Greetings, ladies and gentlemen, and welcome to the First Community Bancshares, Inc. Second Quarter 2008 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host, Mr. Bob Schumacher, General Counsel for First Community Bancshares. Thank you, Mr. Schumacher, you may begin.

Good morning. Thank you for joining us this morning for First Community Bancshares’ second quarter earnings conference call. This is just a reminder that any statements made today that are not historical should be considered as forward-looking. Please review the language at the end of yesterday’s earnings release regarding more detail on forward-looking statements, as that same information applies to comments made in today’s call. With us today is President and Chief Executive Officer, John Mendez; Chief Financial Officer, Dave Brown, Chief Credit Officer, Gary Mills, and Chief Investment Officer, John Spracher. At this time, I would like to turn it over to John Mendez.

Thank you, Bob. Good morning to everyone, and again welcome to the second quarter 2008 conference call for First Community Bancshares, Inc. We thank you for your interest in our company today and the research provided by those of you who are analysts, and we also welcome those of you who are owners, investors, and stockholders. We would like to take the time today to discuss our second-quarter earnings release and also touch on a few of the other activities of the company over the last several months. We’ll also provide our insights into overseeing the business climate and the economy in general. Joining me today as you heard, is Dave Brown, our Chief Financial Officer; Gary Mills, our Chief Credit Officer; and John Spracher, our Chief Investment Officer, who will also be available for the Q&A session. I’ll begin with comments on the company, recent strategies in the marketplace, and then I’ll be followed by Dave Brown, who will highlight the financial results. Gary Mills will then conclude with an overview of lending and credits, and then we will take questions from registered callers. I begin this morning with an overview of our results and operational highlights for the quarter and a brief discussion of key trends. As you have noted from our published earnings release yesterday evening, our net earnings for the second quarter were good on a comparative basis at $6.24 million or $0.56 per diluted share. Despite the decline from the same quarter of 2007, we were pleased with some of the metrics underlying those results. In particular, we saw a turn in the direction of the loan portfolio totals, with a slight increase between the first and the second quarter. This is attributed to our new commercial leadership, some of our new lending resources, and…

Thank you, John, and good morning to everyone. I want to give you all some highlights on the quarter and dig into some of the items within non-interest expense, and then expand on the exposures we see in our investment portfolio. To start out with, I’m very happy with the up-tick in margin that we saw in the second quarter. This is largely the result of the great efforts by a lot of people in our company to lower the cost in our CD portfolio and pare out some of our most unprofitable relationships. We finally turned the corner in terms of loan portfolio, and originations are outpacing payoffs. We continue seeing an excellent pipeline and remain cautiously optimistic that we will see credit spreads on loan products align with those that we see in the capital markets. In the meantime, we are preparing for the liquidity needs that will come along with the loan funding pressures. We have moved some of our special rates up in our legacy markets and have seen customer demand. We do not see a need to compete with some of the irrationals in the urban markets and continue to focus on raising deposits in our legacy markets. Very late in the quarter, a $50 million Home Loan Bank advance paying 3.64% was called. We opted to roll that into overnight funds, which saved us approximately 140 basis points. We do expect to firm up that funding sometime in the current quarter. Despite a couple of sour credits, we still see great credit quality metrics, especially in comparison to peers. We did make a $937,000 provision for loan losses, which brought the allowance to 114 basis points of loans at June 30. Some of the highlights in the non-interest income line are deposit service charges,…

Thank you, David, and good morning to everyone. The total FCB loan portfolio at the end of the second quarter measured $1.181 billion, as compared to the first quarter posting of $1.179 billion, which represents an approximate $1.8 million increase for the quarter. The growth was generated by a $6.6 million increase in the commercial loan portfolio. As I believe we have mentioned in recent calls, commercial loan activity has been increasing. I attribute some of this increased activity to the retooling of the commercial line. Newly hired commercial staff has nicely complemented the existing staff, and we are beginning to see the benefits of their efforts. Additionally, it would appear that liquidity, concentration, and asset quality issues being experienced by many within the financial sector are presenting lending opportunities for First Community Bank. Total delinquency at quarter end measured 0.91% as compared to 0.65% at March 31, and 0.98% at year-end 2007. Within this category, 30 to 89 days past due totaled $6.7 million or 0.56%; and non-accrual loans totaled $4.1 million or 0.35%. Non-accrual loans increased approximately $1 million during the quarter. This increase was primarily driven by two commercial loans that were identified late in the quarter. Impairment analysis has been performed on both credits, and we have reserved for them accordingly. The Bank continues to diligently manage its OREO, which is reflected in the quarter-end balance of $500,000. Non-performing assets as a percentage of loans remains a very good 0.39%. Net charge-offs for the quarter were $367,000, which when annualized equates to 0.12% of average total loans. This is comparable to first quarter performance of 0.1% and compares favorably to the 0.18% posted in the second quarter of 2007. The allowance for loan losses measured $13.4 million at quarter end, which is 1.14% of total loans, as compared to 1.09% and 1.05% at March 31 and December 31, respectively. At this level, the allowance provides a coverage ratio to non-performing loans of approximately 326%. Primarily driven by the impairment analysis of the previously mentioned two non-accrual loans, a provision of $937,000 was made during the quarter. We believe the Bank’s asset quality metrics remain very good, especially so in this very difficult operating environment. I believe, as John mentioned, the Bank’s mortgage portfolio continues to perform well, as total delinquency measured 0.85% at June 30 versus the national average of 6.35% as published in the Mortgage Bankers Association National Delinquency Survey. Our underwriting and concentration management have thus far served us well, and we will continue to maintain discipline in this regard. With that, I would turn the call back over to John.

Thank you, Gary and David, both of you for those remarks. At this point, that concludes our prepared remarks and I’d like to turn the call back to the conference operator, and we will move into a Q&A session.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions). Our first question comes from the line of Mark Muth with FTN Midwest Securities Corp. You may proceed with your question.

Good morning, guys.

Good morning.

Good morning, Mark.

First, on the REL acquisition, I assume pricing was not disclosed. But could you tell us whether it was a cash or stock deal, or give us a sense of what kind of consideration was paid?

You’re right. We did not disclose the terms on that. That was a closely held company. But it was a cash deal.

Okay.

The structure was similar to that that we’ve used in the past. Although, it was all cash, we do have substantial earn-out or hold-back provisions within there. So, it will be a structured cash deal.

Okay. And then Dave, in your comments you talked about having to run some more aggressive CD specials in the legacy markets to boost deposit growth. With that in mind, how much of the CD portfolio can still re-price lower at this point?

Mark, I think that we have probably on the order of – I think about a third of the portfolio coming due over the next couple of quarters. Depending on the customers’ appetite for the new special rates, which are getting high – they are in the upper range of some of the specials that are out there. But if they go ahead and take that, they are going to lock in longer and not re-price down as much and as quickly as we’ve seen over the second quarter.

Yes, those specials are largely longer-term CD offerings.

Right.

Okay. And then finally, John, in light of the charge you had to take on the investment banking fees for the deal that I think you described as a blockbuster deal. Could you just talk about your deal appetite going forward, and what kind of things you are looking for at this point?

Well, our strategic plan remains in place and we are still focused on growth in those markets in Eastern Virginia along I-64, and in North Carolina I-77 and I-40. We continue to look at opportunities there. We are seeing a fair number of opportunities today, but we are being extremely cautious because of the market. We would like to see some more definition around the real estate environment and particularly the portfolios for some of these potential partners. Our appetite remains good. We’ll just be moving very, very cautiously.

Okay. Thanks, guys.

Thank you.

Our next question comes from the line of Brian Klock with Keefe Bruyette & Woods, Inc. You may proceed with your question. Brian Klock - Keefe Bruyette & Woods, Inc.: Good morning, gentlemen.

Good morning, Brian.

Good morning. Brian Klock - Keefe Bruyette & Woods, Inc.: Yes, I guess it’s nice to go through this part of earnings season and be a bank with 12 basis points of charge-offs and 39 basis points of NPAs. You don’t see that many of them out there, guys, so good quarter on credit again.

Thank you.

Thanks. Brian Klock - Keefe Bruyette & Woods, Inc.: And I guess, probably this may be a call that no one asks any questions on credit, so I will talk about a little bit follow-upping on Mark’s question. John, you did mention that I guess an increased pace of deal inquiry, I mean I guess are you, given your asset quality, your credit underwriting, your capital levels, are regulators coming to you with deals? Or I guess maybe you can talk about where the flows of deals are coming from.

Yes, what we are seeing today are an increased number of opportunities. It’s in my belief that with our capital position, our strength and asset quality, and what we believe has been strong earnings performance over the years. We are seen as an exit strategy today for a number of smaller institutions. That would include an array of banks in varied sizes and different profiles. So, we are getting opportunities. We are seeing those. There are banks who are struggling with capital issues, and there are those who have had a hitch in performance, so they are struggling with net interest margins and the pressures that they have seen there. But, I think the restriction on growth is probably one of the things which has weighed heavily on them, that along with the regulatory burdens. Yes, we are seeing those opportunities today. I think the regulators will be looking much harder at processes and policies, and credit infrastructures, compliance matters. And some of these banks may not have the infrastructure in place to adequately deal with that. So, that is yet another reason that I think some of these may be looking for exit strategies. We certainly are happy to look at those. We think it does create some opportunities. Brian Klock - Keefe Bruyette & Woods, Inc.: Okay. I did miss a little bit of your question – Mark’s question you answered about where you’re looking. I think you said in North Carolina. Is that where you are looking for the next, I guess, deal to expand in? Is it in North Carolina or –?

Well, the markets that we define as our expansion markets or growth markets, Eastern Virginia, and that would include a stretch of I-64, Charlottesville to Richmond, and then in North Carolina, the I-77 and I-40 corridors. We have sort of delineated that as the triad or the Piedmont triad region. So, those would be primary on our list. We also have a pretty good operation in East Tennessee, and we would certainly look at good opportunities that would help us flesh out or fill in that market and build our network. So, those are the primaries. There also – there could be fill-in opportunities that stretch along 64 in particular in the River Valley in Virginia. So, those are our primary markets that we are interested in. Brian Klock - Keefe Bruyette & Woods, Inc.: Okay. And again, it sounds like you’ve got a turn in the corner on both loan origination volumes and the margin expansion was strong in the quarter, plus it looks like it’s continuing to expand, and where you’ve mentioned 4.09% for June NIM. So, I guess is the expectation that you’re seeing better pricing? And then should we read into the third quarter that, given where you were in June, that we should see some more margin expansion?

We are seeing some improvement in pricing and loan submissions and opportunities there. It’s still not where we believe it needs to be, and we continue to work with our lending staff trying to set expectations there. The marketplace hasn’t come along as quickly as we think it should have in terms of recognizing new credit spreads. But we are seeing some movement there. We continue to do our part to try and bring that adjustment about. We are seeing some pickup. Brian Klock - Keefe Bruyette & Woods, Inc.: Okay, great. And I guess –

The improvement did come in large part, the margin improvement did come in large part from the CD portfolio re-pricing, adjusting some of those higher-cost customers out of the portfolio, and also the reduction in cost of our wholesale debt, short-term funding. Brian Klock - Keefe Bruyette & Woods, Inc.: Okay. Dave, actually you’ve answered most of the questions already that I usually have in the fee income and expenses. But maybe just to talk about the single-issue TruPS, the full TruPS, and the non-agency CDOs, you gave the dollar balance for those. I guess, with the OCI mark you took then in the quarter, what are those being carried at as a percentage at par at June 30? So, what kind of haircut did you take on those, the $56 million, the $108 million, and the $33 million?

Brian, I’d have to get you the exact numbers, and we can do that on an 8-K release. But that is going to be on a weighted average across that whole portfolio in the mid to lower 70s range. Brian Klock - Keefe Bruyette & Woods, Inc.: Okay, okay. So, it probably is fair to say most of the move in OCI in the quarter was on those three pools?

It was. Yes, exactly. Almost all of it came out the pooled trust preferred CDOs. Brian Klock - Keefe Bruyette & Woods, Inc.: Okay, all right. Thanks, guys.

Thank you.

There are no more questions in the queue. At this time, I will turn the floor back over to management for closing comments.

This is John Mendez. And again, I would like to thank everyone for joining us today. We appreciate your interest, and we look forward to reporting to you in coming quarters. And with that, I hope everyone has a great day.