##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, 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, 2008
  Commission file number
    000-19297
 FIRST COMMUNITY BANCSHARES,
    INC.
 (Exact name of registrant as
    specified in its charter)
  Nevada

55-0694814(State or other jurisdiction of
    incorporation)

(I.R.S. Employer Identification
    No.)P.O. Box 989
    Bluefield, Virginia(Address of principal
    executive offices)

24605-0989(Zip Code)   (276) 326-9000
 Registrants telephone
    number, including area code:
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of each class

Name of exchange on which registeredCommon Stock, $1.00 par value

NASDAQ Global Select   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
          DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




---



##### 





TABLE OF
    CONTENTS
   
 PagePART IItem 1


Business


3Item 1A.


Risk Factors


12Item 1B.


Unresolved Staff Comments


17Item 2.


Properties


17Item 3.


Legal Proceedings


17Item 4.


Submission of Matters to a Vote of Security
    Holders


17PART IIItem 5.


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


17Item 6.


Selected Financial Data


20Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operation


21Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


44Item 8.


Financial Statements and Supplementary Data


46Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


90Item 9A.


Controls and Procedures


90Item 9B.


Other Information


90PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


90Item 11.


Executive Compensation


92Item 12.


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


92Item 13


Certain Relationships and Related Transactions,
    and Director Independence


93Item 14.


Principal Accounting Fees and Services


93PART IVItem 15.


Exhibits, Financial Statement Schedules


93Signatures


96EX-12EX-23.1EX-31.1EX-31.2EX-32   2




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##### Table of Contents



PART I  ITEM 1.
    BUSINESS.  General
      Employees
    Regulation
    and Supervision
  General
      The
    Company
    Regulatory Restrictions on Dividends; Source of
    Strength.
 3




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##### Table of Contents



Scope of Permissible Activities.
      Safe and Sound Banking Practices.
  Anti-Tying Restrictions.
  Stock Repurchases.
   4




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##### Table of Contents



pari passu
  Capital Adequacy Requirements.
    plus minus
      Acquisitions by Bank Holding Companies.
 5




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##### Table of Contents



The
    Bank
    Restrictions on Transactions with Affiliates and
    Insiders. and/or
      Restrictions on Distribution of Subsidiary Bank Dividends and
    Assets.
      Examinations. on-site
 6




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##### Table of Contents



Capital Adequacy Requirements.
      Corrective Measures for Capital
    Deficiencies.
        Deposit Insurance Assessments.
   7




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##### Table of Contents



Temporary Liquidity Guarantee Program.
 8




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##### Table of Contents



Enforcement Powers.
  Emergency Economic Stabilization Act of
    2008.
    Comprehensive Financial Stability Plan of
    2009.
  Consumer Laws and Regulations.
 9




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##### Table of Contents



USA PATRIOT Act of 2001.
  Troubled
    Asset Relief Program
    10-year
       10




---



##### Table of Contents



Website
    Access to Company Documents
  Form 10-K, Form 10-Q Form 8-K, Form 10-K. Form 10-K,
    Forward-Looking
    Statements
  Form 10-K and/or
 11




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##### Table of Contents



Form 10-K.
    ITEM 1A.
    RISK
    FACTORS.  The
    current economic environment poses significant challenges for
    the Company and could adversely affect its financial condition
    and results of operations.
    
    Economic conditions that negatively affect housing prices and
    the job market have resulted, and may continue to result, in a
    deterioration in credit quality of the Companys loan
    portfolios, and such deterioration in credit quality has had,
    and could continue to have, a negative impact on the
    Companys business.
    Market developments may affect consumer confidence levels and
    may cause adverse changes in payment patterns, causing increases
    in delinquencies and default rates on loans and other credit
    facilities.
    The processes the Company uses to estimate allowance for loan
    losses and reserves may no longer be reliable because they rely
    on complex judgments, including forecasts of economic
    conditions, which may no longer be capable of accurate
    estimation.
    The Companys ability to assess the creditworthiness of its
    customers may be impaired if the models and approaches it uses
    to select, manage, and underwrite its customers become less
    predictive of future charge-offs.
    The Company expects to face increased regulation of its
    industry, and compliance with such regulation may increase our
    costs, limit our ability to pursue business opportunities, and
    increase compliance challenges.    The
    Company and its subsidiary business are subject to interest rate
    risk and variations in interest rates may negatively affect its
    financial performance.
   12




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The
    Banks ability to pay dividends is subject to regulatory
    limitations which, to the extent the Company requires such
    dividends in the future, may affect the Companys ability
    to pay its obligations and pay dividends.
    The
    Company is subject to restrictions on its ability to declare or
    pay dividends and repurchase its shares as a result of its
    participation in the Treasurys TARP Capital Purchase
    Program.
  pari
    passu
  pari passu
  The
    Banks allowance for loan losses may not be adequate to
    cover actual losses.
   13




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##### Table of Contents



The
    Companys business is subject to various lending and other
    economic risks that could adversely impact the Companys
    results of operations and financial condition.
    
    loan delinquencies may increase;
    problem assets and foreclosures may increase;
    demand for the Companys products and services may
    decline; and
    collateral for loans made by the Company may decline in value,
    in turn reducing a clients borrowing power, and reducing
    the value of assets and collateral associated with the
    Companys loans held for investment.  The
    declining real estate market could impact the Companys
    business.
    The
    Companys level of credit risk is increasing due to its
    focus on commercial lending, and the concentration on small
    businesses and middle market customers with heightened
    vulnerability to economic conditions.
    The
    Bank may suffer losses in its loan portfolio despite its
    underwriting practices.
   14




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The
    Company and its subsidiaries are subject to extensive regulation
    which could adversely affect them.
  and/or and/or
      The
    Company faces strong competition from other financial
    institutions, financial service companies and other
    organizations offering services similar to those offered by the
    Company and its subsidiaries, which could hurt the
    Companys business.
     15




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Potential
    Acquisitions May Disrupt the Companys Business and Dilute
    Stockholder Value
    
    Potential exposure to unknown or contingent liabilities of the
    target company.
    Exposure to potential asset quality issues of the target company.
    Difficulty and expense of integrating the operations and
    personnel of the target company.
    Potential disruption to the Companys business.
    Potential diversion of the Companys managements time
    and attention.
    The possible loss of key employees and customers of the target
    company.
    Difficulty in estimating the value of the target company.
    Potential changes in banking or tax laws or regulations that may
    affect the target company.  and/or
    The
    Company may lose members of our management team due to
    compensation restrictions
   16




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##### Table of Contents



ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS.  Form 10-K.
  ITEM 2.
    PROPERTIES.  Form 10-K.
  ITEM 3.
    LEGAL
    PROCEEDINGS.    ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS.   PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES.        2008


2007High


Low


High


LowSales Price Per ShareFirst quarter

$
34.89


$
28.00


$
42.30


$
35.19Second quarter


34.89



27.79



39.21



28.89Third quarter


39.00



25.54



37.45



25.40Fourth quarter


38.00



23.49



38.85



30.07   17




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##### Table of Contents



2008


2007Cash Dividends Per ShareFirst quarter

$
0.28


$
0.27Second quarter


0.28



0.27Third quarter


0.28



0.27Fourth quarter


0.28



0.27Total

$
1.12


$
1.08   pari passu
     18




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Total
    Return Analysis
    Total
    Return Performance
  
  Period EndingIndex

12/31/03

12/31/04

12/31/05

12/31/06

12/31/07

12/31/08First Community Bancshares, Inc.


100.00



112.26



100.23



131.31



109.39



123.88S&P 500


100.00



110.88



116.33



134.70



142.10



89.53NASDAQ Composite


100.00



108.59



110.08



120.56



132.39



78.72Asset Size & Regional Peer Group


100.00



115.03



119.74



134.09



94.70



81.49  19




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##### Table of Contents



ITEM 6.
    SELECTED
    FINANCIAL DATA.  At or for the Year Ended December 31,Five-Year Selected Financial Data

2008


2007


2006


2005


2004(Amounts in thousands, except per share data)Balance Sheet Summary
    (at end of period)Securities(a)

$
529,393


$
676,195


$
528,389


$
428,554


$
410,218Loans held for sale


1,024



811



781



1,274



1,194Loans, net of unearned income


1,298,159



1,225,502



1,284,863



1,331,039



1,238,756Allowance for loan losses


15,978



12,833



14,549



14,736



16,339Total assets


2,133,314



2,149,838



2,033,698



1,952,483



1,830,822Deposits


1,503,758



1,393,443



1,394,771



1,403,220



1,356,719Borrowings


381,791



517,843



406,556



335,885



274,212Total liabilities


1,912,972



1,932,740



1,820,968



1,757,982



1,647,589Stockholders equity


220,342



217,098



212,730



194,501



183,233Summary of EarningsTotal interest income

$
110,765


$
127,591


$
120,026


$
109,508


$
96,136Total interest expense


44,930



59,276



48,381



35,880



26,953Provision for loan losses


7,422



717



2,706



3,706



2,671Non-interest income


32,297



24,831



21,323



22,305



17,329Investment securities impairment


29,923















Non-interest expense


60,516



50,463



49,837



55,591



48,035Income from continuing operations before income taxes


271



17,135



19,102



14,331



18,477Income tax (benefit) expense


(2,810
)


12,334



11,477



10,191



9,786Income from continuing operations


3,081



29,632



28,948



26,445



26,020Loss from discontinued operations before income taxes














(233
)


(5,746
)Income tax benefit














(91
)


(2,090
)Loss from discontinued operations














(142
)


(3,656
)Net income


3,081



29,632



28,948



26,303



22,364Dividends on preferred stock


255















Net income available to common shareholders


2,826



29,632



28,948



26,303



22,364     (a)
    
    Reflects the reclassification during 2004 of Federal Reserve
    Bank and Federal Home Loan Bank stock from Securities Available
    for Sale to Other Assets, consistent with the
    2005-2008
    presentation.  20




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##### Table of Contents



At or for the Year Ended December 31,Five-Year Selected Financial Data-continued

2008


2007


2006


2005


2004Per Share DataBasic earnings per share

$
0.26


$
2.64


$
2.58


$
2.33


$
1.99Basic earnings per common share-continuing operations


0.26



2.64



2.58



2.35



2.32Basic loss per common share-discontinued operations














(0.02
)


(0.33
)Diluted earnings per common share

$
0.25


$
2.62


$
2.57


$
2.32


$
1.97Diluted earnings per common share-continuing operations


0.25



2.62



2.57



2.33



2.29Diluted loss per common share-discontinued operations














(0.01
)


(0.32
)Cash dividends

$
1.12


$
1.08


$
1.04


$
1.02


$
1.00Book value per common share at year-end

$
15.46


$
19.61


$
18.92


$
17.29


$
16.29Selected RatiosReturn on average assets


0.14
%


1.39
%


1.46
%


1.37
%


1.24
%Return on average assets-continuing


0.14
%


1.39
%


1.46
%


1.38
%


1.45
%Return on average equity


1.40
%


13.54
%


14.32
%


13.79
%


12.53
%Return on average equity-continuing


1.40
%


13.54
%


14.32
%


13.87
%


14.58
%Average equity to average assets


9.86
%


10.30
%


10.21
%


9.91
%


9.88
%Average equity to average assets-continuing


9.86
%


10.30
%


10.21
%


9.91
%


9.96
%Dividend payout


430.77
%


40.91
%


40.31
%


43.78
%


50.25
%Risk based capital to risk adjusted assets


12.91
%


12.34
%


12.69
%


11.65
%


12.09
%Leverage ratio


9.75
%


8.09
%


8.50
%


7.77
%


7.62
%   ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS.  Executive
    Overview
    Economy
   21




---



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Competitive
    Focus
    Application
    of Critical Accounting Policies
       22




---



##### Table of Contents



Investment
    securities
    EITF 99-20 No. 115-1,
  Allowance
    for Loan Losses
         23




---



##### Table of Contents



Acquisitions
    and Intangible Assets
        Income
    Taxes
    Recent
    Acquisitions and Branching Activity
   24




---



##### Table of Contents



RESULTS
    OF OPERATIONS
  2008
    COMPARED TO 2007
     25




---



##### Table of Contents



Net
    Interest Income
                3-month 3-month
 26




---



##### Table of Contents



Average
    Balance Sheets and Net Interest Income Analysis
  2008


2007


2006Average





Yield/


Average





Yield/


Average





Yield/Balance


Interest(1)


Rate(1)


Balance


Interest(1)


Rate(1)


Balance


Interest(1)


Rate(1)(Dollars in thousands)Earning Assets:Loans held for
    Investment:(2)


1,199,076



80,305



6.70
%


1,251,028



93,561



7.48
%


1,316,475



97,500



7.41
%Available-for-sale securities


576,864



33,438



5.80
%


625,413



36,113



5.77
%


428,579



23,584



5.50
%Held-to-maturity securities


10,302



849



8.24
%


15,220



1,212



7.96
%


21,298



1,708



8.02
%Interest-bearing deposits with banks


15,489



306



1.98
%


24,662



1,175



4.76
%


27,289



1,244



4.56
%Total earning assets


1,801,731



114,898



6.38
%


1,916,323



132,061



6.89
%


1,793,641



124,036



6.92
%Other assets


244,455











208,916











186,639Total

$
2,046,186










$
2,125,239










$
1,980,280Interest-bearing liabilities:Demand deposits

$
174,809


$
292



0.17
%

$
147,856


$
456



0.31
%

$
146,248


$
462



0.32
%Savings deposits


312,363



4,693



1.50
%


330,969



7,327



2.21
%


343,854



6,857



1.99
%Time deposits


671,729



24,807



3.69
%


697,996



30,974



4.44
%


680,380



26,549



3.90
%Total interest-bearing deposits


1,158,901



29,792



2.57
%


1,176,821



38,757



3.29
%


1,170,482



33,868



2.89
%Borrowings:Federal funds purchased


15,942



362



2.27
%


5,773



312



5.40
%


3,367



198



5.88
%Retail repurchase agreements


143,159



3,029



2.12
%


167,359



5,809



3.47
%


140,623



4,578



3.26
%Wholesale repurchase agreements


50,000



1,630



3.26
%


50,000



2,181



4.36
%


6,849



303



4.42
%FHLB borrowings and other debt


244,801



10,117



4.13
%


258,644



12,217



4.72
%


200,570



9,434



4.70
%Tota borrowings


453,902



15,138



3.34
%


481,776



20,519



4.26
%


351,409



14,513



4.13
%Total interest-bearing liabilities


1,612,803



44,930



2.79
%


1,658,597



59,276



3.57
%


1,521,891



48,381



3.18
%Demand deposits


211,791











228,583











237,714Other liabilities


19,850











19,210











18,551Stockholders equity


201,742











218,849











202,124Total

$
2,046,186










$
2,125,239










$
1,980,280Net interest income





$
69,968










$
72,785










$
75,655Net interest rate spread(3)










3.59
%










3.32
%










3.74
%Net interest margin(4)










3.88
%










3.80
%










4.22
%     (1)
    
    Fully taxable equivalent at the rate of 35%.(2)
    
    Non-accrual loans are included in average balances outstanding
    but with no related interest income during the period of
    non-accrual.(3)
    
    Represents the difference between the tax equivalent yield on
    earning assets and cost of funds.(4)
    
    Represents tax equivalent net interest income divided by average
    interest-earning assets. 27




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##### Table of Contents



Rate and
    Volume Analysis of Interest
    2008 Compared to 2007


2007 Compared to 2006$ Increase/(Decrease) due to


$ Increase/(Decrease) due toVolume


Rate


Total


Volume


Rate


Total(Amounts in thousands)Interest Earned On(1):Loans

$
(3,770
)

$
(9,486
)

$
(13,256
)

$
(4,906
)

$
967


$
(3,939
)Securities available for sale


(2,815
)


140



(2,675
)


11,314



1,215



12,529Securities held to maturity


(407
)


44



(363
)


(484
)


(12
)


(496
)Interest-bearing deposits with other banks


(338
)


(531
)


(869
)


(130
)


61



(69
)Total interest-earning assets


(7,330
)


(9,833
)


(17,163
)


5,794



2,231



8,025Interest Paid On:Demand deposits


108



(272
)


(164
)


5



(11
)


(6
)Savings deposits


(392
)


(2,242
)


(2,634
)


(242
)


712



470Time deposits


(1,130
)


(5,037
)


(6,167
)


702



3,723



4,425Federal funds purchased


75



(25
)


50



129



(15
)


114Retail repurchase agreements


(751
)


(2,029
)


(2,780
)


913



318



1,231Wholesale repurchase agreements






(551
)


(551
)


1,882



(4
)


1,878FHLB borrowings and other long-term debt


(629
)


(1,471
)


(2,100
)


2,743



40



2,783Total interest-bearing liabilities


(2,719
)


(11,627
)


(14,346
)


6,132



4,763



10,895Change in tax-equivalent net interest income

$
(4,611
)

$
1,794


$
(2,817
)

$
(338
)

$
(2,532
)

$
(2,870
)     (1)
    
    Fully taxable equivalent using a rate of 35%.  Provision
    for Loan Losses
    Noninterest
    Income
  other-than-temporary
   28




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##### Table of Contents



Noninterest
    Expense
          period-to-period
  other-than-temporary
 29




---



##### Table of Contents



2008


2007


2006(Dollars in thousands)GAAP-based efficiency ratioNoninterest expenses

$
60,516


$
50,463


$
49,837Net interest income plus noninterest income

$
68,209


$
93,146


$
92,968GAAP-based efficiency ratio


88.72
%


54.18
%


53.61
%Our efficiency ratioNoninterest expenses  GAAP-based

$
60,516


$
50,463


$
49,837Less non-GAAP adjustments:Foreclosed property expense


(382
)


(185
)


(248
)Amortization of intangibles


(689
)


(467
)


(410
)Prepayment penalties on FHLB advances


(1,647
)






Other non-core, non-recurring expense items


(51
)


(100
)


(581
)Adjusted non-interest expenses


57,747



49,711



48,598Net interest income plus noninterest income 
    GAAP-based


68,209



93,146



92,968Plus non-GAAP adjustment:Tax-equivalency


4,133



4,470



4,010Less non-GAAP adjustments:Security gains


(1,899
)


(411
)


(75
)Other-than-temporary
    security impairments


29,923







Branch sale gains










(1,035
)Other non-core, non-recurring income items






(104
)


(676
)Adjusted net interest income plus noninterest income


100,366



97,101



95,192Our efficiency ratio


57.54
%


51.20
%


51.05
%   Income
    Tax Expense
      2007
    COMPARED TO 2006
   30




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##### Table of Contents



Net
    Interest Income
          available-for-sale
       31




---



##### Table of Contents



3-month 3-month
  Provision
    for Loan Losses
    Noninterest
    Income
          Noninterest
    Expense
       32




---



##### Table of Contents



Income
    Tax Expense
      FINANCIAL
    POSITION
  Available-for-Sale
    Securities
  Available-for-sale
  Available-for-sale held-to-maturity other-than-temporary other-than-temporary
    other-than-temporary
  other-than-temporary
  available-for-sale
   33




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##### Table of Contents



3-month
    UnrealizedGains/(Losses)Par


Fair


Amortized


Recognized


CumulativeValue


Value


Cost


in OCL


OTTI(Amounts in thousands)Available for saleAgency securities

$
53,435


$
54,818


$
53,425


$
1,393


$
Agency mortgage-backed securities


211,203



216,962



212,315



4,647



Non-Agency mortgage-backed securities:AAA


7,475



5,766



7,423



(1,657
)


B


25,000



10,750



10,750







14,467Total


32,475



16,516



18,173



(1,657
)


14,467Municipals:AAA


6,738



6,716



6,729



(13
)


AA


62,885



62,056



62,926



(870
)


A


55,932



54,051



55,158



(1,107
)


BBB


31,610



30,280



31,500



(1,220
)


Not rated


6,720



6,316



6,729



(413
)


Total


163,885



159,419



163,042



(3,623
)


Single issuer bank trust preferred securities:AA


39,425



24,214



38,745



(14,531
)


A


17,130



9,327



16,747



(7,420
)


Total


56,555



33,541



55,492



(21,951
)


Pooled trust preferred securities:A


50,223



9,117



34,853



(25,736
)


15,456BBB


19,286



3,831



19,377



(15,546
)


BB


9,000



5,163



9,038



(3,875
)


B


30,000



14,401



30,000



(15,599
)


Total


108,509



32,512



93,268



(60,756
)


15,456Equity securities






6,955



7,979



(1,024
)


Total

$
626,062


$
520,723


$
603,694


$
(82,971
)

$
29,923Held to maturityMunicipals:AA

$
3,680


$
3,725


$
3,664


$
61


$
A


4,050



3,859



3,792



67



BBB


1,215



1,218



1,214



4



Total

$
8,945


$
8,802


$
8,670


$
132


$
    34




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##### Table of Contents



other-than-temporary
    available-for-sale
  December 31,2008


2007


2006Amortized


Fair


Amortized


Fair


Amortized


FairCost


Value


Cost


Value


Cost


Value(Amounts in thousands)U.S. Government agency securities

$
53,425


$
54,818


$
136,791


$
139,237


$
117,777


$
116,061States and political subdivisions


163,042



159,419



186,834



188,536



152,189



154,047Single issuer trust preferred securities


55,491



33,542



55,422



51,549



41,545



41,419Pooled trust preferred securities


93,269



32,511



109,309



99,076



43,535



43,614Mortgage-backed securities


230,488



233,478



177,984



176,727



146,444



144,754Equities


7,979



6,955



8,597



8,995



6,933



8,475Total

$
603,694


$
520,723


$
674,937


$
664,120


$
508,423


$
508,370   Held-to-Maturity
    Securities
  held-to-maturity held-to-maturity
  held-to-maturity
 35




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##### Table of Contents



held-to-maturity
  December 31,2008


2007


2006Amortized


Fair


Amortized


Fair


Amortized


FairCost


Value


Cost


Value


Cost


Value(Amounts in thousands)States and political subdivisions

$
8,670


$
8,802


$
11,699


$
11,922


$
19,638


$
19,970Corporate Notes










375



375



375



374Mortgage-backed securities










1



1



6



6Total

$
8,670


$
8,802


$
12,075


$
12,298


$
20,019


$
20,350   Loans
    Held for Sale
    Loans
    Held for Investment
      Loan
    Portfolio Summary
  December 31,2008


2007


2006


2005


2004(Amounts in thousands)Commercial, financial and agricultural$
85,034


$
96,261


$
106,645


$
110,211


$
99,302Real estate  commercial


407,638



386,112



421,067



464,510



453,899Real estate  construction


130,610



163,310



158,566



143,976



112,705Real estate  residential


602,573



498,345



506,370



504,387



457,417Consumer


66,259



75,450



88,679



106,206



113,639Other


6,046



6,027



3,549



1,808



2,012Total


1,298,160



1,225,505



1,284,876



1,331,098



1,238,974Less unearned income


1



3



13



59



2181,298,159



1,225,502



1,284,863



1,331,039



1,238,756Less allowance for loan losses


15,978



12,833



14,549



14,736



16,339Net loans

$
1,282,181


$
1,212,669


$
1,270,314


$
1,316,303


$
1,222,417  36




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##### Table of Contents



Remaining MaturitiesOverOne Year


One to


Over Fiveand Less


Five Years


Years


Total


Percent(Amounts in thousands)Commercial, financial and agricultural

$
12,648


$
56,876


$
15,510


$
85,034



6.55
%Real estate  commercial


18,722



228,229



160,687



407,638



31.40
%Real estate  construction


25,493



93,129



11,988



130,610



10.06
%Real estate  mortgage


16,052



132,434



454,087



602,573



46.42
%Consumer


8,155



49,696



8,408



66,259



5.10
%Other


3,213



735



2,098



6,046



0.47
%$
84,283


$
561,099


$
652,778


$
1,298,160



100.00
%Rate Sensitivity:Predetermined rate

$
36,920


$
409,711


$
331,262


$
777,893



59.92
%Floating- or adjustable-rate


47,363



151,388



321,516



520,267



40.08
%$
84,283


$
561,099


$
652,778


$
1,298,160



100.00
%   Allowance
    for Loan Losses
     37




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##### Table of Contents



Years Ended December 31,2008


2007


2006


2005


2004(Dollars in thousands)Allowance for loan losses at beginning of period

$
12,833


$
14,549


$
14,736


$
16,339


$
14,624Acquisition balances


1,169















1,786Charge-offs:Commercial, financial, agricultural and commercial real estate


4,349



2,245



1,953



5,017



1,925Real estate-residential


1,200



824



1,234



385



723Installment


1,822



1,226



1,356



1,534



1,526Total charge-offs


7,371



4,295



4,543



6,936



4,174Recoveries:Commercial, financial and agricultural


1,388



879



1,032



1,413



727Real estate-residential


76



535



125



188



90Installment


461



448



493



418



615Total recoveries


1,925



1,862



1,650



2,019



1,432Net charge-offs


5,446



2,433



2,893



4,917



2,742Provision charged to operations


7,422



717



2,706



3,706



2,671Reclassification of allowance for lending-related commitments(1)














(392
)


Allowance for loan losses at end of period

$
15,978


$
12,833


$
14,549


$
14,736


$
16,339Ratio of net charge-offs to average loans outstanding


0.45
%


0.19
%


0.22
%


0.38
%


0.24
%Ratio of allowance for loan losses to total loans outstanding


1.23
%


1.05
%


1.13
%


1.11
%


1.32
%     (1)
    
    At June 30, 2005, the Company reclassified $392 thousand of
    its allowance for loan losses to a separate allowance for
    lending-related liabilities. Net income and prior period
    balances were not affected by this reclassification. The
    allowance for lending-related liabilities is included in other
    liabilities.    December 31,2008


2007


2006


2005


2004(Dollars in thousands)Commercial, financial and agricultural

$
6,442



48
%

$
7,441



53
%

$
8,418



53
%

$
9,993



58
%

$
11,700



57
%Real estate  mortgage


7,038



46
%


3,699



41
%


3,858



39
%


2,462



34
%


2,084



34
%Consumer


2,025



6
%


1,693



6
%


2,273



8
%


2,281



8
%


2,555



9
%Unallocated


473































Total

$
15,978



100
%

$
12,833



100
%

$
14,549



100
%

$
14,736



100
%

$
16,339



100
%  38




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##### Table of Contents



Risk
    Elements
    December 31,2008


2007


2006


2005


2004(Dollars in thousands)Non-accrual loans

$
12,763


$
2,923


$
3,813


$
3,383


$
5,168Loans 90 days or more past due and still accruing interest














11



Total non-performing loans


12,763



2,923



3,813



3,394



5,168Other real estate owned


1,326



545



258



1,400



1,419Total non-performing assets

$
14,089


$
3,468


$
4,071


$
4,794


$
6,587Non-performing loans as a percentage of total loans


0.98
%


0.24
%


0.30
%


0.25
%


0.42
%Non-performing assets as a percentage of total loans and other
    real estate owned


1.08
%


0.28
%


0.32
%


0.36
%


0.53
%Allowance for loan losses as a percentage of non-performing loans


125.2
%


439.0
%


381.6
%


434.2
%


316.2
%Allowance for loan losses as a percentage of non-performing
    assets


113.4
%


370.0
%


357.4
%


307.4
%


248.0
%          39




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##### Table of Contents



December 31,2008


2007


2006


2005


2004(Amounts in thousands)Non-accruing loans

$
12,763


$
2,923


$
3,813


$
3,383


$
5,168Loans past due over 90 days and still accruing interest














11



Restructured loans performing in accordance with modified terms


113



245



272



302



354Gross interest income which would have been recorded under
    original terms of non-accruing and restructured loans


458



301



397



380



439Actual interest income during the period


89



179



286



161



293     Deposits
      Borrowings
     40




---



##### Table of Contents



2008


2007


2006Amount


Rate


Amount


Rate


Amount


Rate(Dollars in thousands)At year-end

$
165,914



2.36
%

$
225,927



4.32
%

$
208,885



3.70
%Average during the year


209,101



2.40
%


223,132



3.72
%


150,839



3.37
%Maximum month-end balance


282,110







273,920







208,885       Liquidity
    and Capital Resources
    available-for-sale held-to-maturity
       41




---



##### Table of Contents



Total Payments Due by PeriodLess than


One to


Three to


More thanTotal


One year


Three Years


Five Years


Five Years(Amounts in thousands)Deposits without a stated maturity(1)

$
694,406


$
694,406


$



$



$
Federal funds borrowed and overnight security repurchase
    agreements


87,682



87,682











Certificates of Deposit(2)(3)


841,411



535,076



175,445



56,617



74,273Term security repurchase agreements


96,990



23,518



5,597



11,679



56,196FHLB advances(2)(3)


285,904



8,400



17,085



17,378



243,041Trust preferred indebtedness


45,706



1,218



2,436



2,848



39,204Leases


2,599



762



1,027



626



184Total

$
2,054,698


$
1,351,062


$
201,590


$
89,148


$
412,898     (1)
    
    Excludes interest.(2)
    
    Includes interest on both fixed and variable-rate obligations.
    The interest associated with variable-rate obligations is based
    upon interest rates in effect at December 31, 2008. The
    interest to be paid on variable-rate obligations is affected by
    changes in market interest rates, which materially affect the
    contractual obligation amounts to be paid.(3)
    
    Excludes carrying value adjustments such as unamortized premiums
    or discounts.    Amount of Commitment Expiration Per PeriodLess thanOne Year


One to


Three to


More thanTotal


(1)


Three Years


Five Years


Five Years(Amounts in thousands)Commitments to extend credit Commercial, financial and
    agricultural

$
24,767


$
8,095


$
12,303


$
1,109


$
3,260Real estate  commercial


16,471



2,304



12,111



563



1,493Real estate  residential


78,077



1,463



5,513



6,166



64,935Real estate  construction


31,494



4,859



15,146



7,523



3,966Consumer lines of credit


48,338



47,838



483



2



15Other


146







146







Total unused commitments

$
199,293


$
64,559


$
45,702


$
15,363


$
73,669Financial letters of credit

$
1,493


$
946


$
530


$
7


$
10Performance letters of credit


1,351



323



944



20



64Total letters of credit

$
2,844


$
1,269


$
1,474


$
27


$
74     (1)
    
    Lines of credit with no stated maturity date are included in
    commitments for less than one year. 42




---



##### Table of Contents



Stockholders
    Equity
    capital-to-asset
  Wealth
    Management Services
      Insurance
    Services
   43




---



##### Table of Contents



ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.         44




---



##### Table of Contents



Rate
    Sensitivity Analysis
  2008Increase (Decrease)

Change in





Change inin Interest Rates

Net Interest


%


Market Value


%(Basis Points)

Income


Change


of Equity


Change(Dollars in thousands)200

$
1,479



2.3


$
(8,040
)


(3.7
)100


1,493



2.3



719



0.3(100)


1,874



2.9



(21,443
)


(9.9
)   2007Increase (Decrease)

Change in





Change inin Interest Rates

Net Interest


%


Market Value


%(Basis Points)

Income


Change


of Equity


Change200

$
(3,124
)


(4.2
)

$
(30,894
)


(10.7
)100


(327
)


(0.4
)


(5,315
)


(1.8
)(100)


(449
)


(0.6
)


(11,128
)


(3.9
)(200)


(1,657
)


(2.2
)


(32,008
)


(11.1
)  45




---



##### 



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA.   
 Consolidated Financial StatementsConsolidated Balance Sheets


47Consolidated Statements of Income


48Consolidated Statements of Cash Flows


49Consolidated Statements of Changes in
    Stockholders Equity


50Notes to Consolidated Financial Statements


51Reports of Independent Registered Public
    Accounting Firms on Consolidated Financial Statements


87Managements Assessment of Internal Control
    Over Financial Reporting


88Report of Independent Registered Public
    Accounting Firm on Managements Assessment of Internal
    Control Over Financial Reporting


89   46




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2008


2007(Amounts in thousands, except share and per share data)ASSETSCash and due from banks

$
39,310


$
50,051Interest-bearing balances with banks


7,129



2,695Total cash and cash equivalents


46,439



52,746Securities available for sale (amortized cost of $603,694, 2008;
    $674,937, 2007)


520,723



664,120Securities held to maturity (fair value of $8,802, 2008;
    $12,298, 2007)


8,670



12,075Loans held for sale


1,024



811Loans held for investment, net of unearned income


1,298,159



1,225,502Less allowance for loan losses


15,978



12,833Net loans held for investment


1,282,181



1,212,669Premises and equipment, net


55,024



48,383Other real estate owned


1,326



545Interest receivable


10,084



12,465Goodwill


83,192



66,310Other intangible assets


6,420



3,746Other assets


118,231



75,968Total Assets

$
2,133,314


$
2,149,838LIABILITIESDeposits:Noninterest-bearing

$
199,712


$
224,087Interest-bearing


1,304,046



1,169,356Total Deposits


1,503,758



1,393,443Interest, taxes and other liabilities


27,423



21,454Federal funds purchased






18,500Securities sold under agreements to repurchase


165,914



207,427FHLB borrowings and other indebtedness


215,877



291,916Total Liabilities


1,912,972



1,932,740Stockholders EquityPreferred stock, par value undesignated; 1,000,000 shares
    authorized; 41,500 shares issued and outstanding in 2008
    and none in 2007


40,419



Common stock, $1 par value; shares authorized: 25,000,000;
    shares issued: 12,051,234 in 2008 and 11,499,018 in 2007; shares
    outstanding: 11,567,449 in 2008 and 11,069,646 in 2007


12,051



11,499Additional paid-in capital


128,526



108,825Retained earnings


107,231



117,670Treasury stock, at cost


(15,368
)


(13,613
)Accumulated other comprehensive loss


(52,517
)


(7,283
)Total Stockholders Equity


220,342



217,098Total Liabilities and Stockholders Equity

$
2,133,314


$
2,149,838    47




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  CONSOLIDATED
    STATEMENTS OF INCOME
  Years Ended December 31,2008


2007


2006(Amounts in thousands,except share and per share data)Interest IncomeInterest and fees on loans

$
80,224


$
93,501


$
97,460Interest on securities-taxable


22,714



24,725



13,951Interest on securities-nontaxable


7,521



8,190



7,371Interest on federal funds sold and deposits in banks


306



1,175



1,244Total interest income


110,765



127,591



120,026Interest ExpenseInterest on deposits


29,792



38,757



33,868Interest on short-term borrowings


5,252



9,760



6,977Interest on long-term debt


9,886



10,759



7,536Total interest expense


44,930



59,276



48,381Net Interest Income


65,835



68,315



71,645Provision for loan losses


7,422



717



2,706Net interest income after provision for loan losses


58,413



67,598



68,939Noninterest IncomeWealth management income


4,100



3,880



2,811Service charges on deposit accounts


14,067



11,387



10,242Other service charges, commissions and fees


4,248



3,600



2,992Insurance commissions


4,988



1,142



Investment securities impairments


(29,923
)






Net gains on sale of securities


1,899



411



75Other operating income


2,995



4,411



5,203Total noninterest income


2,374



24,831



21,323Noninterest ExpenseSalaries and employee benefits


29,876



25,848



26,867Occupancy expense of bank premises


5,102



4,180



4,068Furniture and equipment expense


3,740



3,370



3,466Prepayment penalties on FHLB advances


1,647







Other operating expense


20,151



17,065



15,436Total noninterest expense


60,516



50,463



49,837Income before income taxes


271



41,966



40,425Income tax (benefit) expense


(2,810
)


12,334



11,477Net income


3,081



29,632



28,948Dividends on preferred stock


255







Net income available to common shareholders

$
2,826


$
29,632


$
28,948Basic earnings per common share

$
0.26


$
2.64


$
2.58Diluted earnings per common share

$
0.25


$
2.62


$
2.57Dividends declared per common share

$
1.12


$
1.08


$
1.04Weighted average basic shares outstanding


11,058,076



11,204,676



11,204,875Weighted average diluted shares outstanding


11,134,025



11,292,871



11,279,480    48




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2008


2007


2006(Amounts in thousands)Cash flows from operating activitiesNet income

$
3,081


$
29,632


$
28,948Adjustments to reconcile net income to net cash provided by
    operating activities:Provision for loan losses


7,422



717



2,706Depreciation and amortization of premises and equipment


3,885



3,276



3,366Intangible amortization


689



467



410Net investment amortization and accretion


(161
)


534



699Gains on the sale of assets


(1,839
)


(357
)


(1,329
)Mortgage loans originated for sale


(32,704
)


(42,598
)


(33,565
)Proceeds from sale of mortgage loans


32,672



42,822



34,243Gain on sale of loans


(181
)


(254
)


(185
)Equity-based compensation expense


260



271



427Deferred income tax (benefit) expense


(12,647
)


216



465Decrease (increase) in interest receivable


3,071



(324
)


(1,928
)Excess tax benefit from stock-based compensation


(85
)


(327
)


(201
)Prepayment penalty


1,647







(Increase) decrease in other assets


32,534



(3,407
)


215Increase in other liabilities


(41
)


1,781



769Net cash provided by operating activities


37,603



32,449



35,040Cash flows from investing activitiesProceeds from sales of securities available for sale


128,888



12,010



14,185Proceeds from maturities and calls of securities available for
    sale


87,144



28,635



23,515Proceeds from maturities and calls of held to maturity securities


3,417



7,907



4,221Purchase of securities available for sale


(171,446
)


(211,321
)


(139,624
)Purchase of bank-owned life insurance










(25,000
)Net decrease (increase) in loans made to customers


58,473



56,623



40,610Cash used in divestitures and acquisitions, net


(4,661
)


(5,364
)


(22,046
)Purchase of premises and equipment


(6,040
)


(15,160
)


(5,709
)Proceeds from sale of equipment


21



526



402Net cash used in investing activities


95,796



(126,144
)


(109,446
)Cash flows from financing activitiesNet (decrease) increase in demand and savings deposits


(52,079
)


2,158



(17,215
)Net increase (decrease) in time deposits


24,788



(3,649
)


35,551Net increase (decrease) in FHLB and other borrrowings


(76,039
)


93,272



68,440Prepayment penalty


(1,647
)






Net increase (decrease) in federal funds purchased


(18,500
)


10,800



(74,800
)Net (decrease) increase in securities sold under agreement to
    repurchase


(41,513
)


6,242



77,369Net proceeds from the issuance of preferred stock


41,409







Proceeds from the exercise of stock options


464



781



1,305Excess tax benefit from stock-based compensation


85



327



201Acquisition of treasury stock


(4,222
)


(9,170
)


(4,566
)Dividends paid


(12,452
)


(12,079
)


(11,659
)Net cash provided by financing activities


(139,706
)


88,682



74,626Net increase (decrease) in cash and cash equivalents


(6,307
)


(5,013
)


220Cash and cash equivalents at beginning of year


52,746



57,759



57,539Cash and cash equivalents at end of year

$
46,439


$
52,746


$
57,759Supplemental information  Noncash itemsTransfers of loans to other real estate

$
2,653


$
1,342


$
1,281      49




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  CONSOLIDATED
    STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
  AccumulatedAdditional








OtherPreferred


Common


Paid-in


Retained


Treasury


ComprehensiveStock


Stock


Capital


Earnings


Stock


(Loss) Income


Total(Amounts in thousands, except share and per share
    information)Balance January 1, 2006

$



$
11,496


$
108,573


$
82,828


$
(7,625
)

$
(771
)

$
194,501Comprehensive income:Net income














28,948











28,948Other comprehensive incomeChange in unrealized gain on securities available for sale of
    $1,242, net of $497 tax expense






















745



745Less reclassification adjustment for losses realized in net
    income of $10, net of $4 tax benefit






















(6
)


(6
)Unrealized gain on derivative securities of $441, net of $177
    tax expense






















264



264Total comprehensive income, net of tax














28,948







1,003



29,951Common dividends declared ($1.04 per share)














(11,659
)










(11,659
)Purchase of 145,161 treasury shares at $31.46 per share


















(4,566
)






(4,566
)Acquisition of Stone Capital Management (2,706 shares)






3



85















88Acquisition of Investment Planning Consultants
    (39,874 shares)










217







1,248







1,465Distribution of treasury stock for ESOP (27,733 shares)










16







867







883Equity-based compensation










267







160







427Tax benefit from exercise of stock options










335















335Common stock options exercised (63,655 shares)










(687
)






1,992







1,305Balance December 31, 2006






11,499



108,806



100,117



(7,924
)


232



212,730Comprehensive income:Net income














29,632











29,632Other comprehensive incomeChange in unrealized loss on securities available for sale of
    $11,028, net of $4,411 tax benefit






















(6,617
)


(6,617
)Less reclassification adjustment for gains realized in net
    income of $263, net of $105 tax expense






















158



158Unrealized loss on derivative securities of $1,760, net of $704
    tax benefit






















(1,056
)


(1,056
)Total comprehensive income, net of tax














29,632







(7,515
)


22,117Common dividends declared ($1.08 per share)














(12,079
)










(12,079
)Purchase of 287,500 treasury shares at $31.89 per share


















(9,170
)






(9,170
)Acquisition of GreenPoint Insurance Group (49,088 shares)










133







1,524







1,657Acquisition of Investment Planning Consultants
    (13,401 shares)










30







425







455Equity-based compensation










169







102







271Tax benefit from exercise of stock options










336















336Common stock options exercised (45,665 shares)










(649
)






1,430







781Balance December 31, 2007






11,499



108,825



117,670



(13,613
)


(7,283
)


217,098Comprehensive income:Net income














3,081











3,081Other comprehensive incomeChange in unrealized loss on securities available for sale of
    $100,626, net of $39,244 tax benefit






















(61,382
)


(61,382
)Reclassification adjustment for net losses realized in net
    income of $29,607, net of $11,547 tax expense






















18,060



18,060Change in unrealized loss on derivative securities of $1,974,
    net of $770 tax benefit






















(1,204
)


(1,204
)Change related to employee benefit plans of $1,161, net of $453
    tax benefit






















(708
)


(708
)Total comprehensive income, net of tax














3,081







(45,234
)


(42,153
)Cumulative effect of change in accounting principle














(813
)










(813
)Preferred stock issuance, net


40,395







(91
)














40,304Common stock warrant issuance










1,105















1,105Preferred dividend, net


24











(255
)










(231
)Common dividends declared ($1.12 per share)














(12,452
)










(12,452
)Purchase of 132,100 treasury shares at $31.96 per share


















(4,222
)






(4,222
)Acquisition of Coddle Creek (552,216 shares)






552



18,588















19,140Acquisition of GreenPoint Insurance Group (7,728 shares)










22







245







267Acquisition of Investment Planning Consultants
    (8,361 shares)










(26
)






266







240Contribution of treasury stock to 401(k) plan
    (37,775 shares)










8







1,200







1,208Equity-based compensation










244







16







260Tax benefit from exercise of stock options










127















127Common stock options exercised (22,323 shares)










(276
)






740







464Balance December 31, 2008

$
40,419


$
12,051


$
128,526


$
107,231


$
(15,368
)

$
(52,517
)

$
220,342    50




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.



NOTES TO
    CONSOLIDATED STATEMENTS  Note 1.
    Summary
    of Significant Accounting Policies  Basis
    of Presentation
    Principles
    of Consolidation
    Use of
    Estimates
    Cash
    and Cash Equivalents
    2008


2007


2006(Amounts in thousands)Interest

$
46,381


$
58,797


$
46,241Income Taxes


8,777



12,097



9,717     Trading
    Securities
    Investment
    Securities
  available-for-sale
 51




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
      other-than-temporary other-than-temporarily other-than-temporary,
  EITF 99-20 No. 115-1, Other-Than-Temporary
  Loans
    Held for Sale
  one-to-four
    Loans
    Held for Investment
   52




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    Allowance
    for Loan Losses
          Long-term
    Investments
     53




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    Premises
    and Equipment
      Other
    Real Estate Owned
    Goodwill
    and Other Intangible Assets
     54




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    OtherGoodwill


Intangibles(Amounts in thousands)Balance at December 31, 2005

$
59,182


$
1,937Acquisitions and dispositions, net


953



472Amortization






(348
)Balance at December 31, 2006


60,135



2,061Acquisitions


6,175



2,152Amortization






(467
)Balance at December 31, 2007


66,310



3,746Acquisitions


15,990



3,362Other Adjustments


892



Amortization






(689
)Balance at December 31, 2008

$
83,192


$
6,419   Other
    Assets
      Securities
    Sold Under Agreements to Repurchase
    Loan
    Interest Income Recognition
   55




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    Loan
    Fee Income
    Advertising
    Expenses
    Equity-Based
    Compensation
    Income
    Taxes
         56




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
  Earnings
    Per Share
    For the Year Ended December 31,2008


2007


2006(Amounts in thousands, except share and per share data)Net income available to common shareholders

$
2,826


$
29,632


$
28,948Weighted average shares outstanding


11,058,076



11,204,676



11,204,875Dilutive shares for stock options


53,680



65,320



74,605Contingently issuable shares


22,269



22,875



Common stock warrants










Weighted average dilutive shares outstanding


11,134,025



11,292,871



11,279,480Basic earnings per share

$
0.26


$
2.64


$
2.58Diluted earnings per share

$
0.25


$
2.62


$
2.57   Variable
    Interest Entities
    Derivative
    Instruments
       57




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
  Other
    Recent Accounting Developments
          EITF 06-4, EITF 06-4 EITF 06-4.
  EITF 99-20
 58




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    Note 2.  Merger,
    Acquisitions and Branching Activity
             59




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    2008


2007


2006(Amounts in thousands)Fair value of investments acquired

$
1,269


$



$
Fair value of loans acquired


136,035







Fair value of premises and equipment acquired


4,505







Fair value of other assets


23,872



382



232Fair value of deposits assumed


(137,606
)






Fair value of other liabilities assumed


(4,967
)


(1,167
)


(17
)Purchase price in excess of net assets acquired


15,991



7,838



1,488Total purchase price


39,099



7,053



1,703Less non-cash purchase price


19,647



1,658



1,465Less cash acquired


14,792



32



18Net cash paid for acquisition

$
4,660


$
5,363


$
220Book value of assets sold

$



$



$
(4,678
)Book value of liabilities sold










27,164Sales price in excess of net liabilities assumed










(1,035
)Total sales price










21,451Add cash on hand sold










395Less amount due remaining on books










20Net cash paid for divestiture

$



$



$
21,826   Note 3.  Participation
    in U.S. Treasury Capital Purchase Program
  On November 21.
  10-year
   60




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
      Risk free interest rate

3.20%Expected life

10 yearsExpected dividend yield

4.17%Expected volatility

29.11%Weighted average fair value

$4.44     Note 4.
    Investment
    Securities    December 31, 2008Amortized


Unrealized


Unrealized


FairCost


Gains


Losses


Value(Amounts in thousands)U.S. Government agency securities

$
53,425


$
1,393


$



$
54,818States and political subdivisions


163,042



864



(4,487
)


159,419Trust-preferred securities


148,760







(82,707
)


66,053Mortgage-backed securities


230,488



4,649



(1,659
)


233,478Equities


7,979



357



(1,381
)


6,955Total

$
603,694


$
7,263


$
(90,234
)

$
520,723   December 31, 2007Amortized


Unrealized


Unrealized


FairCost


Gains


Losses


Value(Amounts in thousands)U.S. Government agency securities

$
136,791


$
2,446


$



$
139,237States and political subdivisions


186,834



2,667



(965
)


188,536Trust-preferred securities


164,731







(14,106
)


150,625Mortgage-backed securities


177,984



816



(2,073
)


176,727Equities


8,597



814



(416
)


8,995Total

$
674,937


$
6,743


$
(17,560
)

$
664,120  61




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    U.S.


States








TaxGovernment


and








EquivalentAgencies &


Political


Corporate





PurchaseAvailable For Sale

Corporations


Subdivisions


Notes


Total


Yield(Dollars in thousands)Amortized Cost Maturity:Within one year

$



$
940


$



$
940



6.01
%After one year through five years






5,403







5,403



6.63
%After five years through ten years






84,036







84,036



6.01
%After ten years


53,425



72,663



148,760



274,848



4.25
%Amortized cost

$
53,425


$
163,042


$
148,760



365,227Mortgage-backed securities














230,488



5.13
%Equity securities














7,979



3.68
%Total Amortized cost













$
603,694Tax equivalent purchase yield


5.82
%


6.29
%


2.55
%


4.70
%Average contractual maturity (in years)


12.75



10.45



24.52



16.52Fair Value Maturity:Within one year

$



$
945


$



$
945After one year through five years






5,447







5,447After five years through ten years






83,278







83,278After ten years


54,818



69,749



66,053



190,620Fair Value

$
54,818


$
159,419


$
66,053



280,290Mortgage-backed securities














233,478Equity securities














6,955Total Fair Value













$
520,723     December 31, 2008Amortized


Unrealized


Unrealized


FairCost


Gains


Losses


Value(Amounts in thousands)States and political subdivisions

$
8,670


$
133


$
(1
)

$
8,802Total

$
8,670


$
133


$
(1
)

$
8,802   62




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
  December 31, 2007Amortized


Unrealized


Unrealized


FairCost


Gains


Losses


Value(Amounts in thousands)States and political subdivisions

$
11,699


$
223


$



$
11,922Other securities


375











375Mortgage-backed securities


1











1Total

$
12,075


$
223


$



$
12,298     States


Taxand


EquivalentPolitical


PurchaseHeld-to-Maturity

Subdivisions


Yield(Dollars in thousands)Amortized Cost Maturity:Within one year

$
450



7.94
%After one year through five years


4,570



7.85
%After five years through ten years


3,650



8.13
%After ten years


Total amortized cost

$
8,670Tax equivalent purchase yield


7.97
%Average contractual maturity (in years)


4.24Fair Value Maturity:Within one year

$
452After one year through five years


4,629After five years through ten years


3,721After ten years


Total fair value

$
8,802      63




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    December 31, 2008Less than 12 Months


12 Months or Longer


TotalFair


Unrealized


Fair


Unrealized


Fair


UnrealizedDescription of Securities

Value


Losses


Value


Losses


Value


Losses(Amounts in thousands)U. S. Government agency securities

$



$



$



$



$



$
States and political subdivisions


86,344



(2,949
)


16,413



(1,539
)


102,757



(4,488
)Trust-preferred securities










60,260



(82,707
)


60,260



(82,707
)Mortgage-backed securities


48,440



(1,658
)


43



(1
)


48,483



(1,659
)Equity securities


2,167



(1,161
)


2,201



(220
)


4,368



(1,381
)Total

$
136,951


$
(5,768
)

$
78,917


$
(84,467
)

$
215,868


$
(90,235
)   December 31, 2007Less than 12 Months


12 Months or Longer


TotalFair


Unrealized


Fair


Unrealized


Fair


UnrealizedDescription of Securities

Value


Losses


Value


Losses


Value


Losses(Amounts in thousands)U. S. Government agency securities

$



$



$
1,999


$



$
1,999


$
States and political subdivisions


40,461



(900
)


12,287



(65
)


52,748



(965
)Trust-preferred securities


129,006



(12,431
)


21,994



(1,675
)


151,000



(14,106
)Mortgage-backed securities


7,991



(108
)


63,393



(1,965
)


71,384



(2,073
)Equity securities


2,269



(345
)


1,759



(71
)


4,028



(416
)Total

$
179,727


$
(13,784
)

$
101,432


$
(3,776
)

$
281,159


$
(17,560
)       3-month
 64




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    Note 5.  Loans
    2008


2007(Amounts in thousands)Real estate-commercial

$
407,638


$
386,112Real estate-construction


130,610



163,310Real estate-residential


602,573



498,345Commercial, financial and agricultural


85,034



96,261Loans to individuals for household and other consumer
    expenditures


66,258



75,447All other loans


6,046



6,027Total loans

$
1,298,159


$
1,225,502       Note 6.  Allowance
    for Loan Losses
    2008


2007


2006(Amounts in thousands)Balance at January 1

$
12,833


$
14,549


$
14,736Provision for loan losses


7,422



717



2,706Acquisition balance


1,169







Loans charged off


(7,371
)


(4,295
)


(4,543
)Recoveries credited to allowance


1,925



1,862



1,650Net charge-offs


(5,446
)


(2,433
)


(2,893
)Balance at December 31

$
15,978


$
12,833


$
14,549  65




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
        2008


2007


2006(Amounts in thousands)Recorded investment in loans considered to be impaired

$
13,300


$
4,325


$
5,786Loans considered to be impaired that were on a non-accrual basis


12,764



2,923



3,813Recorded investment in impaired loans with related allowance


4,795



3,129



4,070Allowance for loan losses related to loans considered to be
    impaired


678



880



1,531Average recorded investment in impaired loans


14,914



4,762



6,410Total interest income recognized on impaired loans


793



237



390Recorded investment in impaired loans with no related allowance


8,505



1,196



1,716     Note 7.
    Premises
    and Equipment    2008


2007(Amounts in thousands)Land

$
18,634


$
14,841Bank premises


47,147



42,608Equipment


29,968



28,08795,749



85,536Less: accumulated depreciation and amortization


40,725



37,153Total

$
55,024


$
48,383      66




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
      Year Ended December 31:(Amounts inthousands)2009

$
7622010


5962011


4322012


3462013


280Later years


183Total

$
2,599     Year Ended December 31:(Amounts inthousands)2009

$
1722010


1572011


1232012


542013


50Later years


274Total

$
830   Note 8.
    Deposits    2008


2007(Amounts in thousands)Interest-bearing demand deposits

$
185,117


$
153,570Money market accounts


144,017



167,296Savings deposits


165,560



160,395Certificates of deposit


708,954



608,470Individual Retirement Accounts


100,398



79,625Total

$
1,304,046


$
1,169,356  67




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    (Amounts inthousands)2009

$
515,7422010


101,6312011


63,8222012


24,3962013 and thereafter


103,761$
809,352       (Amounts inthousands)Three months or less

$
56,644Over three to six months


49,237Over six to twelve months


98,565Over twelve months


82,295Total

$
286,741     Note 9.
    Borrowings    2008


2007(Amounts in thousands)Federal funds purchased

$



$
18,500Securities sold under agreements to repurchase


165,914



207,427FHLB borrowings


200,000



275,888Subordinated debt


15,464



15,464Other debt


413



564Total

$
381,791


$
517,843      68




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
      (Amounts inthousands)2009

$
2010


2011


2012


2013


2014 and thereafter


200,000$
200,000        69




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
  Note 10.
    Income
    Taxes, Continuing Operations    Years Ended December 31,2008


2007


2006(Amounts in thousands)Current tax expenseFederal

$
8,577


$
10,777


$
9,883State


1,260



1,341



1,1299,837



12,118



11,012Deferred tax (benefit) expenseFederal


(11,350
)


194



418State


(1,297
)


22



47(12,647
)


216



465Total income tax (benefit) expense

$
(2,810
)

$
12,334


$
11,477     2008


2007(Amounts in thousands)Deferred tax assets:Allowance for loan losses

$
6,299


$
5,311Unrealized losses on AFS securities


33,208



4,327Unrealized loss on derivative security


1,298



528Securities impairments


11,670



Deferred compensation


4,120



2,741Other


1,920



1,188Total deferred tax assets

$
58,515


$
14,095Deferred tax liabilities:Intangible assets

$
6,209


$
3,263Odd days interest deferral


1,710



2,023Fixed assets


1,675



1,196Other


1,358



1,758Total deferred tax liabilities


10,952



8,240Net deferred tax assets

$
47,563


$
5,855    70




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##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    For Years Ended2008


2007


2006Tax at statutory rate


35.00
%


35.00
%


35.00
%(Reduction) increase resulting from:Tax-exempt interest, net of nondeductible expense


(871.99
)


(5.95
)


(5.79
)State income taxes, net of federal benefit


2.33



2.12



1.89Other, net


(202.24
)


(1.78
)


(2.71
)Effective tax rate


(1036.90
)%


29.39
%


28.39
%   Note 11.
    Employee
    Benefits  Employee
    Stock Ownership and Savings Plan
    Employer Stock Fund:
  Employee Savings Plan:
  Employee
    Welfare Plan
    Deferred
    Compensation Plan
   71




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
      Executive
    Retention Plan
        (Amounts inthousands)2009

$
592010


592011


592012


1752013


2362014 through 2017


1,313$
1,901   Directors
    Supplemental Retirement Plan
   72




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##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
  Note 12.
    Equity-Based
    Compensation  Stock
    Options
                 73




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    WeightedWeighted


AverageAverage


Remaining


AggregateOption


Exercise


Contractual


IntrinsicShares


Price


Term (Years)


Value(In thousands)Outstanding at January 1, 2008


272,114


$
23.81Granted


6,050



29.10Exercised


23,323



20.09Forfeited


2,750



26.54Outstanding at December 31, 2008


252,091


$
24.25



10.4


$
2,678Exercisable at December 31, 2008


233,625


$
23.67



10.4


$
2,616       2008


2007


2006Volatility


29.11
%


28.33
%


28.95
%Expected dividend yield


3.64
%


3.28
%


3.00
%Expected term (in years)


10.00



6.00



6.23Risk-free rate


2.96
%


4.74
%


4.80
%     Stock
    Awards
   74




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##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    WeightedAverageGrant-DateShares


Fair ValueNonvested at January 1, 2008


1,700


$
36.20Granted


900



36.42Vested


500



35.00Forfeited






Nonvested at December 31, 2008


2,100



36.58     Note 13.
    Litigation,
    Commitments and Contingencies      case-by-case
   75




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##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
      Note 14.
    Derivative
    Instruments and Hedging Activities      Note 15.
    Regulatory
    Capital Requirements and Restrictions     76




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##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    December 31, 2008To Be WellFor Capital


Capitalized UnderAdequacy


Prompt CorrectiveActual


Purposes


Action ProvisionsAmount


Ratio


Amount


Ratio


Amount


Ratio(Dollars in thousands)Total Capital to Risk-Weighted AssetsFirst Community Bancshares, Inc.

$
213,949



12.91
%

$
132,591



8.00
%


N/A



N/AFirst Community Bank, N. A.


191,104



11.69
%


130,762



8.00
%

$
163,452



10.00
%Tier 1 Capital to Risk-Weighted AssetsFirst Community Bancshares, Inc.


197,600



11.92
%


66,296



4.00
%


N/A



N/AFirst Community Bank, N. A.


174,755



10.69
%


65,381



4.00
%


98,071



6.00
%Tier 1 Capital to Average Assets (Leverage)First Community Bancshares, Inc.


197,600



9.75
%


84,629



4.00
%


N/A



N/AFirst Community Bank, N. A.


174,755



8.71
%


80,232



4.00
%


100,290



5.00
%   December 31, 2007To Be WellFor Capital


Capitalized UnderAdequacy


Prompt CorrectiveActual


Purposes


Action ProvisionsAmount


Ratio


Amount


Ratio


Amount


Ratio(Dollars in thousands)Total Capital to Risk-Weighted AssetsFirst Community Bancshares, Inc.

$
182,476



12.34
%

$
118,276



8.00
%


N/A



N/AFirst Community Bank, N. A.


167,865



11.44
%


117,398



8.00
%

$
146,748



10.00
%Tier 1 Capital to Risk-Weighted AssetsFirst Community Bancshares, Inc.


169,258



11.45
%


59,138



4.00
%


N/A



N/AFirst Community Bank, N. A.


154,826



10.55
%


58,699



4.00
%


88,049



6.00
%Tier 1 Capital to Average Assets (Leverage)First Community Bancshares, Inc.


169,258



8.09
%


83,639



4.00
%


N/A



N/AFirst Community Bank, N. A.


154,826



7.44
%


83,233



4.00
%


104,041



5.00
%     Note 16.
    Other
    Operating Expenses    Years Ended December 31,2008


2007


2006(Amounts in thousands)Advertising and public relations

$
2,166


$
1,616


$
1,265Service fees


3,557



3,031



1,682Telephone and data communications


1,505



1,372



1,403  77




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##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
  Note 17.  Fair
    Value
  Financial
    Instruments Measured at Fair Value
  No. 157-2, No. 157-3 (FSP 157-3) FSP 157-3
    and/or
  Level 1 Inputs 

Unadjusted quoted prices in active markets for identical assets
    or liabilities that the reporting entity has the ability to
    access at the measurement date.Level 2 Inputs 

Inputs other than quoted prices included in Level 1 that are
    observable for the asset or liability, either directly or
    indirectly. These might include quoted prices for similar assets
    or liabilities in active markets, quoted prices for identical or
    similar assets or liabilities in markets that are not active,
    inputs other than quoted prices that are observable for the
    asset or liability, such as interest rates, volatilities,
    prepayment speeds, and credit risks, or inputs that are derived
    principally from or corroborated by market data by correlation
    or other means.Level 3 Inputs 

Unobservable inputs for determining the fair values of assets or
    liabilities that reflect an entitys own assumptions about
    the assumptions that market participants would use in pricing
    the assets or liabilities.  78




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##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
      Securities Available-for-Sale:
        Other Assets and Associated
    Liabilities:
  Derivatives:
 79




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##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
  Impaired Loans:
    Fair Value Measurements Using


TotalLevel 1


Level 2


Level 3


Fair Value(In thousands)Available-for-sale securities

$
6,811


$
485,845


$
28,067


$
520,723Deferred compensation assets


2,637











2,637Derivative assets






192







192Deferred compensation liabilities


2,637











2,637Derivative liabilities






3,523







3,523     Available-for-SaleSecurities(In thousands)Balance, January 1, 2008

$
Total gains or losses (realized/unrealized)Included in earnings (or changes in net assets)


Included in other comprehensive income


Purchases, issuances, and settlements


Transfers in and/or out of Level 3


28,067Balance, December 31, 2008

$
28,067        80




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##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    Fair
    Value of Financial Instruments
      December 31, 2008


December 31, 2007Carrying


Fair


Carrying


FairAmount


Value


Amount


Value(Amounts in thousands)AssetsCash and cash equivalents

$
46,439


$
46,439


$
52,746


$
52,746Investment Securities


529,393



529,525



676,195



676,418Loans held for sale


1,024



1,026



811



813Loans held for investment


1,282,181



1,276,479



1,212,669



1,202,396Derivative financial assets


192



192







Deferred compensation assets


2,637



2,637



3,418



3,418LiabilitiesDemand deposits


199,712



199,712



224,087



224,087Interest-bearing demand deposits


185,117



185,117



153,570



153,570Savings deposits


309,577



309,577



327,691



327,691Time deposits


809,352



824,068



688,095



688,503Federal funds purchased










18,500



18,500Securities sold under agreements to repurchase


165,914



177,454



207,427



207,427FHLB and other indebtedness


215,877



242,223



291,916



286,087Derivative financial liabilities


3,523



3,523



1,320



1,320Deferred compensation liabilities


2,637



2,637



3,418



3,418   Financial
    Instruments with Book Value Equal to Fair Value:
    Investment
    Securities and Deferred Compensation Assets and
    Liabilities:
   81




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##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
  Loans:
    Derivative
    Financial Instruments:
    Deposits
    and Securities Sold Under Agreements to
    Repurchase:
    Other
    Indebtedness:
    Commitments
    to Extend Credit, Standby Letters of Credit, and Financial
    Guarantees:
    Note 18.
    Accumulated
    Other Comprehensive Loss    UnrealizedUnrealized


Loss


Benefit


AccumulatedLoss


on Cash Flow


Plan


Comprehensiveon Securities


Hedge Derivative


Liability


Loss(Amounts in thousands)December 31, 2007

$
(6,491
)

$
(792
)

$



$
(7,283
)December 31, 2008

$
(49,813
)

$
(1,996
)

$
(708
)

$
(52,517
)  82




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##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
  Note 19.
    Parent
    Company Financial Information    December 31,Condensed Balance Sheets

2008


2007(Amounts in thousands)AssetsCash

$
2,038


$
2,880Securities available for sale


11,609



6,877Loans


1,000



Investment in subsidiary


211,529



217,307Other assets


8,167



6,108Total assets

$
234,343


$
233,172LiabilitiesOther liabilities

$
603


$
610Long-term debt


15,464



15,464Total liabilities


16,067



16,074Stockholders EquityPreferred stock


40,419



Common stock


12,051



11,499Additional paid-in capital


128,526



108,795Retained earnings


105,165



117,670Treasury stock


(15,368
)


(13,583
)Accumulated other comprehensive loss


(52,517
)


(7,283
)Total stockholders equity


218,276



217,098Total liabilities and stockholders equity

$
234,343


$
233,172   Years Ended December 31,Condensed Statements of Income

2008


2007


2006(Amounts in thousands)Cash dividends received from subsidiary bank

$
22,383


$
26,408


$
15,775Other income


2,104



2,853



354Operating expense


(2,200
)


(2,106
)


(2,049
)Income tax benefit (expense)


24



(545
)


1,237Equity in undistributed earnings of subsidiary


(19,230
)


3,022



13,631Net income


3,081



29,632



28,948Dividends on preferred stock


255







Net income available to common shareholders

$
2,826


$
29,632


$
28,948   83




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##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
  Years Ended December 31,Condensed Statements of Cash Flows

2008


2007


2006(Amounts in thousands)Cash flows from operating activitiesNet income

$
3,081


$
29,632


$
28,948Adjustments to reconcile net income to net cash provided by
    operating activities:Equity in undistributed earnings of subsidiary


19,230



(3,022
)


(13,631
)Loss (gain) on sale of securities


625



(447
)


(62
)(Increase) decrease in other assets


(2,059
)


(2,678
)


63(Decrease) increase in other liabilities


(7
)


996



455Other, net


2,471







(3
)Net cash provided by operating activities


23,341



24,481



15,770Cash flows from investing activitiesPurchase of securities available for sale


(13,117
)


(3,217
)


(1,881
)Proceeds from sale of securities available for sale


3,324



4,671



2,210Investment in subsidiary


(40,000
)


(5,397
)


Other, net


(1,042
)


(2,390
)


3Net cash provided by (used in) investing activities


(50,835
)


(6,333
)


332Cash flows from financing activitiesIssuance of preferred stock


41,500







Issuance of common stock


606



1,117



1,518Acquisition of treasury stock


(4,222
)


(9,170
)


(4,566
)Dividends paid


(12,452
)


(12,079
)


(11,659
)Other, net


1,220



353



1,772Net cash used in financing activities


26,652



(19,779
)


(12,935
)Net increase (decrease) in cash and cash equivalents


(842
)


(1,631
)


3,167Cash and cash equivalents at beginning of year


2,880



4,511



1,344Cash and cash equivalents at end of year

$
2,038


$
2,880


$
4,511   Note 20.
    Segment
    Information   84




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##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
    Community


Insurance


Parent/Banking


Services


Elimination


Total(In thousands)Net interest income

$
66,703


$
(49
)

$
(819
)

$
65,835Provision for loan losses


7,422











7,422Noninterest income


(4,730
)


5,042



2,062



2,374Noninterest expense


57,704



4,371



(1,559
)


60,516Income before income taxes


(3,153
)


622



2,802



271Provision for income taxes


(3,802
)


183



809



(2,810
)Net income

$
649


$
439


$
1,993


$
3,081End of period goodwill and other intangibles

$
78,869


$
10,743


$



$
89,612End of period assets

$
2,103,445


$
12,111


$
17,758


$
2,133,314   Note 21.  Supplemental
    Financial Data (Unaudited)
    2008Quarter EndedMarch 31


June 30


Sept 30


Dec 31(Amounts in thousands, except per share data)Interest income

$
29,547


$
27,433


$
26,550


$
27,235Interest expense


13,187



10,808



10,227



10,708Net interest income


16,360



16,625



16,323



16,527Provision for loan losses


323



937



3,461



2,701Net interest income after provision for loan losses


16,037



15,688



12,862



13,826Other income


7,321



7,574



7,720



(22,140
)Net securities gains (losses)


1,820



150



163



(234
)Other expenses


16,283



14,759



14,441



15,033Income (loss) before income taxes


8,895



8,653



6,304



(23,581
)Income taxes


2,583



2,415



1,753



(9,561
)Net income (loss)


6,312



6,238



4,551



(14,020
)Preferred dividends














255Net income (loss) available to common shareholders

$
6,312


$
6,238


$
4,551


$
(14,275
)Per share:Basic earnings

$
0.57


$
0.57


$
0.42


$
(1.27
)Diluted earnings

$
0.57


$
0.56


$
0.41


$
(1.27
)Dividends

$
0.28


$
0.28


$
0.28


$
0.28Weighted average basic shares outstanding


11,030



10,992



10,957



11,252Weighted average diluted shares outstanding


11,108



11,073



11,034



11,252   85




---



##### Table of Contents



FIRST
    COMMUNITY BANCSHARES, INC.
  NOTES TO
    CONSOLIDATED STATEMENTS  (Continued)
  2007Quarter EndedMarch 31


June 30


Sept 30


Dec 31(Amounts in thousands, except per share data)Interest income

$
30,686


$
31,979


$
32,732


$
32,194Interest expense


13,671



14,965



15,589



15,051Net interest income


17,015



17,014



17,143



17,143Provision for loan losses














717Net interest income after provision for loan losses


17,015



17,014



17,143



16,426Other income


5,086



5,517



5,970



7,847Net securities gains


129



30



50



202Other expenses


12,158



12,075



12,836



13,394Income before income taxes


10,072



10,486



10,327



11,081Income taxes


2,948



3,047



3,011



3,328Net income

$
7,124


$
7,439


$
7,316


$
7,753Per share:Basic earnings

$
0.63


$
0.66


$
0.65


$
0.70Diluted earnings

$
0.63


$
0.66


$
0.65


$
0.69Dividends

$
0.27


$
0.27


$
0.27


$
0.27Weighted average basic shares outstanding


11,259



11,261



11,179



11,121Weighted average diluted shares outstanding


11,347



11,320



11,230



11,206  86




---



##### Table of Contents



- REPORT
    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -           Fair Value Measurements No. 157-3, Determining the Fair Value of a Financial Asset When the
    Market for That Asset Is Not Active, 06-4, Accounting for Deferred Compensation and Postretirement
    Benefit Aspects of Endorsement Split-Dollar Life Insurance
    Arrangements, 99-20-1, Amendments to the Impairment Guidance of EITF Issue
    No. 99-20
  Internal Control  Integrated Framework
  
    87




---



##### Table of Contents



MANAGEMENTS
    ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL
    REPORTING  Form 10-K. Form 10-K
    Internal Control-Integrated Framework
  Form 10-K.
  
     
    88




---



##### Table of Contents



- REPORT
    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -     Internal Control 
    Integrated Framework
        Internal Control  Integrated
    Framework
  Fair Value Measurements No. 157-3, Determining the Fair Value of a Financial Asset When the
    Market for That Asset Is Not Active, 06-4, Accounting for Deferred Compensation and Postretirement
    Benefit Aspects of Endorsement Split-Dollar Life Insurance
    Arrangements, 99-20-1, Amendments to the Impairment Guidance of EITF Issue
    No. 99-20
  
    89




---



##### Table of Contents



ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE.    ITEM 9A.
    CONTROLS
    AND PROCEDURES.  Rule 13a-15(b).
    Form 10-K.
  ITEM 9B.
    OTHER
    INFORMATION.   PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.         90




---



##### Table of Contents



BOARD OF
    DIRECTORS, FIRST COMMUNITY BANCSHARES, INC.
  Franklin P. Hall

A. A. ModenaBusinessman; Senior Partner, Hall & Family Law Firm;
    Commonwealth of Virginia Delegate

Past Executive Vice President and Secretary, First Community
    Bancshares, Inc.; Past President and Chief Executive Officer,
    The Flat Top National Bank of BluefieldAllen T. Hamner, Ph.D.

Robert E. Perkinson, Jr.Retired Professor of Chemistry, West Virginia Wesleyan College

Past Vice President-Operations, MAPCO Coal,
    Inc.  Virginia RegionRichard S. Johnson

William P. StaffordPresident, The Wilton Companies

President, Princeton Machinery Service, Inc.I. Norris Kantor

William P. Stafford, IIOf Counsel, Katz, Kantor & Perkins,
    Attorneys-at-Law

Attorney at Law, Brewster, Morhous, Cameron, Caruth, Moore,
    Kersey & Stafford, PLLCJohn M. MendezPresident and Chief Executive Officer, First Community
    Bancshares, Inc.; Chief Executive Officer, First Community Bank,
    N. A.   EXECUTIVE
    OFFICERS, FIRST COMMUNITY BANCSHARES, INC.
  John M. Mendez

E. Stephen LillyPresident and Chief Executive Officer

Chief Operating OfficerDavid D. Brown

Robert L. BuzzoChief Financial Officer

Vice President and Secretary  91




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##### Table of Contents



BOARD OF
    DIRECTORS, FIRST COMMUNITY BANK, N. A.
  W. C. Blankenship, Jr.

John M. MendezAgent, State Farm Insurance

President and Chief Executive Officer, First Community
    Bancshares, Inc.; Chief Executive Officer, First Community Bank,
    N. A.D. L. Bowling, Jr.

A. A. ModenaPresident, Best Energy, Inc.

Past Executive Vice President and Secretary, First Community
    Bancshares, Inc.; Past President and Chief Executive Officer,
    The Flat Top National Bank of BluefieldJuanita G. Bryan

Robert E. Perkinson, Jr.Homemaker

Past Vice President-Operations, MAPCO Coal, Inc. 
    Virginia RegionRobert L. Buzzo

Clyde B. RatliffVice President and Secretary, First
    Community Bancshares, Inc.; President, First Community Bank, N.
    A.

President, Gasco Drilling, Inc.C. William Davis

William P. StaffordAttorney-at-Law,
    Richardson & Davis

President, Princeton Machinery Service, Inc.Franklin P. Hall

William P. Stafford, IIBusinessman; Senior Partner, Hall & Family Law Firm;
    Commonwealth of Virginia Delegate

Attorney at Law, Brewster, Morhous, Cameron, Caruth, Moore,
    Kersey & Stafford, PLLCAllen T. Hamner, Ph.D.

Frank C. TinderRetired Professor of Chemistry, West Virginia Wesleyan College

President, Tinder Enterprises, Inc. and Tinco Leasing CorporationRichard S. Johnson

Dale F. WoodyPresident, The Wilton Companies

President, Woody Lumber CompanyI. Norris KantorOf Counsel, Katz, Kantor & Perkins,
    Attorneys-at-Law   ITEM 11.
    EXECUTIVE
    COMPENSATION.    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS.   92




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##### Table of Contents



Number of





Number of SecuritiesSecurities to be





Remaining AvailableIssued Upon


Weighted-Average


for Future IssuanceExercise of


Exercise Price of


Under EquityOutstanding


Outstanding


Compensation PlansOptions, Warrants


Options, Warrants


(Excluding SecuritiesPlan Category

and Rights


and Rights


Reflected in Column (a))(a)


(b)


(c)Equity compensation plans approved by security holders


42,000


$
30.49



101,343Equity compensation plans not approved by security holders


210,091



23.00



36,301Total


252,091







137,644     ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE.    ITEM 14.
    PRINCIPAL
    ACCOUNTING FEES AND SERVICES.   PART IV  ITEM 15.
    EXHIBITS,
    FINANCIAL STATEMENT SCHEDULES.  Documents Filed as Part of this Report
  Financial Statements
    Financial Statement Schedules
    Exhibits
  Exhibit No.

Exhibit2
.1

Agreement and Plan of Merger dated July 31, 2008, among
    First Community Bancshares, Inc. and Coddle Creek Financial
    Corp.(21)3
(i)

Articles of Incorporation of First Community Bancshares, Inc.,
    as amended.(1)3
(ii)

Certificate of Designation Series A Preferred Stock(22)3
(iii)

Bylaws of First Community Bancshares, Inc., as amended.(17)4
.1

Specimen stock certificate of First Community Bancshares,
    Inc.(3) 93




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##### Table of Contents



Exhibit No.

Exhibit4
.2

Indenture Agreement dated September 25, 2003.(11)4
.3

Amended and Restated Declaration of Trust of FCBI Capital Trust
    dated September 25, 2003.(11)4
.4

Preferred Securities Guarantee Agreement dated
    September 25, 2003.(11)4
.5

Form of Certificate for the Series A Preferred Stock(22)4
.6

Warrant to purchase 176,546 shares of Common Stock of First
    Community Bancshares, Inc(22)10
.1

First Community Bancshares, Inc. 1999 Stock Option
    Contracts(2) and Plan.(4)10
.1.1

Amendment to First Community Bancshares, Inc. 1999 Stock Option
    Plan.(11)10
.2

First Community Bancshares, Inc. 2001 Non-Qualified Directors
    Stock Option Plan.(5)10
.3

Employment Agreement dated December 16, 2008, between First
    Community Bancshares, Inc. and John M. Mendez.(6)10
.4

First Community Bancshares, Inc. 2000 Executive Retention Plan,
    as amended.(24)10
.5

First Community Bancshares, Inc. Split Dollar Plan and
    Agreement.(2)10
.6

First Community Bancshares, Inc. 2001 Directors
    Supplemental Retirement Plan.(2)10
.6.1

First Community Bancshares, Inc. 2001 Directors
    Supplemental Retirement Plan. Second Amendment (B.W. Harvey,
    Sr.  October 19, 2004).(14)10
.7

First Community Bancshares, Inc. Wrap Plan.(7)10
.8

Reserved.10
.9

Form of Indemnification Agreement between First Community
    Bancshares, Inc., its Directors and Certain Executive
    Officers.(9)10
.10

Form of Indemnification Agreement between First Community Bank,
    N. A, its Directors and Certain Executive Officers.(9)10
.11

Reserved.10
.12

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

Reserved.10
.14

First Community Bancshares, Inc. Directors Deferred Compensation
    Plan.(7)10
.15

First Community Bancshares, Inc. Deferred Compensation and
    Supplemental Bonus Plan For Key Employees.(15)10
.16

Employment Agreement dated November 30, 2006, between First
    Community Bank, N. A. and Ronald L. Campbell.(19)10
.17

Employment Agreement dated September 28, 2007, between
    GreenPoint Insurance Group, Inc. and Shawn C. Cummings.(20)10
.18

Securities Purchase Agreement by and between the United States
    Department of the Treasury and First Community Bancshares, Inc.
    dated November 21, 2008.(22)10
.19

Employment Agreement dated December 16, 2008, between First
    Community Bancshares, Inc. and David D. Brown.(23)11


Statement regarding computation of earnings per share.(16)12
*

Computation of Ratios.21


Subsidiaries of Registrant  Reference is made to
    Item 1. Business for the required information.23
.1*

Consent of Dixon Hughes PLLC, Independent Registered Public
    Accounting Firm for First Community Bancshares, Inc.31
.1*

Rule 13a-14(a)/a5d-14(a)
    Certification of Chief Executive Officer.31
.2*

Rule 13a-14(a)/a5d-14(a)
    Certification of Chief Financial Officer.32
*

Certification of Chief Executive Officer and Chief Financial
    Officer Section 1350.     *
    
    Furnished herewith.(1)
    
    Incorporated by reference from the Quarterly Report on
    Form 10-Q
    for the period ended June 30, 2005, filed on August 5,
    2005.(2)
    
    Incorporated by reference from the Quarterly Report on
    Form 10-Q
    for the period ended June 30, 2002, filed on
    August 14, 2002. 94




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##### Table of Contents



(3)
    
    Incorporated by reference from the Annual Report on
    Form 10-K
    for the period ended December 31, 2002, filed on
    March 25, 2003, as amended on March 31, 2003.(4)
    
    Incorporated by reference from the Annual Report on
    Form 10-K
    for the period ended December 31, 1999, filed on
    March 30, 2000, as amended April 13, 2000.(5)
    
    The option agreements entered into pursuant to the 1999 Stock
    Option Plan and the 2001 Non-Qualified Directors Stock Option
    Plan are incorporated by reference from the Quarterly Report on
    Form 10-Q
    for the period ended June 30, 2002, filed on
    August 14, 2002.(6)
    
    Incorporated by reference from Exhibit 10.1 of the Current
    Report on Form
    8-K dated
    and filed December 16, 2008. The Registrant has entered
    into substantially identical agreements with Robert L. Buzzo and
    E. Stephen Lilly, with the only differences being with respect
    to title and salary.(7)
    
    Incorporated by reference from the Current Report on
    Form 8-K
    dated August 22, 2006, and filed August 23, 2006.(8)
    
    Reserved.(9)
    
    Form of indemnification agreement entered into by the Company
    and by First Community Bank, N. A. with their respective
    directors and certain officers of each including, for the
    Registrant and Bank: John M. Mendez, Robert L. Schumacher,
    Robert L. Buzzo, E. Stephen Lilly, David D. Brown, and Gary R.
    Mills. Incorporated by reference from the Annual Report on
    Form 10-K
    for the period ended December 31, 2003, filed on
    March 15, 2004, and amended on May 19, 2004.(10)
    
    Incorporated by reference from the 2004 First Community
    Bancshares, Inc. Definitive Proxy filed on March 19, 2004.(11)
    
    Incorporated by reference from the Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2003, filed on
    November 10, 2003.(12)
    
    Incorporated by reference from the Quarterly Report on
    Form 10-Q
    for the period ended March 31, 2004, filed on May 7,
    2004.(13)
    
    Incorporated by reference from the Quarterly Report on
    Form 10-Q
    for the period ended June 30, 2004, filed on August 6,
    2004.(14)
    
    Incorporated by reference from the Annual Report on
    Form 10-K
    for the period ended December 31, 2004, and filed on
    March 16, 2005. Amendments in substantially similar form
    were executed for Directors Clark, Kantor, Hamner, Modena,
    Perkinson, Stafford, and Stafford II.(15)
    
    Incorporated by reference from the Current Report on
    Form 8-K
    dated October 24, 2006, and filed October 25, 2006.(16)
    
    Incorporated by reference from Footnote 1 of the Notes to
    Consolidated Financial Statements included herein.(17)
    
    Incorporated by reference from Exhibit 3.1 of the Current
    Report on Form
    8-K dated
    February 14, 2008, filed on February 20, 2008.(18)
    
    Reserved(19)
    
    Incorporated by reference from Exhibit 2.1 of the
    Form S-3
    registration statement filed May 2, 2007.(20)
    
    Incorporated by reference from the Annual Report on
    Form 10-K
    for the period ended December 31, 2007, filed on
    March 13, 2008.(21)
    
    Incorporated by reference from Exhibit 2.1 of the Current
    Report on Form
    8-K dated
    and filed July 31, 2008.(22)
    
    Incorporated by reference from the Current Report on
    Form 8-K
    dated November 21, 2008, and filed November 24, 2008.(23)
    
    Incorporated by reference from Exhibit 10.2 of the Current
    Report on Form
    8-K dated
    and filed December 16, 2008. The Registrant has entered
    into substantially identical agreements with Gary R. Mills,
    Martyn A. Pell, and Robert L. Schumacher, with the only
    differences being with respect to title, salary, term, and
    payment upon termination after a change in control.(24)
    
    Incorporated by reference from Exhibit 10.1 of the Current
    Report on Form
    8-K dated
    December 30, 2008, and filed January 5, 2009. 95




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##### Table of Contents



SIGNATURES    
  By:
    /s/  John
    M. Mendez     By:
    /s/  David
    D. Brown       Signature

Title

Date/s/  John
    M. MendezJohn
    M. Mendez

Director, President and 
    Chief Executive Officer

March 13, 2009/s/  David
    D. BrownDavid
    D. Brown

Chief Financial Officer

March 13, 2009/s/  Franklin
    P. HallFranklin
    P. Hall

Director

March 13, 2009/s/  Allen
    T. HamnerAllen
    T. Hamner

Director

March 13, 2009/s/  Richard
    S. JohnsonRichard
    S. Johnson

Director

March 13, 2009/s/  I.
    Norris KantorI.
    Norris Kantor

Director

March 13, 2009/s/  Robert
    E. Perkinson, Jr.Robert
    E. Perkinson, Jr.

Director

March 13, 2009/s/  William
    P. StaffordWilliam
    P. Stafford

Chairman of the Board of Directors

March 13, 2009/s/  William
    P. Stafford, IIWilliam
    P. Stafford, II

Director

March 13, 2009  96