UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

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

Commission file number 000-19297

FIRST COMMUNITY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Nevada		55-0694814
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)
P.O. Box 989 Bluefield, Virginia		24605-0989
(Address of principal executive offices)		(Zip Code)

(276) 326-9000

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

þ Yes            o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes            o No

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

o Yes            þ No

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

Class — Common Stock, $1.00 Par Value; 17,671,828 shares outstanding as of October 30, 2009

 

 

FIRST COMMUNITY BANCSHARES, INC.
FORM 10-Q/A
For the quarter ended September 30, 2009

INDEX

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008			4
Consolidated Statements of Income for the Three- and Nine-Month Periods Ended September 30, 2009 and 2008 (Unaudited)			5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 (Unaudited)			6
Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2009 and 2008 (Unaudited)			7
Notes to Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
Item 3. Quantitative and Qualitative Disclosures about Market Risk			46
Item 4. Controls and Procedures			48
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			48
Item 1A. Risk Factors			48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			49
Item 3. Defaults Upon Senior Securities			49
Item 4. Submission of Matters to a Vote of Security Holders			49
Item 5. Other Information			49
Item 6. Exhibits			49
SIGNATURES			52
EXHIBIT INDEX			53
EX-31.1
EX-31.2
EX-32

Explanatory Note

Overview

First Community Bancshares, Inc. (“the Company”) is filing this amendment to its Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (the “Original Filing”) to amend and restate financial statements and other financial information in the Original Filing as filed with the Securities and Exchange Commission (“SEC”) to reflect the correction of a computational error in its model used to calculate its allowance for loan losses. For this reason, Company also is restating the financial statements and other financial information filed with the SEC for the years ended December 31, 2009 and 2008 and each of the quarters ended March 31, 2009, June 30, 2009 and March 31, 2010.

Background

The reason for the restatement is to correct a computational error in the model that the Company used to calculate the quantitative basis for its allowance for loan losses for the periods indicated. The Company identified the computational error as a result of one of its routine internal audits. In connection with its determination of the appropriate loan loss reserves at December 31, 2008, the Company made certain modifications to its loan loss reserves model with respect to a $130.76 million pool of loans. However, in calculating the loan loss reserves for this pool of loans, the computational error resulted in the Company’s historical quarterly net charge-off rates not being annualized.

The Company has corrected the computational error in its model for calculating the allowance for loan losses. Based on the Company’s modeling using the corrected computations, the Company, in consultation with the Audit Committee of its Board of Directors, determined that the amount of the allowance for loan losses should be increased by an aggregate of $2.55 million for the period beginning December 31, 2008 and ending March 31, 2010.

Amendments to the Original Filing

The following sections of this Quarterly Report on Form 10-Q/A have been revised to reflect the restatement: Part I — Item 1 — Financial Statements, Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 4 — Controls and Procedures, and Part II — Item 6 — Exhibits. Except to the extent relating to the restatement of the Company’s financial statements and other financial information described above, the financial statements and other disclosures in this Quarterly Report on Form 10-Q/A do not reflect any events that have occurred after the Original Filing was filed with the SEC on November 10, 2009. This Quarterly Report on Form 10-Q/A does not modify or update those disclosures affected by subsequent events. Information not affected by the restatement is unchanged and reflects the disclosures made at the time of the Original Filing. Although the Company is amending only certain portions of its Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, for convenience and ease of reference, it is filing the entire Quarterly Report on this Form 10-Q/A.

PART I. ITEM 1. Financial Statements

FIRST COMMUNITY BANCSHARES, INC.

		September 30,				December 31,
		2009				2008*
(Dollars in Thousands, Except Per Share Data)		(Restated)				(Restated)
Assets
Cash and due from banks		$	32,017			$	39,310
Federal funds sold			19,888				—
Interest-bearing balances with banks			3,352				7,129
Total cash and cash equivalents			55,257				46,439
Securities available-for-sale			575,800				520,723
Securities held-to-maturity			7,452				8,670
Loans held for sale			4,376				1,024
Loans held for investment, net of unearned income			1,396,617				1,298,159
Less allowance for loan losses			19,710				17,782
Net loans held for investment			1,376,907				1,280,377
Premises and equipment			57,695				55,024
Other real estate owned			3,955				1,326
Interest receivable			9,046				10,084
Goodwill and other intangible assets			90,134				89,612
Other assets			116,303				118,908
Total Assets		$	2,296,925			$	2,132,187
Liabilities
Deposits:
Noninterest-bearing		$	198,107			$	199,712
Interest-bearing			1,464,350				1,304,046
Total Deposits			1,662,457				1,503,758
Interest, taxes and other liabilities			24,374				27,423
Securities sold under agreements to repurchase			147,042				165,914
FHLB borrowings and other indebtedness			198,932				215,877
Total Liabilities			2,032,805				1,912,972
Stockholders’ Equity
Preferred stock, par value undesignated; 1,000,000 shares authorized; 0 shares issued at September 30, 2009, and 41,500 issued December 31, 2008			—				40,419
Common stock, $1 par value; 25,000,000 shares authorized; 18,082,874 shares issued at September 30, 2009, and 12,051,234 issued December 31, 2008, including 402,494 and 483,785 shares in treasury, respectively			18,083				12,051
Additional paid-in capital			192,799				128,526
Retained earnings			101,504				106,104
Treasury stock, at cost			(12,768	)			(15,368	)
Accumulated other comprehensive loss			(35,498	)			(52,517	)
Total Stockholders’ Equity			264,120				219,215
Total Liabilities and Stockholders’ Equity		$	2,296,925			$	2,132,187

See Notes to Consolidated Financial Statements.

FIRST COMMUNITY BANCSHARES, INC.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(Dollars In Thousands, Except Per Share Data)		2009				2008				2009				2008
		(Restated)								(Restated)
Interest Income
Interest and fees on loans held for investment		$	21,064			$	19,266			$	60,619			$	60,394
Interest on securities-taxable			4,562				5,567				14,903				17,101
Interest on securities-nontaxable			1,449				1,708				4,527				5,775
Interest on federal funds sold and deposits			55				9				133				260
Total interest income			27,130				26,550				80,182				83,530
Interest Expense
Interest on deposits			6,998				6,684				21,641				22,543
Interest on borrowings			2,596				3,543				8,251				11,679
Total interest expense			9,594				10,227				29,892				34,222
Net interest income			17,536				16,323				50,290				49,308
Provision for loan losses			3,819				3,461				8,519				4,721
Net interest income after provision for loan losses			13,717				12,862				41,771				44,587
Noninterest Income
Wealth management income			971				957				3,088				2,954
Service charges on deposit accounts			3,659				3,808				10,307				10,370
Other service charges and fees			1,156				1,040				3,467				3,225
Insurance commissions			1,567				1,240				5,523				3,730
Total impairment losses on securities			(26,405	)			(51	)			(63,180	)			(51	)
Portion of loss recognized in other comprehensive income			(4,406	)			—				28,384				—
Net impairment losses recognized in earnings			(30,811	)			(51	)			(34,796	)			(51	)
Security gains			866				163				2,930				2,133
Acquisition gain			4,493				—				4,493				—
Other operating income			815				675				1,750				2,336
Total non-interest (loss) income			(17,284	)			7,832				(3,238	)			24,697
Noninterest Expense
Salaries and employee benefits			7,860				7,371				23,131				22,741
Occupancy expense of bank premises			1,266				1,297				4,202				3,717
Furniture and equipment expense			928				924				2,758				2,798
Amortization of intangible assets			262				166				751				484
FHLB debt prepayment fees			—				—				88				1,647
FDIC premiums and assessments			1,109				62				2,584				141
Merger-related expenses			1,505				—				1,580				—
Other operating expense			4,838				4,570				14,011				13,904
Total noninterest expense			17,768				14,390				49,105				45,432
(Loss) income before income taxes			(21,335	)			6,304				(10,572	)			23,852
Income tax (benefit) expense			(9,783	)			1,753				(6,617	)			6,751
Net (loss) income			(11,552	)			4,551				(3,955	)			17,101
Dividends on preferred stock			1,011				—				2,160				—
Net (loss) income available to common shareholders		$	(12,563	)		$	4,551			$	(6,115	)		$	17,101
Basic earnings (loss) per common share		$	(0.72	)		$	0.42			$	(0.44	)		$	1.56
Diluted earnings (loss) per common share		$	(0.72	)		$	0.41			$	(0.44	)		$	1.54
Dividends declared per common share		$	0.10			$	0.28			$	0.30			$	0.84
Weighted average basic shares outstanding			17,427,434				10,956,867				13,918,599				10,992,901
Weighted average diluted shares outstanding			17,427,434				11,034,059				13,918,599				11,071,925

See Notes to Consolidated Financial Statements

FIRST COMMUNITY BANCSHARES, INC.

		Nine Months Ended
		September 30,
(In Thousands)		2009				2008
		(Restated)
Operating activities:
Net (loss) income		$	(3,955	)		$	17,101
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses			8,519				4,721
Depreciation and amortization of premises and equipment			2,986				2,785
Intangible amortization			751				484
Net investment amortization and accretion			1,024				(292	)
Net gain on the sale of assets			(3,008	)			(2,070	)
Net gain on acquisitions			(4,493	)			—
Mortgage loans originated for sale			(26,147	)			(28,299	)
Proceeds from sales of mortgage loans			25,538				29,137
Gain on sales of loans			(59	)			(167	)
Deferred income tax benefit			(17,925	)			(330	)
Decrease in interest receivable			1,635				3,309
Net impairment losses recognized in earnings			34,796				51
Other operating activities, net			3,656				2,471
Net cash provided by operating activities			23,318				28,901
Investing activities:
Proceeds from sales of securities available-for-sale			126,632				97,232
Proceeds from maturities and calls of securities available-for-sale			50,334				80,997
Proceeds from maturities and calls of securities held-to-maturity			1,238				3,042
Purchase of securities available-for-sale			(218,388	)			(108,124	)
Net decrease in loans held for investment			19,559				54,828
Proceeds from the redemption of FHLB stock			351				—
Cash provided by divestures and acquisitions, net			21,299				—
Proceeds from sales of equipment			218				23
Purchase of premises and equipment			(3,909	)			(6,002	)
Net cash (used in) provided by investing activities			(2,666	)			121,996
Financing activities:
Net increase in demand and savings deposits			15,645				8,088
Net increase (decrease) in time deposits			357				(51,987	)
Net decrease in federal funds purchased			—				11,000
Net decrease in securities sold under agreement to repurchase			(18,872	)			(27,039	)
Net decrease in FHLB and other borrowings			(25,122	)			(75,196	)
FHLB debt prepayment fees			(88	)			(1,647	)
Net proceeds from the issuance of common stock			61,668				—
Redemption of preferred stock			(41,500	)			—
Proceeds from the exercise of stock options			20				440
Excess tax benefit from stock-based compensation			2				49
Acquisition of treasury stock			(13	)			(4,222	)
Preferred dividends paid			(1,079	)			—
Common dividends paid			(2,852	)			(9,227	)
Net cash used in financing activities			(11,834	)			(149,741	)
Increase in cash and cash equivalents			8,818				1,156
Cash and cash equivalents at beginning of period			46,439				52,746
Cash and cash equivalents at end of period		$	55,257			$	53,902
Supplemental information — Noncash items
Transfer of loans to other real estate		$	5,404			$	1,413
Cumulative effect adjustment, net of tax*		$	6,131			$	—
Dividends declared on common stock		$	1,764			$	—

See Notes to Consolidated Financial Statements.

FIRST COMMUNITY BANCSHARES, INC.

																						Accumulated
										Additional												Other
		Preferred				Common				Paid-in				Retained				Treasury				Comprehensive
(Dollars in Thousands)		Stock				Stock				Capital				Earnings				Stock				Income (Loss)				Total
Balance January 1, 2008		$	—			$	11,499			$	108,825			$	117,670			$	(13,613	)		$	(7,283	)		$	217,098
Comprehensive income:
Net income			—				—				—				17,101				—				—				17,101
Other comprehensive loss - See note 10			—				—				—				—				—				(50,116	)			(50,116	)
Comprehensive loss			—				—				—				17,101				—				(50,116	)			(33,015	)
Cumulative effect of change in accounting principle			—				—				—				(813	)			—				—				(813	)
Common dividends declared			—				—				—				(9,227	)			—								(9,227	)
Acquisition of 132,100 treasury shares			—				—				—				—				(4,222	)			—				(4,222	)
Acquisition of GreenPoint Insurance Group - 7,728 shares issued			—				—				22				—				245				—				267
Equity-based compensation expense			—				—				161				—				—				—				161
Tax benefit from exercise of stock options			—				—				122				—				—				—				122
Option exercises - 22,323 shares			—				—				(268	)			—				708				—				440
Balance September 30, 2008		$	—			$	11,499			$	108,862			$	124,731			$	(16,882	)		$	(57,399	)		$	170,811
Balance January 1, 2009 (restated)		$	40,419			$	12,051			$	128,526			$	106,104			$	(15,368	)		$	(52,517	)		$	219,215
Cumulative effect of change in accounting principle			—				—				—				6,131				—				(6,131	)			—
Comprehensive income:
Net income (loss) (restated)			—				—				—				(3,955	)			—				—				(3,955	)
Other comprehensive income - See note 10			—				—				—				—				—				23,150				23,150
Comprehensive income			—				—				—				(3,955	)			—				23,150				19,195
Preferred dividend, net			1,081				—				(37	)			(2,160	)			—				—				(1,116	)
Common dividends declared			—				—				—				(4,616	)			—				—				(4,616	)
Redemption of preferred stock			(41,500	)			—				—				—				—				—				(41,500	)
Acquisition of 1,000 treasury shares			—				—				—				—				(13	)			—				(13	)
Acquisition of TriStone Community Bank 741,588 shares issued			—				742				9,386				—				—				—				10,128
Issuance of vested shares - 700 shares			—				—				(22	)			—				22				—				—
Equity-based compensation expense			—				—				105				—				—				—				105
Common stock issuance - 5,290,000 shares issued			—				5,290				56,378				—				—				—				61,668
Retirement plan contribution - 79,591 shares issued			—				—				(1,495	)			—				2,527				—				1,032
Option exercises - 2,000 shares			—				—				(42	)			—				64				—				22
Balance September 30, 2009 (restated)		$	—			$	18,083			$	192,799			$	101,504			$	(12,768	)		$	(35,498	)		$	264,120

See Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. General

Unaudited Consolidated Financial Statements

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

The consolidated balance sheet as of December 31, 2008, has been derived from the restated audited consolidated financial statements included in the Company’s 2008 Annual Report on Form 10-K/A (the “2008 Form 10-K/A”). Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been omitted in accordance with standards for the preparation of interim consolidated financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2008 Form 10-K/A.

A more complete and detailed description of First Community’s significant accounting policies is included within Footnote 1 of Item 8, “Financial Statements and Supplementary Data” in the Company’s 2008 Form 10-K/A. Further discussion of the Company’s application of critical accounting policies is included within the “Application of Critical Accounting Policies” section of Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included herein.

The Company operates within two business segments, banking and insurance services. Insurance services are comprised of agencies which sell property and casualty and life and health insurance policies and arrangements. All other operations, including commercial and consumer banking, lending activities, and wealth management are included within the banking segment.

Earnings Per Share

Basic earnings per share is determined by dividing net income available to common shareholders by the weighted average number of shares outstanding. Diluted earnings per share is determined by dividing net income available to common shareholders by the weighted average shares outstanding, which includes the dilutive effect of stock options, warrants and contingently issuable shares. The dilutive effects of stock options, warrants, and contingently issuable shares are not considered in the three- and nine-month periods ended September 30, 2009, because of the reported net loss available to common shareholders. Basic and diluted net income per common share calculations follow:

		For the three months								For the nine months
		ended September 30,								ended September 30,
(Amounts in Thousands, Except Share and Per Share Data)		2009				2008				2009				2008
		(Restated)								(Restated)
Net (loss) income available to common shareholders		$	(12,563	)		$	4,551			$	(6,115	)		$	17,101
Weighted average shares outstanding			17,427,434				10,956,867				13,918,599				10,992,901
Dilutive shares for stock options			—				54,712				—				56,544
Contingently issuable shares			—				22,480				—				22,480
Common stock warrants			—				—				—				—
Weighted average dilutive shares outstanding			17,427,434				11,034,059				13,918,599				11,071,925
Basic (loss) earnings per share		$	(0.72	)		$	0.42			$	(0.44	)		$	1.56
Diluted (loss) earnings per share		$	(0.72	)		$	0.41			$	(0.44	)		$	1.54

For the three- and nine-month periods ended September 30, 2009, options and warrants to purchase 562,337 and 541,292 shares, respectively, of common stock were outstanding but were not included in the computation of diluted earnings per common share because the exercise price was greater than the market price of our common stock and the Company incurred

losses, accordingly, they would have an anti-dilutive effect. Likewise, options to purchase 10,000 shares of common stock were excluded from the 2008 computations of diluted earnings per common share because their effect would be anti-dilutive.

Recent Accounting Pronouncements

In September 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Statement Update (“ASU”) No. 2009-08, “Earnings per Share — Amendments to Section 260-10-S99.” This update represents technical corrections to Topic 260-10-S99, Earnings per Share, based on EITF Topic D-53, Computation of Earnings Per Share for a Period that Includes a Redemption or an Induced Conversion of a Portion of a Class of Preferred Stock and EITF Topic D-42, The Effect of the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock. The adoption of ASU 2009-08 did not have a material impact on the Company’s consolidated financial statements.

In August 2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) — “Measuring Liabilities at Fair Value.” ASU 2009-05 provides clarification about measuring liabilities at fair value in circumstances where a quoted price in an active market for an identical liability is not available and the valuation techniques that should be used. The updated also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The update is effective for the Company for the reporting period ending September 30, 2009 and did not have a material impact on the Company’s consolidated financial statements.

In August 2009, the FASB issued ASU No. 2009-03, SEC Update — Amendments to Various Topics Containing SEC Staff Bulletins. ASU 2009-03 represents technical corrections to various topics containing SEC Staff Accounting Bulletins to update cross-references to Codification text. The update did not have a material effect on the Company’s consolidated financial statements.

In June 2009, the FASB issued ASU No. 2009-01 (formerly Statement No. 168), Topic 105 — “Generally Accepted Accounting Principles amendments based on Statement of Financial Accounting Standards No. 168 — The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles.” The Codification became the source of authoritative US GAAP recognized by the FASB to be applied by nongovernmental entities and supersedes all non-SEC accounting and reporting standards. This statement is effective for financial statements issued for interim and annual financial statements ending after September 15, 2009, and did not have an impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued new guidance impacting FASB Accounting Standards Codification (“ASC”) Topic 810-10 (formerly Statement No. 167), “Amendments to FASB Interpretation No. 46(R).” The new guidance contains criteria for determining the primary beneficiary, eliminates the exception to consolidating qualifying special purpose entities (“QSPE’s”), requires continual reconsideration of conclusions reached in determining the primary beneficiary, and requires additional disclosures. The guidance is effective as of the beginning of fiscal years beginning after November 15, 2009 and is applied using a cumulative effect adjustment to retained earnings for any carrying amount adjustments (e.g., for newly-consolidated VIEs). The Company does not expect the standard to have a material effect on its financial condition, results of operations, or liquidity.

In June 2009, the FASB issued new guidance impacting FASB ASC Topic 860 (formerly Statement No. 166), “Accounting for Transfers of Financial Assets.” The guidance eliminates the concept of a QSPE, changes the requirements for derecognizing financial assets, and requires additional disclosures, including information about continuing exposure to risks related to transferred financial assets. The guidance is effective for financial asset transfers occurring after the beginning of fiscal years beginning after November 15, 2009. The disclosure requirements must be applied to transfers that occurred before and after the effective date, and are not expected to have an impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued new guidance impacting FASB ASC Topic 805 (formerly Statement No. 141R), “Business Combinations.” The new guidance establishes principles and requirements for how an acquirer recognizes the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. The guidance recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. The guidance also defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquiree achieves control. Additionally this statement determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. In connection with its January 1, 2009 adoption the Company has expensed costs associated with recently announced transactions. This standard impacted the accounting of the transaction

related to the acquisition of TriStone Community Bank that closed on July 31, 2009, including the recording of an acquisition gain of $4.49 million.

Note 2. Restatement of Consolidated Financial Statements

As a result of a routine internal audit, the Company determined there was a computational error in the model that it uses to calculate the quantitative basis for its allowance for loan losses. In connection with its determination of the appropriate loan loss reserve at December 31, 2008, the Company made certain modifications to its loan loss reserve model with respect to a $130.76 million pool of loans. However, in calculating the loan loss reserves for this pool of loans, the historical quarterly net charge-off rates were not annualized as was the case with all other quarterly loss rates in the model. The Company has corrected the computational error in its model for calculating the allowance for loan losses. Based on the Company’s modeling using the corrected computations, the Company, in consultation with the Audit Committee of its Board of Directors, determined that the amount of the allowance for loan losses should be increased by an aggregate of $2.55 million for the period beginning December 31, 2008 and ending March 31, 2010.

In this Form 10-Q/A, the Company is restating its unaudited consolidated balance sheet as of September 30, 2009, and the consolidated statements of income, statements of cash flows, and statement of changes in stockholders’ equity for the three- and nine-month periods ended September 30, 2009.

In its 2008 Form 10-K/A, which has been filed with the SEC, the Company restated its consolidated balance sheet, statements of income, statements of cash flows and statement of changes in stockholders’ equity at and for the year ended December 31, 2008. For ease of reference, the effects of the restatement on the consolidated balance sheet for the year ended December 31, 2008 is provided below in this Note 2.

The effects of the restatement by line item for the periods presented in this Quarterly Report on Form 10-Q/A follow.

		Impact on Consolidated
		Balance Sheets
		September 30, 2009												December 31, 2008
		As Previously												As Previously
(Amounts in Thousands)		Reported				As Restated				Effect of Change				Reported				As Restated				Effect of Change
Allowance for loan losses		$	17,444			$	19,710			$	2,266			$	15,978			$	17,782			$	1,804
Net loans held for investment			1,379,173				1,376,907				(2,266	)			1,282,181				1,280,377				(1,804	)
Other assets			115,453				116,303				850				118,231				118,908				677
Total assets			2,298,341				2,296,925				(1,416	)			2,133,314				2,132,187				(1,127	)
Retained earnings			102,920				101,504				(1,416	)			107,231				106,104				(1,127	)
Total stockholders’ equity			265,536				264,120				(1,416	)			220,342				219,215				(1,127	)

		Impact on Consolidated
		Statements of Income
		Three Months Ended September 30, 2009												Nine Months Ended September 30, 2009
		As Previously								Effect of				As Previously								Effect of
(Amounts in Thousands, except per share data)		Reported				As Restated				Change				Reported				As Restated				Change
Provision for loan losses		$	3,418			$	3,819			$	401			$	8,057			$	8,519			$	462
Net interest income after provision for loan losses			14,118				13,717				(401	)			42,233				41,771				(462	)
Income (loss) before income taxes			(20,934	)			(21,335	)			(401	)			(10,110	)			(10,572	)			(462	)
Income tax expense (benefit)			(9,633	)			(9,783	)			(150	)			(6,444	)			(6,617	)			(173	)
Net income (loss)			(11,301	)			(11,552	)			(251	)			(3,666	)			(3,955	)			(289	)
Net income (loss) to common shareholders			(12,312	)			(12,563	)			(251	)			(5,826	)			(6,115	)			(289	)
Net income (loss) per share
Basic		$	(0.71	)		$	(0.72	)		$	(0.01	)		$	(0.42	)		$	(0.44	)		$	(0.02	)
Diluted		$	(0.71	)		$	(0.72	)		$	(0.01	)		$	(0.42	)		$	(0.44	)		$	(0.02	)

		Impact on Consolidated
		Statements of Cash Flows
		Nine Months Ended September 30, 2009
		As Previously								Effect of
(Amounts in Thousands)		Reported				As Restated				Change
Operating Activities:
Net income (loss)		$	(3,666	)		$	(3,955	)		$	(289	)
Provision for loan losses			8,057				8,519				462
Deferred income tax benefit			(17,752	)			(17,925	)			(173	)

		Impact on Consolidated
		Statements of
		Changes in Stockholders’ Equity
		Nine Months Ended September 30, 2009
		As Previously								Effect of
(Amounts in Thousands)		Reported				As Restated				Change
Total retained earnings, January 1		$	107,231			$	106,104			$	(1,127	)
Net income (loss)			(3,666	)			(3,955	)			(289	)
Total retained earnings, September 30			102,920				101,504				(1,416	)

Note 3. Mergers, Acquisitions, and Branching Activity

On July 31, 2009, the Company completed the acquisition of TriStone Community Bank (“TriStone”), based in Winston-Salem, North Carolina. TriStone had two full service locations in Winston-Salem, North Carolina. At acquisition, TriStone had total assets of approximately $166.82 million, loans of approximately $132.23 million, and deposits of approximately $142.27 million. The overall acquisition cost was approximately $10.78 million based on the issuance of 741,588 shares of the Company’s common stock at a stock price of $13.60 at the date of the merger and cash consideration of approximately $649 thousand for dissenting shareholders representing 90,680 shares of TriStone common stock. Shares of TriStone were exchanged for .5262 shares of the Company’s common stock. The Company acquired TriStone to augment its market presence and human resources in the Winston-Salem, North Carolina region.

The TriStone merger is being accounted for under the acquisition method of accounting in accordance with FASB ASC Topic 805 on Business Combinations. The statement of net assets acquired as of July 31, 2009 is presented in the following table. The purchased assets and assumed fair value of liabilities were recorded at their respective acquisition date fair values, and identifiable intangible assets were recorded at fair value. Fair values are preliminary and subject to refinement for up to one year after the closing date of the merger as information relative to closing date fair value becomes available. The fair value of the portfolio of loans with no credit deterioration of $124.50 million is provisional, pending final valuations for those assets. After the initial valuation was completed, the Company reassessed the recognition and measurement of identifiable assets acquired and liabilities assumed and concluded that all assets acquired and assumed liabilities were recognized and that the valuation procedures and resulting measures were appropriate. As a result, the Company recognized a preliminary gain on the acquisition of $4.49 million. Goodwill and bargain purchase gains created in business combinations are generally not taxable. For the three- and nine-month periods ended September 30, 2009, the Company incurred expenses related to the merger of $1.51 million and $1.58 million, respectively.

Revenue of $1.45 million and net income of $642 thousand for the period of August 1, 2009, to September 30, 2009 included in the consolidated financial statements is related to the newly acquired TriStone. TriStone’s results of operations prior to the acquisition are not included in the Company’s statements of income.

Acquisition of TriStone Community Bank

(In thousands)
Consideration:
Common Stock - 741,588 shares		$	10,082
Cash paid for dissenting shares			649
Cash in lieu of fractional shares			4
Option consideration			42
Fair value of total consideration paid		$	10,777
Recognized amounts of assets acquired and liabilities assumed:
Cash and cash equivalents		$	21,948
Investments			8,656
Loans, net			130,808
Premises and equipment, net			2,112
Other assets			1,624
Identifiable assets			165,148
Deposits			141,833
Other liabilities, primarily FHLB advances			8,045
Identifiable liabilities			149,878
Identifiable net assets			15,270
Gain on purchase		$	(4,493	)

The proforma consolidated condensed statements of income for the Company and TriStone for the nine months ended September 30, 2009 and 2008 are presented below as if the combination had occurred on January 1. The unaudited proforma information presented does not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the applicable periods presented, nor does it indicate the results of operations in future periods.

The proforma purchase accounting adjustments related to investments, loans and leases, deposits, and other borrowed funds are being accreted or amortized into income using methods that approximate a level yield over their respective estimated lives. Purchase accounting adjustments related to identifiable intangibles, which totaled $1.31 million, are being amortized and recorded as noninterest expense over their respective estimated lives using accelerated methods. The proforma consolidated condensed statements of income do not reflect any adjustments to TriStone’s historical provision for credit losses. The proforma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of each fiscal period presented, nor are they necessarily indicative of future consolidated results.

		For the Nine Months ended September 30, 2009
										ProForma				ProForma
(Dollars In Thousands)		First Community				TriStone				Adjustments				Combined
		(Restated)												(Restated)
Interest Income		$	78,847			$	5,453			$	199			$	84,499
Interest Expense			29,463				2,466				(427	)			31,502
Net interest income			49,384				2,987				626				52,997
Provision for loan losses			8,519				175				—				8,694
Net interest income after provision for loan losses			40,865				2,812				626				44,303
Noninterest Income			(3,860	)			929				4,493				1,562
Noninterest Expense			51,161				3,564				1,580				56,305
Income (loss) before income taxes			(14,156	)			177				3,539				(10,440	)
Income tax expense (benefit)			(7,702	)			—				1,085				(6,617	)
Net income (loss)			(6,454	)			177				2,454				(3,823	)
Dividends on preferred stock			2,160				—				—				2,160
Net income (loss) available to common shareholders		$	(8,614	)		$	177			$	2,454			$	(5,983	)

		For the Nine Months ended September 30, 2008
										ProForma				ProForma
(Dollars In Thousands)		First Community				TriStone				Adjustments				Combined
Interest Income		$	83,530			$	5,644			$	199			$	89,373
Interest Expense			34,222				2,890				(427	)			36,685
Net interest income			49,308				2,754				626				52,688
Provision for loan losses			4,721				537				—				5,258
Net interest income after provision for loan losses			44,587				2,217				626				47,430
Noninterest Income			24,748				481				4,493				29,722
Noninterest Expense			45,483				2,974				1,580				50,037
Income (loss) before income taxes			23,852				(276	)			3,539				27,115
Income tax expense (benefit)			6,751				—				1,085				7,836
Net income (loss)			17,101				(276	)			2,454				19,279
Dividends on preferred stock			—				—				—				—
Net income (loss) available to common shareholders		$	17,101			$	(276	)		$	2,454			$	19,279

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date and prohibit the carryover of the related allowance for loan losses, which include loans purchased in the TriStone acquisition. Purchased impaired loans are accounted for under the Loans and Debt Securities Acquired with Deteriorated Credit Quality Topic 310-30 of FASB ASC when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. Evidence of credit quality deterioration as of the purchase date may include measures such as credit scores, decline in collateral value, past due and nonaccrual status. Generally, acquired loans that meet the Company’s definition for nonaccrual status fall within the scope of FASB ASC Topic 310-30. The difference between contractually required payments at acquisition and the cash

flows expected to be collected at acquisition is referred to as the nonaccretable difference which is included in the carrying amount of the loans. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges, or a reversal of the nonaccretable difference with a positive impact on interest income prospectively. Further, any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows. Purchased performing loans are recorded at fair value, including a credit component. The fair value adjustment is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for loan losses established at the acquisition date for acquired performing loans. A provision for loan losses is recorded for any credit deterioration in these loans subsequent to the acquisition.

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

(In thousands)		July 31, 2009
Contractually required principal payments to balance sheet received		$	124,973
Fair value of adjustment for credit, interest rate, and liquidity			(472	)
Fair value of loans receivable, with no credit deterioration		$	124,501

The following table presents the acquired impaired loans receivable at the acquisition date of July 31, 2009, and September 30, 2009. The Company has estimated the cash flows to be collected on the loans and discounted those cash flows at a market rate of interest. The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the nonaccretable difference. The nonaccretable difference includes estimated future credit losses expected to be incurred over the life of the loan. The Company has not noted any further deterioration in the acquired impaired loans.

(In thousands)		July 31, 2009				September 30, 2009
Contractually required principal payments to balance sheet receivable		$	6,862			$	5,712
Nonaccretable difference			(1,670	)			(1,340	)
Present value of cash flows expected to be collected			5,192				4,372
Accretable difference			(149	)			(135	)
Fair value of acquired impaired loans		$	5,043			$	4,237

On November 14, 2008, the Company completed the acquisition of Coddle Creek Financial Corp. (“Coddle Creek”), based in Mooresville, North Carolina. Coddle Creek had three full service locations in Mooresville, Cornelius, and Huntersville, North Carolina. At acquisition, Coddle Creek had total assets of approximately $158.66 million, loans of approximately $136.99 million, and deposits of approximately $137.06 million. Under the terms of the merger agreement, shares of Coddle Creek were exchanged for .9046 shares of the Company’s common stock and $19.60 in cash, for a total purchase price of approximately $32.29 million. As a result of the acquisition and purchase price allocation, approximately $14.41 million in goodwill was recorded, which represents the excess purchase price over the fair market value of the net assets acquired and identified intangibles.

Since January 1, 2008, GreenPoint Insurance Group, Inc., the Company’s wholly-owned insurance agency subsidiary, has acquired a total of five agencies, issuing cash consideration of approximately $2.04 million. Acquisition terms in all instances call for additional cash consideration if certain operating performance targets are met. If those targets are met, the value of the consideration ultimately paid will be added to the cost of the acquisitions. Goodwill and other intangibles associated with those acquisitions total approximately $2.04 million.

The Company opened a new branch location in Richmond, Virginia, in July 2009.

Note 4. Investment Securities

As of September 30, 2009 and December 31, 2008, the amortized cost and estimated fair value of available-for-sale securities were as follows:

		September 30, 2009
		Amortized				Unrealized				Unrealized				Fair				OTTI in
(In thousands)		Cost				Gains				Losses				Value				AOCI
U.S. Government agency securities		$	66,191			$	697			$	—			$	66,888			$	—
States and political subdivisions			134,885				4,092				(481	)			138,496				—
Trust preferred securities:
Single issue			55,586				—				(18,132	)			37,454				—
Pooled			60,116				—				(37,014	)			23,102				(31,862	)
Total trust preferred securities			115,702				—				(55,146	)			60,556				(31,862	)
Mortgage-backed securities:
Agency			284,092				6,875				(361	)			290,606				—
Non-Agency prime residential			6,166				—				(627	)			5,539				—
Non-Agency Alt-A residential			20,968				—				(9,437	)			11,531				(9,437	)
Total mortgage-backed securities			311,226				6,875				(10,425	)			307,676				(9,437	)
Equities			2,312				208				(336	)			2,184				—
Total		$	630,316			$	11,872			$	(66,388	)		$	575,800			$	(41,299	)

		December 31, 2008
		Amortized				Unrealized				Unrealized				Fair				OTTI in
(In thousands)		Cost				Gains				Losses				Value				AOCI
U.S. Government agency securities		$	53,425			$	1,393			$	—			$	54,818			$	—
States and political subdivisions			163,042				864				(4,487	)			159,419				—
Trust preferred securities:
Single Issue			55,491				—				(21,950	)			33,541				—
Pooled			93,269				—				(60,757	)			32,512				—
Total trust preferred securities			148,760				—				(82,707	)			66,053				—
Mortgage-backed securities:
Agency			212,315				4,649				(2	)			216,962				—
Non-Agency prime residential			7,423				—				(1,657	)			5,766				—
Non-Agency Alt-A residential			10,750				—				—				10,750				—
Total mortgage-backed securities			230,488				4,649				(1,659	)			233,478				—
Equities			7,979				357				(1,381	)			6,955				—
Total		$	603,694			$	7,263			$	(90,234	)		$	520,723			$	—

As of September 30, 2009, and December 31, 2008, the amortized cost and estimated fair value of held-to-maturity securities were as follows:

		September 30, 2009
		Amortized				Unrealized				Unrealized				Fair
(In thousands)		Cost				Gains				Losses				Value
States and political subdivisions		$	7,452			$	143			$	—			$	7,595
Total		$	7,452			$	143			$	—			$	7,595

		December 31, 2008
		Amortized				Unrealized				Unrealized				Fair
(In thousands)		Cost				Gains				Losses				Value
States and political subdivisions		$	8,670			$	133			$	(1	)		$	8,802
Total		$	8,670			$	133			$	(1	)		$	8,802

The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at September 30, 2009, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Amortized
(In thousands)		Cost				Fair Value
Due within one year		$	1,081			$	1,089
Due after one year but within five years			7,125				7,326
Due after five years but within ten years			89,295				92,201
Due after ten years			219,277				165,324
			316,778				265,940
Mortgage-backed securities			311,226				307,676
Equity securities			2,312				2,184
Total		$	630,316			$	575,800