678Borrowed funds
        74,864
        10,000
        10,000
        0
        94,864Total interest - bearing liabilities
        $337,241
        $249,016
        $140,236
        $0
        $726,493Period GAP
        ($37,502)
        ($145,669)
        $238,000
        $40,250Cumulative GAP
        ($37,502)
        ($183,171)
        $54,829
        $95,079Cumulative GAP/Earning assets
        -4.56%
        -22.30%
        6.67%
        11.57%  Contractual principal repayments of loans do not necessarily reflect the actual term of our loan portfolio.  The average life of mortgage loans is substantially less than their contractual terms because of loan prepayments and enforcement of due-on-sale clauses, which gives us the right to declare a loan immediately due and payable in the event, among other things, the borrower sells the real property subject to the mortgage and the loan is not repaid.  In addition, certain borrowers increase their equity in the security property by making payments in excess of those required under the terms of the mortgage.  Non-Interest Income  Our non-interest income is derived chiefly from service charges on deposit accounts, including charges for non-sufficient funds and ATM fees, and commissions and fees from bank services, such as mortgage originations and debit and credit card processing.  Total other income for 2006 was $5.4 million, an increase of $771 thousand or 16.8% over the 2005 balance of $4.6 million. Overdraft and other fees generated by an increasingly active deposit base and an increasing number of customer accounts were the primary reason for this increase, along with the implementation of overdraft protection at Rockingham Heritage Bank, and an increase related to the acquisition of Albemarle.  Total other income for 2005 was $4.6 million, an increase of $161 thousand or 3.6% over the 2004 balance of $4.4 million. This was the result of service charges and overdraft fees generated by an increasingly active deposit base and an increasing number of customer accounts, as more customers utilized the bounce protection program introduced in 2003.    28       Non-Interest Expenses  Non-interest expense consists of salaries and employee benefits, occupancy expenses, furniture and equipment and other operating expenses. Total non-interest expenses for 2006 were $24.9 million, $4.8 million or 23.9% higher than the 2005 amount. Salary expenses increased $2.5 million or 21.7%, as the Corporation opened three new branches, acquired Albemarle, expanded its operations, and increased personnel to more efficiently handle the growth of the banks. Expenses related to a bank-owned life insurance policy totaled $425 thousand for the year ended December 31, 2006 as compared to $559 thousand for the year ended December 31, 2005. The Corporations efficiency ratio was 66.5% for 2006 compared to 63.5% for the same period in 2005.  Total non-interest expenses for 2005 were $20.1 million, $3.5 million or 21.4% higher than the 2004 amount.  Salary expenses increased $2.3 million or 25.9%, as the Corporation opened two new branches, expanded its operations, and increased personnel to more efficiently handle the growth of the banks.  Expenses related to a bank-owned life insurance policy, which was newly purchased in late 2004 and early 2005, totaled $559 thousand for the year ended December 31, 2005 as compared to $304 thousand for the year ended December 31, 2004.  The Corporations efficiency ratio was 63.50% for the year ended December 31, 2005 compared to 61.04% for the same period in 2004.  The following table reflects the calculation for the efficiency ratio for the twelve months ended December 31, 2006 and 2005:  December 31,2006
        2005Total Non-interest Expense
        $        24,918
        $      20,118$        24,918
        $      20,118Net Interest Income
        $        31,892
        $      26,856Fully Taxable Equivalent adjustment
        203
        226Non-interest Income
        5,371
        4,600$        37,466
        $      31,682Efficiency Ratio
        66.51%
        63.50%  Income Taxes  The provision for income tax expense increased $484 thousand or 14.4% for the year ended December 31, 2006 to $3.8 million versus $3.4 million at December 31, 2005.  The provision for income tax expense increased $371 thousand or 12.4% for the year ended December 31, 2005 to $3.4 million versus $3.0 million at December 31, 2004.          29       Investments  The following tables reflect the value of the securities portfolio of the Corporation at the dates indicated.  Carrying Value of Securities Available for SaleDecember 31,2006
        2005
        2004(In Thousands)U.S. Government and federal agencies
        $19,473
        $12,275
        $8,661Obligations of state & political subdivisions
        6,161
        7,183
        7,233Mortgage-backed securities
        1,835
        258
        373Other securities
        5,598
        3,426
        3,478$33,067
        $23,142
        $19,745Carrying Value of Securities Held to MaturityDecember 31,2006
        2005
        2004(In Thousands)U.S. Government and federal agencies
        $497
        $497
        $497Obligations of state & political   subdivisions
        3,834
        4,014
        4,334Other securities
        2,696
        2,726
        2,738$7,027
        $7,237
        $7,569   At December 31, 2006, the approximate fair value of the securities portfolio was $39.8 million, compared to the December 31, 2005 value of $30.1 million.  As of December 31, 2006, there were no obligations by any one issuer in the investment portfolio, exclusive of obligations of the U.S. Government or U.S. Agencies and Corporations, which in the aggregate exceeded 10% of stockholders equity.           30       The following tables set forth the maturity of distribution and weighted average yields of the securities portfolio at December 31, 2006.  The weighted average yields are calculated on the book value of the portfolio and on securities interest income adjusted for amortization of premium and accretion of discount.  The table does not include restricted securities with a value of $5.6 million held at December 31, 2006.  Available for SaleDecember 31, 2006(In Thousands)
        
        
        
        After One ButWithin One Year
        
        Within Five YearsAmount
        Yield (%)
        
        Amount
        Yield (%)U.S. Government and federal agencies
        7,342
        4.82%
        
        8,175
        4.87%Obligations of state and political   subdivisions
        0
        0.00%
        
        907
        5.89%Mortgage-backed securities
        0
        0.00%
        
        1807
        5.88%Other securities
        0
        0.00%
        
        0
        0.00%Total
        7,342
        4.82%
        
        10,889
        5.12%After Five ButWithin Ten Years
        
        After Ten YearsAmount
        Yield (%)
        
        Amount
        Yield (%)U.S. Government and federal agencies
        3,482
        5.66%
        
        505
        5.61%Obligations of state and political   subdivisions
        4,145
        5.34%
        
        1,168
        5.95%Mortgage-backed securities
        0
        0.00%
        
        25
        6.07%Other securities
        0
        0.00%
        
        0
        0.00%Total
        7,627
        5.49%
        
        1,698
        5.85%   Held to MaturityDecember 31, 2006After One ButWithin One Year
        
        Within Five YearsAmount
        Yield (%)
        
        Amount
        Yield (%)U.S. Government and federal agencies
        0
        0.00%
        
        0
        0.00%Obligations of state & political  subdivisions
        0
        0.00%
        
        1,486
        6.03%Other securities
        0
        0.00%
        
        0
        0.00%Total
        0
        0.00%
        
        1,486
        6.03%After Five ButWithin Ten Years
        
        After Ten YearsAmount
        Yield (%)
        
        Amount
        Yield (%)U.S. Government and federal agencies
        497
        4.59%
        
        0
        0.00%Obligations of state & political  subdivisions
        1,548
        5.99%
        
        800
        5.55%Other securities
        0
        0.00%
        
        2,696
        7.48%Total
        2,045
        5.65%
        
        3,496
        7.04%    31       Loans  Net loans consist of total loans, unearned income, deferred loan fees and the allowance for loan losses and excludes loans held for sale.  Net loans were $747.4 million at December 31, 2006, an increase of 30.4% over December 31, 2005.  We have significant concentrations of credit in the land acquisition and land development and construction due to the current growth and other economic development that we have been experiencing in our market area for the last several years.  At December 31, 2006, we had $184.1 million of commercial loans secured by real estate, which represented 24.4% of gross loans at that date.  In addition, at December 31, 2006, we had $202.3 million of construction and land development loans secured by real estate, which represented 26.8% of gross loans at that date.  We believe that these loans are all well-secured and are performing as required.  The following table summarizes the composition of the loan portfolio at the dates indicated:  (In thousands)
        December 31,2006
        2005
        2004
        2003
        2002Loans secured by real estate:Construction and land development
        $   202,280
        $   144,829
        $   101,363
        $     66,501
        $38,063Secured by farmland
        14,264
        5,514
        4,154
        4,890
        2,774Secured by 1-4 family residential
        172,851
        141,697
        131,230
        101,548
        70,773Multi-family residential
        38,930
        25,560
        18,224
        15,432
        6,258Non-farm, non-residential loans
        184,061
        157,587
        142,897
        120,675
        123,477Loans to farmers (except those secured by real estate)
        1,058
        1,576
        999
        197
        42Commercial and industrial loans (except those secured by real estate)
        107,082
        69,869
        63,079
        49,735
        52,970Loans to individuals (except those secured by real estate)
        28,041
        26,235
        25,491
        23,296
        19,699All other loans
        5,996
        6,129
        4,435
        4,289
        1,838$754,563
        $578,996
        $491,872
        $386,563
        $315,894Less:Allowance for loan losses
        7,119
        5,591
        5,007
        4,104
        3,340$747,444
        $573,405
        $486,865
        $382,459
        $312,554  The Corporation had no loans outstanding to foreign countries or for highly leveraged transactions as of December 31, 2006, or any of the previous years disclosed above. In addition, there were no categories of loans that exceeded 10% of outstanding loans as of December 31, 2006, which were not disclosed.   32       The table below presents the maturities of selected loans outstanding at December 31, 2006. After OneWithin
        But Within
        AfterOne Year
        Five Years
        Five Years
        Total(In thousands)Commercial
        $        55,787
        $           41,794
        $              9,501
        $      107,082Real estate-construction
        $      143,204
        $           47,385
        $            11,691
        202,280$      198,991
        $           89,179
        $            21,192
        $      309,362Interest sensitivity on such loans maturing after one year:(In thousands)Fixed
        $         94,919Variable
        $         15,452Total
        $       110,371  Asset Quality  Asset quality is an important factor in the successful operation of a financial institution.  Banking regulations require institutions to classify their own assets and to establish prudent general allowances for losses for assets classified as substandard or doubtful.  For the portion of assets classified as loss, an institution is required to either establish specific allowances of 100% of the amount classified or charge such amounts off its books.  The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is wellsecured and in process of collection.  We place loans on non-accrual status at an earlier date, or we charge them off, if collection of principal or interest is considered doubtful.  All interest accrued but not collected for loans that are placed on non-accrual or charged off is reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until they qualify for a return to accrual status.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.  Allowance for Loan Losses  We maintain the allowance for loan losses at a sufficient level to provide for potential losses in the loan portfolio.  Loan losses are charged directly to the allowance when they occur, while recoveries are credited to the allowance.  Specific reserves by loan type are established based on overall historical losses, anticipated losses, and inherit risk.  Additionally, specific reserves for individual loans are established depending on the severity of the potential loss.  Loans are individually reserved once classified as a watch item by management.  A higher percentage of the loan is reserved for individual loans with a more severe classification.  The adequacy of the provision for loan losses is reviewed regularly by management through consideration of several factors including changes in character and size of the loan portfolio and related loan loss experience, a review and examination of
overall loan quality which includes the identification and assessment of problem loans and an analysis of anticipated economic conditions in the market area.  The allowance for loan losses, at December 31, 2006, was $7.1 million. This is an increase of $1.5 million or 27.4% from December 31, 2005. The increases in our allowance for loan losses are the result of adjustments that management has made in response to the growth of our loan portfolio and the allowance which was acquired in the Albemarle acquisition.  33       An analysis of the allowance for loan losses, including charge-off activity, is presented in the following table for the periods indicated.  Year Ended December 31,(In thousands)
        2006
        2005
        2004
        2003
        2002Balance, beginning of period
        $   5,591
        $   5,007
        $   4,104
        $   3,340
        $  2,459Allowance of acquired bank
        1,123
        -
        -
        -
        -Less Charge-offs:Commercial
        30
        255
        39
        35
        42Real estate-mortgage
        -
        -
        10
        -
        1Real estate-construction
        -
        -
        14
        -
        -Consumer installment loans
        331
        295
        175
        189
        242Total
        $      361
        $      550
        $      238
        $      224
        $     285Plus Recoveries:Commercial
        8
        158
        13
        8
        12Real estate-mortgage
        12
        -
        1
        -
        -Real estate-construction
        -
        15
        -
        -
        -Consumer installment loans
        85
        119
        107
        61
        54Total
        $      105
        $      292
        $      121
        $        69
        $       66Additions charged to operating expense
        $      661
        $      842
        $   1,020
        $      919
        $  1,100Balance, end of period
        $   7,119
        $   5,591
        $   5,007
        $   4,104
        $   3,340Ratio of net charge-offs toaverage loans outstanding
        0.01%
        0.04%
        0.03%
        0.04%
        0.08%    34       Allocation of the Allowance for Loan Losses  The following table reflects managements allocation of the allowance for loan losses at December 31 for each of the years indicated:  2006
        2005
        2004(In Thousands)
        Allowance
        Percent
        Allowance
        Percent
        Allowance
        PercentReal estate construction
        $    1,017
        26.8%
        $         828
        25.0%
        $         559
        20.6%Real estate mortgage
        2,470
        54.4%
        2,146
        57.1%
        1,879
        60.3%Commercial, financial and agriculture
        2,733
        14.3%
        1,919
        12.3%
        1,964
        13.0%Consumer and other
        899
        4.5%
        698
        5.6%
        605
        6.1%$    7,119
        100.0%
        $     5,591
        100.0%
        $     5,007
        100.0%2003
        2002Allowance
        Percent
        Allowance
        PercentReal estate construction
        $     455
        17.2%
        $     247
        12.0%Real estate mortgage
        2,397
        62.7%
        1,911
        64.4%Commercial, financial and agriculture
        945
        12.9%
        954
        16.8%Consumer and other
        307
        7.2%
        228
        6.8%$  4,104
        100.0%
        $  3,340
        100.0%  Non-Performing Assets  Non-accrual loans at December 31, 2006 were $2.0 million compared to $726 thousand at December 31, 2005.  This increase is directly attributable to the acquisition of Albemarle and their loan portfolio. There have been no significant additions of these types of loans in the loan portfolio exclusive of the acquired Albemarle loans.  Approximately $9 thousand of interest income would have been recorded if interest had been accrued in 2006.  As of December 31, 2006, the Corporation had a total of $4.9 million in non-accrual, and 90 days past due and still accruing interest, compared to $805 thousand at December 31, 2005.  This was an increase of $4.3 million or 711.6%.  The Corporation had no restructured loans during 2006 and 2005.  This increase is directly attributable to the acquisition of Albemarle and their loan portfolio.  As of December 31, 2006 the Corporation had $6.9 million in impaired loans, which included the $2.0 million balance in non-accrual loans disclosed above.  During the year, the Corporation enhanced its review of potentially impaired loans by expanding the review of classified loans.  As part of this review, there was an increase of loans which met the definition of impairment under FAS 114 and our loan policy.  The majority of these loans were considered to be impaired based on lower valuations of collateral compared to the outstanding loan balance rather than a decline in customers cash flows or negative trends in repayment histories.  The Corporations management and Board of Directors have reviewed the asset quality of the subsidiary banks loan portfolios and loan loss allowances and have found them to be adequate.       35       The following table details information concerning non-accrual loans, foreclosed properties and past due loans at December 31 for each of the years indicated:  December 31,2006
        2005
        2004
        2003
        2002(In thousands)Non-accrual loans
        $   2,049
        $     614
        $  1,120
        $     497
        $    631Foreclosed Properties
        0
        124
        151
        67
        67$   2,049
        $     738
        $  1,271
        $     564
        $    698Loans past due 90 days or more and still accruing interest
        $   2,861
        $     191
        $     668
        $     946
        $    223  Sources of Funds Deposits  We primarily use deposits to fund our loans and investment securities.  We offer individuals and small-to-medium-size businesses a variety of deposit accounts.  Deposit accounts, including checking, savings, money markets and certificates of deposit, are obtained primarily from the communities we serve.  We attract both short-term and long-term deposits from the general public by offering a wide assortment of accounts and rates.  We offer statement savings accounts, various checking accounts, various money market accounts, fixed-rate certificates with varying maturities and individual retirement accounts.  At December 31, 2006, deposits were $728.3 million, an increase of 29.4% from $562.9 million at December 31, 2005. The deposit growth is a reflection of branch office growth, aggressive pricing, increased marketing and the acquisition of Albemarle.  In order to reduce the overall cost of funds and reduce our reliance on high cost time deposits and short- term borrowings as a funding source, we continue to direct marketing efforts towards attracting lower cost transaction accounts.  However, there is no assurance that these efforts will be successful, or if successful, will reduce our reliance on time deposits and short-term borrowings.  The following table details the average amount of, and the average rate paid on the following primary deposit categories for the years ended December 31, 2006, 2005 and 2004.  Year ended
        
        Year ended
        
        Year Ended(In thousands)
        December 31, 2006
        
        December 31, 2005
        
        December 31, 2004Average
        Average
        
        Average
        Average
        
        Average
        AverageBalance
        Rate
        
        Balance
        Rate
        
        Balance
        RateDemand deposits
        $94,719
        
        
        $86,847
        
        
        $71,362Interest - bearing demand
        70,174
        0.73%
        
        65,466
        0.44%
        
        59,003
        0.39%Savings
        103,404
        2.53%
        
        85,772
        1.37%
        
        82,161
        1.10%Certificates of deposit
        374,209
        4.27%
        
        293,402
        3.32%
        
        233,127
        2.81%Total interest - bearing     deposits
        $547,787
        3.49%
        
        $444,640
        2.52%
        
        $374,291
        2.06%      36        The following is a summary of the maturity distribution of certificates of deposit and other time deposits in amounts of $100,000 or more at December 31, 2006.  Amount
        Percent(In thousands)Three months or less
        $   24,483
        18.46%Over three-six months
        40,496
        30.54%Over six-twelve months
        37,033
        27.93%Over twelve months
        30,581
        23.07%$ 132,593
        100.00%  Certificates of deposit in the amounts of $100,000 or more were $132.6 million at December 31, 2006.  This represents 30.5% of the total certificates of deposit balance of $434.7 million at December 31, 2006.  The Corporation does not solicit such deposits.  Further, the Corporation does bid for selected public funds deposits in large denominations and such deposits may require a pledging of investment securities.  The Corporation competes with the major regional financial institutions for money market accounts and certificates of deposits less than $100,000.  While the Corporation is competitive with its interest rates, using a tiered rate system to increase individual account balances, the Corporation has found that it can continue to maintain a higher interest margin than its peers by matching loan maturities with certificate maturities and setting loan rates based on the Corporations cost of funds.  Liquidity and Capital Reserves  Liquidity is a measure of our ability to generate sufficient cash to meet present and future obligations in a timely manner.  Our liquidity requirements are measured by the need to meet deposit withdrawals, fund loans, meet reserve requirements and maintain cash levels necessary for daily operations. To meet liquidity requirements, we maintain cash reserves and have an adequate flow of funds from maturing loans, securities, and short-term investments. In addition, our banks have the ability to borrow additional funds from various sources.  Short-term borrowings are available from federal funds facilities at correspondent banks and from the discount window of the Federal Reserve Bank.  Borrowings are available from the Federal Home Loan Bank.  We consider our sources of liquidity to be ample to meet our estimated needs.  Our ability to fund these daily commitments at December 31, 2006, 2005 and 2004 is illustrated in the table below:  December 31,2006
        2005
        2004(In thousands)Liquid Assets:Cash and due from banks
        $26,684
        $21,092
        $21,574Federal funds sold
        25,380
        19,270
        19,075Liquid securities
        0
        0
        250Loans maturing in one year or less
        282,710
        265,660
        211,629Total liquid assets
        $334,774
        $306,022
        $252,528  The net loan to deposit ratio (103.6%) as of December 31, 2006 has provided the opportunity for the Corporation to achieve a high return on its deposits.  For the year ended December 31, 2006, the Corporation experienced a return on assets of 0.96% and a net interest margin of 4.43%.  Typically, management prefers to maintain a loan to deposit ratio of less than 100%.  Over the last several years, including this current period, our loan growth has outpaced our deposit growth.  Additionally, competition for deposits in our market areas has been very strong requiring the Corporation to fund our loan growth with other  37       borrowings such as FHLB advances.  The trend of loan to deposit ratios greater than 100% has been steady in our market place and particularly amongst our financial institution peer groups in the Commonwealth of Virginia.  We expect this trend to continue for the foreseeable future.  The Corporation manages this ratio on a regular basis and is able to fund loan growth through other short term borrowings and funds.  The growth in deposits was $165.4 million or 29.4% during 2006.  The Corporation also has access to overnight federal funds from correspondent banks totaling up to $34.1 million.  In addition, the Corporation has established borrowing limits through the Federal Reserve Banks discount window for $1.5 million. Also, the Corporation has $128.8 million of funds available through the Federal Home Loan Bank of Atlanta of which $55.0 million has been utilized.  Management believes that the opportunity for the sale of loans in the market is good.   Year EndedDecember 31,2006
        2005
        2004(In thousands)CASH FLOWS PROVIDED:Operations
        $     8,043
        $     5,891
        $     6,457InvestingMaturity and call of securities
        10,750
        3,394
        6,300FinancingGrowth in deposits
        63,895
        78,947
        86,588CASH FLOWS USED:InvestingGrowth in loans
        79,328
        87,382
        105,426Purchase of property, plant and equipment
        5,420
        5,902
        2,231Purchase of securities
        8,808
        6,810
        9,839  The following table summarizes ratios considered to be significant indicators of our profitability and financial condition for the periods indicated.  For the Years Ended December 31,2006
        2005
        2004Return on average assets(Net income/average total assets)
        1.00%
        1.13%
        1.20%Return on average equity(Net income/average equity)
        12.98%
        14.97%
        15.20%Dividends payment ratio(Dividends declared/Net income)
        18.89%
        17.35%
        16.29%Average equity to average asset ratio
        7.70%
        7.58%
        7.91%    38       The following tables present the net income of the Corporation, broken down by quarter for the years ended December 31, 2006 and 2005.  2006(In thousands except per share data)March 31
        June 30
        Sept 30
        Dec 31Total interest income
        $11,417
        $12,525
        $15,552
        $16,057Net interest income after provision for loan losses
        6,958
        7,257
        8,597
        8,419Non interest income
        1,127
        1,285
        1,415
        1,544Non interest expense
        5,526
        5,871
        6,912
        6,609Income before income taxes
        2,559
        2,671
        3,100
        3,354Net income
        1,705
        1,773
        2,016
        2,351Earnings per common share  assuming dilution
        $0.33
        $0.35
        $0.35
        $0.40Dividends per common share
        -
        -
        -
        0.262005(In thousands except per share data)March 31
        June 30
        Sept 30
        Dec 31Total interest income
        $8,931
        $9,714
        $10,476
        $11,025Net interest income after provision for loan losses
        6,021
        6,438
        6,729
        6,826Non interest income
        1,052
        1,135
        1,185
        1,228Non interest expense
        4,594
        4,929
        5,355
        5,240Income before income taxes
        2,479
        2,644
        2,559
        2,814Net income
        1,661
        1,773
        1,728
        1,979Earnings per common share  assuming dilution
        $0.33
        $0.35
        $0.34
        $0.39Dividends per common share
        -
        -
        -
        0.25  Capital Resources  The Corporations risk-based capital position at December 31, 2006 was $71.7 million, or 9.5% of risk-weighted assets, for Tier I capital, and $100.2 million, or 13.3% for total risk based capital. Tier I capital consists primarily of common shareholders' equity and Trust Preferred Capital Notes. Total risk-based capital includes the allowance for loan losses in addition to Tier 1 Capital. Risk-weighted assets are determined by assigning various levels of risk to different categories of assets and off-balance sheet items. Under current risk-based capital standards, all banks are required to have Tier I capital of at least 4% and a total capital ratio of 8%.  The Corporations issuance of $6.2 million in trust preferred capital notes in 2003, the issuance of $8.2 million during the third quarter of 2005, the issuance of $14.4 million in trust preferred capital notes during the second quarter of 2006,
and the issuance of $10.3 million in trust preferred capital notes during the fourth quarter of 2006 are included in the Tier 1 capital base (up to the allowable percentage of 25%) and will serve as a long-term source of funding.  The Corporation also called and paid off the balance of $7.2 million in Premier Statutory Trust I in December 2006.  Off -Balance Sheet Obligations  The Corporation is 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 and standby letters of credit and commercial lines of credit.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.  The Corporation's exposure to credit loss is represented by the contractual amount of these commitments. The Corporation follows the same credit policies in making commitments as it does for on-balance-sheet instruments.  At December 31, 2006, commitments for standby letters of credit totaled $16.4 million, unfunded commitments under lines of credit totaled $104.5 million, and commitments to extend credit totaled $91.0 million. At December  39       31, 2005, commitments for standby letters of credit totaled $13.1 million, unfunded commitments under lines of credit totaled $97.3 million, and commitments to extend credit totaled $71.8 million.  Contractual Obligations  During the normal course of business, the Corporation obligates itself to certain contractual obligations.  These obligations include long-term debt, capital leases, and operating leases.  The following table summarizes those obligations as of December 31, 2006.  ( In thousands)
        
        Less Than
        
        
        More thanContractual Obligations
        Total
        One Year
        >1-3 years
        >3-5 years
        Five YearsLong-Term Debt
        $    94,267
        $    10,000
        $    10,000
        $    10,000
        $    64,267Capital Lease Obligations
        225
        24
        48
        48
        105Operating Leases
        2,146
        475
        758
        458
        1,006Total
        $    96,638
        $    10,499
        $    10,806
        $    10,506
        $    65,378  Recent Accounting Pronouncements  In September 2006, the Securities and Exchange Commission (SEC) released Staff Accounting Bulletin No. 108 (SAB 108).  SAB 108 expresses the SEC staffs views regarding the process of quantifying financial statement misstatements.    SAB 108 expresses the SEC staffs view that a registrants materiality evaluation of an identified unadjusted error should quantify the effects of the error on each financial statement and related financial statement disclosures and that prior year misstatements should be considered in quantifying misstatements in current year financial statements.  SAB 108 also states that correcting prior year financial statements for immaterial errors would not require previously filed reports to be amended.  Such correction may be made the next time the registrant files the prior year financial statements.  The cumulative effect of the initial application should be reported in
the carrying amounts of assets and liabilities as of the beginning of that fiscal year and the offsetting adjustment should be made to the opening balance of retained earnings for that year.  Registrants should disclose the nature and amount of each individual error being corrected in the cumulative adjustment.  The SEC staff encourages early application of the guidance in SAB 108 for interim periods of the first fiscal year ending after November 15, 2006.  The Corporation does not expect the implementation of SAB 108 to have a material impact on is financial statements.  In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments  an amendment of FASB Statements No. 133 and 140 (SFAS 155).  SFAS 155 permits fair value measurement of any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation.  The Statement also clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133.  It establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation.  SFAS 155 also clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives.  SFAS 155 is
effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006.  The Corporation does not expect the implementation of SFAS 155 to have a material impact on its consolidated financial statements.  In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets  an amendment of FASB Statement No. 140 (SFAS 156).  SFAS 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into certain servicing contracts.  The Statement also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable.  SFAS 156 permits an entity to choose between the amortization and fair value methods for subsequent measurements.  At initial adoption, the Statement permits a one-time reclassification of available for sale securities to trading securities by entities with recognized servicing rights.  SFAS 156 also requires separate presentation of servicing assets and servicing
liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities.  This Statement is effective as of the beginning of an  40       entitys first fiscal year that begins after September 15, 2006.  The Corporation does not expect the implementation of SFAS 156 to have a material impact on its financial statements.  In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157).  SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  SFAS 157 does not require any new fair value measurements but may change current practice for some entities.  This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those years.  The Corporation does not expect the implementation of SFAS 157 to have a material impact on its consolidated financial statements.  In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, Defined Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158).  SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income.  The Corporation does not have a defined benefit plan or post retirement plan and therefore, the standard will not have an impact on the Corporations consolidated financial statements.  In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes: An Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entitys financial statements in accordance with SFAS 109.  The Interpretation prescribes a recognition threshold and measurement principles for the financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return that are not certain to be realized.  FIN 48 is effective for fiscal years beginning after December 15, 2006.  The Corporation does not expect the implementation of FIN 48 to have a material impact on its financial statements.  In September 2006, the Emerging Issues Task Force issued EITF 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. This consensus concludes that for a split-dollar life insurance arrangement within the scope of this Issue, an employer should recognize a liability for future benefits in accordance with FASB Statement No. 106 (if, in substance, a postretirement benefit plan exits) or APB Opinion No. 12 (if the arrangement is, in substance, an individual deferred compensation contract) based on the substantive agreement with the employee. The consensus is effective for fiscal years beginning after December 15, 2007. The Corporation is currently evaluating the effect that EITF No. 06-4 will have on its consolidated financial statements when implemented.  In September 2006, the Emerging Issues Task Force issued EITF 06-5, Accounting for Purchases of Life Insurance- Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4. This consensus concludes that a policyholder should consider any additional amounts included in the contractual terms of the insurance policy other than the cash surrender value in determining the amount that could be realized under the insurance contract. A consensus also was reached that a policyholder should determine the amount that could be realized under the life insurance contract assuming the surrender of an individual-life by individual-life policy (or certificate by certificate in a group policy). The consensuses are effective for fiscal years beginning after December 15, 2006. The Corporation is currently evaluating the effect that EITF No. 06-5 will have on its consolidated
financial statements when implemented.       41       Item 7A. Quantitative and Qualitative Disclosures About Market Risk  General  An important element of both earnings performance and liquidity is the management of our interest-sensitive assets and our interest-sensitive liabilities maturing or re-pricing within specific time intervals and the risks involved with them.  Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices.  Our market risk is composed primarily of interest rate risk.  The asset and liability management committee at each bank is responsible for reviewing the interest rate sensitivity position and establishing policies to monitor and limit exposure to this risk.  Our board of directors reviews the guidelines established by each committee.  Interest rate risk is monitored through the use of three complimentary modeling tools: static gap analysis, earnings simulation modeling and economic value simulation (net present value estimation).  Each of these models measures changes in a variety of interest rate scenarios.  While each of the interest rate risk measures has limitations, taken together they represent a reasonably comprehensive view of the magnitude of our interest rate risk, the distribution of risk along the yield curve, the level of risk through time, and the amount of exposure to changes in certain interest rate relationships.  Static gap, which measures aggregate repricing values, is less utilized since it does not effectively measure the earnings impact on us.  Earnings simulation and economic value models, however, which more effectively reflect the earnings impact, are utilized by management on a regular basis.  Earnings Simulation Analysis  We use simulation analysis to measure the sensitivity of net income to changes in interest rates.  The model calculates an earnings estimate based on current and projected balances and rates.  This method is subject to the accuracy of the assumptions that underlie the process, but it provides a better analysis of the sensitivity of earnings to changes in interest rates than other analysis such as the static gap analysis.  Assumptions used in the model, including loan and deposit growth rates, are derived from seasonal trends and managements outlook, as are the assumptions used to project the yields and rates for new loans and deposits.  All maturities, calls and prepayments in the securities portfolio are assumed to be reinvested in like instruments.  Mortgage loans and mortgage backed securities prepayment assumptions are based on industry estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning.  Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates.  Interest rates on different asset and liability accounts move differently when the prime rate changes and are accounted for in the different rate scenarios.  The following table represents the interest rate sensitivity on our net income using different rate scenarios as of December 31, 2006.  % Change inChange in Prime Rate
        
        Net Income+300 basis points
        
        +5.5%+200 basis points
        
        +6.8%+100 basis points
        
        +5.9%Most Likely
        
        0-100 basis points
        
        -0.1%-200 basis points
        
        -1.5%-300 basis points
        
        -8.2%     42       Economic Value Simulation  We use economic value simulation to calculate the estimated fair value of assets and liabilities over different interest rate environments.  Economic values are calculated based on discounted cash flow analysis.  The economic value of equity is the economic value of all assets minus the economic value of all liabilities.  The change in economic value of equity over different rate environments is an indication of the longer term re-pricing risk in the balance sheet.  The same assumptions are used in the economic value simulation as in the earnings simulation.  The following chart reflects the change in net market value by using December 31, 2006 data, over different rate environments with a one-year horizon.  Change in Economic Value of EquityChange in Prime Rate
        
        (dollars in thousands)+300 basis points
        
        (5,510)+200 basis points
        
        (4,950)+100 basis points
        
        (4,868)Most Likely
        
        (5,105)-100 basis points
        
        (4,137)-200 basis points
        
        (4,985)-300 basis points
        
        (8,823)  Management of the Interest Sensitivity Gap  The interest sensitivity gap is the difference between interest-sensitive assets and interest-sensitive liabilities maturing or repricing within a specific time interval.  The gap can be managed by repricing assets or liabilities, by selling investments, by replacing an asset or liability prior to maturity, or by adjusting the interest rate during the life of an asset or liability.  Matching the amounts of assets and liabilities repricing in the same time interval helps to hedge the risk and minimize the impact on net income due to changes in market interest rates.  We evaluate interest rate risk and then formulate guidelines regarding asset generation and pricing, funding sources and pricing, and off-balance sheet commitments in order to decrease sensitivity risk.  These guidelines are based upon managements outlook regarding future interest rate movements, the state of the regional and national
economy, and other financial and business risk factors.  Our asset and liability committees review deposit pricing, changes in borrowed money, investment and trading activity, loan sale activities, liquidity levels and the overall interest sensitivity.  The actions of the committees are reported to the boards of directors regularly (monthly by Marathon Bank and Premier Bank and quarterly by Rockingham Heritage Bank).  The daily monitoring of interest rate risk, investment and trading activity, along with any other significant transactions are managed by the presidents of each bank with input from other committee members.  Item 8. Financial Statements and Supplementary Data  The following financial statements are included in this Item 8:  -- Report of Independent Registered Public Accounting Firm - Yount, Hyde & Barbour, P.C. -- Consolidated Balance Sheets - December 31, 2006 and 2005 -- Consolidated Statements of Income - Years ended December 31, 2006, 2005, and 2004 -- Consolidated Statements of Changes in Shareholders Equity - Years Ended December 31, 2006, 2005 and 2004 -- Consolidated Statements of Cash Flows - Years Ended December 31, 2006, 2005 and 2004 -- Notes to Consolidated Financial Statements.  43     To the Board of Directors Premier Community Bankshares, Inc.   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  We have audited the accompanying consolidated balance sheets of Premier Community Bankshares, Inc. and Subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2006.  We also have audited management's assessment, included in the accompanying Managements Report on Internal Control Over Financial Reporting appearing under Item 9A, that Premier Community Bankshares, Inc. and Subsidiaries maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).  Premier Community Bankshares, Inc. and Subsidiaries management
 is responsible for these financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting.  Our responsibility is to express an opinion on these financial statements, an opinion on management's assessment, and an opinion on the effectiveness of the corporation's internal control over financial reporting 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audit of financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audits provide a reasonable basis for our opinions.  A corporation'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 corporation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 corporation; (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.     44       In our opinion, the financial statements referred to
 above present fairly, in all material respects, the financial position of Premier Community Bankshares, Inc. and Subsidiaries as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, managements assessment that Premier Community Bankshares, Inc. and Subsidiaries maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Furthermore, in our opinion, Premier Community Bankshares, Inc. and Subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal
 ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).    Winchester, Virginia March 15, 2007   45     PREMIER COMMUNITY BANKSHARES, INC. AND SUBSIDIARIESConsolidated Balance SheetsDecember 31, 2006 and 2005(In Thousands, Except for Share Data)Assets
        2006
        
        2005Cash and due from banks
        $     25,150
        
        $     20,459Interest-bearing deposits in other banks
        1,534
        
        633Federal funds sold
        25,380
        
        19,270Securities available for sale, at fair value
        33,067
        
        23,142Securities held to maturity (fair value approximates $6,721 and$6,983 at December 31, 2006 and 2005, respectively)
        7,027
        
        7,237Loans, net of allowance for loan losses of $7,119 in 2006and $5,591 in 2005
        747,444
        
        573,405Bank premises and equipment, net
        25,780
        
        16,802Accrued interest receivable
        3,804
        
        2,467Other real estate
        - -
        
        124Other assets
        31,525
        
        10,857$   900,711
        
        $   674,396Liabilities and Shareholders' EquityLiabilitiesDeposits:Noninterest-bearing demand deposits
        $     96,645
        
        $     89,405Savings and interest-bearing demand deposits
        196,951
        
        149,080Time deposits
        434,678
        
        324,395Total deposits
        $   728,274
        
        $   562,880Federal Home Loan Bank advances
        55,000
        
        30,000Short-term borrowings
        597
        
        4,393Accounts payable and accrued expenses
        5,702
        
        5,014Capital lease payable
        158
        
        169Trust Preferred Capital Notes
        39,267
        
        21,651Commitments and contingent liabilities
        - -
        
        - -Total liabilities
        $   828,998
        
        $   624,107Shareholders' EquityPreferred stock, Series A, 5% noncumulative, no parvalue; 1,000,000 shares authorized and unissued
        $            - -
        
        $            - -Common stock, $1 par value; 20,000,000 shares authorized;2006, 5,699,842 shares issued and outstanding;2005, 4,955,648 shares issued and outstanding;
        5,700
        
        4,956Capital surplus
        34,095
        
        19,805Retained earnings
        31,975
        
        25,612Accumulated other comprehensive loss
        (57)
        
        (84)Total shareholders' equity
        $     71,713
        
        $     50,289$   900,711
        
        $   674,396See Notes to Consolidated Financial Statements.  46     PREMIER COMMUNITY BANKSHARES, INC. AND SUBSIDIARIESConsolidated Statements of IncomeYears Ended December 31, 2006, 2005 and 2004(In Thousands, Except for Per Share Data)2006
        
        2005
        
        2004Interest and dividend income:Interest and fees on loans
        $   52,737
        
        $   38,230
        
        $   30,036Interest on investment securities:Nontaxable
        159
        
        170
        
        183Taxable
        250
        
        247
        
        268Interest and dividends on securities available for sale:Nontaxable
        236
        
        269
        
        270Taxable
        909
        
        446
        
        338Dividends
        219
        
        156
        
        93Interest on deposits in other banks
        192
        
        48
        
        3Interest on federal funds sold
        849
        
        580
        
        261Total interest and dividend income
        $   55,551
        
        $   40,146
        
        $   31,452Interest expense:Interest on deposits
        $   19,110
        
        $   11,209
        
        $     7,783Interest on capital lease obligations
        13
        
        14
        
        14Interest on borrowings
        4,536
        
        2,067
        
        1,174Total interest expense
        $   23,659
        
        $   13,290
        
        $     8,971Net interest income
        $   31,892
        
        $   26,856
        
        $   22,481Provision for loan losses
        661
        
        842
        
        1,020Net interest income after provision for loan losses
        $   31,231
        
        $   26,014
        
        $   21,461Noninterest income:Service charges on deposit accounts
        $     3,239
        
        $     3,135
        
        $     3,188Commissions and fees
        1,143
        
        965
        
        820Net gain on sale of securities
        4
        
        - -
        
        - -Other
        985
        
        500
        
        431Total noninterest income
        $     5,371
        
        $     4,600
        
        $     4,439Noninterest expenses:Salaries and employee benefits
        $   13,844
        
        $   11,379
        
        $     9,039Net occupancy expense of premises
        1,663
        
        1,136
        
        933Furniture and equipment
        1,620
        
        1,322
        
        1,282Other
        7,791
        
        6,281
        
        5,319Total other expenses
        $   24,918
        
        $   20,118
        
        $   16,573Income before income taxes
        $   11,684
        
        $   10,496
        
        $     9,327Provision for income tax
        3,839
        
        3,355
        
        2,984Net income
        $     7,845
        
        $     7,141
        
        $     6,343Earnings per share, basic
        $       1.47
        
        $       1.45
        
        $       1.30Earnings per share, assuming dilution
        $       1.45
        
        $       1.41
        
        $       1.26See Notes to Consolidated Financial Statements.   47     PREMIER COMMUNITY BANKSHARES, INC. AND SUBSIDIARIESConsolidated Statements of Changes in Shareholders' EquityYears Ended December 31, 2006, 2005 and 2004(In Thousands, except Share Data)Common Stock
        
        Capital Surplus
        
        Retained Earnings
        
        Accumulated Other Compre-hensive Income (Loss)
        
        Compre
hensive
Income
        
        Total Shareholders'
EquityBalance, December 31, 2003
        $   4,881
        
        $ 19,328
        
        $ 14,400
        
        $       268
        
        
        
        $ 38,877Comprehensive income:Net income
        - -
        
        - -
        
        6,343
        
        - -
        
        $   6,343
        
        6,343Other comprehensive loss, unrealized(loss) on securities available for sale(net of tax, $71)
        - -
        
        - -
        
        - -
        
        (138)
        
        (138)
        
        (138)Total comprehensive income
        - -
        
        - -
        
        - -
        
        - -
        
        $   6,205
        
        - -Dividends declared ($0.21 per share)
        - -
        
        - -
        
        (1,033)
        
        - -
        
        
        
        (1,033)Issuance of common stock - exercise ofstock options (41,775 shares)
        42
        
        229
        
        - -
        
        - -
        
        
        
        271Repurchase of common stock - exercise ofcashless stock options (3,311 shares)
        (3)
        
        (55)
        
        - -
        
        - -
        
        
        
        (58)Balance, December 31, 2004
        $   4,920
        
        $ 19,502
        
        $ 19,710
        
        $       130
        
        
        
        $ 44,262Comprehensive income:Net income
        - -
        
        - -
        
        7,141
        
        - -
        
        $   7,141
        
        7,141Other comprehensive loss, unrealized(loss) on securities available for sale(net of tax, $112)
        - -
        
        - -
        
        - -
        
        (214)
        
        (214)
        
        (214)Total comprehensive income
        - -
        
        - -
        
        - -
        
        - -
        
        $   6,927
        
        - -Dividends declared ($0.25 per share)
        - -
        
        - -
        
        (1,239)
        
        - -
        
        
        
        (1,239)Issuance of common stock - exercise ofstock options (36,100 shares)
        36
        
        293
        
        - -
        
        - -
        
        
        
        329Accelerated Vesting of common stockoptions ( 111,000 shares)
        - -
        
        10
        
        - -
        
        - -
        
        
        
        10Balance, December 31, 2005
        $   4,956
        
        $ 19,805
        
        $ 25,612
        
        $       (84)
        
        
        
        $ 50,289Comprehensive income:Net income
        - -
        
        - -
        
        7,845
        
        - -
        
        $   7,845
        
        7,845Other comprehensive income, unrealizedgain on securities available for sale(net of tax, $16)
        - -
        
        - -
        
        - -
        
        30
        
        30
        
        30Less: Reclassification adjustment for gainson securities available for sale, (net of tax, $1)
        
        
        
        
        
        
        (3)
        
        (3)
        
        (3)Total comprehensive income
        - -
        
        - -
        
        - -
        
        - -
        
        $    7,872
        
        - -Dividends declared ($0.26 per share)
        - -
        
        - -
        
        (1,482)
        
        - -
        
        
        
        (1,482)Issuance of common stock-acquisitionof bank (688,788) shares
        689
        
        13,805
        
        - -
        
        - -
        
        
        
        14,494Issuance of common stock - exercise ofstock options (67,150 shares)
        67
        
        692
        
        - -
        
        - -
        
        
        
        759Repurchase of common stock - exercise ofcashless stock options (11,744  shares)
        (12)
        
        (242)
        
        - -
        
        - -
        
        
        
        (254)Share-based compensation expense
        - -
        
        35
        
        - -
        
        - -
        
        
        
        35 Balance, December 31, 2006
        $   5,700
        
        $ 34,095
        
        $ 31,975
        
        $       (57)
        
        
        
        $ 71,713See Notes to Consolidated Financial Statements.    48     PREMIER COMMUNITY BANKSHARES, INC. AND SUBSIDIARIESConsolidated Statements of Cash FlowsYears Ended December 31, 2006, 2005 and 2004(Dollars in Thousands)2006
        
        2005
        
        2004Cash Flows from Operating ActivitiesNet income
        $   7,845
        
        $   7,141
        
        $   6,343Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
        1,837
        
        1,258
        
        1,036Provision for loan losses
        661
        
        842
        
        1,020Deferred tax benefit
        (529)
        
        (561)
        
        (384)Share based compensation expense
        35
        
        10
        
        - -Net amortization (accretion) on securities
        (85)
        
        25
        
        67Loss on sale of other real estate
        (12)
        
        - -
        
        - -Net gain on sale of securities
        (4)
        
        - -
        
        - -Changes in asset and liabilities:Increase in other assets
        (139)
        
        (3,146)
        
        (2,211)Increase in accrued interest receivable
        (826)
        
        (617)
        
        (172)Increase (decrease) in accounts payable and accrued expenses
        (740)
        
        949
        
        758Net cash provided by operating activities
        $   8,043
        
        $   5,901
        
        $   6,457Cash Flows from Investing ActivitiesProceeds from maturities, calls and principal payments of securities held to maturity
        $   195
        
        $   320
        
        $   780Proceeds from maturities, calls and principal payments of securities available for sale
        6,355
        
        3,074
        
        5,520Proceeds from sale of securities available for sale
        4,200
        
        - -
        
        - -Purchase of securities available for sale
        (8,808)
        
        (6,810)
        
        (9,839)Net increase in loans
        (79,328)
        
        (87,382)
        
        (105,426)Proceeds from sale of other real estate
        112
        
        151
        
        - -Purchase of bank premises and equipment
        (5,420)
        
        (5,902)
        
        (2,231)Cash paid in bank acquisition
        (14,494)
        
        - -
        
        - -Cash acquired in bank acquisition
        5,414
        
        - -
        
        - -Net cash used in investing activities
        $   (91,774)
        
        $   (96,549)
        
        $ (111,196)Cash Flows from Financing ActivitiesNet increase in demand deposits, NOW accounts and savings accounts
        $   3,687
        
        $   1,527
        
        $ 45,523Net increase in certificates of deposit
        60,208
        
        77,420
        
        41,065Increase in borrowings
        14,656
        
        3,870
        
        19,963Proceeds from trust preferred capital notes
        24,833
        
        8,248
        
        - -Repayment of trust preferred capital notes
        (7,217)
        
        - -
        
        - -Net proceeds from issuance of common stock
        759
        
        329
        
        271Repurchase of common stock
        (254)
        
        - -
        
        (58)Payment of dividends
        (1,239)
        
        (1,033)
        
        (879)Net cash provided by financing activities
        $ 95,433
        
        $ 90,361
        
        $  105,885Increase (decrease) in cash and cash equivalents
        $ 11,702
        
        $  (287)
        
        $   1,146Cash and Cash EquivalentsBeginning
        40,362
        
        40,649
        
        39,503Ending
        $ 52,064
        
        $ 40,362
        
        $ 40,649Supplemental Disclosures of Cash Flow InformationCash payments for:Interest
        $ 22,956
        
        $ 13,013
        
        $   8,909Income taxes
        $   4,500
        
        $   3,405
        
        $   3,222Supplemental Schedule of Noncash Investing and Financing ActivitiesOther real estate acquired in settlement of loans
        $   112
        
        $   124
        
        $   151Unrealized loss on securities available for sale
        $     42
        
        $  (326)
        
        $  (209)Issuance of common stock for bank acquisition
        $ 14,494
        
        $   - -
        
        $   - -Transactions Related to the Acquisition of AlbemarleIncrease in assets and liabilities:Loans
        95,165
        
        - -
        
        - -Securities
        14,396
        
        - -
        
        - -Other assets
        25,936
        
        - -
        
        - -Non-interest bearing deposits
        14,069
        
        - -
        
        - -Interest bearing deposits
        88,173
        
        - -
        
        - -Borrowings
        6,537
        
        - -
        
        - -Other liabilities
        1,224
        
        - -
        
        - -See Notes to Consolidated Financial Statements.   49     PREMIER COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES  Notes to Consolidated Financial Statements  Note 1.
        Nature of Banking Activities and Significant Accounting Policies  Premier Community Bankshares, Inc. (the Corporation) is a Virginia multi-bank holding company headquartered in Winchester, Virginia.  The Corporation owns The Marathon Bank, Rockingham Heritage Bank and its subsidiary, RHB Services, Inc., all of which are located in Virginia, and Premier Bank, Inc., which is located in West Virginia and began operating as a de novo bank on July 18, 2005.  On July 1, 2006, the Corporation acquired Albemarle First Bank (Albemarle) in Charlottesville, Virginia.  Albemarle merged as a division of Rockingham Heritage Bank.  The Corporation also owns Premier Statutory Trust II, Premier Statutory Trust III, Premier Statutory Trust IV and Premier Statutory Trust V.  The accounting and reporting policies of the Corporation and its subsidiaries conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry.  The following is a summary of the more significant policies.  Principles of Consolidation  The consolidated financial statements of Premier Community Bankshares, Inc. and its subsidiaries, include the accounts of all companies.  All material intercompany balances and transactions have been eliminated.  FASB Interpretation No. 46 (R) requires that the Corporation no longer eliminate through consolidation the equity investments in Premier Statutory Trust II, Premier Statutory Trust III, Premier Statutory Trust IV and Premier Statutory Trust V by the parent company, Premier Community Bankshares, Inc., which approximated $1,267,000 at December 31, 2006.  The subordinated debt of the Trusts is reflected as a liability on the Corporations balance sheet.  Securities  Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost.  Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as available for sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income.  Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.  Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In determining whether other than temporary impairment exists, management considers many factors, including (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.  Restricted securities include Federal Reserve stock and Federal Home Loan Bank stock.  50      Notes to Consolidated Financial Statements   Loans  The Corporations banking subsidiaries grant mortgage, commercial and consumer loans to customers.  These loans are expected to be repaid from cash flows or proceeds from the sale of selected assets of the borrowers.  A substantial portion of the loan portfolio is represented by mortgage loans throughout the Augusta, Frederick, Rockingham, Shenandoah and Warren County areas of Virginia, and in the counties of Berkeley, Jefferson, and Morgan in West Virginia.  The ability of the debtors to honor their contracts is dependent upon the real estate and general economic conditions in these areas.  Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances less the allowance for loan losses.  Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using a method that approximates the interest method.  The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection.  Loans are placed on nonaccrual at an earlier date or charged off if collection of principal or interest is considered doubtful.  All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.  Allowance for Loan Losses  The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.  The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions.  Management uses three steps in calculating the balance of the reserve. The first step is specific classification which examines problem loans and applies a weight factor to each category.  The weight factor is based upon historical data and the loans within each category are reviewed on a monthly basis to determine changes in their status.  The second step applies a predetermined
rate against total loans with unspecified reserves.  Again, this rate is based upon experience and can change over
time.  The third step is an unallocated allowance which is determined by economic events and conditions that may have a real, but as yet undetermined, impact upon the portfolio.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.  51     Notes to Consolidated Financial Statements     The impairment of loans that have been separately identified for evaluation is measured based on the present value of expected future cash flows or, alternatively, the observable market price of the loans or the fair value of the collateral.  However, for those loans that are collateral dependent (that is, if repayment of those loans is expected to be provided solely by the underlying collateral) and for which management has determined foreclosure is probable, the measure of impairment of those loans is to be based on the fair value of the collateral.  Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment disclosures.  Classifications of Amortization on Assets Acquired Under Capital Leases  The amortization expense on assets acquired under capital leases is included with the depreciation expense.  Earnings Per Share  Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period.  Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.  Potential common shares that may be issued by the Corporation relate solely to outstanding stock options, and are determined using the treasury stock method.  Income Taxes  Deferred income tax assets and liabilities are determined using the balance sheet method.  Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.  Cash and Cash Equivalents  For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold.  Generally, federal funds are purchased and sold for one-day periods.  Bank Premises and Equipment  Land is carried at cost.  Buildings and equipment are carried at cost, less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets, ranging from 3 to 40 years.   52     Notes to Consolidated Financial Statements    Other Real Estate Owned  Foreclosed properties are recorded at the lower of the outstanding loan balance at the time of foreclosure or the estimated fair value less estimated costs to sell.  At foreclosure any excess of the loan balance over the fair value of the property is charged to the allowance for loan losses. Such carrying value is periodically reevaluated and written down if there is an indicated decline in fair value.  Costs to bring a property to salable condition are capitalized up to the fair value of the property while costs to maintain a property in salable condition are expensed as incurred.  Advertising Costs  The Corporation and subsidiaries follow the policy of charging the production costs of advertising to expense as incurred.  Use of Estimates  In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, 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.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term are the determination of the allowance for loan losses, the valuation of foreclosed real estate and deferred tax assets.  Stock Compensation Plan  Effective January 1, 2006 the Corporation adopted SFAS No. 123R,Share-Based Payment(SFAS No. 123R),which replaces SFAS No. 123,Accounting for Stock-Based Compensation(SFAS No. 123), and supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees(APB Opinion No. 25).SFAS 123R requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, such as stock options and nonvested shares (restricted stock),
 based on the fair value of those awards at the date of grant and eliminates the
 choice to account for employee stock options under APB Opinion No. 25.  Share based compensation is estimated at the date of
grant, using the Black-Scholes option valuation model for determining fair value.  The model employs the following assumptions:  
        Dividend yield - calculated as the ratio of historical dividends paid per share of commonstock to the stock price on the date of grant;
        Expected life (term of the option) - based on the average of the contractual life and vestingschedule for the respective option;
        Expected volatility - based on the monthly historical volatility of the Corporations stockprice over the expected life of the options;
        Risk-free interest rate - based upon the U.S. Treasury bill yield curve, for periods withinthe contractual life of the option, in effect at the time of grant.   53      Notes to Consolidated Financial Statements    Under APB Opinion No. 25, compensation expense was generally not recognized if the exercise price of the option equaled or exceeded the market price of the stock on the date of grant. For the year ended December 31, 2006, the Corporation recognized share-based compensation expense of $35,190, in accordance with SFAS 123R. This minimal impact is a result of the Corporation having accelerated vesting on all outstanding stock options as of December 29, 2005.  The following table illustrates the effect on net income and earnings per share in periods prior to 2006, had the stock based compensation expense for stock awards been recorded based on the fair value method under SFAS 123R (dollars in thousands except per share amounts):  2005
        
        2004Net income, as reported
        $          7,141
        
        $          6,343Total stock-based compensation expensedetermined under fair value based methodfor all rewards
        (523)
        
        (127)Pro forma net income
        $          6,618
        
        $          6,216Basic earnings per shareAs reported
        $           1.45
        
        $           1.30Pro forma
        $           1.34
        
        $           1.27Diluted earnings per shareAs reported
        $           1.41
        
        $           1.26Pro forma
        $           1.30
        
        $           1.23  Stock-based compensation expense is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period for each separately vesting portion of the award.  The Corporation has elected to adopt the modified prospective method which requires compensation expense to be recorded for the unvested portion of previously issued awards that remained outstanding as of January 1, 2006.  In addition, compensation expense is recorded for any awards issued, modified, or settled after the effective date of this standard and prior periods are not restated.  For awards granted prior to the effective date, the unvested portion of the awards are recognized in periods subsequent to the adoption based on the grant date fair value determined for pro forma disclosure purposes under SFAS No. 123R.  SFAS 123R requires the Corporation to estimate forfeitures when recognizing compensation expense and that this estimate of forfeitures be adjusted over the requisite service period or vesting schedule based on the extent to which actual forfeitures differ from such estimates.  Changes in estimated forfeitures are recognized through a cumulative catch-up adjustment,  54     Notes to Consolidated Financial Statements    which is recognized in the period of change, and also will impact the amount of estimated unamortized compensation expense to be recognized in future periods.  The fair value of each grant is estimated at the grant date using the Black-Scholes option-pricing model.  The estimates were calculated using the following weighted-average assumptions for grants in 2006, 2005 and 2004, respectively:  Dividend rate of 0.93%, 1.15% and 1.27%, price volatility of 20.00%, 21.58% and 24.53%, risk-free interest rate of 4.92%, 4.31% and 3.66%, and expected lives of 5 years.  See Note 15 for additional information relating to this plan.  On December 29, 2005, the Board of Directors of the Corporation approved the acceleration of the vesting of all unvested stock options outstanding under the Corporations stock option plans, which are the 1996 Long-Term Incentive Plan and the 2002 Long-Term Incentive Plan, effective as of December 29, 2005.  The Board of Directors did not change any other terms of these stock options. The total number of shares of the Corporations common stock underlying the stock options that this action affected was 111,000.  The Board of Directors determined to accelerate the vesting of these options in order to avoid the Corporations recognition of compensation expense associated with the affected options under SFAS
123R, which was effective beginning in the first quarter of 2006.  The aggregate pre-tax compensation expense associated with the acceleration of the vesting
of stock options avoided by this action was approximately $390,211.  Reclassifications  Certain reclassifications have been made to prior period balances to conform to the current year presentation.            55     Notes to Consolidated Financial Statements    Note 2.Securities  The amortized cost and fair value of the securities available for sale as of December 31, 2006 and 2005 are as follows:  Gross
        
        GrossAmortized
        
        Unrealized
        
        Unrealized
        
        FairCost
        
        Gains
        
        (Losses)
        
        Value2006U.S. Government and
        
        
        (In Thousands)federal agencies
        $   19,504
        
        $   68
        
        $     (99)
        
        $   19,473Obligations of state andpolitical subdivisions
        6,220
        
        6
        
        (65)
        
        6,161Mortgage-backed securities
        1,832
        
        3
        
        - -
        
        1,835Restricted securities
        5,598
        
        - -
        
        - -
        
        5,598$   33,154
        
        $   77
        
        $   (164)
        
        $   33,067Gross
        
        GrossAmortized
        
        Unrealized
        
        Unrealized
        
        FairCost
        
        Gains
        
        (Losses)
        
        Value2005U.S. Government and
        
        
        (In Thousands)federal agencies
        $   12,429
        
        $     3
        
        $   (157)
        
        $   12,275Obligations of state andpolitical subdivisions
        7,157
        
        57
        
        (31)
        
        7,183Mortgage-backed securities
        259
        
        1
        
        (2)
        
        258Restricted securities
        3,426
        
        - -
        
        - -
        
        3,426$   23,271
        
        $   61
        
        $   (190)
        
        $   23,142         56     Notes to Consolidated Financial Statements    The amortized cost and fair value of the securities available for sale as of December 31, 2006, by contractual maturity, are shown below.  Expected maturities may differ from contractual maturities because mortgages underlying the mortgage-backed securities may be called or prepaid without any penalties.  Therefore, these securities are not included in the maturity categories in the maturity summary.  Amortized
        
        FairCost
        
        Value(In Thousands)Due in one year or less
        $    7,342
        
        $    7,333Due after one year through five years
        9,057
        
        9,015Due after five years through ten years
        7,627
        
        7,599Due over ten years
        1,698
        
        1,687Mortgage-backed securities
        1,832
        
        1,835Restricted securities
        5,598
        
        5,598$  33,154
        
        $  33,067   57     Notes to Consolidated Financial Statements     The amortized cost and fair value of securities being held to maturity as of December 31, 2006 and 2005, are as follows:  Gross
        
        GrossAmortized
        
        Unrealized
        
        Unrealized
        
        FairCost
        
        Gains
        
        (Losses)
        
        Value2006(In Thousands)U.S. Government andfederal agencies
        $    497
        
        $       - -
        
        $     (18)
        
        $    479Obligations of state andpolitical subdivisions
        3,834
        
        27
        
        (43)
        
        3,818Other Securities
        2,696
        
        15
        
        (287)
        
        2,424$ 7,027
        
        $      42
        
        $   (348)
        
        $ 6,721Gross
        
        GrossAmortized
        
        Unrealized
        
        Unrealized
        
        FairCost
        
        Gains
        
        (Losses)
        
        Value2005(In Thousands)U.S. Government andfederal agencies
        $    497
        
        $       - -
        
        $     (21)
        
        $    476Obligations of state andpolitical subdivisions
        4,014
        
        55
        
        (35)
        
        4,034Other Securities
        2,726
        
        35
        
        (288)
        
        2,473$ 7,237
        
        $      90
        
        $   (344)
        
        $ 6,983   58     Notes to Consolidated Financial Statements    The amortized cost and fair value of the securities being held to maturity as of December 31, 2006, by contractual maturity, are shown below.  Amortized
        
        FairCost
        
        Value(In Thousands)Due after one year through five years
        $   1,486
        
        $   1,501Due after five years through ten years
        2,045
        
        2,035Due over ten years
        3,496
        
        3,185$  7,027
        
        $    6,721  For the year ended December 31, 2006, there were sales of securities available for sale with amortized values of $4,200,000. A gain of $4,000 was recognized on these sales.  For the years ended December 31, 2005, and 2004, there were no sales of securities available for sale.  Securities having a carrying value of $16,867,000 and $9,285,000 at December 31, 2006 and 2005 were pledged to secure public deposits and for other purposes required by law.  Securities in an unrealized loss position at December 31, 2006, and 2005, by duration of the unrealized loss, are shown below.  No impairment has been recognized on any of the securities in a loss position because of managements intent and demonstrated ability to hold securities to scheduled maturity or call dates.  The losses are the result of interest rates, not credit concerns of the issuer.  There are approximately 50 securities in the consolidated portfolio of the three banks that have losses, which are considered to be temporary.  December 31, 2006Less Than 12 Months
        
        12 Months or More
        
        TotalFair Value
        
        Unrealized (Losses)
        
        Fair Value
        
        Unrealized (Losses)
        
        Fair Value
        
        Unrealized (Losses)(In Thousands)U.S. Governmentand agency securities
        $   1,888
        
        $    (7)
        
        $   7,563
        
        $    (110)
        
        $    9,451
        
        $    (117)Obligations of statesand political subdivisions
        4,859
        
        (77)
        
        1,882
        
        (30)
        
        6,741
        
        (107)Other securities
        66
        
        (184)
        
        1,702
        
        (103)
        
        1,768
        
        (287)Mortgage-backed securities
        -
        
        -
        
        25
        
        (1)
        
        25
        
        (1)$   6,813
        
        $    (268)
        
        $ 11,172
        
        $    (244)
        
        $  17,985
        
        $    (512)    59      Notes to Consolidated Financial Statements     December 31, 2005Less Than 12 Months
        
        12 Months or More
        
        TotalFair Value
        
        Unrealized (Losses)
        
        Fair Value
        
        Unrealized (Losses)
        
        Fair Value
        
        Unrealized (Losses)(In Thousands)U.S. Governmentand agency securities
        $  7,943
        
        $   (113)
        
        $   3,420
        
        $     (65)
        
        $ 11,363
        
        $      (178)Obligations of statesand political subdivisions
        3,048
        
        (55)
        
        709
        
        (11)
        
        3,757
        
        (66)Other securities
        69
        
        (180)
        
        1,728
        
        (108)
        
        1,797
        
        (288)Mortgage-backed securities
        76
        
        (1)
        
        53
        
        (1)
        
        129
        
        (2)$ 11,136
        
        $   (349)
        
        $   5,910
        
        $   (185)
        
        $ 17,046
        
        $      (534)  Note 3.
        Loans and Related Party Transactions  The composition of the net loans is as follows for the dates indicated:  December 31,2006
        
        2005(In Thousands)Mortgage loans on real estate:Construction
        $  202,280
        
        $  144,829Secured by farmland
        14,264
        
        5,514Secured by 1-4 family residential
        172,851
        
        141,697Multi-family residential
        38,930
        
        25,560Nonfarm, nonresidential loans
        184,061
        
        157,587Loans to farmers (except those secured by real estate)
        1,058
        
        1,576Commercial loans (except those secured by real estate)
        107,082
        
        69,869Consumer installment loans (except those secured by real estate)
        28,041
        
        26,235Overdrafts reclassified from deposits
        310
        
        386All other loans
        5,686
        
        5,743$  754,563
        
        $  578,996Less:Allowance for loan losses
        7,119
        
        5,591$  747,444
        
        $  573,405  The Corporation, through its banking subsidiaries, has had, and may be expected to have in the future, banking transactions in the ordinary course of business with directors, executive officers, their immediate families and affiliated companies in which they are principal shareholders (commonly referred to as related parties), on the same terms, including interest rates and collateral,  60     Notes to Consolidated Financial Statements   as those prevailing at the time for comparable transactions with others.  These persons and firms were indebted to the Banks for loans totaling $14,308,000 and $8,334,000 at December 31, 2006 and 2005, respectively. During 2006, total principal additions were $9,438,000 and total principal payments were $3,464,000.  The Company acquired loans pursuant to the acquisition of Albemarle First Bank .  In accordance with American Institute of Certified Public Accountants (AICPA) Statement of Position 03-3 (SOP 03-3), at acquisition, the Company reviews each loan to determine whether there is evidence of deterioration of credit quality since origination and if it is probable that it will be unable to collect all amounts due according to the loans contractual terms.  When both conditions exist, the Company accounts for each loan individually and considers expected prepayments, and estimates the amount and timing of undiscounted expected principal,
 interest, and other cash flows (expected at acquisition) for each loan.  The Company determines the excess of the loans scheduled contractual
 principal and contractual interest payments over all cash flows expected at acquisition
as an amount that should not be accreted into interest income (nonaccretable difference).  The remaining amount,
representing the excess of the loans cash flows expected to be collected over the amount paid, is accreted into interest income over the remaining life of the loan (accretable yield).  Over the life of the loan,
the Company continues to estimate cash flows expected to be collected.  The Company evaluates at the balance sheet date whether the
present value of its loans determined using the effective interest rates has decreased and if so, establishes a loan loss allowance for the loan.  The Companys valuation allowances for all acquired loans subject to SOP 03-3 reflect only those losses incurred after acquisition  that is, the present value of cash flows expected at acquisition that are not expected to be collected.  Valuation allowances are established only subsequent to acquisition of the loans.  For loans that are not accounted for as debt securities, the present value of any subsequent increase in the loans or pools actual cash flows or cash flows expected to be collected is used first to reverse any existing valuation allowance for that loan.
For any remaining increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized
on a prospective basis over the loans remaining life.  Information regarding loans that were acquired in the acquisition, for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be made, is summarized below:  December 31,2006(In Thousands)Commercial
        $                   715Consumer
        567Outstanding balance
        $                1,282   The carrying amount of these loans is included in the balance sheet amounts of loans receivable at December 31, 2006.  These loans are not included in the impaired loan amounts disclosed earlier in this Note. None of these loans are included in nonaccrual loans excluded from impaired loan disclosure described earlier in this Note.  There were no such loans outstanding at December 31, 2005.  61     Notes to Consolidated Financial Statements    Note 4.
        Allowance for Loan Losses  Changes in the allowance for loan losses are as follows for the years indicated:  December 31,2006
        
        2005
        
        2004(In Thousands)Balance, beginning
        $         5,591
        
        $         5,007
        
        $         4,104Allowance of acquired bank
        1,123
        
        - -
        
        - -Provision for loan losses
        661
        
        842
        
        1,020Recoveries
        105
        
        292
        
        121Loan losses charged tothe allowance
        (361)
        
        (550)
        
        (238)Balance, ending
        $         7,119
        
        $         5,591
        
        $         5,007   The following is a summary of information pertaining to impaired loans for the years ended December 31, 2006 and 2005:  December 31,2006
        
        2005(In Thousands)Impaired loans with a valuation allowance
        
        $      6,748
        
        $      1,582Impaired loans without a valuation allowance
        
        128
        
        390Total impaired loans
        
        
        $      6,876
        
        $      1,972Valuation allowance related to impaired loans
        
        $         898
        
        $         134Average investment in impaired loans
        
        
        $      2,630
        
        $      1,555Interest income recognized on impaired loans
        
        $            6
        
        $            7Interest income recognized on a cash basison impaired loans
        
        
        $            3
        
        $            6   62     Notes to Consolidated Financial Statements   No additional funds are committed to be advanced in connection with impaired loans.  Nonaccrual loans excluded from impaired loan disclosure under FASB 114 amounted to $14,721 and $74,474 at December 31, 2006 and 2005, respectively.  If interest on these loans had been accrued, such income would have approximated $1,000 and $4,800 for 2006 and 2005, respectively.  Note 5.
        Bank Premises and Equipment, Net  Bank premises and equipment as of December 31, 2006 and 2005 consists of the following:  2006
        
        2005(In Thousands)Bank premises
        $     20,972
        
        $      12,898Furniture and equipment
        12,144
        
        7,192Capital leases - property and equipment
        257
        
        257Bank premises and equipment in process
        1,000
        
        1,557$     34,373
        
        $      21,904Less accumulated depreciation
        8,593
        
        5,102$     25,780
        
        $      16,802   Depreciation and amortization, related to Bank premises and equipment, included in operating expense for 2006, 2005 and 2004 was $1,837,000, $1,258,000 and $1,036,000, respectively.  Note 6.
        Deposits  The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2006 and 2005 was $132,593,000 and $101,303,000, respectively.  At December 31, 2006, the scheduled maturities of time deposits are as follows (dollars in thousands):  Years Ending December 31:2007
        $       344,0002008
        45,6342009
        26,5502010
        15,8952011
        2,599$       434,678  Brokered deposits totaled $2,192,000 as of December 31, 2006.  There were no such deposits as of December 31, 2005.  63     Notes to Consolidated Financial Statements   Note 7.
        Income Taxes  Net deferred tax assets consist of the following components as of December 31, 2006 and 2005:  2006
        
        2005(In Thousands)Deferred tax assets:Allowance for loan losses
        $           2,206
        
        $           1,818Deferred loan fees
        215
        
        184Deferred benefit plans
        759
        
        558Securities available for sale
        29
        
        44Other
        272
        
        114$           3,481
        
        $           2,718Deferred tax liabilities:Depreciation
        $             772
        
        $             523Net deferred tax assetsincluded in other assets
        $           2,709
        
        $           2,195  The provision for income taxes charged to operations for the years ended December 31, 2006, 2005 and 2004, consists of the following:  2006
        
        2005
        
        2004(In Thousands)Current tax expense
        $      4,368
        
        $    3,916
        
        $     3,368Deferred tax (benefit)
        (529)
        
        (561)
        
        (384)$      3,839
        
        $    3,355
        
        $     2,984  The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the years ended December 31, 2006, 2005 and 2004, due to the following:  2006
        
        2005
        
        2004(In Thousands)Computed "expected" tax expense
        $     3,973
        
        $     3,569
        
        $     3,171Increase (decrease) in income taxesresulting from:Tax-exempt interest income
        (203)
        
        (228)
        
        (199)Other
        69
        
        14
        
        12$     3,839
        
        $     3,355
        
        $     2,984   64     Notes to Consolidated Financial Statements   Note 8.
        Leases  Capital Leases  The Marathon Bank has a lease agreement on a branch facility.  The liability is payable in monthly installments of $1,991 through May 31, 2016 at an interest rate of 8%. The capital lease payable at December 31, 2006 in the amount of $158,000 represents the present value of the balance due in future years for lease rentals discounted at the respective interest rates.  Since the term of the lease is approximately the same as the estimated useful life of the assets, and the present value of the future minimum lease payments at the beginning of the lease approximated the fair value of the leased assets at that date, the lease is considered to be a capital lease and has been so recorded.  The following is a schedule by years of the future minimum lease payments under the capital lease together with the present value of the net minimum lease payments as of December 31, 2006:  Years ending December 31 (dollars in thousands):2007
        $                 242008
        242009
        242010
        242011
        24Later years
        105Total minimum lease payments
        $               225Less the amount representing interest
        (67)Present value of net minimum of lease payments
        $               158   Operating Leases  Rockingham Heritage Bank has entered into a five-year operating lease with an entity of which a director of the Corporation is a shareholder.  The lease expires on November 30, 2010 and has three five-year renewal options.  The total minimum lease commitment at December 31, 2006 under this lease is $ 141,423.  The Banks were obligated under a number of other noncancelable leases for various banking premises, which including renewal options, expire through 2020.  Total rental expense on premises and equipment for 2006, 2005 and 2004, was $569,000, $365,000 and $325,000, respectively.  65     Notes to Consolidated Financial Statements    Minimum rental commitments under noncancelable operating leases with terms in excess of one year as of December 31, 2006 were as follows (dollars in thousands):  2007
        $        4062008
        3182009
        2952010
        2682011
        190Later years
        669$      2,146   Note 9.
        Commitments and Contingent Liabilities  In the normal course of business, there are other outstanding commitments and contingent liabilities, which are not reflected in the accompanying financial statements.  See Note 11 with respect to financial instruments with off-balance-sheet risk.  As members of the Federal Reserve System, the banking subsidiaries are required to maintain certain average reserve balances.  For the final weekly reporting period in the years ended December 31, 2006 and 2005, the aggregate amounts of daily average required balances were approximately $75,000.  The Banks are required to maintain certain required reserve balances with its correspondent bank.  Those required balances were $2,050,000 and $2,125,000 for 2006 and 2005, respectively.  Note 10.
        Dividend Restrictions  Federal and state banking regulations place certain restrictions on dividends paid and loans or advances made by the Banks to the Corporation.  The total amount of dividends which may be paid at any date is generally limited to the current year earnings and earnings retained for the two preceding years.  As of December 31, 2006, the aggregate amount of unrestricted funds, which could be transferred from the Corporations subsidiaries to the Parent Company, without prior regulatory approval, totaled approximately $25,119,000, or 35.07% of the consolidated net assets.  In addition, dividends paid by the Banks to the Corporation would be prohibited if the effect thereof would cause the Banks capital to be reduced below applicable minimum capital requirements.  66     Notes to Consolidated Financial Statements   Note 11.
        Financial Instruments With Off-Balance-Sheet Risk  The Corporation is 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 and standby letters of credit and commercial lines of credit.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.  The Corporation's exposure to credit loss is represented by the contractual amount of these commitments. The Banks follow the same credit policies in making commitments as it does for on-balance-sheet instruments.  At December 31, 2006 and 2005, the following financial instruments were outstanding whose contract amounts represent credit risk:  Contract Amount2006
        
        2005(In Thousands)Commitments to grant loans
        $       90,953
        
        $       71,820Standby letters of credit
        16,370
        
        13,142Unfunded commitments underlines of credit
        104,483
        
        97,289  Commitments to extend credit are agreements to lend to a customer as long as there is no 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 Corporation evaluates each customer's credit worthiness on a case-by-case basis.  The amount of collateral obtained, if it is deemed necessary by the Banks, is based on management's credit evaluation of the counterparty.  Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers.  These lines of credit generally are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Banks are committed.  Commercial and standby letters of credit are conditional commitments issued by the Banks to guarantee the performance of a customer to a third party.  Those letters of credit are primarily issued to support public and private borrowing arrangements.  Essentially all letters of credit issued have expiration dates within one year.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  The Banks generally hold collateral supporting those commitments for which collateral is deemed necessary.  67     Notes to Consolidated Financial Statements   The Banks have cash accounts in other commercial banks.  The amount on deposit at these banks at December 31, 2006 exceeded the insurance limits of the Federal Deposit Insurance Corporation by approximately $3,850,000.  Note 12.
        Employee Benefit Plans  The Corporation has a 401(k) Profit Sharing Plan covering employees who have completed 90 days of service and are at least 18 years of age.  Employees may contribute compensation subject to certain limits based on federal tax laws. The Corporation makes matching contributions equal to 100 percent of an employees compensation contributed to the Plan up to 5 percent of the employees compensation.  Additional amounts may be contributed, at the option of the Board of Directors.  These additional contributions generally amount to 3.75 percent of eligible employees compensation.  Employer contributions vest to the employee over a six-year period.  For the years ended December 31, 2006, 2005 and 2004, expense attributable to these retirement plans amounted to $760,000, $613,000 and $330,000, respectively.  Deferred Compensation Plans  The Corporation has entered into individual contracts with selected officers whereby they participate in a supplemental employee retirement contract.   Under the terms of the agreements, the officers are paid an amount equal to 25% of the individual employees final base compensation at time of retirement and for some employees 25% of the final base compensation plus a five year average of bonus payments.  Benefits are to be paid in monthly installments commencing at retirement for a period of 180 months.  The agreements provide that, if employment is terminated for reasons other than retirement or disability, the benefit is reduced based upon a vesting schedule.  If death occurs prior to termination of service, the
agreements provide that either a life insurance benefit of up to three times compensation is paid to the employees beneficiary or the
accrued benefit plus life insurance in the amount of $50,000 are paid to the employees beneficiary.  The deferred compensation charged to expense for the twelve months ended December 31, 2006 and 2005, based on the present value of the retirement benefits under the plans described above, was $425,000 and $559,000, respectively. The plans are unfunded; however, life insurance has been acquired on the life of the employees in amounts sufficient to offset the expense of the obligations.         68     Notes to Consolidated Financial Statements  Note 13.Fair Value of Financial Instruments and Interest Rate Risk  The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:  Cash and Cash Equivalents  For those short-term instruments, the carrying amount is a reasonable estimate of fair value.  Securities  For securities, fair values are based on quoted market prices or dealer quotes.  Loan Receivables  For certain homogeneous categories of loans, such as some residential mortgages, and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.  The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.  Deposits and Borrowings  The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date.  The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.  The fair value of all other deposits and borrowings is determined using the discounted cash flow method.  The discount rate was equal to the rate currently offered on similar products.  Accrued Interest  The carrying amounts of accrued interest approximate fair value.  Off-Balance-Sheet Financial Instruments  The fair value of commitments to extend credit is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of stand-by letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.     69     Notes to Consolidated Financial Statements    At December 31, 2006 and 2005, the fair value of loan commitments and stand-by letters of credit were immaterial.  2006
        
        2005Carrying
        
        Fair
        
        Carrying
        
        FairAmount
        
        Value
        
        Amount
        
        Value(Thousands)
        
        (Thousands)Financial assets:Cash and short-terminvestments
        $   52,064
        
        $   52,064
        
        $   40,362
        
        $   40,362Securities
        40,094
        
        39,788
        
        30,379
        
        30,125Loans, net
        747,444
        
        734,177
        
        573,405
        
        565,634Accrued interest receivable
        3,804
        
        3,804
        
        2,467
        
        2,467Financial liabilities:Deposits
        $  728,274
        
        $  751,403
        
        $  562,880
        
        $  583,404Federal Home Loan Bankadvances
        55,000
        
        55,599
        
        30,000
        
        30,021Short-term borrowings
        597
        
        597
        
        543
        
        543Capital lease payable
        158
        
        158
        
        169
        
        169Trust preferred capital notes
        39,267
        
        39,267
        
        21,651
        
        21,651Accrued interest payable
        1,484
        
        1,484
        
        781
        
        781  The Corporation, through its banking subsidiaries, assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations.  As a result, the fair values of their financial instruments will change when interest rate levels
change and that change may be either favorable or unfavorable.  Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk.  However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment.  Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a
 rising rate environment and less likely to do so in a falling rate environment.  Management monitors rates and maturities of assets and liabilities and attempts to
minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the
Corporation's overall interest rate risk.      70     Notes to Consolidated Financial Statements   Note 14.
        Minimum Regulatory Capital Requirements  The Corporation (on a consolidated basis) and the Banks 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 Corporations and Banks financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Banks must
meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.  The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.  Prompt
correction action provisions are not applicable to bank holding companies.  Quantitative measures established
 by regulation to ensure capital adequacy require the Corporation and the Banks to maintain minimum amounts and ratios (set forth in the
table below) of 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).  Management believes, as of December 31, 2006 and 2005, that the Corporation and the Banks met all capital adequacy requirements to which they are subject.  As of December 31, 2006, the most
recent notification from the Federal Reserve Bank categorized the Banks as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below.  There are no conditions or events since
 the notification that management believes have changed the Banks category.  The Corporations and the Banks capital amounts and ratios as of December 31, 2006 and 2005 are also presented in the table.  71     Notes to Consolidated Financial Statements   Actual
        
        Minimum Capital Requirement
        
        Minimum
To Be Well
Capitalized Under Prompt Corrective Action ProvisionsAmount
        
        Ratio
        
        Amount
        
        Ratio
        
        Amount
        
        Ratio(Amount in Thousands)As of December 31, 2006:Total Capital to RiskWeighted Assets:Consolidated
        $ 100,153
        
        13.27%
        
        $ 60,365
        
        8.00%
        
        N/A
        
        N/AThe Marathon Bank
        $  45,718
        
        12.38%
        
        $ 29,536
        
        8.00%
        
        $ 36,919
        
        10.00%Rockingham Heritage Bank
        $  42,927
        
        12.18%
        
        $ 28,198
        
        8.00%
        
        $ 35,248
        
        10.00%Premier Bank, Inc.
        $    6,549
        
        18.93%
        
        $   2,768
        
        8.00%
        
        $   3,460
        
        10.00%Tier 1 Capital to RiskWeighted Assets:Consolidated
        $  71,689
        
        9.50%
        
        $ 30,183
        
        4.00%
        
        N/A
        
        N/AThe Marathon Bank
        $  41,941
        
        11.36%
        
        $ 14,768
        
        4.00%
        
        $ 22,152
        
        6.00%Rockingham Heritage Bank
        $  39,932
        
        11.33%
        
        $ 14,099
        
        4.00%
        
        $ 21,149
        
        6.00%Premier Bank, Inc.
        $    6,202
        
        17.93%
        
        $   1,384
        
        4.00%
        
        $   2,076
        
        6.00%Tier 1 Capital toAverage Assets:Consolidated
        $  71,689
        
        8.04%
        
        $ 35,660
        
        4.00%
        
        N/A
        
        N/AThe Marathon Bank
        $  41,941
        
        9.70%
        
        $ 17,298
        
        4.00%
        
        $ 21,622
        
        5.00%Rockingham Heritage Bank
        $  39,932
        
        9.67%
        
        $ 16,521
        
        4.00%
        
        $ 20,652
        
        5.00%Premier Bank, Inc.
        $    6,202
        
        13.39%
        
        $   1,852
        
        4.00%
        
        $   2,315
        
        5.00%As of December 31, 2005:Total Capital to RiskWeighted Assets:Consolidated
        $  77,615
        
        13.56%
        
        $ 45,807
        
        8.00%
        
        N/A
        
        N/AThe Marathon Bank
        $  40,107
        
        12.39%
        
        $ 25,900
        
        8.00%
        
        $ 32,375
        
        10.00%Rockingham Heritage Bank
        $  25,083
        
        11.09%
        
        $ 18,098
        
        8.00%
        
        $ 22,622
        
        10.00%Premier Bank, Inc.
        $    5,446
        
        21.38%
        
        $   2,038
        
        8.00%
        
        $   2,548
        
        10.00%Tier 1 Capital to RiskWeighted Assets:Consolidated
        $  67,164
        
        11.73%
        
        $ 22,904
        
        4.00%
        
        N/A
        
        N/AThe Marathon Bank
        $  36,593
        
        11.30%
        
        $ 12,950
        
        4.00%
        
        $ 19,425
        
        6.00%Rockingham Heritage Bank
        $  23,300
        
        10.30%
        
        $   9,049
        
        4.00%
        
        $ 13,573
        
        6.00%Premier Bank, Inc.
        $    5,152
        
        20.22%
        
        $   1,019
        
        4.00%
        
        $   1,529
        
        6.00%Tier 1 Capital toAverage Assets:Consolidated
        $  67,164
        
        9.90%
        
        $ 27,144
        
        4.00%
        
        N/A
        
        N/AThe Marathon Bank
        $  36,593
        
        9.39%
        
        $ 15,594
        
        4.00%
        
        $ 19,493
        
        5.00%Rockingham Heritage Bank
        $  23,300
        
        8.96%
        
        $ 10,403
        
        4.00%
        
        $ 13,003
        
        5.00%Premier Bank, Inc.
        $    5,152
        
        17.96%
        
        $   1,147
        
        4.00%
        
        $   1,434
        
        5.00%   72     Notes to Consolidated Financial Statements   Note 15.Stock Compensation Plan  The Corporations Long-Term Incentive Plans allow for incentive stock options and nonqualified stock options to be granted to certain key employees and directors with an exercise price to be not less than 100% of the Fair Market Value of the Stock on the day the stock option is granted.  440,000 shares of the Corporations common stock plus sufficient shares to cover the options outstanding under the Corporations previous plan have been reserved for the issuance of stock options under the Plan.  All options expire ten years from the grant date and vest 25% at the date of grant and 25% each year for the three years following the grant date.  A summary of the activity in the stock option plan follows:  2006
        
        
        
        2005
        
        2004Weighted
        
        
        
        WeightedNumber
        
        Average
        
        Average
        
        Number
        
        Average
        
        Number
        
        Averageof
        
        Exercise
        
        Intrinsic
        
        of
        
        Exercise
        
        of
        
        ExerciseShares
        
        Price
        
        Value1
        
        Shares
        
        Price
        
        Shares
        
        PriceOutstanding at beginning of year
        314,650
        
        $  12.01
        
        
        
        255,500
        
        $    8.23
        
        295,275
        
        $  7.77Granted
        27,000
        
        20.55
        
        
        
        98,000
        
        20.28
        
        4,000
        
        17.56Acquisition of bank
        71,692
        
        13.30
        
        
        
        - -
        
        - -
        
        - -
        
        - -Exercised
        (67,150)
        
        8.64
        
        
        
        (36,100)
        
        6.90
        
        (41,775)
        
        5.91Forfeited
        (2,000)
        
        20.25
        
        
        
        (2,750)
        
        10.50
        
        (2,000)
        
        7.30Outstanding at end of year
        344,192
        
        $  13.62
        
        $2,404,591
        
        314,650
        
        $  12.01
        
        255,500
        
        $   8.23Options exercisable at year-end
        323,942
        
        $  12.84
        
        $2,399,562
        
        314,650
        
        $  12.01
        
        230,750
        
        $   7.79Weighted-average fair value ofoptions granted during the year
        $      5.21
        
        
        
        
        
        $    4.95
        
        
        
        $   4.36  1The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on December 31, 2006.  This amount changes based on changes in the market value of the Companys stock.  The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.        73      Notes to Consolidated Financial Statements    Information pertaining to options outstanding at December 31, 2006 is as follows:  Options Outstanding
        
        Options ExercisableWeighted
        
        
        
        WeightedAverage
        
        
        
        AverageRemaining
        
        
        
        RemainingExercise
        
        Number
        
        Contractual
        
        Number
        
        ContractualPrice
        
        Outstanding
        
        Life
        
        Exercisable
        
        Life$  7.30
        
        105,000
        
        5.25
        
        105,000
        
        5.2510.53
        
        42,000
        
        6.25
        
        42,000
        
        6.2511.67
        
        1,000
        
        6.75
        
        1,000
        
        6.7517.56
        
        4,000
        
        8.00
        
        4,000
        
        8.0017.79
        
        4,000
        
        8.00
        
        4,000
        
        8.0020.25
        
        74,000
        
        9.25
        
        74,000
        
        9.2520.44
        
        16,000
        
        9.25
        
        16,000
        
        9.2521.05
        
        9,000
        
        9.75
        
        2,250
        
        9.7520.30
        
        18,000
        
        9.75
        
        4,500
        
        9.7513.32
        
        68,189
        
        3.00
        
        68,189
        
        3.0012.89
        
        3,003
        
        3.00
        
        3,003
        
        3.00Outstanding at end of year344,192
        
        6.37
        
        323,942
        
        6.13    74     Notes to Consolidated Financial Statements   Note 16.
        Earnings Per Share  The following shows, for the years indicated, the weighted average number of shares used in computing earnings per share and the effect on weighted average number of shares of diluted potential common stock. Potential dilutive common stock had no effect on income available to common shareholders.  2006
        
        2005
        
        2004Per
        
        
        
        Per
        
        
        
        PerShare
        
        
        
        Share
        
        
        
        ShareShares
        
        Amount
        
        Shares
        
        Amount
        
        Shares
        
        AmountBasic earningsper share
        5,322,973
        
        $    1.47
        
        4,939,847
        
        $    1.45
        
        4,893,442
        
        $    1.30Effect of dilutivesecurities:Stock options
        90,542
        
        
        
        136,763
        
        
        
        155,355Diluted earningsper share
        5,413,515
        
        $    1.45
        
        5,076,610
        
        $    1.41
        
        5,048,797
        
        $    1.26  In 2006 stock options representing 5,471 shares were not included in computing diluted EPS because their effects were antidilutive.  In 2005 and 2004 there were no shares excluded from earnings per share or considered to be antidilutive.  Note 17.
        Borrowings  The Corporations banking subsidiaries have a line of credit with the Federal Home Loan Bank (FHLB) of Atlanta for $171,000,000 and $128,800,000 as of December 31, 2006 and 2005, respectively. Advances bear interest at a fixed or floating rate depending on the terms and maturity of each advance and numerous renewal options are available.  These advances are secured by 1-4 family residential mortgages.  The unused line of credit totaled $116,000,000 and $98,800,000 at December 31, 2006 and 2005, respectively.  On some fixed rate advances the FHLB may convert the advance to an indexed floating interest rate at some set point in time for
 the remainder of the term.  If the advance converts to a floating interest rate, the Banks may pay back all or part of the advance without a prepayment penalty.  Floating rate advances may be paid back at any time without penalty.  As of December 31, 2006, the fixed-rate
 long-term debt totaled $10,000,000 and matures on April 15, 2008.  The interest rate on the fixed-rate note is 4.15%.  As of December 31,
2006, the adjustable rate long-term debt totaled $45,000,000 and matures through May 23, 2019.  The interest rates on the adjustable-rate notes payable range from 4.21% to 5.58%.  As of December 31, 2005, the fixed-rate
 long-term debt totaled $19,000,000 and matures through April 6, 2011.  The interest rates on the fixed-rate note payable ranges from 2.50%
to 4.50%.  As of December 31, 2005, the adjustable rate long-term debt totaled $11,000,000 and matures through June 24, 2010.  The interest rates on the adjustable-rate note payable ranges from 3.88% to 4.50%.   75     Notes to Consolidated Financial Statements   The contractual maturities of FHLB advances as of December 31, 2006 are as follows (dollars in thousands):  Due in 2007
        $           10,000Due in 2008
        10,000Due in 2011
        10,000Due in 2019
        25,000$           55,000   In 2001, Premier Statutory Trust I, a
wholly-owned subsidiary of the Corporation, was formed for the purpose of issuing redeemable Capital Securities.  On December 18, 2001, $7.2 million of trust preferred securities were issued through a pooled underwriting totaling approximately $300 million.  In December 2006, the Corporation called this debenture and created Premier Statutory Trust V (noted below) to pay off Trust I and infuse additional capital into the Corporation at a lower interest rate.  In 2003, Premier Statutory Trust II, a wholly-owned subsidiary of the Corporation, was formed for the purpose of issuing redeemable Capital Securities.  On September 25, 2003, an additional $6.2 million of trust preferred securities were issued through a pooled underwriting.  The securities have a LIBOR-indexed floating rate of interest. The interest rate as of December 31, 2006 was 8.47%.  Interest is payable monthly. The issue has a floating interest rate of the prevailing 3-month LIBOR rate plus 3.10%. The
securities have an optional redemption date of October 8, 2008, and are subject to varying call provisions beginning October 8, 2033.
 The principal asset of the Trust is $6.2 million of the Corporations junior subordinated debt securities with the like maturities
and like interest rates to the Capital Securities.  In 2005, Premier Statutory Trust III, a
wholly-owned subsidiary of the Corporation, was formed for the purpose of issuing redeemable Capital Securities.  On April 25, 2005, the
Corporation entered into an agreement with First Tennessee Bank to issue an additional $8.2 million in Trust Preferred Capital Notes.  The securities have a LIBOR-indexed floating rate of interest.  The interest rate as of December 31, 2006 was 7.11%.  Interest is payable monthly.  The issue has a floating interest rate of the prevailing 3-month LIBOR rate plus 1.74%. The issue has a maturity date of May 16, 2035. The principal asset of the Trust is $8.2 million of the Corporations junior subordinated debt securities with the like maturities and like interest rates to the Capital Securities.  In 2006, Premier Statutory Trust IV, a
 wholly-owned subsidiary of the Corporation, was formed for the purpose of issuing redeemable Capital Securities.  On June 20, 2006, the
 Corporation entered into an agreement with Wilmington Trust Company to issue an additional $14.4 million in Trust Preferred Capital Notes.
 The securities have a LIBOR-indexed floating rate of interest.  The interest rate as of December 31, 2006 was 6.92%.  Interest is payable monthly.  The issue has a floating interest rate of the prevailing 3-month
LIBOR rate plus 1.55%. The issue has a maturity date of June 20, 2036. The principal asset of the Trust is $14.4 million of the Corporations junior subordinated debt securities with the like maturities and like interest rates to the Capital Securities.  The proceeds of this issue were used to fund the acquisition of Albemarle.  76     Notes to Consolidated Financial Statements  In 2006, Premier Statutory Trust V, a wholly-owned subsidiary of the Corporation, was formed for the purpose of issuing redeemable Capital Securities.  On December 14, 2006, the Corporation entered into an agreement with Wilmington Trust Company to issue an additional $10.3 million in Trust Preferred Capital Notes.  The securities have a LIBOR-indexed floating rate of interest.  The interest rate as of December 31, 2006 was 6.62%.  Interest is payable monthly.  The issue has a floating interest rate of the prevailing 3-month LIBOR rate plus 1.61%. The issue has a maturity date of December 14,
2036. The principal asset of the Trust is $10.3 million of the Corporations junior subordinated debt securities with the
like maturities and like interest rates to the Capital Securities.  The proceeds of this issue were used to pay off Premier Statutory Trust I, and to infuse additional
capital into the Corporation.  The Trust Preferred Securities may
 be included in Tier 1 capital for regulatory capital adequacy determination purposes up to 25% of Tier I capital after its inclusion.
The portion of the Trust Preferred not considered as Tier I capital may be included in Tier II capital.  The obligations of the Corporation
with respect to the issuance of the Capital Securities constitute a full and unconditional guarantee by the Corporation of the Trusts obligations with respect to the Capital Securities.  Subject to certain exceptions and
 limitations, the Corporation may elect from time to time to defer interest payments on the junior subordinated debt securities, which would result in a deferral of distribution payments on the related Capital Securities.  Note 18.  Goodwill and Other Intangible Assets  In connection with the acquisition
of Albemarle, the Corporation recorded $15.8 million in goodwill and $3.0 million in core deposit intangible assets.  The core deposit intangible assets are amortized over a weighted average remaining useful life of 7.37 years on a straight-line basis.  The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, which discontinues the amortization of goodwill and intangible assets with indefinite lives but requires an annual or more frequent impairment review if certain impairment indicators are evidenced.  There have been no events subsequent to the acquisition that would indicate any evidence of impairment of goodwill.  Information concerning goodwill and
 intangible assets is presented in the following table (in thousands):  Gross Carrying
        Accumulated
        Net CarryingValue
        Amortization
        ValueDecember 31, 2006Amortizable core deposit intangibles
        $              3,030
        $              103
        $        2,927Goodwill
        15,800
        --
        15,800    77     Notes to Consolidated Financial Statements  Note 19.Other Expenses  The Corporation and its subsidiaries had the following expenses for the years ended December 31, 2006, 2005 and 2004 as follows:  2006
        
        2005
        
        2004(In Thousands)Advertising
        $      706
        
        $      690
        
        $       621ATM expense
        498
        
        440
        
        374Bank Franchise Tax
        606
        
        463
        
        337Directors' fees
        684
        
        523
        
        425Legal and Accounting
        431
        
        472
        
        525Stationary and supplies
        601
        
        530
        
        431Telephone expense
        474
        
        419
        
        388Other (no item >1% of revenue)
        3,791
        
        2,744
        
        2,218$   7,791
        
        $   6,281
        
        $    5,319                78     Notes to Consolidated Financial Statements   Note 20.
        Subsequent EventProposed Merger with United Bankshares, Inc.  On January 26, 2007, Premier Community Bankshares, Inc. (the Company) entered into an Agreement and Plan of Reorganization (the Agreement) with United Bankshares, Inc. (United). The Agreement sets forth the terms and conditions of Uniteds acquisition of the Company through the merger of the Company with and into a subsidiary of United (the Merger). Under the terms of the Agreement, United will issue to the shareholders of the Company, for each share of the Companys common stock that they own, 0.93 shares of Uniteds common stock or $34.00 in cash, subject to the limitation that no less than 50% and no more than 65% of the total consideration will be in the form of stock. Shareholders of the Company may elect to receive Uniteds common stock, cash, or a combination of common stock and cash for their shares of the Companys common stock, subject to pro ration in the event that the aggregate stock elections are less than the 50% minimum or exceed the 65% maximum. In addition, at the effective time of the Merger, each outstanding option to purchase shares of the Companys common stock under any of the Companys stock plans shall vest pursuant to its terms and shall be converted into an option to acquire the number of shares of Uniteds common stock equal to the number of shares of the Companys common stock underlying the option multiplied by 0.93. The exercise price of each option will be adjusted accordingly. The Agreement also provides for the merger of The Marathon Bank, Rockingham Heritage Bank and Premier Bank, the three wholly-owned banking subsidiaries of the Company, with and into United Bank, a wholly-owned subsidiary of United, immediately after the effective time of the Merger. Consummation of the Merger is subject to a number of customary conditions including the approval of the Merger by the Companys shareholders and the receipt of all required regulatory approvals. The Merger is expected to be completed in the second quarter or early third quarter of 2007. The Agreement provides that, if either party terminates the Agreement because the Companys shareholders did not approve it and at that time there is a current proposal for a business combination involving the Company or any of its subsidiaries from another party, or because the Companys board of directors failed to recommend that shareholders approve and adopt the Agreement, the Company will pay United a break-up fee of $8 million.     79     Notes to Consolidated Financial Statements Note 21.
        Parent Corporation Only Financial Statements  2006
        
        2005(In Thousands)AssetsCash
        $         516
        
        $      1,178Interest bearing deposits with subsidiary banks
        1,579
        
        3,516Federal funds sold
        2,796
        
        2,414Investment in subsidiaries
        107,012
        
        64,961Equipment, net
        604
        
        691Other assets
        297
        
        776Total assets
        $   112,804
        
        $    73,536LiabilitiesAccrued expenses
        $         342
        
        $         357Dividends payable
        1,482
        
        1,239Trust preferred capital notes
        39,267
        
        21,651$    41,091
        
        $    23,247Shareholders' EquityPreferred stock
        $          - -
        
        $          - -Common stock
        5,700
        
        4,956Capital surplus
        34,095
        
        19,805Retained earnings
        31,975
        
        25,612Accumulated other comprehensive loss
        (57)
        
        (84)Total shareholders' equity
        $    71,713
        
        $    50,289Total liabilities and shareholders' equity
        $   112,804
        
        $    73,536    80     Notes to Consolidated Financial Statements PREMIER COMMUNITY BANKSHARES, INC.(Parent Corporation Only)Statements of IncomeYears Ended December 31, 2006, 2005 and 20042006
        
        2005
        
        2004(In Thousands)IncomeInterest on federal funds sold
        $       93
        
        $       82
        
        $       60Interest on deposits in other banks
        65
        
        66
        
        72Management fee income
        1,012
        
        278
        
        247Total income
        $  1,170
        
        $     426
        
        $     379ExpensesInterest expense on trust preferred capital notes
        $  2,244
        
        $  1,156
        
        $     640Other expenses
        1,791
        
        1,053
        
        802Total expense
        $  4,035
        
        $  2,209
        
        $  1,442(Loss) before income tax (benefit) andundistributed income of subsidiaries
        $ (2,865)
        
        $ (1,783)
        
        $ (1,063)Income tax (benefit)
        (954)
        
        (601)
        
        (366)(Loss) before undistributedincome of subsidiaries
        $ (1,911)
        
        $ (1,182)
        
        $   (697)Undistributed income of subsidiaries
        9,756
        
        8,323
        
        7,040Net income
        $  7,845
        
        $  7,141
        
        $  6,343   81     Notes to Consolidated Financial Statements PREMIER COMMUNITY BANKSHARES, INC.(Parent Corporation Only)Statements of Cash FlowsYears Ended December 31, 2006, 2005 and 20042006
        
        2005
        
        2004(In Thousands)Cash Flows from Operating ActivitiesNet income
        $   7,845
        
        $   7,141
        
        $   6,343Adjustments to reconcile net income to net cash(used in) operating activities:Depreciation expense
        328
        
        277
        
        247(Undistributed income) of subsidiary
        (9,756)
        
        (8,323)
        
        (7,040)Decrease (increase) in other assets
        (676)
        
        443
        
        258Increase (decrease) in accrued expenses
        (15)
        
        74
        
        (39)Net cash (used in) operating activities
        $  (2,274)
        
        $    (388)
        
        $    (231)Cash Flows from Investing ActivitiesIncrease in investment in subsidiaries
        $  (4,000)
        
        $  (6,000)
        
        $  (5,000)Purchase of equipment
        (241)
        
        (235)
        
        (75)(Increase) decrease in investment in certificatesof deposit with subsidiaries
        1,937
        
        (66)
        
        4,979Net cash (used in) investing activities
        $  (2,304)
        
        $  (6,301)
        
        $ (96)Cash Flows from Financing ActivitiesNet proceeds from issuance of common stock
        $ 759
        
        $ 329
        
        $ 271Repurchase of common stock
        (254)
        
        - -
        
        (58)Proceeds from trust preferred capital notes
        24,743
        
        8,248
        
        - -Repayment of trust preferred capital notes
        (7,217)
        
        - -
        
        - -Cash paid in bank acquisition
        (14,494)
        
        - -
        
        - -Dividends from subsidiary banks
        2,000
        
        - -
        
        - -Payment of dividends
        (1,239)
        
        (1,033)
        
        (879)Net cash provided by (used in) financing activities
        $   4,298
        
        $   7,544
        
        $    (666)Increase (decrease) in cash and cash equivalents
        $    (280)
        
        $ 855
        
        $    (993)Cash and Cash EquivalentsBeginning
        3,592
        
        2,737
        
        3,730Ending
        $   3,312
        
        $   3,592
        
        $   2,737    82      Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  None.  Item 9A.  Controls and Procedures  Disclosure Controls and Procedures  The Corporation maintains disclosure controls and procedures that are designed to provide assurance that information required to be disclosed by the Corporation in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission.  An evaluation of the effectiveness of the design and operation of the Corporations disclosure controls and procedures as of December 31, 2006 was carried out under the supervision and with the participation of management, including the Corporations Chief Executive Officer and Chief Financial Officer.  Based on and as of the date of such evaluation, the aforementioned officers concluded that the Corporations disclosure controls and procedures were effective.  Managements Report on Internal Control over Financial Reporting  Management of the Corporation is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.  The Corporations internal control over financial reporting is designed to provide reasonable assurance to the Corporations management and board of directors regarding the preparation and fair presentation of published financial statements in accordance with generally accepted accounting principles.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Management assessed the effectiveness of the Corporations internal control over financial reporting as of December 31, 2006.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control-Integrated Framework.Based on this assessment, management believes that, as of December 31, 2006, the Corporations internal control over financial reporting was effective based on those criteria.  Managements assessment of the effectiveness of internal control over financial reporting as of December 31, 2006, has been audited by Yount, Hyde & Barbour, P.C., the independent registered public accounting firm who also audited the Corporations consolidated financial statements included in this Annual Report on Form 10-K.  Yount, Hyde & Barbour, P.C.s attestation report on managements assessment of the Corporations internal control over financial reporting appears on pages 41 and 42 hereof.  Changes in Internal Control Over Financial Reporting  There were no changes in the Corporations internal control over financial reporting during the Corporations fourth quarter ended December 31, 2006, that have materially affected, or are reasonably likely to materially affect, the Corporations internal control over financial reporting.  Item 9B.  Other Information  None.  83      PART III  The information required by Items 10, 11, 12, 13 and 14 of Part III has been incorporated herein by reference to the Corporations Proxy Statement for the 2007 Annual Meeting of Shareholders (the 2007 Proxy Statement) as set forth below in accordance with General Instruction G.3 of Form 10-K.  Item 10.  Directors, Executive Officers and Corporate Governance  Information with respect to this Item 10 is set forth in the sections entitled Election of Directors, Corporate Governance and the Board of Directors  Committees of the Board, Stock Ownership  Section 16(a) Beneficial Ownership Reporting Compliance and Corporate Governance and the Board of Directors  Code of Ethics of the 2007 Proxy Statement and is incorporated herein by reference.  Item 11.  Executive Compensation  Information with respect to this Item 11 is set forth in the sections entitled Executive Compensation (except for the Compensation Committee Report) and Corporate Governance and the Board of Directors  Director Compensation in the 2007 Proxy Statement and is incorporated herein by reference.  Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  Information with respect to this Item 12 is set forth in the sections entitled Stock Ownership and Executive Compensation  Equity Compensation Plan Information in the 2007 Proxy Statement and is incorporated herein by reference.  Item 13.  Certain Relationships and Related Transactions, and Director Independence  Information with respect to this Item 13 is set forth in the section entitled Executive Compensation  Certain Relationships and Related Transactions and Corporate Governance and the Board of Directors -Director Independence in the 2007 Proxy Statement and is incorporated herein by reference.  Item 14.  Principal Accounting Fees and Services  Information with respect to this Item 14 is set forth in the section entitled Audit Information  Fees of Independent Public Accountants and  Pre-Approved Policies and Procedures in the 2007 Proxy Statement and is incorporated herein by reference.  84       PART IV  Item 15.  Exhibits, Financial Statement Schedules  (a)
        (1) and (2).  The response to this portion of Item 15 is included in Item 8 above.  (3).  Exhibits:  2.1
        Agreement and Plan of Merger, dated as of January 12, 2006, between Premier Community Bankshares, Inc., Rockingham Heritage Bank and Albemarle First Bank, incorporated herein by reference to Exhibit 2.1 to the Corporations Current Report on Form 8-K filed January 17, 2006 (File No. 0-18868). 2.2
        Agreement and Plan of Reorganization, dated as of January 26, 2007, by and between United Bankshares, Inc. and Premier Community Bankshares, Inc., incorporated herein by reference to Exhibit 2.1 to the Corporations Current Report on Form 8-K filed January 29, 2007 (File No. 0-18868). 3.1
        Amended and Restated Articles of Incorporation, incorporated herein by reference to Exhibit 3.1 to the Corporation's Annual Report on Form 10-KSB for the year ended December 31, 2000 (File No. 0-18868). 3.2
        Bylaws (as amended and restated in electronic format as of February 15, 2007), incorporated herein by reference to Exhibit 3.1 to the Corporation's Current Report on Form 8-K filed February 22, 2007 (File No. 333-109656). 10.1
        401(k) Plan of Marathon Financial Corporation, incorporated herein by reference to Exhibit 10.1 to the Corporation's Registration Statement on Form S-1 filed August 26, 1992 (File No. 33-51366). 10.2
        Lease between The Marathon Bank and Post Office Plaza, L.C. for the branch office at 300 Warren Avenue, Front Royal, Virginia, incorporated herein by reference to Exhibit 10.3 to the Corporation's Registration Statement on Form S-1 filed July 26, 1992 (File No. 333-08995). 10.3
        Lease between The Marathon Bank and the Lessor, James Butcher, for the branch office at 1041 Berryville Avenue, Winchester, Virginia, incorporated herein by reference to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1995 (File No. 0-18868). 10.4
        Lease between The Marathon Bank and the Lessors, Keith R. Lantz and Mary G. Lantz, for land at 1014 Main Street, Woodstock, Virginia, incorporated herein by reference to Exhibit 10.5 to the Corporation's Annual Report on Form 10-KSB for the year ended December 31, 1997 (File No. 0-18868). 10.5
        1996 Long-Term Incentive Plan of Marathon Financial Corporation, incorporated herein by reference to Exhibit 99 to the Corporation's Registration Statement on Form S-8 filed November 26, 1997 (File No. 333-41163).* 10.6
        2002 Long-Term Incentive Plan of the Corporation, incorporated herein by reference to Exhibit 99 to the Corporation's Registration Statement on Form S-8 filed December 3, 2002 (File No. 333-101619).* 10.7
        Salary Reduction Deferred Compensation Agreement, dated as of September 22, 1998, between The Marathon Bank and Donald L. Unger, incorporated herein by reference to Exhibit 10.8 to the Corporation's Registration Statement on Form S-1, as amended, filed October 10, 2003 (File No. 333-109656).* 10.8
        Employment Agreement, dated as of April 1, 1998, between Marathon Financial Corporation and Donald L. Unger, incorporated herein by reference to Exhibit 10.8 to the Corporations Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 0-18868).* 10.9
        Form of Stock Option Grant Agreement (for employees), incorporated herein by reference to Exhibit 10.9 to the Corporations Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 0-18868).* 10.10
        Form of Stock Option Grant Agreement (for directors), incorporated herein by reference to Exhibit 10.10 to the Corporations Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 0-18868).*  85      10.11
        Employment Agreement by and between the Company and John K. Stephens, dated as of December 12, 2006, incorporated herein by reference to Exhibit 10.1 to the Corporations Current Report on Form 8-K filed December 26, 2006 (File No. 0-18868).* 10.12
        Employment Agreement by and between the Company and Meryl G. Kiser, dated as of December 12, 2006, incorporated herein by reference to Exhibit 10.2 to the Corporations Current Report on Form 8-K filed December 26, 2006 (File No. 0-18868).* 10.13
        Management Continuity Agreement by and between the Company and John A. Willingham, dated as of December 12, 2006, incorporated herein by reference to Exhibit 10.3 to the Corporations Current Report on Form 8-K filed December 26, 2006 (File No. 0-18868).* 21.1
        Subsidiaries of Premier Community Bankshares, Inc. 23.1
        Consent of Yount, Hyde & Barbour, P.C. 31.1
        Rule 13a-14(a) Certification of Chief Executive Officer. 31.2
        Rule 13a-14(a) Certification of Chief Financial Officer. 32.1
        Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. § 1350.  *  Management contract or compensatory plan or arrangement.   (b)
        Exhibits  See Item 15(a)(3) above.  (c)
        Financial Statement Schedules  See Item 15(a)(2) above.     86        SIGNATURES  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  PREMIER COMMUNITY BANKSHARES, INC.  Date:  March 12, 2007By:/s/ Donald L. Unger Donald L. Unger President and Chief Executive Officer  Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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/ Donald L. Unger
Donald L. Unger
        President and Chief
Executive Officer and Director (Principal Executive Officer)
        March 12, 2007/s/ John A. Willingham
John A. Willingham
        Chief Financial Officer
(Principal Financial and
Accounting Officer)
        March 12, 2007/s/ John K. Stephens
John K. Stephens
        Chairman of the Board
and Director
        March 12, 2007/s/ Walter H. Aikens
Walter H. Aikens
        Director
        March 12, 2007/s/ Thomas M. Boyd, Jr.
Thomas M. Boyd, Jr.
        Director
        March 12, 2007s/ Mensel D. Dean
Mensel D. Dean
        Director
        March 12, 2007/s/ Clifton L. Good
Clifton L. Good
        Director
        March 12, 2007/s/ Stephen T. Heitz
Stephen T. Heitz
        Director
        March 12, 2007D. Frank Hill, III
        Director
        March 12, 2007/s/ Joseph W. Hollis
Joseph W. Hollis
        Director
        March 12, 2007   87        /s/ Wayne B. Ruck
Wayne B. Ruck
        Director
        March 12, 2007/s/ Paul R. Yoder, Jr.
Paul R. Yoder, Jr.
        Director
        March 12, 2007/s/ James C. Youngblood
James C. Youngblood
        Director
        March 12, 2007     EXHIBIT INDEX   Exhibit No.
        Description  21.1
        Subsidiaries of Premier Community Bankshares, Inc.  23.1
        Consent of Yount, Hyde & Barbour, P.C.  31.1
        Rule 13(a)-14(a) Certification of Chief Executive Officer.  31.2
        Rule 13(a)-14(a) Certification of Chief Financial Officer.  32.1
        Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.  Section 1350.