UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2009

OR

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

For the transition period from              to             

Commission File Number: 000-22283

StellarOne Corporation

(Exact name of registrant as specified in its charter)

Virginia	54-1829288
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

590 Peter Jefferson Parkway Charlottesville, Virginia	22911
(Address of principal executive offices)	(Zip Code)

(Registrant’s telephone number 434-964-2211, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 report(s), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).    Yes  ¨    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 definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b – 2 of the Exchange Act).    Yes  ¨    No  x

As of May 4, 2009 there were 22,701,393 shares of common stock, $1.00 par value per share, issued and outstanding.

STELLARONE CORPORATION

INDEX

PART I - FINANCIAL INFORMATION

		Page No.
ITEM 1	Financial Statements:
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Changes in Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7-16
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17-25
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	26
ITEM 4	Controls and Procedures	27
PART II - OTHER INFORMATION
ITEM 1	Legal Proceedings	28
ITEM 1A	Risk Factors	28
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	28
ITEM 3	Defaults Upon Senior Securities	28
ITEM 4	Submission of Matters to a Vote of Security Holders	28
ITEM 5	Other Information	28
ITEM 6	Exhibits	29-33

2

PART I – FINANCIAL INFORMATION

ITEM 1. Financial statements

STELLARONE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

	MARCH 31, 2009		DECEMBER 31, 2008
	(unaudited)
ASSETS
Cash and due from banks	$	48,715	$	66,239
Federal funds sold		52,240		3,837
Interest-bearing deposits in banks		43,578		45,453
Cash and cash equivalents		144,533		115,529
Investment securities (fair value: 2009, $324,640; 2008, $328,096)		324,633		328,093
Mortgage loans held for sale		38,175		15,847
Loans receivable, net of allowance for loan losses, 2009, $35,319; 2008, $30,464)		2,229,196		2,234,122
Premises and equipment, net		86,171		89,022
Accrued interest receivable		10,095		10,230
Core deposit intangibles, net		9,828		10,266
Goodwill		74,880		74,582
Bank owned life insurance		29,207		28,903
Foreclosed assets		4,207		4,627
Other assets		46,004		45,293
Total assets	$	2,996,929	$	2,956,514
LIABILITIES
Deposits:
Noninterest-bearing	$	314,763	$	307,621
Interest-bearing		2,071,565		2,015,487
Total deposits		2,386,328		2,323,108
Short-term borrowings		477		699
Federal Home Loan Bank advances		170,083		187,700
Subordinated debt		32,991		32,991
Accrued interest payable		5,120		5,476
Deferred income tax liability		385		1,224
Other liabilities		9,220		10,531
Total liabilities		2,604,604		2,561,729
STOCKHOLDERS’ EQUITY
Preferred stock; no par value; 5,000,000 shares authorized; no shares issued and outstanding;		—		—
Preferred stock; $1,000 liquidation preference; 30,000 shares issued and outstanding;		28,139		28,121
Common stock, $1 par value; 25,000,000 shares authorized; 2009: 22,630,636 shares issued and outstanding; 2008: 22,605,063 shares issued and outstanding		22,631		22,605
Additional paid-in capital		229,805		229,522
Retained earnings		109,738		113,661
Accumulated other comprehensive income, net		2,012		876
Total stockholders’ equity		392,325		394,785
Total liabilities and stockholders’ equity	$	2,996,929	$	2,956,514

The accompanying notes are an integral part of these consolidated financial statements.

3

STELLARONE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

	THREE MONTHS ENDED MARCH 31,
	2009			2008
	(unaudited)			(unaudited)
Interest Income
Loans, including fees	$	32,492		$	27,262
Federal funds sold and deposits in other banks		18			199
Investment securities:
Taxable		2,574			2,062
Tax exempt		848			837
Dividends		199			268
Total interest income		36,131			30,628
Interest Expense
Deposits		11,651			10,205
Federal funds purchased and securities sold under agreements to repurchase		3			55
Federal Home Loan Bank advances		1,562			1,907
Subordinated debt		357			467
Short-term borrowings		7			479
Total interest expense		13,580			13,113
Net interest income		22,551			17,515
Provision for loan losses		7,750			953
Net interest income after provision for loan losses		14,801			16,562
Noninterest Income
Retail banking fees		3,711			2,567
Commissions and fees from fiduciary activities		758			803
Brokerage fee income		253			414
Mortgage banking-related fees		1,424			871
Losses on sale of foreclosed assets		(265	)		(500	)
Gains on sale of premises and equipment		199			38
Gains on sale of securities available for sale		2			32
Income from bank owned life insurance		304			192
Other operating income		591			748
Total noninterest income		6,977			5,165
Noninterest Expense
Compensation and employee benefits		10,526			11,168
Net occupancy		2,091			1,160
Supplies and equipment		1,962			1,541
Amortization-intangible assets		438			161
Marketing		240			417
State franchise taxes		596			395
FDIC insurance		1,105			47
Data processing		1,036			1,084
Professional fees		504			574
Telecommunications		467			289
Other operating expenses		3,259			2,202
Total noninterest expense		22,224			19,038
(Loss) income before income taxes		(446	)		2,689
Income tax (benefit) expense		(592	)		602
Net income		146			2,087
Preferred stock dividends		(370	)		—
Accretion of preferred stock discount		(74	)		—
Net (loss) income available to common shareholders	$	(298	)	$	2,087
Basic net (loss) income per common share available to common shareholders	$	(0.01	)	$	0.14
Diluted net (loss) income per common share available to common shareholders	$	(0.01	)	$	0.14

The accompanying notes are an integral part of these consolidated financial statements.

4

STELLARONE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND OTHER COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

(In thousands, except per share data)

(unaudited)

	Preferred Stock			Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income		Comprehensive Income		Total
Balance, January 1, 2008	$	—		$	10,796	$	34,488	$	117,009		$	475			$	162,768
Comprehensive income:
Net income		—			—		—		2,087			—	$	2,087		2,087
Other comprehensive income net of tax:
Unrealized holding gains arising during the period (net of tax of $1,626)		—			—		—		—			—		3,020		—
Reclassification adjustment (net of tax of $11)		—			—		—		—			—		21		—
Change in funded status of pension plans		—			—		—		—			—		134
Other comprehensive income		—			—		—		—			3,175		3,175		3,175
Total comprehensive income		—			—		—		—			—	$	5,262		—
Cash dividends ($.16 per share)		—			—		—		(1,728	)		—				(1,728	)
Common stock issued in Merger (11,748,933 shares)		—			11,749		189,382		—			—				201,131
Stock-based compensation expense associated with Merger (30,537 shares)		—			31		1,107		—			—				1,138
Exercise of stock options (2,274 shares)		—			2		14		—			—				16
Balance, March 31, 2008	$	—		$	22,578	$	224,991	$	117,368		$	3,650			$	368,587
Balance, January 1, 2009	$	28,121		$	22,605	$	229,522	$	113,661		$	876			$	394,785
Comprehensive income:
Net income		—			—		—		146			—	$	146		146
Other comprehensive income, net of tax:
Unrealized holding gains arising during the period (net of tax of $612)		—			—		—		—			—		1,135		—
Reclassification adjustment (net of tax of $1)		—			—		—		—			—		1		—
Other comprehensive income		—			—		—		—			1,136		1,136		1,136
Total comprehensive income		—			—		—		—			—	$	1,282		—
Cash dividends paid or accrued Common ($.16 per share)		—			—		—		(3,625	)		—				(3,625	)
Preferred cummulative 5%		—			—		—		(370	)		—				(370	)
Accretion on preferred stock discount		74			—		—		(74	)		—				—
Preferred stock issuance costs		(56	)		—		—		—			—				(56	)
Stock-based compensation expense (1,074 shares)		—			1		70		—			—				71
Exercise of stock options (24,499 shares)		—			25		213		—			—				238
Balance, March 31, 2009	$	28,139		$	22,631	$	229,805	$	109,738		$	2,012			$	392,325

The accompanying notes are an integral part of these consolidated financial statements.

5

STELLARONE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	THREE MONTHS ENDED MARCH 31,
	2009			2008
	(unaudited)			(unaudited)
Cash Flows from Operating Activities
Net income	$	146		$	2,087
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation		1,598			1,188
Amortization of intangible assets		438			161
Provision for loan losses		7,750			953
Deferred tax (benefit) expense		(1,451	)		2,319
Employee benefit plan expense		—			52
Stock-based compensation expense		72			1,138
Losses on foreclosed assets		265			500
(Gains) losses on sale of premises and equipment		(199	)		38
Gains on sale of securities available for sale		(2	)		(32	)
Mortgage banking-related fees		(1,424	)		(871	)
Proceeds from sale of mortgage loans		105,602			23,803
Origination of mortgage loans for sale		(126,506	)		(17,200	)
Amortization of securities premiums and accretion of discounts, net		(680	)		101
Income on bank owned life insurance		(304	)		(192	)
Changes in assets and liabilities:
Decrease in accrued interest receivable		135			662
Decrease (increase) in other assets		438			(3,868	)
Decrease in accrued interest payable		(356	)		(663	)
Decrease in other liabilities		(1,450	)		(13,942	)
Net cash used in operating activities	$	(15,928	)	$	(3,766	)
Cash Flows from Investing Activities
Proceeds from maturities and principal payments of securities available for sale	$	22,481		$	54,172
Proceeds from sales and calls of securities available for sale		5,762			10,080
Purchase of securities available for sale		(23,264	)		(49,875	)
Net increase in loans		(2,481	)		(3,171	)
Proceeds from sale of premises and equipment		641			363
Purchase of premises and equipment		(796	)		(1,855	)
Proceeds from sale of foreclosed assets		754			162
Cash acquired in merger		—			45,146
Net cash provided by investing activities	$	3,097		$	55,022
Cash Flows from Financing Activities
Net increase in demand, money market and savings deposits	$	51,402		$	19,598
Net increase (decrease) in certificates of deposit		11,948			(7,627	)
Net decrease in federal funds purchased and securities sold under agreements to repurchase		(222	)		(20,627	)
Proceeds from Federal Home Loan Bank advances		—			67,500
Principal payments on Federal Home Loan Bank advances		(17,617	)		(34,005	)
Net increase in commercial paper		—			5,564
Net decrease in short-term borrowings		—			(542	)
Proceeds from exercise of stock options		238			16
Payment of preferred stock issuance costs		(56	)		—
Cash dividends paid		(3,858	)		(1,728	)
Net cash provided by financing activities	$	41,835		$	28,149
Increase in cash and cash equivalents	$	29,004		$	79,405
Cash and Cash Equivalents
Beginning		115,529			41,793
Ending	$	144,533		$	121,198
Supplemental Schedule of Noncash Activities
Foreclosed assets acquired in settlement of loans	$	598		$	1,504
Common stock issued in Merger	$	—		$	203,222

The accompanying notes are an integral part of these consolidated financial statements.

6

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

StellarOne Corporation (the “Company”) is a Virginia bank holding company headquartered in Charlottesville, Virginia. The Company’s sole banking affiliate is StellarOne Bank headquartered in Christiansburg, Virginia. Additional subsidiaries of the Company include VFG Limited Liability Trust and FNB (VA) Statutory Trust II both of which are associated with the Company’s subordinated debt issues and are not subject to consolidation. On February 28, 2008, Virginia Financial Group, Inc (“VFG”) and FNB Corporation (“FNB”) merged and changed the surviving corporation’s name to StellarOne Corporation. The Company collapsed all of its previous affiliates into StellarOne Bank on May 27, 2008. The consolidated statements include the accounts of the Company and its wholly-owned banking subsidiary. All significant intercompany accounts have been eliminated. In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary to present fairly the financial position as of March 31, 2009 and December 31, 2008, the results of operations and cash flows for the three months ended March 31, 2009 and 2008. The statements should be read in conjunction with the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. The results of operations for the three month period ended March 31, 2009 and 2008 are not necessarily indicative of the results to be expected for the full year.

2. Participation in U.S. Treasury Capital Purchase Program “CPP”

On December 19, 2008, the Company issued 30,000 shares of preferred stock to the U.S. Treasury for $30 million pursuant to the CPP. Additionally, the Company issued 302,623 common stock warrants to the U.S. Treasury as a condition to its participation in the CPP. The warrants are immediately exercisable, expire 10 years from the date of issuance and have an exercise price of $14.87 per share. Proceeds from this sale of preferred stock have been used to support general lending activities and provide liquidity for mortgage modification and builder loan programs. The CPP preferred stock is non-voting, other than having class voting rights on certain matters, and pays cumulative dividends quarterly at a rate of 5% per annum for the first five years and 9% thereafter. The Company may redeem the preferred shares with the approval of the Federal Reserve at par value plus accrued and unpaid dividends.

As noted $1.9 million was assigned to the common stock warrants based on their relative fair value, accordingly, $28.1 million has been assigned to the Series A preferred stock and will be accreted up to the redemption amount of $30 million over the next five years.

7

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. Loans Receivable

The Company’s loan portfolio is composed of the following (In thousands):

	March 31, 2009			December 31, 2008
	(unaudited)
Real estate loans:
Construction and land development	$	371,727		$	380,833
Secured by 1-4 family residential		718,142			706,727
Commercial and multifamily		887,813			876,649
Commercial, financial and agricultural loans		218,123			225,637
Consumer loans		53,536			60,042
All other loans		13,808			13,403
Total loans		2,263,149			2,263,291
Deferred loan costs		1,366			1,295
Allowance for loan losses		(35,319	)		(30,464	)
Net loans	$	2,229,196		$	2,234,122

4. Allowance for Loan Losses

Activity in the allowance for loan losses is as follows (In thousands):

	March 31, 2009			December 31, 2008			March 31, 2008
	(unaudited)						(unaudited)
Balance, beginning	$	30,464		$	15,082		$	15,082
Provisions for loan losses		7,750			20,787			953
Loans charged off		(3,442	)		(18,191	)		(618	)
Recoveries		547			1,247			81
Net charge-offs		(2,895	)		(16,944	)		(537	)
Allowance acquired via acquisition		—			11,539			11,539
Balance, ending	$	35,319		$	30,464		$	27,037

8

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Information about impaired loans as of the periods indicated is as follows (In thousands):

	March 31, 2009		December 31, 2008
	(unaudited)
Impaired loans for which an allowance has been provided	$	45,450	$	34,055
Impaired loans for which an allowance has not been provided		6,339		24,650
Total impaired loans	$	51,789	$	58,705
Allowance provided for impaired loans, included in the allowance for loan losses	$	13,049	$	5,503

5. (Loss) Earnings Per Share

The following shows the weighted average number of shares used in computing (loss) earnings per share and the effect on weighted average number of shares of diluted potential common stock for the three month periods ended March 31, 2009 and 2008. Potential dilutive stock had no effect on (loss) income available to common stockholders for the three month period.

(In thousands, except per share amounts)	March 31, 2009			March 31, 2008
		(unaudited	)		(unaudited	)
Net income	$	146		$	2,087
Less:
Preferred stock dividends		(370	)		—
Accretion of preferred stock discount		(74	)		—
Net (loss) income available to common shareholders (numerator)	$	(298	)	$	2,087
(Loss) earnings per common share
Weighted average common shares outstanding (denominator)		22,619,426			15,077,544
(Loss) earnings per common share	$	(0.01	)	$	0.14
Diluted (loss) earnings per common share
Weighted average common shares issued and outstanding		22,619,426			15,077,544
Add:
Restricted stock		—			6,561
Incentive stock options		—			15,085
Stock options		—			57,070
Diluted weighted average common shares outstanding (denominator)		22,619,426			15,156,260
Diluted (loss) earnings per common share	$	(0.01	)	$	0.14

Due to the loss available to common shareholders in 2009, all unvested restricted stock and stock options would have been anti-dilutive and were not included in the three month calculation for 2009. In 2008, stock options representing 281,412 shares were not included in the three month calculation of earnings per share as their effect would have been anti-dilutive.

9

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. Stock-Based Compensation

FASB Statement No. 123 (R), “Share-Based Payment” requires that compensation cost relating to share-based payment transactions be recognized in financial statements. The cost is measured based on the fair value of the equity or liability instruments issued.

SFAS 123 (R) also requires that new awards to employees eligible for retirement prior to the award becoming fully vested be recognized as compensation cost over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award. The Company had no such awards granted during the three month period.

Included within compensation and employee benefits expense for the three month period ended March 31, 2009 and 2008 is $125 thousand and $1.40 million of stock-based compensation, respectively. An acceleration adjustment of $1.3 million related to the merger is included in compensation and employee benefit expense for the three month period ended March 31, 2008.

Stock option compensation expense is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period for each separately vesting portion of the award. Fair value was estimated using the Black-Scholes option pricing model with the following assumptions for: option term until exercise of approximately 4.5 to 6.5 years, volatility ranging from 24.3 to 28.6%, risk-free interest rate of 1.90% to 2.68% and an expected dividend yield of 3.7% to 4.3%.

A summary of the stock option plan at March 31, 2009 and 2008 and changes during the periods ended on those dates are as follows:

	2009				2008
	Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
Outstanding, January 1	614,198		$	18.58	239,671		$	23.37
Acquired via merger	—			—	311,606			14.02
Granted	17,392			12.78	27,000			15.51
Forfeited	—			—	(2,852	)		23.33
Expired	—			—	—			—
Exercised	(24,499	)		9.73	(2,274	)		9.73
Outstanding, March 31,	607,091		$	18.69	573,151		$	17.46
Exercisable, March 31,	473,798				578,519

10

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The aggregate intrinsic value of the options outstanding as of March 31, 2009 was $268 thousand. The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the quarter ended March 31, 2009 and the exercise price, multiplied by the number of options outstanding). The aggregate intrinsic value of the options currently exercisable as of March 31, 2009 was $268 thousand. The weighted average remaining contractual life is 4.4 years for exercisable options at March 31, 2009.

The following table summarizes nonvested restricted shares outstanding as of March 31, 2009 and the related activity during the period:

Nonvested Shares	Number of Shares		Weighted- Average Grant- Date Fair Value		(In thousands) Total Intrinsic Value
Nonvested at January 1, 2009	35,401		$	16.31	$	598
Granted	19,098			12.64
Vested & Exercised	(1,074	)		16.87	$	(18	)
Forfeited	—			—
Nonvested at March 31, 2009	53,425		$	16.31	$	636

The estimated unamortized compensation expense, net of estimated forfeitures, related to nonvested stock and stock options issued and outstanding as of March 31, 2009 that will be recognized in future periods is as follows (In thousands):

	Stock Options		Nonvested Restricted Stock		Total
For the remaining nine months of 2009	$	53	$	151	$	204
For year ended December 31, 2010		71		146		217
For year ended December 31, 2011		71		97		168
For year ended December 31, 2012		71		54		125
For year ended December 31, 2013		24		44		68
For year ended December 31, 2014		1		3		4
Total	$	291	$	495	$	786

11

STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

7. Fair Value Option and Fair Value Measurements

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position “FSP” No. FAS 157-2, “Effective Date of FASB Statement No. 157.” This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. FAS 157-2 has been deferred and therefore has not been adopted. The impact of adopting FAS 157 involved adding additional disclosure information and had no direct effect on the Company’s financial statements.

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” The standard provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The new standard became effective for the Company on January 1, 2008. The Company did not elect the fair value option for any financial assets or financial liabilities as of January 1, 2008.

Fair Value Measurement

Statement 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Statement 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” This FSP clarifies the application of FASB Statement No. 157, “Fair Value Measurements,” in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. This guidance was considered in determining the fair value of financial assets for the Company as of March 31, 2008.

Under SFAS No. 157, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. An adjustment to the pricing method used within either Level 1 or Level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy. These levels are:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

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STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value. The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter and based on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects changes in classifications between levels will be rare.

Securities: Investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relaying on the securities’ relationship to other benchmark quoted securities. Level 1 securities include those traded on nationally recognized securities exchanges, U.S. Treasury securities, and money market funds. Level 2 securities include U.S. Agency securities, mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Loans held for sale: The fair value of loans held for sale is determined, when possible, using quoted secondary-market prices. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan. As such, the Company classifies loans subjected to nonrecurring fair value adjustments as Level 2.

Loans: The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS 114, “Accounting by Creditors for Impairment of a Loan”. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2009, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with SFAS 157, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Foreclosed assets: Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at net realizable value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.

Deferred compensation plans: Liabilities associated with deferred compensation plans are recorded at fair value on a recurring basis as Level 1 based on the fair value of the underlying securities. Fair value measurement is based upon quoted prices.

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STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2009 are summarized below (In thousands).

(unaudited)	Total		Level 1		Level 2		Level 3
Investment securities available-for-sale	$	324,640	$	1,661	$	322,979	$	—
Total assets at fair value	$	324,640	$	1,661	$	322,979	$	—
Other liabilities (1)	$	2,418	$	2,418	$	—	$	—
Total liabilities at fair value	$	2,418	$	2,418	$	—	$	—

⁽¹⁾ Includes liabilities associated with deferred compensation plans

Assets and Liabilities Measured on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market whose fair value was recognized to be below cost at the end of the period. Assets measured at fair value on a nonrecurring basis as of March 31, 2009 are included in the table below (In thousands).

(unaudited)	Total		Level 1		Level 2		Level 3
Loans - impaired loans	$	51,789	$	—	$	31,508	$	20,281
Loans held for sale - mortgage		38,175		—		38,175		—
Loans held for sale - other assets		279		—		—		279
Foreclosed assets		4,207		—		2,200		2,007
Total assets at fair value	$	94,450	$	—	$	71,883	$	22,567
Total liabilities at fair value	$	—	$	—	$	—	$	—

8. Recent Accounting Pronouncements

In April 2009, the FASB issued FASB Staff Position FAS (“FSP”) No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,”. This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique used, the objective of a fair value measurement remains the same. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction that is, between market participants at the measurement date under current market conditions with the assumption that the sale is not a forced liquidation or distressed sale. FSP No. FAS 157-4 is effective for fiscal years and interim periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Corporation has not elected to adopt FSP No. FAS 157-4 early and upon adoption this FSP is not expected to have a significant effect on the Corporation’s consolidated financial statements.

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STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In April 2009, the FASB issued FASB Staff Position (“FSP”) FAS 107-1 and Accounting Principles Board (“APB”) 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” to require, on an interim basis, disclosures about the fair value of financial instruments for public entities, and to improve the transparency and quality of information provided to financial statement users by increasing the frequency of disclosures about fair value. The FSP applies to financial instruments within the scope of FASB Statement 107, Disclosures about Fair Value of Financial Instruments, held by publicly traded companies, as defined in AICPA Accounting Principles Board Opinion 28, Interim Financial Reporting. Previously, the disclosure was required only in annual financial statements. FSP No. FAS 107-1 and APB 28-1is effective for fiscal years and interim periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Corporation will include these disclosures in the notes to the consolidated financial statements on a quarterly basis beginning in the second quarter of 2009.

In April 2009, the FASB issued proposed FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”, which makes existing other-than-temporary impairment guidance pertaining to debt securities more operational and improves the presentation of other-than-temporary impairments in the financial statements. This FSP requires an entity to recognize the credit component of an other-than-temporary impairment of a debt security in earnings and any remaining portion in the other comprehensive income category of stockholders’ equity, if the entity does not intend to sell the security and it is more likely than not that the entity will not have to sell the security before recovery of its cost basis. This FSP is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Corporation has not elected early adoption of FSP FAS 115-2 and FAS 124-2 as it only addresses disclosure requirements and upon adoption this guidance is not expected to have a significant effect on the Corporation’s consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of the Useful Life of Intangible Assets”. FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets”. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. Adoption of this FSP had no effect on the Corporation’s consolidated financial statements, but will be utilized to determine useful lives of intangibles associated with any future acquisitions.

In February 2008, FASB issued FSP 140-3 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” This FSP addresses the accounting for a transfer of a financial asset and a repurchasing financing. The FSP presumes that an initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement under Statement 140. However, if certain criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under Statement 140. This FSP is effective for financial statements issued for fiscal years beginning after November 15, 2008, and interim periods within those years. Adoption of this FSP did not have a significant effect on the Corporation’s consolidated financial statements.

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STELLARONE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations”, which revises SFAS No. 141 and changes multiple aspects of the accounting for business combinations. Under the guidance in SFAS No. 141R, the acquisition method must be used, which requires the acquirer to recognize most identifiable assets acquired, liabilities assumed, and noncontrolling interests in the acquiree at their full fair value on the acquisition date. Goodwill is to be recognized as the excess of the consideration transferred plus the fair value of the noncontrolling interest over the fair values of the identifiable net assets acquired. Subsequent changes in the fair value of contingent consideration classified as a liability are to be recognized in earnings, while contingent consideration classified as equity is not to be remeasured. Costs such as transaction costs are to be excluded from acquisition accounting, generally leading to recognizing expense and additionally, restructuring costs that do not meet certain criteria at acquisition date are to be subsequently recognized as post-acquisition costs. SFAS No. 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company anticipates that the standard will lead to more volatility in the results of operations during the periods surrounding an acquisition.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements – an amendment of ARB No. 51”. SFAS No. 160 requires that a noncontrolling interest in a subsidiary (i.e. minority interest) be reported in the equity section of the balance sheet instead of being reported as a liability or in the mezzanine section between debt and equity. It also requires that the consolidated income statement include consolidated net income attributable to both the parent and noncontrolling interest of a consolidated subsidiary. A disclosure must be made on the face of the consolidated income statement of the net income attributable to the parent and to the noncontrolling interest. Also, regardless of whether the parent purchases additional ownership interest, sells a portion of its ownership interest in a subsidiary or the subsidiary participates in a transaction that changes the parent’s ownership interest, as long as the parent retains controlling interest, the transaction is considered an equity transaction. SFAS No. 160 is effective for annual periods beginning after December 15, 2008. Adoption of SFAS No. 160 did not have a significant effect on the Corporation’s consolidated financial statements.

9. Subsequent Event

Subsequent to March 31, 2009, the shareholders of StellarOne Corporation approved increasing the number of authorized shares from 25,000,000 shares to 35,000,000 shares during the annual meeting held on April 28, 2009.

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STELLARONE CORPORATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides management’s analysis of the consolidated financial results of operations, financial condition, liquidity and capital resources of StellarOne Corporation (“StellarOne,” or the “Company”) and its affiliates. This discussion and analysis should be read in conjunction with the financial statements and footnotes appearing elsewhere in this report.

OVERVIEW

StellarOne Corporation is a bank holding company incorporated under the laws of the Commonwealth of Virginia. Currently, StellarOne is one of the largest independent commercial bank holding companies headquartered in the Commonwealth of Virginia. The Company’s sole banking affiliate is StellarOne Bank headquartered in Christiansburg, Virginia. Additional affiliates of the Company include VFG Limited Liability Trust and FNB (VA) Statutory Trust II both of which are associated with the Company’s subordinated debt issues and are not subject to consolidation. The Company collapsed all of its previous affiliates into StellarOne Bank on May 27, 2008. The organization has a network of sixty-one full-service financial centers, one loan production office, and sixty-six ATMs stretching from the New River Valley, Roanoke Valley, Shenandoah Valley and Central and North Central Virginia.

Critical Accounting Policies

General

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. We use historical loss factors as one factor in determining inherent losses in our loan portfolio. Actual losses could differ significantly from the historical factors that we use.

Investment Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. The initial classification of securities is determined at the date of purchase.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated increase in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. There are a total of nineteen (19) securities that had unrealized losses for 12 months or more as of March 31, 2009 totaling $1.9 million. StellarOne has the ability and intent to hold these securities for the time thought to be necessary to recover its cost, and does not consider them to be other-than-temporarily impaired.

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STELLARONE CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have been incurred, but not realized through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The Company’s banking subsidiary conducts an analysis of the loan portfolio on a regular basis. This analysis is used in assessing the sufficiency of the allowance for loan losses and in the determination of the necessary provision for loan losses. The review process generally begins with lenders identifying problem loans to be reviewed on an individual basis for impairment. When a loan has been identified as impaired, a specific reserve may be established based on management’s calculation of the loss embedded in the individual loan. Loans meeting the criteria for impairment are segregated for analysis from performing loans within the portfolio. In addition to impairment testing, the banking subsidiary has a ten point grading system for each non-homogeneous loan in the portfolio. Loans are then grouped by loan type and, in the case of commercial and construction loans, by risk rating. Each loan type is assigned an allowance factor based on historical loss experience, economic conditions, overall portfolio quality including delinquency rates and commercial real estate loan concentrations. The total of specific reserves required for impaired classified loans and the calculated reserves by loan category are then used to compute an estimated range of losses which is then compared to the recorded allowance for loan losses. This is the methodology used to determine the sufficiency of the allowance for loan losses and the amount of the provision for loan losses. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Larger groups of smaller balance homogeneous loans are collectively evaluated for impairment.

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STELLARONE CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Goodwill

The Company has adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Accordingly, goodwill is no longer subject to amortization over its estimated useful life, but is subject to at least an annual assessment for impairment by applying a fair value based test. Additionally, under SFAS 142, acquired intangible assets (such as core deposit intangibles) are separately recognized if the benefit of the asset can be sold, transferred, licensed, rented, or exchanged, and amortized over their useful life. Branch acquisition transactions were outside the scope of SFAS 142 and, accordingly, intangible assets related to such transactions continued to amortize upon the adoption of SFAS 142. The cost of purchased deposit relationships and other intangible assets, based on independent valuation, are being amortized over their estimated lives not to exceed fifteen years. Amortization expense charged to operations was $438 thousand and $161 thousand for the three months ended March 31, 2009 and 2008, respectively.

Income Taxes

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. Deferred taxes are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Stock-Based Compensation

The Company has a stock-based employee compensation plan under which nonqualified stock options may be granted periodically to certain employees. The Company’s stock options typically have an exercise price equal to at least the fair value of the stock on the date of grant, and vest based on continued service with the Company for a specified period, generally five years. The Company has adopted SFAS 123 (R), which requires that compensation cost relating to share-based payment transactions be recognized in financial statements. The cost is measured based on the fair value of the equity or liability instruments issued.

FASB Statement No. 123 (R), “Share-Based Payment” SFAS 123 (R) also requires that new awards to employees eligible for retirement prior to the award becoming fully vested be recognized as compensation cost over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award.

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STELLARONE CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Non-GAAP Financial Measures

This report refers to the efficiency ratio, which is computed by dividing non-interest expense by the sum of net interest income on a tax equivalent basis and non-interest income excluding gains or losses on securities, fixed assets and foreclosed assets. Additionally we refer and define core margin below. These are non-GAAP financial measures that we believe provide investors with important information regarding our operational efficiency and margin production. Such information is not in accordance with GAAP and should not be construed as such. Management believes such financial information is meaningful to the reader in understanding operating performance, but cautions that such information not be viewed as a substitute for GAAP. The Company, in referring to its net income, is referring to income under GAAP.

Results of Operations

The Company’s earnings for the first quarter of 2009 were $146 thousand, or a net loss available to common shareholders of $298 thousand, or $0.01 per diluted common share. Those results compare to net income of $2.1 million, or diluted earnings per share of $0.14 during the same period in the prior year, and reflect improvement on a linked quarter basis to the net loss to common shareholders of $898 thousand or $0.04 per diluted common share for the fourth quarter of 2008. The results for the first quarter of 2009 included a provision for loan losses of $7.8 million related primarily to increased specific reserves within the residential real estate development portfolio.

Net Interest Income

Core net interest margin was down $1.7 million or 6.9% compared to $23.7 million for the fourth quarter of 2008 and up $4.0 million or 22.5% when compared to $18.0 million for the same quarter in 2008. Including the effect of purchase accounting adjustments, net interest income amounted to $23.1 million for the first quarter of 2009, down $557 thousand or 2.4% compared to $23.7 million for the fourth quarter of 2008. The core net interest margin, was 3.36% for the first quarter, compared to 3.55% for the fourth quarter 2008 and down 39 basis points compared to 3.75% for the same quarter in 2008. Including the effects of purchase accounting adjustments, the net interest margin was 3.52% for the quarter, compared to 3.80% for the fourth quarter of 2008 and 3.75% for the first quarter of 2008.

The compression noted continues to be yield driven, with the average yield on earning assets decreasing 44 basis points to 5.59% as compared to 6.03% for the fourth quarter of 2008. The pricing structure for approximately 36% of the company’s loan portfolio continues to be tied to the LIBOR and Prime rate indices. Both of these indices declined significantly during the fourth quarter of 2008 and the first quarter of 2009 and are much lower when compared to the first quarter of 2008. This has triggered a lower rate of return on the company’s variable rate loan products resulting in decreased yield. In addition, reversal of interest accruals associated with the increase in nonperforming loans had an impact of approximately 3 basis points on loan yields for the period. The cost of interest bearing liabilities contracted 16 basis points from 2.61% during the fourth quarter of 2008 to 2.45% during the first quarter of 2009, but remained much less sensitive to repricing when compared to interest earning assets.

Stabilization of the margin will most likely occur late in the year, but modest compression of core margin is expected as the rate of improvement in the cost of funds slows, loan yields continue to be negatively impacted by the short-term rate reductions, loan growth remains minimal due to market conditions, and the positive effects of amortizing the purchase adjustments continue to lessen.

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STELLARONE CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

	For the Three Months Ended March 31, (unaudited)
	2009						2008
Dollars in thousands	Average Balance		Interest Inc/Exp		Average Rates		Average Balance		Interest Inc/Exp		Average Rates
Assets
Loans receivable, net	$	2,284,456	$	32,599	5.79	%	$	1,627,999	$	27,300	6.73	%
Investment securities
Taxable		228,397		2,773	4.86	%		202,373		2,341	4.58	%
Tax exempt		83,630		1,305	6.24	%		84,337		1,287	6.04	%
Total investments		312,027		4,078	5.23	%		286,710		3,628	5.01	%
Interest bearing deposits		50,542		9	0.07	%		375		3	3.16	%
Federal funds sold		17,307		9	0.21	%		17,396		183	4.16	%
		379,876		4,096	4.31	%		304,481		3,814	4.96	%
Total earning assets		2,664,332	$	36,695	5.59	%		1,932,480	$	31,114	6.46	%
Total nonearning assets		287,888						167,740
Total assets	$	2,952,220					$	2,100,220
Liabilities and Stockholders’ Equity
Interest-bearing deposits
Interest checking	$	516,475	$	1,397	1.10	%	$	305,030	$	1,096	1.44	%
Money market		235,150		830	1.43	%		131,175		665	2.03	%
Savings		188,399		410	0.88	%		127,065		338	1.07	%
Time deposits:
Less than $100,000		762,657		6,060	3.22	%		513,723		5,298	4.14	%
$100,000 and more		324,093		2,954	3.70	%		255,407		2,808	4.41	%
Total interest-bearing deposits		2,026,774		11,651	2.33	%		1,332,400		10,205	3.07	%
Federal funds purchased and securities soldunder agreements to repurchase		344		3	3.49	%		5,444		55	4.00	%
Federal Home Loan Bank advances and other borrowings		184,321		1,568	3.40	%		186,298		1,907	4.05	%
Subordinated debt		32,991		357	4.33	%		24,426		467	7.56	%
Commercial paper		—		—	N/A			74,261		479	2.55	%
		217,656		1,928	3.54	%		290,429		2,908	3.96	%
Total interest-bearing liabilities		2,244,430		13,579	2.45	%		1,622,829		13,113	3.23	%
Total noninterest-bearing liabilities		313,799						257,072
Total liabilities		2,558,229						1,879,901
Stockholders’ equity		393,991						220,319
Total liabilities and stockholders’ equity	$	2,952,220					$	2,100,220
Net interest income (tax equivalent)			$	23,116					$	18,001
Average interest rate spread					3.14	%					3.23	%
Interest expense as percentage of average earning assets					2.07	%					2.71	%
Net interest margin					3.52	%					3.75	%

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STELLARONE CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Noninterest Income

On an operating basis, which excludes gains and losses from sale of assets (foreclosed assets, fixed assets and securities) total non-interest income amounted to 7.0 million for the first quarter of 2009, an increase of $523 thousand or 8.0% from $6.5 million for fourth quarter of 2009 and up $1.3 million compared to $5.7 million for the same quarter in the prior year. Mortgage banking revenue totaled $1.4 million for the first quarter, an increase of $814 thousand or greater than 100% compared to $610 thousand for the fourth quarter of 2008 and up $553 thousand when compared to $871 thousand for the same quarter in 2008. Wealth management revenues from trust and brokerage fees for the first quarter of 2009 were $1.0 million, or flat compared to $1.0 million in the fourth quarter of 2008 and down $206 thousand when compared to the first quarter of 2008. These revenues have remained suppressed during the last several quarters due to lower market valuations for assets under management. Despite revenue contraction, wealth management contributed earnings to the company during the first quarter. Additionally, mortgage operations also contributed to earnings despite thinner margins received on increased revenues driven by the current refinancing activity. Retail banking fee income amounted to $3.7 million for the first quarter, a decrease of $499 thousand or 11.9% compared to $4.2 million for the fourth quarter of 2008 and increased $1.1 million when compared to the same quarter in the prior year. The decrease on a linked quarter basis is a result of seasonality and less business days in the period while increases compared to 2008 are relate directly to the merger that was consummated in February of the prior year. Revenues from other miscellaneous income sources for the first quarter of 2009 were $591 thousand, up $266 thousand or 81.9% compared to $325 thousand for the fourth quarter of 2008, related principally to increases in merchant processing revenues.

Noninterest Expense

Non-interest expense for the first quarter of 2009 amounted to $22.2 million, or essentially flat when compared to the $22.1 million for the fourth quarter of 2008 and increased $3.2 million when compared to the same period in the prior year. FDIC insurance premiums increased $1.1 million when compared to the first quarter of 2008 and $462 thousand or 71.9% compared to the fourth quarter of 2008. Excluding the FDIC increase total noninterest expense decreased $292 thousand or 1.32% when compared to the fourth quarter of 2008. Reductions in compensation and benefits of $39 thousand and demand deposit account charge-offs of $442 thousand, offset by an uptick in professional fees of $340 thousand accounted for much of this decrease on a linked quarter basis. StellarOne’s efficiency ratio was 73.70% for the first quarter of 2009, compared to 69.23% for the fourth quarter of 2008 and 80.41% for the first quarter of 2008. The quarter to quarter comparisons reflect the contraction in gross revenues for the period while comparisons to the same period in the prior year are not meaningful due to the merger activity in the first quarter of 2008.

Income Taxes

Income tax benefit for the first quarter of 2009 was $592 thousand resulting in an effective tax rate of 133.7% compared to $602 thousand, or 22.4%, for the first quarter of 2008. The significant increase in the effective tax rate for the first quarter of 2008 is a result of increased provisioning that has reduced pretax earnings to a level which is proportionately much smaller in relation to our permanent differences when compared to the same period in the prior year. Pretax results near the breakeven point tend to generate substantial shifts in the effective tax rate due to comparing a lower level of earnings or losses to a relatively steady level of permanent differences. Given the current economic environment and that elevated levels of provisioning are driving the effective rate; the effective rate for the first quarter of 2009 is within the estimated range of probable rates expected for the annualized period.

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STELLARONE CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Asset Quality

StellarOne’s ratio of non-performing assets as a percentage of total assets increased to 2.38% as of March 31, 2009, compared to 1.66% as of December 31, 2008. Annualized net charge-offs as a percentage of average loans receivable amounted to 0.51% for the first quarter of 2009, compared to 2.22% for the fourth quarter of 2008. Net charge-offs for the first quarter totaled $2.9 million and were down $9.7 million compared to the $12.6 million in net charge-offs recognized during the fourth quarter of 2008. The elevated nonperforming assets and the provision for loan losses were driven by continued deterioration in credits collateralized by residential development and construction lending and declining market conditions in general. The primary concentration of credit issues within our portfolio continue to arise from the residential development and construction loan segment at Smith Mountain Lake (SML). Of the total residential development and construction exposure of approximately $58.6 million at SML, approximately $25.3 million or 43% is now in non-performing assets and appropriately reserved for or charged off. This amount includes the largest SML relationship of $14.7 million, which was moved to nonaccrual status during the quarter and represents the primary increase in non-performing assets during the quarter.

StellarOne recorded a provision for loan losses of $7.8 million for the first quarter of 2009, a decrease of $3.2 million compared to the fourth quarter of 2008. The first quarter provision compares to net charge-offs of $2.9 million for the quarter, resulting in an increase in the allowance as a percentage of total loans to 1.56% at March 31, compared to 1.35% at December 31. While unable to predict the duration or severity of the current recession, StellarOne anticipates non-performing asset and net charge-off levels to remain elevated throughout 2009.

The following table provides information on asset quality statistics for the periods presented (In thousands):

	March 31, 2009			December 31, 2008			March 31, 2008
	(unaudited)						(unaudited)
Non-accrual loans	$	66,711		$	44,491		$	24,959
Troubled debt restructurings		195			—			789
Foreclosed assets		4,207			4,627			4,902
Loans past due 90 days accruing interest		293			—			327
Total non-performing assets	$	71,406		$	49,118		$	30,977
Nonperforming assets to total assets		2.38	%		1.66	%		0.99	%
Nonperforming assets to loans and foreclosed property		3.15	%		2.17	%		1.35	%
Allowance for loan losses as a percentage of loans receivable		1.56	%		1.35	%		1.17	%
Allowance for loan losses as a percentage of nonperforming assets		49.46	%		62.02	%		87.28	%
Annualized net charge-offs as a percentage of average loans receiveable		0.51	%		0.80	%		0.13	%

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STELLARONE CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

Capital Resources

The management of capital in a regulated financial services industry must properly balance return on equity to stockholders while maintaining sufficient capital levels and related risk-based capital ratios to satisfy regulatory requirements. Additionally, capital management must also consider acquisition opportunities that may exist, and the resulting accounting treatment. The Company’s capital management strategies have been developed to provide attractive rates of returns to stockholders, while maintaining its “well-capitalized” position at the banking subsidiary.

The primary source of additional capital to the Company is earnings retention, which represents net income less dividends declared. Relying on its strong capital position, the Company paid or accrued $3.6 million and $370 thousand in common and preferred dividends, respectively. This exceeded net of income of $146 thousand by $3.8 million during the quarter. As previously announced, the Company has reduced its quarterly dividend from $0.16 per share to $0.04 per share, effective for the dividend payable May 29, 2009 in an effort to preserve capital. Management anticipates maintaining this dividend level until earnings conditions improve. On December 19, 2008, the Company issued 30,000 shares of preferred stock to the U.S. Treasury in exchange for $30 million pursuant to the U.S. Treasury CPP under TARP which further enhanced capital.

The Company and its banking subsidiary are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and the subsidiary banks’ financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its banking subsidiary must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and reclassifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and its banking subsidiary to maintain minimum amounts and ratios of total and Tier 1 capital to average assets. As of March 31, 2009, the Company and the subsidiary bank met all minimum capital adequacy requirements to which they are subject and are categorized as “well capitalized.” There are no conditions or events that management believes have changed the subsidiary bank’s well capitalized position.

The following table includes information with respect to the Company’s risk-based capital and equity levels as of March 31, 2009 (In thousands):

	Corporation			Bank
Tier 1 capital	$	341,104		$	288,313
Tier 2 capital		31,182			30,904
Total risk-based capital		372,286			319,217
Total risk-weighted assets		2,490,448			2,467,905
Average adjusted total assets		2,876,264			2,854,620
Capital ratios:
Tier 1 risk-based capital ratio		13.70	%		11.68	%
Total risk-based capital ratio		14.95	%		12.93	%
Leverage ratio (Tier 1 capital to average adjusted total assets)		11.86	%		10.10	%
Equity to assets ratio		13.09	%		12.55	%
Tangible equity to assets ratio		10.56	%		9.99	%

24

STELLARONE CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity

Liquidity is identified as the ability to generate or acquire sufficient amounts of cash when needed at a reasonable cost to accommodate withdrawals, payments of debt, and increased loan demand. These events may occur daily or other short-term intervals in the normal operation of the business. Experience helps management predict time cycles in the amount of cash required. In assessing liquidity, management gives consideration to relevant factors including stability of deposits, quality of assets, economy of markets served, concentrations of business and industry, competition, and the Company’s overall financial condition. The Bank’s primary sources of liquidity are cash and the securities in our available for sale portfolio. In addition, the Bank has substantial lines of credit from its correspondent banks and access to the Federal Reserve discount window and Federal Home Loan Bank of Atlanta to support liquidity as conditions dictate.

The liquidity of the Company also represents an important aspect of liquidity management. The Company’s cash outflows consist of overhead associated with corporate expenses, executive management, finance, marketing, human resources, loan and deposit operations, information technology, audit, compliance and loan review functions. It also includes outflows associated with dividends to shareholders. The main sources of funding for the Company are the management fees and dividends it receives from its banking subsidiary, and availability of the subordinated debt security market as deemed necessary. The Company’s capital base provides the resource and ability to support the assets of the Company and provide capital for future expansion.

In the judgment of management, the Company maintains the ability to generate sufficient amounts of cash to cover normal requirements and any additional funds as needs may arise.

Off Balance Sheet Items

There have been no material changes to the off balance sheet items disclosed in “Management’s Discussion and Analysis” in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008.

Contractual Obligations

There have been no material changes outside the ordinary course of business to the contractual obligations disclosed in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008.

Effects of Inflation

The effect of changing prices on financial institutions is typically different from other industries as the Company’s assets and liabilities are monetary in nature. Interest rates and thus the Company’s asset liability management is impacted by changes in inflation, but there is not a direct correlation between the two measures. Management monitors the impact of inflation on the financial markets.

25

STELLARONE CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

StellarOne Corporation. (the “Company”) may from time to time make written or oral statements, including statements contained in this report which may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The words “expect,” “anticipate,” “likely,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking. All forward-looking statements are subject to risks, uncertainties and other facts that may cause the actual results, performance or achievements of the Company to differ materially from any results expressed or implied by such forward-looking statements. Such factors include, without limitation, (i) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses, (ii) continuation of the historically low short-term interest rate environment, (iii) the inability of the Company to continue to grow its loan portfolio, (iv) rapid fluctuations or unanticipated changes in interest rates, (v) the development of any new market, (vi) a merger or acquisition, (vii) any activity in the capital markets that would cause the Company to conclude that there was impairment of any asset including intangible assets, (ix) the deterioration in carrying amounts of impaired assets and other real estate and (x) changes in state and Federal legislation, regulations or policies applicable to Banks and other financial service providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy. A more detailed description of these and other risks is contained in the Company’s most recent annual report on Form 10-K. Many of such factors are beyond the Company’s ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. StellarOne Corporation disclaims any obligation to update or revise any forward-looking statements contained in this release, whether as a result of new information, future events or otherwise.

Access to Filings

The Company provides access to its SEC filings through the corporate Website at http://www.StellarOne.com. After accessing the Website, the filings are available upon selecting Investor Relations, then the SEC Filings & Other Documents icon. Reports available include the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after the reports are electronically filed with or furnished to the SEC.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes to the quantitative and qualitative market risk disclosures in the Company’s Form 10-K for the year ended December 31, 2008.

26

STELLARONE CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 4 – CONTROLS AND PROCEDURES

We are required to include in our periodic reports information regarding our controls and procedures for complying with the disclosure requirements of the federal securities laws. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act, is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

We have established disclosure controls and procedures to ensure that material information related to the Company is made known to our principal executive officer and principal financial officer on a regular basis, in particular during the periods in which our quarterly and annual reports are being prepared. Our principal executive officer and principal financial officer evaluated the effectiveness of these disclosure controls and procedures as of the end of the period covered by this report and, based on their evaluation, concluded that our disclosure controls and procedures are operating effectively.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that our disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the organization to disclose material information otherwise required to be set forth in our period reports.

Our management is also responsible for establishing and maintaining adequate internal controls over financial reporting and control of our assets to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. In the normal course we review and change our internal controls to reflect changes in our business including acquisition related improvements. There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

27

STELLARONE CORPORATION

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

There are no material legal proceedings to which the Company or any of its subsidiary, directors, or officers is a party or by which they, or any of them, are threatened. Any legal proceeding presently pending or threatened against StellarOne Corporation and its subsidiaries are either not material in respect to the amount in controversy or fully covered by insurance.

ITEM 1a. RISK FACTORS.

There have been no material changes to our risk factors as previously disclosed in Part I, Item IA of our Annual Report on Form 10K for the fiscal year ended December 31, 2008.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The Company has a stock repurchase program authorized that is not currently active, with 210,000 shares remaining available for repurchase.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

Not applicable.

28

STELLARONE CORPORATION

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS:

(a) The following exhibits either are filed as part of this Report or are incorporated herein by reference:

Exhibit No. 2.1	Agreement and Plan of Reorganization, dated as of July 26, 2007, between Virginia Financial Group, Inc. and FNB Corporation, incorporated by reference to Exhibit 2.1 to Form 8-K filed July 30, 2007.
Exhibit No. 3.1(a)	Articles of Amendment to the Articles of Incorporation establishing Series A Preferred Stock (incorporated by reference to Exhibit 3.1 to Form 8-K filed on February 28, 2008)
Exhibit No. 3.1	Articles of Incorporation StellarOne Corporation, as amended and restated February 28, 2008. (incorporated by reference to Exhibit 3.1 to Form 8-K filed on February 28, 2008)
Exhibit No. 3.2	Bylaws of StellarOne Corporation, as amended and restated February 28, 2008. (incorporated by reference to Exhibit 3.2 to Form 8-K filed on February 28, 2008)
Exhibit No. 4.1	Warrant to purchase up to 302,623 shares of Common Stock (incorporated by reference to Exhibit 4.1 to Form 8K filed on December 23, 2008)
Exhibit No. 31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
Exhibit No. 31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
Exhibit No. 32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

STELLARONE CORPORATION

/s/ O. R. Barham, Jr.

O.R. Barham, Jr.

President and Chief Executive Officer

May 8, 2009

/s/ Jeffrey W. Farrar

Jeffrey W. Farrar, CPA

Executive Vice President and Chief Financial Officer

May 8, 2009

30