10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2009

or

o 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: 001-32590

COMMUNITY BANKERS TRUST CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	20-2652949
(State or other jurisdiction of incorporation of organization)	(I.R.S. Employer Identification No.)
4235 Innslake Drive, Suite 200
Glen Allen, Virginia	23060
(Address of principal executive offices)	(Zip Code)

(804) 934-9999
(Registrant’s telephone number, including area code)

not applicable
(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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     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 such shorter period that the registrant was required to submit and post such files). Yes o No o

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

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

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

     At October 1, 2009, there were 21,468,455 shares of the Company’s common stock outstanding.

COMMUNITY BANKERS TRUST CORPORATION

TABLE OF CONTENTS
FORM 10-Q
September 30, 2009

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements		3
Consolidated Statements of Financial Condition (Unaudited)		3
Consolidated Statements of Operations (Unaudited)		4
Consolidated Statements of Cash Flows (Unaudited)		5
Notes to Unaudited Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3. Quantitative and Qualitative Disclosures About Market Risk		34
Item 4. Controls and Procedures		35
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		39
Item 1A. Risk Factors		39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		39
Item 3. Defaults upon Senior Securities		39
Item 4. Submission of Matters to a Vote of Security Holders		39
Item 5. Other Information		39
Item 6. Exhibits		39
SIGNATURES		40

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

COMMUNITY BANKERS TRUST CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AT SEPTEMBER 30, 2009 AND DECEMBER 31, 2008

(dollars in thousands)

	September 30, 2009			December 31, 2008
	(Unaudited)			(Audited)
				(Restated)
Assets
Cash and due from banks	$	13,464		$	10,864
Interest bearing bank deposits		10,534			107,376
Federal funds sold		5,300			10,193
Total cash and cash equivalents		29,298			128,433
Securities available for sale, at fair value		171,184			193,992
Securities held to maturity, fair value of $124,865 and $94,965, respectively		121,023			94,865
Equity securities, restricted, at cost		8,355			3,612
Total securities		300,562			292,469
Loans held for resale		—			200
Loans covered by FDIC shared-loss agreement (Note 8)		245,077			—
Total loans excluding covered loans		569,452			523,298
Allowance for loan losses		(16,211	)		(6,939	)
Net loans		798,318			516,359
Bank premises and equipment		37,328			24,111
Bank owned life insurance		6,475			6,300
Core deposit intangibles, net		17,645			17,163
Goodwill (Note 5)		13,152			37,184
Other real estate owned		1,175			223
Other real estate owned , covered by FDIC shared-loss agreement(Note 8)		16,823			—
FDIC receivable for expenses incurred (Note 8)		3,560			—
Other assets		14,802			7,325
Total assets	$	1,239,138		$	1,029,767
Liabilities
Deposits:
Noninterest bearing	$	64,338		$	59,699
Interest bearing		963,191			746,649
Total deposits		1,027,529			806,348
Federal funds purchased		31			—
Federal Home Loan Bank advances		37,000			37,900
Trust preferred capital notes		4,124			4,124
Other liabilities		23,854			16,992
Total liabilities	$	1,092,538		$	865,364
Stockholders’ Equity
Preferred stock (5,000,000 shares authorized, $0.01 par value) 17,680 shares issued and outstanding		17,680			17,680
Discount on preferred stock		(896	)		(1,031	)
Warrants on preferred stock		1,037			1,037
Common stock (50,000,000 shares authorized, $0.01 par value) 21,468,455 shares issued and outstanding		215			215
Retired warrants on common stock		(2,111	)		—
Additional paid in capital		146,110			146,076
Retained (deficit) earnings		(17,552	)		1,691
Accumulated other comprehensive income (loss)		2,117			(1,265	)
Total stockholders’ equity	$	146,600		$	164,403
Total liabilities and stockholders’ equity	$	1,239,138		$	1,029,767

See accompanying notes to unaudited consolidated financial statements

3

COMMUNITY BANKERS TRUST CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(dollars and shares in thousands, except per share data)

(unaudited)

											BOE Predecessor			TFC Predecessor
	For the three months ended					For the nine months ended					For the five months ended			For the five months ended
	September 30, 2009			September 30, 2008		September 30, 2009			September 30, 2008		May 31, 2008			May 31, 2008
											(Note 1)			(Note 1)
Interest and dividend income
Interest and fees on loans	$	8,820		$	8,497	$	26,236		$	11,201	$	6,737		$	6,849
Interest and fees on FDIC covered loans		3,741			—		10,658			—		—			—
Interest on federal funds sold		10			22		36			68		18			26
Interest on deposits in other banks		60			83		262			83		3			—
Interest and dividends on securities
Taxable		2,081			539		7,580			1,226		465			236
Nontaxable		896			333		2,473			443		555			—
Total interest income		15,608			9,474		47,245			13,021		7,778			7,111
Interest expense
Interest on deposits		6,026			2,908		18,443			3,935		3,265			3,295
Interest on federal funds purchased		2			101		6			114		21			23
Interest on other borrowed funds		338			277		1,071			357		458			—
Total interest expense		6,366			3,286		19,520			4,406		3,744			3,318
Net interest income		9,242			6,188		27,725			8,615		4,033			3,793
Provision for loan losses		5,231			1,100		11,271			1,334		200			1,348
Net interest income after provision for loan losses		4,011			5,088		16,454			7,281		3,833			2,445
Noninterest income
Service charges on deposit accounts		674			516		1,863			696		464			278
Gain on SFSB transaction		—			—		21,260			—		—			—
Gain on securities transactions, net		612			—		905			—		6			—
Loss on sale of other real estate		(187	)		—		(166	)		—		(92	)		—
Other		175			238		844			357		480			142
Total noninterest income		1,274			754		24,706			1,053		858			420
Noninterest expense
Salaries and employee benefits		4,840			2,375		14,294			2,949		2,494			3,687
Occupancy expenses		752			346		1,886			458		216			318
Equipment expenses		436			292		1,198			400		286			228
Legal fees		217			151		772			266		306			106
Professional fees		184			133		1,340			133		258			1,029
FDIC assessment		436			60		1,310			76		11			64
Data processing fees		743			285		2,217			389		394			1,995
Amortization of intangibles		565			406		1,675			554		—			—
Impairment of goodwill		—			—		24,032			—		52			—
Other operating expenses		1,770			608		5,407			1,366		872			793
Total noninterest expense		9,943			4,656		54,131			6,591		4,889			8,220
(Loss) income before income taxes		(4,658	)		1,186		(12,971	)		1,743		(198	)		(5,355	)
Income tax (benefit) expense		(1,908	)		234		2,964			392		151			(244	)
Net (loss) income	$	(2,750	)	$	952	$	(15,935	)	$	1,351	$	(349	)	$	(5,111	)
Dividends accrued on preferred stock		223			—		661			—		—			—
Accretion of discount on preferred stock		46			—		135			—		—			—
Net (loss) income available to common stockholders	$	(3,019	)	$	952	$	(16,731	)	$	1,351	$	(349	)	$	(5,111	)
Net (loss) income per share — basic	$	(0.14	)	$	0.04	$	(0.78	)	$	0.09	$	(0.29	)	$	(1.11	)
Net (loss) income per share — diluted	$	(0.14	)	$	0.04	$	(0.78	)	$	0.08	$	(0.29	)	$	(1.11	)
Weighted average number of shares outstanding
basic		21,468			21,469		21,468			14,750		1,214			4,596
diluted		21,468			21,486		21,468			16,197		1,219			4,596

See accompanying notes to unaudited consolidated financial statements

4

COMMUNITY BANKERS TRUST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

							BOE Predecessor			TFC Predecessor
							For the five months			For the five
	For the nine months ended						ended			months ended
	September 30, 2009			September 30, 2008			May 31, 2008			May 31, 2008
							(Note 1)			(Note 1)
Operating activities:
Net (loss) income	$	(15,935	)	$	1,351		$	(349	)	$	(5,111	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and intangibles amortization		3,130			750			335			335
Provision for loan losses		11,271			1,334			200			1,348
Amortization of security premiums and accretion of discounts, net		1,411			54			36			1
Change in loans held for sale		200			721			(209	)		—
Net gain on SFSB transaction		(21,260	)		—			—			—
Impairment of goodwill		24,032			—			52			—
Stock-based compensation expense		—			—			—			179
Net gain on sale of securities		(905	)		—			(6	)		—
Net loss on sale of OREO		166			—			92			—
Net loss/(gain) on sale of loans		13			(15	)		(90	)		—
Loss on write down of LLC membership		—			—			88			—
Cash acquired in acquisitions		35,662			10,016			—			—
Changes in assets and liabilities:
(Increase)/decrease in other assets		(636	)		(3,108	)		93			(76	)
Increase/(decrease) in accrued expenses and other liabilities		439			(3,190	)		828			2,854
Net cash provided by (used in) operating activities		37,588			7,913			1,070			(470	)
Investing activities:
Proceeds from securities		145,148			65,131			2,320			12,605
Purchase of securities		(129,390	)		(23,489	)		(3,844	)		(7,200	)
Net increase in loans		(14,723	)		(28,641	)		(11,834	)		(37,357	)
Purchase of premises and equipment, net		(9,421	)		(989	)		(459	)		(259	)
Net cash (used in) provided by investing activities		(8,386	)		12,012			(13,817	)		(32,211	)
Financing activities:
Net increase/(decrease) in noninterest bearing and interest bearing deposits		(85,816	)		(5,693	)		11,789			28,536
Net increase/(decrease) in federal funds purchased		31			(1,095	)		1,965			5,218
Issuance of common stock		—			—			44			—
Cash paid to shareholders for converted shares		—			(10,843	)		—			—
Cash paid to reduce FHLB borrowings		(37,900	)		20,000			900			—
Cash paid to redeem shares related to asserted appraisal rights and retire warrants		(2,077	)		(11	)		—			—
Cash dividends paid		(2,575	)		(861	)		(267	)		(1,152	)
Net cash (used in) provided by financing activities		(128,337	)		1,497			14,431			32,602
Net (decrease) increase in cash and cash equivalents		(99,135	)		21,422			1,684			(79	)
Cash and cash equivalents:
Beginning of the period		128,433			162			4,100			4,311
End of the period	$	29,298		$	21,584		$	5,784		$	4,232
Supplemental disclosures of cash flow information:
Interest paid	$	20,686		$	4,689		$	3,902		$	3,195
Income taxes paid		296			—			293			—
Transfers of OREO property		952			224
Transactions related to acquisition
Increase in assets and liabilities:
Loans, net		278,507			471,864
Other real estate owned		17,820			—
Securities		7,416			71,123
Fixed assets, net		37			—
Other assets		10,899			83,769
Deposits		306,997			491,462
Borrowings		37,525			32,359
Other liabilities		1,756			8,861

See accompanying notes to unaudited consolidated financial statements

5

COMMUNITY BANKERS TRUST CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

General

     Community Bankers Trust Corporation (the “Company”) is a bank holding company that was incorporated under Delaware law on April 6, 2005. The Company is headquartered in Glen Allen, Virginia and is the holding company for Essex Bank (the “Bank”), a Virginia state bank with 25 full-service offices in Virginia, Maryland and Georgia. Bank of Essex changed its name to Essex Bank on April 20, 2009.

     The Company was initially formed as a special purpose acquisition company to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business in the banking industry. Prior to its acquisition of two bank holding companies in 2008, the Company’s activities were limited to organizational matters, completing its initial public offering and seeking and evaluating possible business combination opportunities. On May 31, 2008, the Company acquired each of TransCommunity Financial Corporation, a Virginia corporation (“TFC”), and BOE Financial Services of Virginia, Inc., a Virginia corporation (“BOE”). The Company changed its corporate name in connection with the acquisitions. On November 21, 2008, the Bank acquired certain assets and assumed all deposit liabilities relating to four former branch offices of The Community Bank (“TCB”), a Georgia state-chartered bank. On January 30, 2009, the Bank acquired certain assets and assumed all deposit liabilities relating to seven former branch offices of Suburban Federal Savings Bank, Crofton, Maryland (“SFSB”).

     The Bank was established in 1926 and is headquartered in Tappahannock, Virginia. The Bank engages in a general commercial banking business and provides a wide range of financial services primarily to individuals and small businesses, including individual and commercial demand and time deposit accounts, commercial and consumer loans, travelers checks, safe deposit box facilities, investment services and fixed rate residential mortgages. Fourteen offices are located in Virginia, primarily from the Chesapeake Bay to just west of Richmond, seven are located in Maryland along the Baltimore-Washington corridor and four are located in the Atlanta, Georgia metropolitan market.

     The consolidated statements presented include accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts have been eliminated. In the opinion of management, the accompanying financial statements contain all adjustments necessary to fairly present the financial position of the Company at each of September 30, 2009 and December 31, 2008. The statements should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. In the opinion of management, all adjustments (consisting of normal accruals) were made that are necessary to present fairly the financial position of the Company at September 30, 2009, and the results of its operations and its cash flows for the three and nine months ended September 30, 2009 and 2008.

     The statements and related notes have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) are not presented pursuant to such rules and regulations, because the periods reported are not comparable.

Predecessors

     From its inception until consummation of the acquisitions of TFC and BOE on May 31, 2008, the Company was a special purpose acquisition company, as described above, and had no substantial operations. Accordingly, since the Company’s operating activities prior to the acquisitions were insignificant relative to those of TFC and BOE, management believes that both TFC and BOE are the Company’s predecessors. Management has reached this conclusion based upon an evaluation of facts and circumstances, including the historical life of each of TFC and BOE, the historical level of operations of each of TFC and BOE, the purchase price paid for each of TFC and BOE and the fact that the consolidated Company’s operations, revenues and expenses after the acquisitions are most similar in all respects to those of BOE’s and TFC’s historical periods. Accordingly, the historical statements of operations for the five months ended May 31, 2008 and statements of cash flows of each of TFC and BOE for the five months ended May 31, 2008 have been presented.

     The Company is in the process of amending its Annual Report on Form 10-K for the year ended December 31, 2008 and its Quarterly Report on Form 10-Q for each of the periods ended March 31, 2009 and June 30, 2009 to include the financial statements of its predecessors.

6

2. ACCOUNTING POLICIES

     The accounting and reporting policies of the Company conform to GAAP and to the general practices within the banking industry. The interim financial statements have not been audited; however, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the consolidated financial statements have been included. Operating results for the three and nine month period ended September 30, 2009, are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

     Certain reclassifications have been made to prior period balances to conform to the current period presentation.

     The Company’s financial statements are prepared in accordance with GAAP. The financial information contained within the 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. The Company uses historical loss factors as one factor in determining the inherent loss that may be present in its loan portfolio. Actual losses could differ significantly from the historical factors that the Company uses. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the Company’s transactions would be the same, the timing of events that would impact its transactions could change. In preparing the financial statements, the Company has evaluated events and transactions occurring subsequent to the financial statement date through the filing date of November 16, 2009 for potential recognition or disclosure.

3. RECENT ACCOUNTING PRONOUNCEMENTS

     The Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) became effective on July 1, 2009. At that date, the ASC became FASB’s officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. Rules and interpretive releases of the Securities and Exchange Commission under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to U.S. GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure. The adoption of FASB ASC had no impact on the Company’s consolidated financial statements.

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157) (ASC 820 Fair Value Measurements and Disclosures). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but rather, provides enhanced guidance to other pronouncements that require or permit assets or liabilities to be measured at fair value. The Company adopted SFAS 157 on January 1, 2008. The FASB approved a one-year deferral for the implementation of the Statement for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The Company adopted the provisions of SFAS 157 for nonfinancial assets and liabilities as of January 1, 2009 without a material impact on the consolidated financial statements.

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations” (SFAS 141(R)) (ASC 805 Business Combinations). The Standard significantly changed the financial accounting and reporting of business combination transactions. SFAS 141(R) establishes principles for how an acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for acquisition dates on or after the beginning of an entity’s first year that begins after December 15, 2008. The Company adopted the provisions of SFAS 141(R) with respect to the SFSB acquisition.

     In April 2009, the FASB issued FASB Staff Position (FSP) on Statement No. 141(R)-1 (FSP FAS 141(R)-1), “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (ASC 805 Business Combinations). FSP FAS 141(R)-1 amends and clarifies SFAS 141(R) to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The FSP is effective for assets and liabilities arising from contingencies in business combinations for which the

7

acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted the provisions of SFAS 141(R) with respect to the SFSB acquisition.

     In April 2009, the FASB issued FSP 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” (ASC 820 Fair Value Measurements and Disclosures). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. The FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, and shall be applied prospectively. Earlier adoption is permitted for periods ending after March 15, 2009. The Company does not expect the adoption of FSP FAS 157-4 to have a material impact on its consolidated financial statements.

     In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (ASC 825 Financial Instruments and ASC 270 Interim Reporting). FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. In addition, the FSP amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods. The FSP is effective for interim periods ending after June 15, 2009, with earlier adoption permitted for periods ending after March 15, 2009. The Company does not expect the adoption of FSP FAS 107-1 and APB 28-1 to have a material impact on its consolidated financial statements.

     In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (ASC 320 Investments — Debt and Equity Securities). FSP FAS 115-2 and FAS 124-2 amends other-than-temporary impairment guidance for debt securities to make guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities. The FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual periods ending after June 15, 2009, with earlier adoption permitted for periods ending after March 15, 2009. The Company does not expect the adoption of FSP FAS 115-2 and FAS 124-2 to have a material impact on its consolidated financial statements.

     In April 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 111 (SAB 111). SAB 111 amends and replaces SAB Topic 5.M. in the SAB Series entitled “Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities.” SAB 111 maintains the SEC Staff’s previous views related to equity securities and amends Topic 5.M. to exclude debt securities from its scope. The Company does not expect the implementation of SAB 111 to have a material impact on its consolidated financial statements.

     In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, “Subsequent Events” (ASC 855 Subsequent Events). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 is effective for interim and annual periods ending after June 15, 2009. The Company does not expect the adoption of SFAS 165 to have a material impact on its consolidated financial statements.

     In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, “Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140” (ASC 860 Transfers and Servicing). SFAS 166 provides guidance to improve the relevance, representational faithfulness, and comparability of the information that a report entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. SFAS 166 is effective for interim and annual periods ending after November 15, 2009. The Company does not expect the adoption of SFAS 166 to have a material impact on its consolidated financial statements.

     In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No. 46(R)” (ASC 810 Consolidation). SFAS 167 improves financial reporting by enterprises involved with variable interest entities. SFAS 167 is effective for interim and annual periods ending after November 15, 2009. Early adoption is prohibited. The Company does not expect the adoption of SFAS 167 to have a material impact on its consolidated financial statements.

     In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — replacement of FASB Statement No. 162” (ASC 105 Generally Accepted Accounting Principles). SFAS 168 establishes the FASB Accounting Standards Codification which will become

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the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. SFAS 168 is effective immediately. The Company does not expect the adoption of SFAS 168 to have a material impact on its consolidated financial statements.

     In June 2009, the FASB issued EITF Issue No. 09-1, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing” (ASC 470 Debt). EITF Issue No. 09-1 clarifies how an entity should account for an own-share lending arrangement that is entered into in contemplation of a convertible debt offering. EITF Issue No. 09-1 is effective for arrangements entered into on or after June 15, 2009. Early adoption is prohibited. The Company does not expect the adoption of EITF Issue No. 09-1 to have a material impact on its consolidated financial statements.

     In June 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 112 (SAB 112). SAB 112 revises or rescinds portions of the interpretative guidance included in the codification of SABs in order to make the interpretive guidance consistent with current U.S. GAAP. The Company does not expect the adoption of SAB 112 to have a material impact on its consolidated financial statements.

     In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05), “Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value.” ASU 2009-05 amends Subtopic 820-10, “Fair Value Measurements and Disclosures — Overall,” and provides clarification for the fair value measurement of liabilities. ASU 2009-05 is effective for the first reporting period including interim period beginning after issuance. The Company does not expect the adoption of ASU 2009-05 to have a material impact on its consolidated financial statements.

     In September 2009, the FASB issued Accounting Standards Update No. 2009-12 (ASU 2009-12), “Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” ASU 2009-12 provides guidance on estimating the fair value of alternative investments. ASU 2009-12 is effective for interim and annual periods ending after December 15, 2009. The Company does not expect the adoption of ASU 2009-12 to have a material impact on its consolidated financial statements.

     In October 2009, the FASB issued Accounting Standards Update No. 2009-15 (ASU 2009-15), “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing.” ASU 2009-15 amends Subtopic 470-20 to expand accounting and reporting guidance for own-share lending arrangements issued in contemplation of convertible debt issuance. ASU 2009-15 is effective for fiscal years beginning on or after December 15, 2009 and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The Company does not expect the adoption of ASU 2009-15 to have a material impact on its consolidated financial statements.

4. MERGERS AND ACQUISITIONS

  Business Combinations

     On May 31, 2008, the Company acquired each of TFC and BOE. The transaction with TFC was valued at $53.0 million. Total consideration paid to TFC shareholders consisted of 6,544,840 shares of the Company’s common stock issued. The transaction resulted in total assets acquired at May 31, 2008 of $268.8 million, including $241.9 million of loans, and liabilities assumed were $241.7 million, including $232.1 million of deposits. The transaction with BOE was valued at $53.9 million. Total consideration paid to BOE shareholders consisted of 6,957,405 shares of the Company’s common stock issued. This transaction resulted in total assets acquired at May 31, 2008 of $317.6 million, including $233.3 million of loans, and liabilities assumed were $288.0 million, including $256.4 million of deposits. Due to the mergers with each of TFC and BOE, the Company recorded approximately $37.2 million in goodwill and $15.0 million in core deposit intangibles.

     Immediately following the mergers with TFC and BOE, the Company operated TransCommunity Bank and the Bank as separate banking subsidiaries. TransCommunity Bank’s offices operated under the Bank of Goochland, Bank of Powhatan, Bank of Louisa and Bank of Rockbridge division names. Effective July 31, 2008, TransCommunity Bank was consolidated into the Bank under the Bank’s state charter. As a result, the Company was a one-bank holding company at the September 30, 2008 reporting date.

  Acquisition of Georgia Operations

     On November 21, 2008, the Bank acquired certain assets and assumed all deposit liabilities relating to four former branch offices of The Community Bank (“TCB”), a Georgia state-chartered bank. The transaction was consummated pursuant to a Purchase and

9

Assumption Agreement, dated November 21, 2008, by and among the Federal Deposit Insurance Corporation (“FDIC”), as Receiver for The Community Bank, the Bank and the FDIC.

     Pursuant to the terms of the Purchase and Assumption Agreement, the Bank assumed approximately $600 million in deposits, approximately $250 million of which were deemed to be core deposits, and paid the FDIC a premium of 1.36% on all deposits, excluding brokered and internet deposits. All deposits have been fully assumed, and all deposits insured prior to the closing of the transaction maintain their current insurance coverage. Other than loans fully secured by deposit accounts, the Bank did not purchase any loans but is providing loan servicing to TCB’s former loan customers. Pursuant to the terms of the Purchase and Assumption Agreement, the Bank had 60 days to evaluate and, at its sole option, purchase any of the remaining TCB loans. The Bank purchased 175 loans totaling $21 million on January 9, 2009. In addition, the Bank agreed to purchase all four former banking premises of TCB for $6.4 million on February 19, 2009.

     Acquisition of Maryland Operations

     On January 30, 2009, the Bank acquired certain assets and assumed all deposit liabilities relating to seven former branch offices of Suburban Federal Savings Bank, Crofton, Maryland (“SFSB”). The transaction was consummated pursuant to a Purchase and Assumption Agreement, dated January 30, 2009, by and among the FDIC, as Receiver for SFSB, the Bank and the FDIC.

     Pursuant to the terms of the Purchase and Assumption Agreement, the Bank assumed approximately $303 million in deposits, all of which were deemed to be core deposits. The Bank bid a negative $45 million for the assets acquired and liabilities assumed. The Bank acquired approximately $348 million in loans and other assets and agreed to provide loan servicing to SFSB’s existing loan customers. The Bank has entered into shared-loss agreements with the FDIC with respect to certain covered assets acquired. All deposits have been fully assumed, and all deposits maintain their current insurance coverage. As a result of the acquisition of SFSB’s operations, the Company recorded a one-time pre-tax gain of $21.3 million in the first quarter of 2009.

     Under the shared-loss agreements, the FDIC will reimburse the Bank for 80% of losses arising from covered loan assets, on the first $118 million of all losses on such covered loans, and for 95% of losses on covered loans thereafter. Under the shared-loss agreements, a “loss” on a covered loan is defined generally as a realized loss incurred through a permitted disposition, foreclosure, short-sale or restructuring of the covered asset. As described below, the reimbursements for losses on single family one-to-four residential mortgage loans are to be made monthly until the end of the month in which the 10th anniversary of the closing of the transaction occurs, and the reimbursements for losses on other loans are to be made quarterly until the end of the quarter in which the fifth anniversary of the closing of the transaction occurs. The shared-loss agreements provide for indemnification from the first dollar of losses without any threshold requirement. The reimbursable losses from the FDIC are based on the book value of the relevant loan as determined by the FDIC at the date of the transaction, January 30, 2009. New loans made after that date are not covered by the shared-loss agreements.

     The Company determined the value of the intangible assets and the fair value of assets acquired and liabilities assumed that are used to calculate negative goodwill in the transaction. The values determined for the assets acquired and liabilities assumed may be amended within 12 months of the transaction if management has reason to believe that there has been a material change in the initial values recorded. See Note 8 for additional information related to certain assets covered under the FDIC shared-loss agreements.

5. GOODWILL AND INTANGIBLE ASSETS

     The Company follows SFAS 142, Goodwill and Other Intangible Assets, which prescribes the accounting for goodwill and intangible assets subsequent to initial recognition. Provisions within SFAS 142 discontinue any amortization of goodwill and intangible assets with indefinite lives, and require at least an annual impairment review or more often if certain impairment conditions exist. With the TFC and BOE mergers consummated May 31, 2008, there were significant amounts of goodwill and other intangible assets recorded. Goodwill was assessed for potential impairment as of May 31, 2009, the anniversary date of the mergers.

     Since the mergers in 2008, there has been further decline in economic conditions, which has significantly affected the banking sector and the Company’s financial condition and results. The Company’s average closing stock price during the second quarter of 2008 and 2009 was $6.64 per share and $3.67 per share, respectively, which represented a 44.73% decline. On the last business day prior to May 31, 2009, the closing stock price was $3.10 per share.

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     The first step in identifying potential impairment involves comparing the current fair value of such goodwill to its recorded or carrying amount. If the carrying value exceeds such fair value, there is possible impairment. Next, a second step is performed to determine the amount of the impairment, if any. This step requires a comparison of the Company’s book value to the fair value of its assets, liabilities, and intangibles. If the carrying amount of goodwill exceeds the fair value, an impairment charge must be recorded in an amount equal to the excess. Management retained a business valuation expert to assist in determining the level and extent to which goodwill was impaired. The Company determined that goodwill was impaired as of May 31, 2009, and a $24.0 million impairment charge was recorded during the second quarter of 2009. Because the acquisitions were considered tax-free exchanges, the goodwill impairment charge cannot be deducted for tax purposes, and as such, an income tax benefit cannot be recorded. Due to this tax treatment, the goodwill impairment charge will be reflected as a permanent difference in the deferred tax calculation. Goodwill will be next assessed for potential impairment as of December 31, 2009.

     Also, upon further evaluation of the original amount recorded for goodwill associated with the mergers with each of TFC and BOE, adjustments of $2.9 million were made to goodwill as of December 31, 2008, which is reflected as a restated amount in the consolidated statement of financial condition and consolidated statement of changes in stockholders’ equity of the consolidated financial statements in this report. The restated amount was primarily related to properly reflecting the fair value of the options acquired by the Company at the time of its mergers versus the face value of the options, which was originally recorded. This adjustment to goodwill has no effect on the Company’s 2008 or 2009 net income.

     Core deposit intangible assets are amortized over the period of expected benefit, ranging from 2.6 to 9 years. Due to the mergers with TFC and BOE on May 31, 2008, the Company recorded approximately $15.0 million in core deposit intangible assets. Core deposit intangibles related to the Georgia and Maryland transactions equaled $3.1 million and $2.2 million, respectively, and will be amortized over approximately 9 years.

     Goodwill and core deposit intangible assets are presented in the following table:

	Gross		Accumulated				Net Carrying
	Value		Amortization		Impairment		Value
			(dollars in thousands)
December 31, 2008
Goodwill (restated)	$	37,184		—		—	$	37,184
Core deposit intangibles	$	18,132	$	969		—	$	17,163
September 30, 2009
Goodwill	$	37,184		—	$	24,032	$	13,152
Core deposit intangibles	$	20,290	$	2,645		—	$	17,645

     6. FAIR VALUE MEASUREMENTS

     The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale, trading securities and derivatives, if present, are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

     Under FASB ASC 820, “Fair Value Measurements and Disclosures”, 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. These levels are:

     Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.

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     Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

     Level 3 — Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

     Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities Available-for-Sale

     Investment securities available-for-sale are recorded at fair value each reporting period. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. The Company only utilizes third party vendors to provide fair value data for purposes of recording amounts related to the fair value measurements of its securities available for sale portfolio. An AICPA Statement on Auditing Standard Number 70 (SAS 70) report is obtained from the third party vendor on an annual basis. The third party vendor also utilizes a reputable pricing company for security market data. The third party vendor has controls and edits in place for month-to month market checks and zero pricing. The Company makes no adjustments to the pricing service data received for its securities available for sale.

     Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include 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

     Loans held for sale are recorded at the lower of cost or fair value each reporting period, and are comprised of residential mortgages. These loans are held for a short period of time with the intention of being sold on the secondary market. Therefore, the fair value is determined on rates currently offered using observable market information, which does not deviate materially from the cost value. If there are any adjustments to record the loan at the lower of cost of market value, it would be reflected in the consolidated statements of income. There were no loans held for sale at September 30, 2009.

Loans

     Except for loans that the Company acquired in the SFSB transaction, the Company does not record unimpaired loans held for investment at fair value each reporting period. 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. 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 September 30, 2009, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with ASC 20, 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.

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Other real estate owned

     Other real estate owned (OREO), including foreclosed assets, are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, OREO is carried at the lower of carrying value or fair 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 OREO as a 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.

Goodwill

     See Note 5 for a description of valuation methodologies for goodwill.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

     The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis.

	September 30, 2009
	Total		Level 1		Level 2		Level 3
			(dollars in thousands)
Investment securities available-for-sale:
U.S. Treasury issue and US. government agencies	$	16,103	$	—	$	16,103	$	—
State, county, and municipal	$	94,034	$	—	$	94,034	$	—
Corporates and other bonds	$	2,834	$	—	$	2,834	$	—
Mortgage backed securities	$	56,857	$	—	$	56,857	$	—
Financial stocks	$	1,356	$	1,356	$	—	$	—
Total securities available-for-sale	$	171,184	$	1,356	$	169,828	$	—
Loans held for sale	$	—	$	—	$	—	$	—
Total assets at fair value	$	171,184	$	1,356	$	169,828	$	—
Total liabilities at fair value	$	—	$	—	$	—	$	—

     The Company had no Level 3 assets measured at fair value on a recurring basis at September 30, 2009.

Assets and Liabilities Measured at Fair Value 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 GAAP. These assets include assets that are measured at the lower of cost value or market value that were recognized at fair value below cost at the end of the period. The table below presents the recorded amount of assets and liabilities measured at fair value on a nonrecurring basis, excluding FDIC covered assets.

	September 30, 2009
	Total		Level 1		Level 2		Level 3
			(dollars in thousands)
Loans — impaired loans	$	123,460	$	—	$	114,685	$	8,775
Other real estate owned (OREO)	$	1,175	$	—	$	1,175	$	—
Goodwill	$	13,152	$	—	$	—	$	13,152
Total assets at fair value	$	137,787	$	—	$	115,860	$	21,927
Total liabilities at fair value	$	—	$	—	$	—	$	—

     The Company had no Level 1 assets measured at fair value on a nonrecurring basis at September 30, 2009.

     ASC 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The fair values and carrying values are as follows:

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	September 30, 2009
	Carrying		Fair
(dollars in thousands)	Value		Value
Financial assets:
Cash and cash equivalents	$	29,298	$	29,315
Securities available for sale		171,184		171,184
Securities held to maturity		121,023		124,883
Equity securities		8,355		8,355
Loans held for sale		—		—
Net loans excluding covered loans		553,241		546,242
FDIC loss share covered assets		265,460		265,460
Accrued interest receivable		5,401		5,401
Goodwill		13,152		13,152
Financial liabilities:
Deposits		1,027,529		1,033,024
Borrowings		41,155		46,035

7. SECURITIES

     Amortized costs and fair values of securities available for sale at September 30, 2009 were as follows:

	Amortized		Gross Unrealized
(dollars in thousands)	Cost		Gains		Losses			Fair Value
U.S. Treasury issue and other U.S. Government agencies	$	15,589	$	514	$	—		$	16,103
State, county and municipal		90,976		3,275		(217	)		94,034
Corporates and other bonds		2,761		73		—			2,834
Mortgage backed securities		55,392		1,469		(4	)		56,857
Other securities		1,293		165		(102	)		1,356
Total securities available for sale	$	166,011	$	5,496	$	(323	)	$	171,184

The fair value and gross unrealized losses for securities available for sale, totaled by the length of time that individual securities have been in a continuous gross unrealized loss position, at September 30, 2009 were as follows:

	Less than 12 months					12 months or more					Total
			Unrealized					Unrealized					Unrealized
(dollars in thousands)	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
State, county and municipal	$	2,075	$	(193	)	$	2,204	$	(24	)	$	4,279	$	(217	)
Mortgage backed securities		710		(4	)		—		—			710		(4	)
Other securities		1,092		(96	)		12		(6	)		1,104		(102	)
Total securities available for sale	$	3,877	$	(293	)	$	2,216	$	(30	)	$	6,093	$	(323	)

     At September 30, 2009, there were $2.2 million of securities available for sale that were in a continuous loss position for more than twelve months with unrealized losses of $30,000 and consisted primarily of municipal obligations. Management continually monitors the fair value and credit quality of the Company’s investment portfolio. Furthermore, a third party vendor prepares a report for other than temporarily impaired evaluations. Management reviews this report monthly, and there were no investments considered other than temporarily impaired at September 30, 2009.

     Amortized costs and fair values of securities held to maturity at September 30, 2009 were as follows:

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	Amortized		Gross Unrealized
(dollars in thousands)	Cost		Gains		Losses			Fair Value
U.S. Treasury issue and other U.S. Government agencies	$	748	$	—	$	(1	)	$	747
State, county and municipal		13,104		859		—			13,963
Corporates and other bonds		1,030		26		—			1,056
Mortgage backed securities		106,141		3,078		(102	)		109,117
Total securities held to maturity	$	121,023	$	3,963	$	(103	)	$	124,883

     The fair value and gross unrealized losses for securities held to maturity, totaled by the length of time that individual securities have been in a continuous gross unrealized loss position, at September 30, 2009 were as follows:

	Less than 12 months					12 months or more				Total
			Unrealized					Unrealized				Unrealized
(dollars in thousands)	Fair Value		Loss			Fair Value		Loss		Fair Value		Loss
U.S. Treasury issue and other U.S. Government agencies	$	748	$	(1	)	$	—	$	—	$	748	$	(1	)
Mortgage backed securities		10,501		(102	)		—		—		10,501		(102	)
Total securities held to maturity	$	11,249	$	(103	)	$	—	$	—	$	11,249	$	(103	)

     Management continually monitors the fair value and credit quality of the Company’s investment portfolio. At September 30, 2009, all impairments are considered temporary; there are no other than temporary impairments. The Company does not intend to sell the securities. It is not likely that the Company will be required to sell the security before recovery of its amortized cost. The Company expects to fully recover its amortized cost basis even if it does not intend to sell the impaired securities. At this time, the Company considers all impairments to be temporary since the unrealized losses are related to market risk and not credit risk. Issuers of the securities both held to maturity and available for sale are of suitable credit quality, and all of the securities are of investment grade.

     The Company’s investment in Federal Home Loan Bank (“FHLB”) stock totaled $3.6 million at September 30, 2009. FHLB stock is restricted since it is not actively traded on an exchange, and is owned solely by the FHLB and its member institutions. The Company records FHLB stock on a cost basis. When evaluating FHLB stock for impairment, its value is based on recovery of the par value rather than by recognizing temporary decline in value. While the FHLB temporarily suspended dividend payments on its stock and repurchases of excess capital stock during 2009, it declared an annualized dividend rate of 0.41% for the third quarter of 2009, which is scheduled for payment in November 2009.

8. FDIC RELATED ASSETS

     Under the shared-loss agreements, the FDIC will reimburse the Bank for 80% of losses arising from covered loan assets, on the first $118 million of such covered loans, and for 95% of losses on covered loans thereafter. Under the shared-loss agreements, a “loss” on a covered loan is defined generally as a realized loss incurred through a permitted disposition, foreclosure, short-sale or restructuring of the covered asset. As described below, the reimbursements for losses on single family one-to-four residential mortgage loans are to be made monthly until the end of the month in which the 10th anniversary of the closing of the transaction occurs, and the reimbursements for losses on other loans are to be made quarterly until the end of the quarter in which the fifth anniversary of the closing of the transaction occurs. The shared-loss agreements provide for indemnification from the first dollar of losses without any threshold requirement. The reimbursable losses from the FDIC are based on the book value of the relevant loan as determined by the FDIC at the date of the transaction, January 30, 2009. New loans made after that date are not covered by the shared-loss agreements.

     Codification Subtopic 310-30 (originally issued as the American Institute of Certified Public Accountants (AICPA) Statement of Position 03-3 (SOP 03-3), Accounting for Certain Loans or Debt Securities Acquired in a Transfer), was adopted for loan acquisitions, and applies to loans with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments

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receivable. In our acquisition of SFSB, the preliminary fair value of SOP 03-3 loans was determined based on assigned risk ratings, expected cash flows and the fair value of the collateral. The fair value of non SOP 03-3 loans was determined based on preliminary estimates of default probabilities. The Company determined which purchased loans were impaired at the time of the acquisition, and will consider those loans for SOP 03-3 application. Those loans that were not considered impaired at the time of acquisition will not be considered for SOP 03-3. Since there are FDIC shared-loss agreements, the Bank recorded an FDIC receivable to the extent amounts will be reimbursed for losses incurred, and is included in the amount reported as “Loans covered by FDIC shared-loss agreements”. The carrying amount of FDIC covered assets at September 30, 2009, were as follows:

			Non SOP 03-3
	SOP 03-3 Loans		Loans		Other		Total
Commercial related loans	$	12,716	$	10,496			$	23,212
Mortgage and other loans		10,421		129,559				139,980
Foreclosed real estate					$	16,823		16,823
FDIC receivable for covered assets						81,885		81,885
Estimated loss reimbursement from FDIC for expenses incurred						3,560		3,560
Total FDIC covered assets	$	23,137	$	140,055	$	102,268	$	265,460

     As of the acquisition date, the preliminary estimates of the contractually required payments receivable for all SOP 03-3 loans acquired in the SFSB acquisition were $84.7 million, the cash flows expected to be collected were $32.9 million including interest, and the estimated fair value of the loans were approximately $26.0 million. These amounts were determined based upon the estimated remaining life of the underlying loans, which include the effects of estimated prepayments. At September 30, 2009, a majority of these loans were valued based on the liquidation value of the underlying collateral. Interest income, through accretion of the difference between the carrying amount of the SOP 03-3 loans and the expected cash flows, is expected to be recognized on the remaining loans. There was no allowance for credit losses related to these SOP 03-3 loans at September 30, 2009. Certain amounts related to the SOP 03-3 loans and related indemnification amounts are preliminary estimates. The Company expects to finalize its analysis of these assets within 12 months of the acquisition date and, therefore, adjustments to the estimated amounts are likely.

     See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Covered Assets under the FDIC Shared-Loss Agreements” for a discussion of management’s analysis and judgments in presenting the information above.

9. LOANS

     The Company’s loan portfolio, segregated by loans covered by the FDIC shared-loss agreement (Covered Loans) and loans not covered by this agreement (Non-covered Loans), at September 30, 2009 and December 31, 2008, was comprised of the following:

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	September 30, 2009															December 31, 2008
	Non-covered loans					Covered Loans					Total Loans					Total Loans
Open End 1-4 Family Loans	$	20,075		3.52	%	$	26,359		9.92	%	$	46,434		5.56	%	$	30,323		5.80	%
1-4 Family First Liens		108,380		19.03	%		166,080		62.53	%		274,460		32.86	%		99,284		18.98	%
Total residential 1-4 family		128,455		22.55	%		192,439		72.45	%		320,894		38.42	%		129,607		24.78	%
Owner occupied nonfarm nonresidential		43,423		7.62	%		38,387		14.45	%		81,810		9.80	%		63,218		12.09	%
Non owner occupied nonfarm nonresidential		111,768		19.62	%		4,261		1.60	%		116,029		13.89	%		93,872		17.95	%
Total commercial		155,191		27.24	%		42,648		16.05	%		197,839		23.69	%		157,090		30.04	%
1-4 Family Construction		50,842		8.93	%		—		0.00	%		50,842		6.09	%		36,277		6.93	%
Other construction and land development		131,902		23.16	%		13,115		4.94	%		145,017		17.36	%		103,238		19.74	%
Total construction		182,744		32.09	%		13,115		4.94	%		195,859		23.45	%		139,515		26.67	%
Second mortgages		14,051		2.47	%		16,779		6.32	%		30,830		3.69	%		15,599		2.98	%
Multifamily		10,757		1.89	%		—		0.00	%		10,757		1.29	%		9,370		1.79	%
Agriculture		3,907		0.69	%		180		0.07	%		4,087		0.49	%		5,143		0.98	%
Total real estate loans		495,105		86.93	%		265,161		99.83	%		760,266		91.03	%		456,324		87.24	%
Agriculture loans		1,407		0.25	%		—		0.00	%		1,407		0.17	%		988		0.19	%
Commercial and industrial loans		45,348		7.96	%		—		0.00	%		45,348		5.43	%		44,332		8.47	%
Total commercial loans		46,755		8.21	%		—		0.00	%		46,755		5.60	%		45,320		8.66	%
Total revolving credit and other consumer		15,977		2.81	%		364		0.14	%		16,341		1.96	%		14,457		2.76	%
All other loans		11,700		2.05	%		95		0.03	%		11,795		1.41	%		7,005		1.34	%
Gross loans		569,537		100.00	%		265,620		100.00	%		835,157		100.00	%		523,106		100.00	%
Unearned income on loans		(745	)				(72	)				(817	)				(780	)
Merger related fair value adjustment		660					(20,471	)				(19,811	)				972
Total non-covered loans	$	569,452				$	245,077				$	814,529				$	523,298

     The following is a summary of information for impaired and nonaccrual loans at September 30, 2009, excluding FDIC covered assets (dollars in thousands):

	Amount
Impaired loans without a valuation allowance	$	96,684
Impaired loans with a valuation allowance		26,776
Total impaired loans	$	123,460
Valuation allowance related to impaired loans	$	9,454
Total nonaccrual loans	$	20,572
Total loans 90 days or more past due and still accruing	$	1,462
Average investment in impaired loans during the nine months ending September 30, 2009	$	100,984
Interest income recognized on impaired loans	$	919
Interest income recognized on a cash basis on impaired loans	$	919

10. ALLOWANCE FOR LOAN LOSSES

     Activity in the allowance for loan losses, for the three and nine months ended September 30, 2009 and the period ended September 30, 2008 was comprised of the following:

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	Three Months Ended			Nine Months Ended			Nine Months Ended
(dollars in thousands)	September 30, 2009			September 30, 2009			September 30, 2008
Beginning balance	$	12,185		$	6,939		$	4,993
Provision for loan losses		5,231			11,271			1,334
Recoveries of loans charged off		224			306			36
Loans charged off		(1,429	)		(2,305	)		(128	)
Balance at end of period	$	16,211		$	16,211		$	6,235

     For information reported for September 30, 2008, the figures presented are solely for the months of June 2008 through September 2008, as the Company did not have banking operations prior to its merger with each of TFC and BOE at May 31, 2008 and, as such, did not have an allowance for loan losses.

     At September 30, 2009, total impaired loans equaled $123.5 million, excluding FDIC covered assets. As required by the fair value accounting rules for the SFSB transaction in the first quarter of 2009, no allowance for loan losses was recorded on loans acquired since the loans were recorded at fair value and adjusted for expected credit losses, less amounts to be reimbursed by the FDIC. For additional information regarding the accounting entries, see the Company’s Current Report on Form 8-K/A (Amendment No. 1) filed on April 17, 2009, under Note 2 — Description of the Pro Forma Purchase Accounting Adjustments.

     Significant provisions were made to the loan loss reserve during the nine months ended September 30, 2009, as economic conditions deteriorated. In addition, net-charge off activity increased as certain loans were deemed uncollectible.

     The following table presents charge-offs and recoveries by loan category for the three and nine months ended September 30, 2009.

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	Three Months Ended September 30, 2009							Nine Months Ended September 30, 2009
					Net							Net
(dollars in thousands)	Charge-offs		Recoveries		Charge-offs			Charge-offs		Recoveries		Charge-offs
Open End 1-4 Family Loans	$	—	$	—	$	—		$	168	$	—	$	168
1-4 Family First Liens		—		—		—			108		—		108
Total residential 1-4 family		—		—		—			276		—		276
Owner occupied nonfarm nonresidential		814		—		814			814		—		814
Non owner occupied nonfarm nonresidential		—		—		—			—		—		—
Total commercial		814		—		814			814		—		814
1-4 Family Construction		—		183		(183	)		61		199		(138	)
Other construction and land development		583		—		583			591		—		591
Total construction		583		183		400			652		199		453
Second mortgages		—		—		—			34		—		34
Multifamily		—		—		—			—		—		—
Agriculture		—		—		—			13		—		13
Total real estate loans		1,397		183		1,214			1,789		199		1,590
Agriculture loans		—		—		—			—		—		—
Commercial and industrial loans		—		17		(17	)		318		20		298
Total commercial loans		—		17		(17	)		318		20		298
Total revolving credit and other consumer		4		11		(7	)		170		74		96
All other loans		28		13		15			28		13		15
Total non-covered loans	$	1,429	$	224	$	1,205		$	2,305	$	306	$	1,999

11. DEPOSITS

     The following table provides interest-bearing deposit information by category for the dates indicated:

Balance by deposit type	September 30, 2009		December 31, 2008
	(dollars in thousands)
NOW	$	88,045	$	76,575
MMDA		110,353		55,200
Savings		58,495		34,688
Time deposits less than $100,000		450,273		303,424
Time deposits greater than $100,000		256,025		276,762
Total interest-bearing deposits	$	963,191	$	746,649

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12. (LOSS) EARNINGS PER SHARE

     Basic (loss) earnings per share (“EPS”) is computed by dividing net income or loss available to common stockholders by the weighted average number of shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, including the effect of all potentially dilutive potential common shares outstanding attributable to stock instruments.

				Weighted
	(Loss)/			Average
	Income			Shares		Per Share
(dollars and shares in thousands, except per share data)	(Numerator)			(Denominator)		Amount
For the Three Months ended September 30, 2009
Basic EPS	$	(3,019	)		21,468	$	(0.14	)
Effect of dilutive stock awards and options					—		—
Diluted EPS	$	(3,019	)		21,468	$	(0.14	)
For the Three Months ended September 30, 2008
Basic EPS	$	952			21,469	$	0.04
Effect of dilutive stock awards and options					17		—
Diluted EPS	$	952			21,486	$	0.04
For the Nine Months ended September 30, 2009
Basic EPS	$	(16,731	)		21,468	$	(0.78	)
Effect of dilutive stock awards and options					—		—
Diluted EPS	$	(16,731	)		21,468	$	(0.78	)
For the Nine Months ended September 30, 2008
Basic EPS	$	1,351			14,750	$	0.09
Effect of dilutive stock awards and options					1,447		(0.01	)
Diluted EPS	$	1,351			16,197	$	0.08

     There were 5,973,870 shares in the Company available through options and warrants that were considered anti-dilutive at September 30, 2009.

13. DEFINED BENEFIT PLAN

     The Company adopted the Bank noncontributory, defined benefit pension plan for all full-time, pre-merger Bank employees over 21 years of age at May 31, 2008. Benefits are generally based upon years of service and the employees’ compensation. The Company funds pension costs in accordance with the funding provisions of the Employee Retirement Income Security Act.

Components of Net Periodic Benefit Cost:

	Nine Months Ended
	September 30, 2009
	(In thousands)
Service cost	$	276
Interest cost		243
Expected return on plan assets		(159	)
Amortization of prior service cost		3
Amortization of net obligation at transition		(3	)
Amortization of net loss		66
Net periodic benefit cost	$	426

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     At September 30, 2009, employer contributions totaled $264,000 for the plan year. The Company is currently analyzing the Defined Benefit Plan as well as other alternatives, such as enhancing its Defined Contribution Plan (401(k)). The plan was frozen to new entrants prior to BOE’s merger with the Company.

14. SUBSEQUENT EVENTS

     On October 29, 2009, the Company’s Board of Directors declared a quarterly dividend of $0.04 per share with respect to the Company’s outstanding common stock. The dividend will be payable on November 20, 2009, to stockholders of record at the close of business on November 13, 2009.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The following discussion and analysis of the financial condition at September 30, 2009 and results of operations of the Company for the three and nine months ended September 30, 2009 should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes to consolidated financial statements included in this report and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Overview

     Community Bankers Trust Corporation (the “Company”) is a bank holding company that was incorporated under Delaware law on April 6, 2005. The Company is headquartered in Glen Allen, Virginia and is the holding company for Essex Bank, a Virginia state bank with 25 full-service offices in Virginia, Maryland and Georgia.

     The Bank was established in 1926 and is headquartered in Tappahannock, Virginia. The Bank engages in a general commercial banking business and provides a wide range of financial services primarily to individuals and small businesses, including individual and commercial demand and time deposit accounts, commercial and consumer loans, travelers checks, safe deposit box facilities, investment services and fixed rate residential mortgages. Fourteen branches are located in Virginia, primarily from the Chesapeake Bay to just west of Richmond, seven are located in Maryland along the Baltimore-Washington corridor and four are located in the Atlanta, Georgia metropolitan market. The Bank also operates two loan production offices, one in Fairfax, Virginia, and one in Cumming, Georgia.

     The Company generates a significant amount of its income from the net interest income earned by the Bank. Net interest income is the difference between interest income and interest expense. Interest income depends on the amount of interest-earning assets outstanding during the period and the interest rates earned thereon. The Company’s cost of funds is a function of the average amount of interest-bearing deposits and borrowed money outstanding during the period and the interest rates paid thereon. The quality of the assets further influences the amount of interest income lost on non-accrual loans and the amount of additions to the allowance for loan losses. Additionally, the Bank earns non-interest income from service charges on deposit accounts and other fee or commission-based services and products. Other sources of non-interest income can include gains or losses on securities transactions, gains from loans sales, transactions involving bank-owned property, and income from Bank Owned Life Insurance (“BOLI”) policies. The Company’s income is offset by non-interest expense, which consists of goodwill impairment and other charges, salaries and benefits, occupancy and equipment costs, professional fees, and other operational expenses. The provision for loan losses and income taxes materially affect income.

Caution About Forward-Looking Statements

     The Company makes certain forward-looking statements in this Form 10-Q that are subject to risks and uncertainties. These forward-looking statements include statements regarding our profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals. These forward-looking statements are generally identified by phrases such as “the Company expects,” “the Company believes” or words of similar import.

     These forward-looking statements are subject to significant uncertainties because they are based upon or are affected by factors, including, without limitation, the effects of and changes in the following:

• general economic and market conditions, either nationally or locally;

• the interest rate environment;

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• competitive pressures among banks and financial institutions or from companies outside the banking industry;

• real estate values;

• the quality or composition of the Company’s loan or investment portfolios;

• the demand for deposit, loan, and investment products and other financial services;

• the demand, development and acceptance of new products and services;

• the timing of future reimbursements from the FDIC to the Company under the shared-loss agreements;

• consumer profiles and spending and savings habits;

• the securities and credit markets;

• the integration of banking and other internal operations, and associated costs

• management’s evaluation of goodwill and other assets on a periodic basis, and any resulting impairment charges, under applicable accounting standards;

• the soundness of other financial institutions with which the Company does business;

• inflation;

• technology; and

• legislative and regulatory requirements.

     These factors and additional risks and uncertainties are described in the “Risk Factors” discussion in Part II, Item 1A, of this report.

     Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

Critical Accounting Policies

     The following is a summary of the Company’s critical accounting policies that are highly dependent on estimates, assumptions and judgments.

Allowance for Loan and Lease Losses

     The allowance for loan and lease losses (“ALLL”) is maintained at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. Since arriving at an appropriate ALLL involves a high degree of management judgment, an ongoing quarterly analysis to develop a range of estimated losses is utilized. In accordance with accounting principles generally accepted in the United States, best estimates within the range of potential credit loss to determine the appropriate ALLL is utilized. Credit losses are charged and recoveries are credited to the ALLL.

     The Company utilizes an internal risk rating system for its loans. Those larger credits that exhibit probable or well defined credit weaknesses are subject to individual review. The borrower’s cash flow, adequacy of collateral coverage, and other options available to the Company, including legal remedies, are evaluated. The review of individual loans includes those loans that are impaired as defined by SFAS 114, Accounting by Creditors for Impairment of a Loan. Collectability of both principal and interest when assessing the need

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for loss provision is considered. Historical loss rates are applied to other loans not subject to specific allocations. The loss rates are determined from historical net charge offs experienced by the Bank.

     Historical loss rates for commercial and retail loans are adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition. Factors that are considered include delinquency trends, current economic conditions and trends, strength of supervision and administration of the loan portfolio, levels of underperforming loans, level of recoveries to prior year’s charge offs, trend in loan losses, industry concentrations and their relative strengths, amount of unsecured loans and underwriting exceptions. These factors are reviewed quarterly and a weighted score is assigned depending on the level and extent of the risk. The total of each of these weighted factors is then applied against the applicable portion of the portfolio and the ALLL is adjusted to ensure an appropriate level.

     The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The financial information contained within the 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. The Company uses historical loss factors as one factor in determining the inherent loss that may be present in its loan portfolio. Actual losses could differ significantly from the historical factors that the Company uses. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the Company’s transactions would be the same, the timing of events that would impact its transactions could change.

Income Taxes

     The Company follows tax guidance, including the Financial Accounting Standards Board’s (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes (SFAS 109). In determining the appropriate level of income taxes to be recorded each reporting, management assesses the potential tax effects and records those amounts in both current and deferred tax accounts, whether may be an asset or liability. In addition, an income tax expense or benefit is determined, which is recorded on the consolidated income statement.

Goodwill and Other Intangible Assets

     The Company adopted SFAS 142, Goodwill and Other Intangible Assets. 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. As a result of the mergers with each of TFC and BOE at May 31, 2008, goodwill was initially recorded for $39.5 million. Subsequently, adjustments were recorded to properly reflect goodwill on the financial statements. The Company assessed goodwill for impairment as of the one year anniversary date of the mergers, at May 31, 2009.

     The initial step in identifying potential impairment involves comparing the current fair value of such goodwill to its recorded or carrying amount. If the carrying value exceeds such fair value, there is possible impairment. Next, a second step is performed to determine the amount of the impairment, if any. This requires a comparison of the Company’s book value to the fair value of its assets, liabilities, and intangibles. If the carrying amount of goodwill exceeds the fair value, an impairment charge must be recorded in an amount equal to the excess. The Company determined that goodwill was impaired as of May 31, 2009, and a $24.0 million impairment charge was recorded during the second quarter of 2009. The goodwill impairment charge was due to an overall decline in general economic conditions, rapid change in the market valuations of financial institutions and the discount that shares of the Company’s common stock have traded to their tangible book value for an extended period of time.

     Additionally, under SFAS 142, acquired intangible assets (such as core deposit intangibles) are separately recognized if the benefit of the assets can be sold, transferred, licensed, rented, or exchanged, and amortized over their useful lives. 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 costs of purchased deposit relationships and other intangible assets, based on independent valuation by a qualified third party, are being amortized over their estimated lives. Core deposit intangible amortization expense charged to operations was $565,000 and $1.7 million for the three and six months ended September 30, 2009, respectively. The Company did not record any goodwill or other intangible prior to the TFC and BOE mergers. As a result of the TCB and SFSB transactions, core deposit intangibles were recorded of $3.2 million and $2.2 million, respectively. Also related to the SFSB transaction during the first quarter of 2009 was negative goodwill of $21.3 million ($12.9 million, net of taxes), which was recorded as a one-time gain within the income statement.

23

Covered Assets under the FDIC Shared-Loss Agreements

     The Company acquired certain assets, including loans and other real estate subject to the FDIC shared-loss agreements, in the SFSB transaction. The Company accounted for this transaction in accordance with FASB ASC 805, which requires the Company to record the assets acquired and liabilities assumed at their acquisition date fair values. In addition, impaired loans that were acquired are accounted for under FASB ASC 310-30 (SOP 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer.”)

     In determining the fair value of the impaired loans at the acquisition date, the Company engaged a third party to perform a full credit review of the loans acquired to assess the creditworthiness of each borrowing, and to determine which loans were impaired. In addition, the Company engaged another third party to determine the fair value of the assets acquired in order to establish the Company’s investment in the assets. In determining the fair value, the Company made assumptions regarding the risk characteristics of the borrowers associated with such assets, including default probabilities, interest rates, expected cash flows, and any underlying collateral.

     In order to be able to present the appropriate accounting presentation under FASB ASC 805 and FASB ASC 310-30, the Company must review the details of each loan individually, and not on a pooled basis. Due to the volume of data that is necessary for the Company to evaluate for this purpose, the Company has recorded provisional amounts for the covered loans and related FDIC receivable for the period ended September 30, 2009. As a result, material adjustments to the provisional amounts may be necessary once the Company completes its evaluation. In addition, due to the existence of the FDIC shared-loss agreements, the Company is in the process, after application of data on a per loan basis, of identifying the value of the FDIC receivable asset and will account for this asset separately from the loans covered by the shared-loss agreements.

     The Company expects that full application of the SFSB transaction under FASB ASC 805 and FASB ASC 310-30 will be applied with the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The Company also expects that it may file amendments to this report and past quarterly reports in 2009 to reflect this revised accounting presentation. The Company cannot make any assurance that these adjustments will not materially change the financial condition and results of operations of the Company, as presented in such reports.

Financial Condition

     At September 30, 2009, the Company had total assets of $1.239 billion, an increase of $209.4 million or 20.33% from December 31, 2008. Total loans, excluding FDIC covered assets, equaled $569.5 million at September 30, 2009, increasing $46.2 million, or 8.82% from December 31, 2008. Securities totaled $300.6 million and increased $8.1 million, or 2.77% during the first nine months of 2009. The Company had federal funds sold of $5.3 million at September 30, 2009, versus $10.2 million at year-end 2008, a decrease of $4.9 million or 48.00%. The shift in the earning asset mix as evidenced above is the direct result of management’s intention of replacing relatively lower yielding overnight funds with higher yielding assets of loans and securities.

     The increase in the total asset size of the Company was primarily due to the SFSB transaction in Maryland. At September 30,2009, FDIC covered loans equaled $245.1 million, FDIC covered other real estate owned equaled $16.8 million, and the FDIC receivable equaled $3.6 million. Securities from SFSB were incorporated into the Company’s securities portfolio at fair value at the effective time of the transaction, and are not considered covered assets under the terms of the FDIC shared-loss agreements.

     The Company is required to account for the effect of market changes in the value of securities available-for-sale (“AFS”) under SFAS 115. The market value of the September 30, 2009 AFS portfolio was $171.2 million at September 30, 2009, and the net unrealized gain on the AFS portfolio was $3.4 million, net of taxes, and included as part of the Company’s accumulated other comprehensive income of $2.1 million. Since December 31, 2008, the AFS portfolio shifted from a net unrealized loss of $700,000 to a net unrealized gain of $5.2 million, exclusive of taxes over the first nine months of 2009. The Company deems the investment portfolio as a viable source of liquidity given the dollar volume of securities designated available for sale.

     Total deposits at September 30, 2009 were $1.028 billion, which increased $221.2 million or 27.43% from December 31, 2008. Deposit growth was attributed to the SFSB transaction, which was concentrated in certificates of deposit. At September 30, 2009, total deposits in our Maryland branches aggregated $279.3 million of which $208.8 million were time deposits. Interest-bearing deposits increased $216.5 million from December 31, 2008 to September 30, 2009. Noninterest-bearing deposits, in the form of demand deposit accounts, were $64.3 million at September 30, 2009, an increase of $4.6 million since December 31, 2008. The Company’s total loans-to-deposits ratio, excluding FDIC covered loans, was 55.42% at September 30, 2009 and 64.90% at December 31, 2008.

     Stockholders’ equity at September 30, 2009 was $146.6 million and represented 11.83% of total assets. Stockholders’ equity was $164.4 million, or 15.97% of total assets at December 31, 2008.

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Results of Operations

Net Income

     For the three months ended September 30, 2009, net loss before dividends and accretion on preferred stock was $2.8 million, compared with net income of $952,000 for the same period in 2008. Net loss available to common stockholders was $3.0 million, which represented $0.14 per share on a fully diluted basis, versus net income available to common stockholders of $952,000, or $0.04 per share on a fully diluted basis for the same period in 2008. The loss incurred during the third quarter of 2009 was primarily the result of a $5.2 million provision for loan losses, compared to $1.1 million in provisions during the same period in 2008.

     For the nine months ended September 30, 2009, net loss before dividends and accretion on preferred stock was $15.9 million, compared with net income $1.4 million for the same period in 2008. Net loss available to common stockholders was $16.7 million, which represented $0.78 per share on a fully diluted basis, versus net income available to common stockholders of $1.4 million, or $0.08 per share on a fully diluted basis for the same period in 2008. Net loss for the nine months ended September 30, 2009, was driven by the goodwill impairment charge of $24.0 million and loan loss provisions of $11.3 million. While the $21.3 million gain recorded on the SFSB transaction in the first quarter partially offset these large expenses, the goodwill impairment charge does not reduce taxable income and permit an income tax benefit.

Net Interest Income

     The Company’s results of operations are significantly affected by its ability to manage effectively the interest rate sensitivity and maturity of its interest-earning assets and interest-bearing liabilities. At September 30, 2009, the Company’s interest-earning assets exceeded its interest-bearing liabilities by approximately $110.4 million, compared with a $137.9 million excess at December 31, 2008.

     Net interest income was $9.2 million for the three months ended September 30, 2009, compared with $6.2 million for the same period in 2008. For the three months ended September 30, 2009, the net interest margin was 3.37% compared to 4.26% for the same period in 2008. For the three months ended September 30, 2009, the net interest spread was 3.10% versus 3.70% for the same period in 2008. The decline in the margin compared with the same period in 2008 was driven by several factors. First, loan rates declined in the fourth quarter of 2008 due to a prime rate drop. There was also a large influx of deposits related to TCB transaction in the fourth quarter of 2008 which were subsequently invested in securities versus higher yielding loans. In addition, the SFSB transaction resulted in further margin compression during 2009 as the Bank inherited a large volume of FDIC covered non-accruing loans that are included in the margin calculation.

     With the acquisitions of TFC and BOE in May 2008, fair market value adjustments were recorded for assets and liabilities, including interest bearing loans and interest bearing deposits. However, the amortization of the fair value adjustments for those deposits significantly reduced interest expense during the third quarter of 2008, far in excess of reductions in interest income associated with the amortization of the fair value adjustments for loans. As a result, the net interest margin for the third quarter of 2008 was more positively influenced when compared with the third quarter of 2009.

     For the nine months ended September 30, 2009, net interest income aggregated $27.7 million, which generated a net interest margin of 3.32%. The net interest spread for the nine months ended September 30, 2009 equaled 3.04%. A net interest margin analysis is not provided for the nine months ended September 30, 2008, since there were no banking operations for the Company for the first five months of 2008.

     Components used in determining the net interest spread and the net interest margin, including yields on assets and costs of funds by category, are depicted in the following table:

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COMMUNITY BANKERS TRUST CORPORATION
NET INTEREST MARGIN ANALYSIS
AVERAGE BALANCE SHEETS

	Three months ended September 30,
	2009								2008
	Average			Interest		Average			Average			Interest		Average
	Balance			Income/		Rates			Balance			Income/		Rates
	Sheet			Expense		Earned/Paid			Sheet			Expense		Earned/Paid
ASSETS:
Loans, including fees	$	559,547		$	8,820		6.31	%	$	496,803		$	8,497		6.84	%
Loans covered by FDIC loss share		251,262			3,741		5.96	%
Total loans		810,809			12,561		6.20	%		496,803			8,497		6.84	%
Interest bearing bank balances		11,061			60		2.17	%		9,384			83		3.54	%
Federal funds sold		20,905			10		0.19	%		5,034			22		1.75	%
Investments (taxable)		216,277			2,081		3.85	%		50,809			539		4.24	%
Investments (tax exempt) (1)		91,927			1,358		5.91	%		35,068			505		5.76	%
Total earning assets		1,150,979			16,070		5.58	%		597,098			9,646		6.46	%
Allowance for loan losses		(13,290	)							(5,380	)
Non-earning assets		122,823								90,098
Total assets	$	1,260,512							$	681,816
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand - Interest bearing	$	200,965		$	381		0.76	%	$	84,032		$	328		1.56	%
Savings		58,438			100		0.68	%		31,126			84		1.08	%
Time deposits		724,190			5,545		3.06	%		314,585			2,495		3.17	%
Total deposits		983,593			6,026		2.45	%		429,743			2,907		2.71	%
Fed funds purchased		1,126			2		0.71	%		17,408			101		2.32	%
FHLB and other borrowings		40,005			338		3.38	%		28,974			277		3.82	%
Total interest-bearing liabilities		1,024,724			6,366		2.48	%		476,125			3,285		2.76	%
Non-interest bearing deposits		61,269								54,060
Other liabilities		25,679								7,410
Total liabilities		1,111,672								537,595
Stockholders’ equity		148,840								144,221
Total liabilities and stockholders’ equity	$	1,260,512							$	681,816
Net interest earnings				$	9,704							$	6,361
Interest spread							3.10	%							3.70	%
Net interest margin							3.37	%							4.26	%

(1) Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%.

26

COMMUNITY BANKERS TRUST CORPORATION
NET INTEREST MARGIN ANALYSIS
AVERAGE BALANCE SHEETS

	Nine months ended September 30, 2009
	Average			Interest		Average
	Balance			Income/		Rates
	Sheet			Expense		Earned/Paid
ASSETS:
Loans, including fees	$	547,468		$	26,236		6.39	%
Loans covered by FDIC loss share		237,573			10,658		5.98	%
Total loans		785,041			36,894		6.27	%
Interest bearing bank balances		26,894			262		1.30	%
Federal funds sold		19,808			36		0.24	%
Investments (taxable)		248,042			7,580		4.07	%
Investments (tax exempt) (1)		84,281			3,747		5.93	%
Total earning assets		1,164,066			48,519		5.56	%
Allowance for loan losses		(10,593	)
Non-earning assets		129,324
Total assets	$	1,282,796
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand - Interest bearing	$	193,705		$	1,556		1.07	%
Savings		54,813			374		0.91	%
Time deposits		736,112			16,513		2.99	%
Total deposits		984,630			18,443		2.50	%
Fed funds purchased		1,085			6		0.76	%
FHLB and other borrowings		45,201			1,071		3.16	%
Total interest-bearing liabilities		1,030,916			19,520		2.52	%
Non-interest bearing deposits		61,423
Other liabilities		28,772
Total liabilities		1,121,111
Stockholders’ equity		161,685
Total liabilities and stockholders’ equity	$	1,282,796
Net interest earnings				$	28,999
Interest spread							3.04	%
Net interest margin							3.32	%

(1) Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%.

27

Provision for Credit Losses

     For the three months ended September 30, 2009, the Company’s provision for loan losses was $5.2 million compared with $1.1 million in the same period of 2008. For the nine months ended September 30, 2009, provisions were $11.3 million compared with $1.3 million in the same period of 2008.

     Increases were made to the loan loss reserve during the third quarter of 2009 as economic conditions continued to show signs of deterioration, which necessitated further provisions for impairments of classified assets. The most notable impetus for the provision was evidenced in one borrowing relationship which was previously impaired and on the Bank’s watch list. Current information related to unwinding the credit necessitated further impairment which amounted to over 50% of the provision for the quarter. The remaining balance of the provision during the third quarter was attributable to downgraded credits and further insulation from the economic downturn. Management continues to monitor the loan portfolio closely and make appropriate adjustments using the Company’s internal risk rating system.

     While the Maryland loan portfolio contains significant risk, it was considered in determining the initial fair value, which was reflected in adjustments recorded at the time of the SFSB transaction, less the FDIC guaranteed portion of losses on covered assets. Net-charge off activity has increased during recent quarters, a trend that is expected to continue until economic conditions begin to subside. Please refer to the Asset Quality discussion below for further analysis.

Noninterest Income

     For the three months ended September 30, 2009, noninterest income was $1.3 million, compared with $754,000 in the same period of 2008. This increase of $520,000 or 68.97% is primarily attributable to gains on securities transactions of $612,000 versus none in the same period of 2008. This increase in income was partially offset by a $187,000 loss on sale of other real estate, increased service charges on deposit accounts of $158,000 over the same period in 2008, and a decrease in other noninterest income of $63,000.

     For the nine months ended September 30, 2009, noninterest income was $24.7 million. Excluding the first quarter gain on the SFSB transaction of $21.3 million, noninterest income would have been $3.4 million, compared with $1.1 million during the same period of 2008. Service charges on deposit accounts aggregated $1.9 million compared with $696,000 for the same period in 2008. This increase of $1.2 million or 167.67% was the result of no banking operations reported for the first five months of 2008 and an increase in the number of deposit accounts subject to fees and charges through September 30, 2009. Likewise, other noninterest income equaled $844,000 for the nine months ended September 30, 2009, versus $357,000 for the same period in 2008. The Company has recorded net securities gains of $905,000 through the first nine months of 2009 versus none in the same period in 2008.

Noninterest Expenses

     For the three month period ended September 30, 2009, noninterest expenses were $9.9 million compared with $4.7 million for the same period in 2008. Salaries and employee benefits were $4.8 million and represented 48.68% of all noninterest expenses for the quarter. Salaries and wages increased $2.5 million or 103.79% from the same quarter in 2008. The increases in salaries and wages are the direct result of increased staffing levels from the prior year period related to the acquisitions of TCB and SFSB coupled with corporate staff hires for positions required in a now significantly larger financial institution.

     Other overhead costs included other operating expenses of $1.8 million, amortization of intangibles of $565,000, occupancy expenses of $752,000, equipment expense of $436,000, data processing fees of $743,000, legal fees of $217,000, and other professional fees of $184,000. FDIC assessments for the quarter equaled $436,000.

     For the nine month period ended September 30, 2009, noninterest expenses were $54.1 million, which includes the aforementioned $24.0 million goodwill impairment charge. Salaries and employee benefits were $14.3 million and represented 47.49% of overhead exclusive of the goodwill impairment charge. Throughout the first half of 2009, the Company hired additional personnel in key functional areas.

     Other overhead costs included other operating expenses of $5.4 million, amortization of intangibles of $1.7 million, occupancy expenses of $1.9 million, equipment expense of $1.2 million, data processing fees of $2.2 million, professional fees of $1.3 million, and legal fees of $772,000.

28

Income Taxes

     An income tax benefit of $1.9 million was recorded for the three months ended September 30, 2009, and there was an income tax expense of $3.0 million for the nine months ended September 30, 2009. Income tax expenses were $234,000 and $392,000 for the same respective periods in 2008. This substantial difference is directly attributable to the goodwill impairment charge recorded during the second quarter of 2009, as this impairment charge did not reduce taxable income.

Asset Quality

     The allowance for loan losses represents management’s estimate of the amount adequate to provide for probable losses inherent in the non-FDIC covered loan portfolio. Probable losses in the covered loans are incorporated in the fair market value analysis for the covered loans and accordingly impacts the covered loans balance and the FDIC indemnification asset balance, and not the allowance for loan losses. As such, the following asset quality information separates the covered loans from the non covered loans.

     Total Loans Excluding Covered Loans

     The Company’s asset quality is continually monitored, and the Company’s management has established an allowance for loan losses that it believes is adequate for the risk of loss inherent in the loan portfolio. Among other factors, management considers the Company’s historical loss experience, the size and composition of the loan portfolio, the value and adequacy of collateral and guarantors, non-performing credits and current and anticipated economic conditions. There are additional risks of future loan losses, which cannot be precisely quantified nor attributed to particular loans or classes of loans. Because those risks include general economic trends, as well as conditions affecting individual borrowers, the allowance for loan losses is an estimate. The allowance is also subject to regulatory examinations and determination as to adequacy, which may take into account such factors as the methodology used to calculate the allowance and size of the allowance in comparison to peer companies identified by regulatory agencies.

     The Company maintains a list of loans that have potential weaknesses that may need special attention. This nonperforming loan list is used to monitor such loans and is used in the determination of the adequacy of the Company’s allowance for loan losses. At September 30, 2009, nonperforming assets, excluding FDIC covered assets, totaled $23.2 million compared with $25.9 million and $5.2 million at June 30, 2009, and December 31, 2008, respectively. The Company experienced a large increase in nonperforming loans during the second quarter of 2009, which was attributable to two credit relationships aggregating approximately $11.0 million being placed in nonaccrual status. These two borrowers had been considered for loan loss reserve adequacy calculations. During the third quarter of 2009, nonperforming assets declined $2.7 million. Loan charge-offs represented $1.4 million of this decline, and the remaining portion was attributable to the disposition of other real estate owned (OREO) during the quarter. Excluding FDIC covered loans, net charge-offs were $1.2 million and $2.0 million for the three and nine months ended September 30, 2009, respectively.

     At September 30, 2009, nonaccrual loans, excluding FDIC covered assets, were $20.6 million or 3.61% of total loans. Total nonaccrual loans at the Bank’s Maryland operations aggregated $66.0 million or 76.23% of the total nonaccrual loans for the Bank. OREO equaled $1.2 million, excluding OREO in the Maryland operations of $16.8 million.

     Nationally, industry concerns over asset quality have increased due in large part to issues related to subprime mortgage lending, declining real estate activity and general economic concerns. While the Company has experienced reduced residential real estate activity, the markets in which the Company operates indicate a weakened economic condition. While the Company incurred appropriate provisions for loan losses and thus an adequate level of allowance for loan losses, there has been continued deterioration in the quality of the loan portfolio. Residential loan demand has moderated somewhat, but the Company is still experiencing continued loan demand, particularly in commercial real estate. Management will continue to monitor delinquencies, risk rating changes, charge-offs, market trends and other indicators of risk in the Company’s portfolio, particularly those tied to residential real estate, and adjust the allowance for loan losses accordingly.

     The following table sets forth selected asset quality data, excluding FDIC covered assets, and ratios for the dates indicated:

29

(dollars in thousands)	September 30, 2009			December 31, 2008
Nonaccrual loans	$	20,572		$	4,534
Loans past due over 90 days		1,462			397
Other real estate owned		1,175			223
Total nonperforming assets	$	23,209		$	5,154
Balances
Allowance for loan losses	$	16,211		$	6,939
Average loans during quarter, net of unearned income	$	559,547		$	511,042
Loans, net of unearned income	$	569,452		$	523,298
Ratios
Allowance for loan losses to loans		2.85	%		1.33	%
Allowance for loan losses to nonperforming assets		69.85	%		134.63	%
Nonperforming assets to loans & other real estate		4.07	%		0.98	%
Net charge-offs for quarter to average loans, annualized		0.86	%		0.32	%

A further breakout of nonaccrual loans, excluding covered loans, at September 30, 2009 and December 31, 2008 is below:

	September 30, 2009							December 31, 2008
	Amount		Non		Percentage of			Amount				Percentage of
	of Non		Covered		Non Covered			of Non		Non Covered		Non Covered
	Accrual		Loans		Loans			Accrual		Loans		Loans
Open End 1-4 Family Loans	$	—	$	20,075		0.00	%	$	276	$	30,323		0.91	%
1-4 Family First Liens		2,020		108,380		1.86	%		318		99,284		0.32	%
Total residential 1-4 family		2,020		128,455		1.57	%		594		129,607		0.46	%
Owner occupied nonfarm nonresidential		—		43,423		0.00	%		200		63,218		0.32	%
Non owner occupied nonfarm nonresidential		4,413		111,768		3.95	%		582		93,872		0.62	%
Total commercial		4,413		155,191		2.84	%		782		157,090		0.50	%
1-4 Family Construction		855		50,842		1.68	%		1,194		36,277		3.29	%
Other construction and land dev.		12,687		131,902		9.62	%		461		103,238		0.45	%
Total construction		13,542		182,744		7.41	%		1,655		139,515		1.19	%
Second mortgages		199		14,051		1.42	%		497		15,599		3.19	%
Multifamily		—		10,757		0.00	%		—		9,370		0.00	%
Agriculture		—		3,907		0.00	%		433		5,143		8.42	%
Total real estate loans		20,174		495,105		4.07	%		3,961		456,324		0.87	%
Agriculture loans		—		1,407		0.00	%		—		988		0.00	%
Commercial and industrial loans		194		45,348		0.43	%		224		44,332		0.51	%
Total commercial loans		194		46,755		0.41	%		224		45,320		0.49	%
Total revolving credit and other consumer		204		15,977		1.28	%		25		14,457		0.17	%
All other loans		—		11,700		0.00	%		324		7,005		4.63	%
Gross loans	$	20,572	$	569,537		3.61	%	$	4,534	$	523,106		0.87	%

30

See Note 10 to the unaudited consolidated financial statements for information related to the allowance for loan losses. At September 30, 2009, total impaired loans equaled $123.5 million, excluding FDIC covered assets.

          Covered Loans

     Under the shared-loss agreements, the FDIC will reimburse the Bank for 80% of losses arising from covered loan assets, on the first $118 million of all losses on such covered loans, and for 95% of losses on covered loans thereafter. Under the shared-loss agreements, a “loss” on a covered loan is defined generally as a realized loss incurred through a permitted disposition, foreclosure, short-sale or restructuring of the covered asset. As described below, the reimbursements for losses on single family one-to-four residential mortgage loans are to be made monthly until the end of the month in which the 10th anniversary of the closing of the Transaction occurs, and the reimbursements for losses on other loans are to be made quarterly until the end of the quarter in which the fifth anniversary of the closing of the Transaction occurs. The shared-loss agreements provide for indemnification from the first dollar of losses without any threshold requirement. The reimbursable losses from the FDIC are based on the book value of the relevant loan as determined by the FDIC at the date of the Transaction, January 30, 2009. New loans made after that date are not covered by the shared-loss agreements.

     The following table delineates the volume of covered assets that were nonperforming at September 30, 2009, related to the acquisition of SFSB in Maryland, which are FDIC covered assets under the shared-loss agreements:

	Amount		% of Total
	(in thousands)		Non Performing Assets
Nonaccrual loans	$	65,990		76.23	%
Loans past due over 90 days		—		—	%
Other real estate owned		16,823		93.47	%
Total nonperforming assets	$	82,813		78.11	%

          Total Delinquencies

     The following table presents a summary of total performing loans, including covered loans, greater than 30 days and less than 90 days past due at the dates indicated (dollars in thousands):

	September 30,			December 31,
30-89 Days Past Due	2009			2008
Covered	$	13,324		$	—
Non-covered		6,257			15,191
Total	$	19,581		$	15,191
Percent of Total Loans
Covered		5.44	%	NA
Non-covered		1.10	%		2.90	%
Total		2.40	%		2.90	%

Capital Requirements

     The determination of capital adequacy depends upon a number of factors, such as asset quality, liquidity, earnings, growth trends and economic conditions. The Company seeks to maintain a strong capital base to support its growth and expansion plans, provide stability to current operations and promote public confidence in the Company.

     The federal banking regulators have defined three tests for assessing the capital strength and adequacy of banks, based on two definitions of capital. “Tier 1 Capital” is defined as a combination of common and qualifying preferred stockholders’ equity less goodwill. “Tier 2 Capital” is defined as qualifying subordinated debt and a portion of the allowance for loan losses. “Total Capital” is defined as Tier 1 Capital plus Tier 2 Capital.

31

     Three risk-based capital ratios are computed using the above capital definitions, total assets and risk-weighted assets and are measured against regulatory minimums to ascertain adequacy. All assets and off-balance sheet risk items are grouped into categories according to degree of risk and assigned a risk-weighting and the resulting total is risk-weighted assets. “Tier 1 Risk-based Capital” is Tier 1 Capital divided by risk-weighted assets. “Total Risk-based Capital” is Total Capital divided by risk-weighted assets. The Leverage ratio is Tier 1 Capital divided by total average assets.

     At September 30, 2009, the Company’s ratio of total capital to risk-weighted assets was 18.48%. The ratio of Tier 1 capital to risk-weighted assets was 17.27%, and the leverage ratio (Tier 1 capital to average adjusted total assets) was 9.23%. All three ratios exceed capital adequacy guidelines outlined by its regulator, and the Company is considered “well-capitalized”. At December 31, 2008, the Company’s ratio of total capital to risk-weighted assets was 20.00%. The ratio of Tier 1 Capital to risk-weighted assets was 18.92%, and the leverage ratio (Tier 1 capital to average adjusted total assets) was 12.54%. The Company has trust preferred subordinated debt that qualifies as regulatory capital. This trust preferred debt has a 30-year maturity with a 5-year call option, and was issued at a rate of three month LIBOR plus 3.00%, and was priced at 3.60% in the third quarter of 2009.

Liquidity

     Liquidity represents the Company’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, federal funds sold, and certain investment securities. As a result of the Company’s management of liquid assets and the ability to generate liquidity through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its customer’s credit needs.

Off-Balance Sheet Arrangements and Contractual Obligations

     The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its clients and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

     The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

32

Supplemental Information on Predecessors

     The following information represents a discussion and analysis of the results of operations of each of the Company’s predecessors for the five months ended May 31, 2008.

BOE Financial Services of Virginia, Inc. (BOE)

Results of Operations

     For the five months ended May 31, 2008, net losses were $0.35 million or $0.29 per share. The loss incurred was primarily the result of one-time noninterest expenses related to the May 31, 2008 acquisition by the Company.

     Net interest income was $4.0 million for the five months ended May 31, 2008. Net interest margin was 3.62%

     For the five months ended May 31, 2008, the Company’s provision for loan losses was $0.2 million. Increases were made to the loan loss reserve due to general seasoning of the portfolio.

     For the five months ended May 31, 2008, noninterest income was $0.86 million. Included in noninterest income for the five months ended May 31, 2008 is $92,000 loss on sale of other real estate.

     For the five months ended May 31, 2008, noninterest expenses were $4.9 million. Salaries and employee benefits were $2.5 million and represented 50.97% of all noninterest expenses for the quarter. Other overhead costs included other operating expenses of $872,000, occupancy expenses of $216,000, equipment expense of $286,000, data processing fees of $394,000, legal fees of $306,000, and professional fees of $258,000. One-time noninterest expenses related to the May 31, 2008 acquisition by the Company included $375,000 in salaries and benefits, $160,000 in professional fees, $84,000 in legal fees, $54,000 in equipment expenses, and $167,000 in data processing expenses.

     An income tax expense of $0.15 million was recorded for the five months ended May 31, 2008.

TransCommunity Financial Corporation (TFC)

Results of Operations

     For the five months ended May 31, 2008, net losses were $5.11 million or $1.11 per share. The loss incurred was primarily the result of one-time noninterest expenses related to the May 31, 2008 acquisition by the Company as well as an increase in the provision for loan losses.

     Net interest income was $3.8 million for the five months ended May 31, 2008. Net interest margin was 3.86%

     For the five months ended May 31, 2008, the Company’s provision for loan losses was $1.3 million. The increase in loan loss reserves was due to a combination of the provisions required to support loan growth, plus downgraded loans and seasoning of the loan portfolio.

     For the five months ended May 31, 2008, noninterest income was $0.42 million.

     For the five months ended May 31, 2008, noninterest expenses were $8.2 million. Salaries and employee benefits were $3.7 million and represented 44.85% of all noninterest expenses for the quarter. Other overhead costs included other operating expenses of $793,000, occupancy expenses of $318,000, equipment expense of $228,000, data processing fees of $2.0 million, legal fees of $106,000, and professional fees of $1.0 million. One-time noninterest expenses related to the May 31, 2008 acquisition by the Company included $1.3 million in salaries and benefits related to severance and bonuses, $1.7 million in data processing resulting from the termination of a data processing contract and $1.0 million in professional fees.

     An income tax benefit of $0.24 million was recorded for the five months ended May 31, 2008.

33

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices and equity prices. The Company’s primary market risk exposure is interest rate risk. The ongoing monitoring and management of interest rate risk is an important component of the Company’s asset/liability management process, which is governed by policies established by its Board of Directors that are reviewed and approved annually. The Board of Directors delegates responsibility for carrying out asset/liability management policies to the Asset/Liability Committee (“ALCO”) of the Bank. In this capacity, ALCO develops guidelines and strategies that govern the Company’s asset/liability management related activities, based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends.

     Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change, affecting net interest income, the primary component of the Company’s earnings. ALCO uses the results of a detailed and dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes. While ALCO routinely monitors simulated net interest income sensitivity over various periods, it also employs additional tools to monitor potential longer-term interest rate risk.

     The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company’s balance sheet. The simulation model is prepared and updated monthly. This sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure over a one-year horizon, assuming no balance sheet growth, given a 200 basis point upward shift and a 200 basis point downward shift in interest rates. A parallel shift in rates over a 12-month period is assumed. The following table represents the change to net interest income given interest rate shocks up and down 100 and 200 basis points at September 30, 2009:

	Change In Net Interest Income
(dollars in thousands)	%			$
Interest Rate Shock:
+200 basis points		-2.74	%		(1,186	)
+100 basis points		-1.95	%		(842	)
No change		0.00	%		—
-100 basis points		3.31	%		1,431
-200 basis points		7.69	%		3,325

     At September 30, 2009, the Company’s interest rate risk model indicated that, in a rising rate environment of 200 basis points over a 12 month period, net interest income could decrease by 2.74%. For the same time period, the interest rate risk model indicated that in a declining rate environment of 200 basis points, net interest income could increase by 7.69%. While these percentages are subjective based upon assumptions used within the model, management believes the balance sheet is appropriately balanced with acceptable risk to changes in interest rates.

     The preceding sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions, including the nature and timing of interest rate levels such as yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment or replacement of asset and liability cash flows. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances about the predictive nature of these assumptions, including how customer preferences or competitor influences might change.

34

     Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to factors such as prepayment and refinancing levels likely deviating from those assumed, the varying impact of interest rate change, caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal and external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in response to, or in anticipation of, changes in interest rates.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

          At the end of the period covered by this Form 10-Q, the Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, conducted an evaluation of the Company’s disclosure controls and procedures. As defined under Section 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management to allow timely decisions regarding required disclosures.

          Based on this evaluation, the Company’s chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures were not effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Exchange Act and the rules and regulations promulgated thereunder. Two issues that these officers have identified in making this conclusion at the end of the third quarter of 2009 are the determination that the Company’s financial and accounting department has not effectively documented and assessed accounting issues related to non-routine transactions, such as mergers and non-recurring items that the Company has had to evaluate since May 2008, and the determination that the Company’s financial and accounting department is understaffed. This conclusion is the same conclusion that these officers made as of June 30, 2009, as disclosed in its Quarterly Report on Form 10-Q for the period ended June 30, 2009.

          Additional information with respect to these issues is included in the discussion below.

Internal Control over Financial Reporting

          The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles. In the Annual Report on Form 10-K for the year ended December 31, 2008, management’s assessment of the effectiveness of the Company’s internal control over financial reporting cited a material weakness regarding the accounting for non-routine transactions, as described below. While management is not required to re-assess the effectiveness of internal control over financial reporting during the fiscal year, the Company has concluded that this material weakness continues to exist as of September 30, 2009. Specifically, the Company’s financial and accounting department has lacked sufficient resources and expertise to properly account for certain non-routine transactions, the Company’s

35

policies and procedures have not provided for timely review of significant non-routine transactions and related accounting entries and the Company has not maintained sufficient documentation related to the application of GAAP to significant non-routine transactions.

          A material weakness is a significant deficiency (as defined in the Public Company Accounting Oversight Board’s Auditing Standard No. 5), or combination of deficiencies, such that there is a reasonable possibility that a material misstatement in the annual or interim financial statements will not be prevented or detected on a timely basis by employees in the normal course of their work. The Company believes that a material weakness regarding the accounting for non-routine transactions remains as of September 30, 2009, in light of the uncertainty with respect to accounting issues related to the Company’s accounting for subsidiary costs that were applied in the Company’s mergers with TFC and BOE, the public correction of the Company’s preliminary earnings release for the second quarter of 2009 to make certain adjustments relating to the tax effect of its goodwill impairment charge, and the need to amend past periodic reports to include financial statements and related information with respect to each of the Company’s predecessors (TFC and BOE) and otherwise enhance disclosure relating to goodwill and intangible assets, fair value measurements, FDIC-covered assets and asset quality in response to a comment letter from the staff of the Commission.

          As of the date of the filing of this report, the Company has not identified any specific issues that could result in a restatement of past financial information, notwithstanding the amended filings that the Company will file in response to the Commission’s comments to include additional and enhanced financial disclosures, as described above. The Company acknowledges, however, that its financial and accounting documentation for non-routine transactions is less than satisfactory for the criteria required for the framework for effective internal control over financial reporting.

          In addition, the Company’s financial and accounting department is currently understaffed for the responsibilities that it has had in recent fiscal quarters. While the Company has a chief financial officer and a chief accounting officer, the Bank has not had a controller since April 2009. The Company’s financial and accounting department has also had to evaluate numerous non-routine accounting issues in addition to focusing on the day-to-day fiscal operations of the Company and periodic filings with the Commission. For example, the Company acquired the operations of SFSB in January 2009, and the on-going consolidation of those operations and analysis of unprecedented accounting issues relating to shared-loss agreements with the FDIC have strained the resources presently available at the Company.

          While acknowledging the existence of a material weakness and the specific issues associated with it, the Company believes that the Company’s financial and accounting department performs its responsibilities with respect to the completion of accurate financial information in its periodic filings with the Commission.

          In addition, the Company, formerly a special purpose acquisition company, and its wholly-owned operating subsidiary, Essex Bank (the “Bank”), have grown substantially over the past 18 months. In May 2008, the Company merged with each of BOE, the holding company for the Bank, and TFC, the holding company for TransCommunity Bank, and, in July 2008,

36

TransCommunity Bank merged into the Bank. In November 2008, the Bank acquired certain assets and assumed all deposit liabilities of TCB and, in January 2009, the Bank acquired certain assets and assumed all deposit liabilities of SFSB. This significant growth has put considerable strain on the Company’s organizational structure and the effectiveness of risk management programs that are appropriate for the various functions of an organization of the Company’s size and complexity. Furthermore, this growth has strained the Company’s control structure, including the structure that supports the effective application of policies and the execution of procedures within the operation of financial reporting controls.

          The Company believes that it has identified the risk management and related issues that it needs to address, including the items described above that have impacted the effectiveness of the Company’s internal control over financial reporting.

Remediation Steps to Address Material Weakness

          To address the issues described above, the Company continues to take appropriate remediation steps. The Company is evaluating its financial accounting staff levels and expertise and is implementing appropriate oversight and review procedures. The Company also has put in place internal remediation plans that address concerns that have arisen in maintaining the effectiveness of the Company’s risk management programs.

          The Company engaged a public accounting firm to serve as its internal auditing firm beginning in April 2009. The Company created a new chief internal auditor position and hired in June 2009 a chief internal auditor who reports directly to the Company’s Audit Committee, and the Company continues to recruit actively a bank controller. The Company has also hired additional key members of management, including a chief administrative officer, a chief credit officer and a general counsel, during the first six months of 2009, and these individuals are actively assisting the Company in reviewing, assessing and implementing, as appropriate, numerous policies and procedures applicable to the Company and its operations.

          During the third quarter of 2009, the Company engaged an independent consulting firm to support the Company in its assessment of the Company’s quarterly post-closing process, its assessment of the internal control processes in the Company’s financial and accounting department to ensure that all key controls are identified and that the controls and process are appropriately documented and provide qualified resources to support the Company’s chief financial officer and chief accounting officer. In addition, the Company engaged an independent accounting firm to support the Company with the accounting for the loan portfolio in its Maryland market subject to the FDIC shared-loss agreements.

          Also during the third quarter, under the oversight of its Board of Directors and its various committees, the Company established comprehensive internal remediation plans for issues that it has identified with respect to its internal audit and Sarbanes-Oxley controls, and each plan has detailed corrective actions, identifies members of management as responsible parties and sets completion dates for addressing issues. These plans include the review, adoption and implementation of numerous formal policies and procedures appropriate for controls of an organization of the Company’s size and complexity. The Company believes that these actions

37

have positively affected the Company’s internal control over financial reporting in the limited time that they have been implemented and that they will continue to positively affect such controls in the future.

          The Company believes that it is taking all of the necessary corrective actions to the material weaknesses and other issues described above. As of the date of this filing, the Company anticipates that it will complete all of its material corrective actions by March 31, 2010.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

          There are no material pending legal proceedings, other than ordinary routine litigation incidental to the Company’s business, to which the Company, including its subsidiaries, is a party or of which the property of the Company is subject.

Item 1A. Risk Factors

          The Company’s operations are subject to many risks that could adversely affect its future financial condition and performance and, therefore, the market value of its common stock. See Exhibit 99.1 for information on risk factors that could affect the Company’s future financial condition and performance, and such information is incorporated by reference into this Item 1A.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

          None.

Item 3. Defaults upon Senior Securities

          None.

Item 4. Submission of Matters to a Vote of Security Holders

          None.

Item 5. Other Information

          None

Item 6. Exhibits

Exhibit No.	Description
31.1	Rule 13a-14(a)/15d-14(a) Certification for Chief Executive Officer*
31.2	Rule 13a-14(a)/15d-14(a) Certification for Chief Financial Officer*
32.1	Section 1350 Certifications*
99.1	Risk Factors*

* Filed herewith.

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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.

COMMUNITY BANKERS TRUST CORPORATION
(Registrant)
 

/s/ George M. Longest, Jr.  

George M. Longest, Jr. 

President and Chief Executive Officer 

Date: November 16, 2009

/s/ Bruce E. Thomas  

Bruce E. Thomas 

Senior Vice President and Chief Financial Officer 

Date: November 16, 2009

40

EXHIBIT INDEX

Exhibit No.	Description of Exhibit
31.1	Rule 13a-14(a)/15d-14(a) Certification for Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification for Chief Financial Officer
32.1	Section 1350 Certifications
99.1	Risk Factors

41

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, George M. Longest, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2009 of Community Bankers Trust Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ George M. Longest, Jr.

George M. Longest, Jr. 

President and Chief Executive Officer 

Date: November 16, 2009

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Bruce E. Thomas, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2009 of Community Bankers Trust Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Bruce E. Thomas

Bruce E. Thomas 

Senior Vice President and Chief Financial Officer 

Date: November 16, 2009

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2009 (the “Report”) of Community Bankers Trust Corporation (the “Company”), the undersigned President and Chief Executive Officer and Senior Vice President and Chief Financial Officer certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to their knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company and its subsidiaries as of, and for, the periods presented in the Report.

/s/ George M. Longest, Jr.

George M. Longest, Jr. 

President and Chief Executive Officer 

/s/ Bruce E. Thomas

Bruce E. Thomas 

Senior Vice President and Chief Financial Officer 

Date: November 16, 2009

EX-99.1

Exhibit 99.1

RISK FACTORS

     Our operations are subject to many risks that could adversely affect our future financial condition and performance and, therefore, the market value of our common stock. The risk factors applicable to us are the following:

Our future success is dependent on our ability to compete effectively in the highly competitive banking and financial services industry.

     We face vigorous competition from other commercial banks, savings and loan associations, savings banks, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds and other types of financial institutions for deposits, loans and other financial services in our market area. A number of these banks and other financial institutions are significantly larger than we are and have substantially greater access to capital and other resources, as well as larger lending limits and branch systems, and offer a wider array of banking services. Many of our nonbank competitors are not subject to the same extensive regulations that govern us. As a result, these nonbank competitors have advantages over us in providing certain services. This competition may reduce or limit our margins and our market share and may adversely affect our results of operations and financial condition.

Difficult market conditions have adversely affected our industry.

     Dramatic declines in the housing market over the past year, with falling home prices and increasing foreclosures, unemployment and under-employment, have negatively impacted the credit performance of real-estate related loans and resulted in significant write-downs of asset values by financial institutions. These write-downs, initially of asset-backed securities but spreading to other securities and loans, have caused many financial institutions to seek additional capital, to reduce or eliminate dividends, to merge with larger and stronger institutions and, in some cases, to fail. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced or ceased providing funding to borrowers, including to other financial institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets has adversely affected our business and results of operations. Market developments may affect consumer confidence levels and may cause adverse changes in payment patterns, causing increases in delinquencies and default rates, which may impact our charge-offs and provision for credit losses. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial institutions industry.

We may be adversely affected by economic conditions in our market area.

     The general economic conditions in the markets in which we operate are a key component to our success. We are headquartered in central Virginia, and our market area includes regions in Virginia, Georgia and Maryland. Because our lending and deposit-gathering activities are concentrated in this market, we will be affected by the general economic conditions in these areas. Changes in the economy may influence the growth rate of our loans and deposits, the quality of the loan portfolio and loan and deposit pricing. A significant decline in general economic condition caused by inflation, recession, unemployment or other factors, would impact these local economic conditions and the demand for

banking products and services generally, and could negatively affect our financial condition and performance.

We may incur losses if we are unable to successfully manage interest rate risk.

     Our future profitability will substantially depend upon our ability to maintain or increase the spread between the interest rates earned on investments and loans and interest rates paid on deposits and other interest-bearing liabilities. Changes in interest rates will affect our operating performance and financial condition. The shape of the yield curve can also impact net interest income. Changing rates will impact how fast our mortgage loans and mortgage backed securities will have the principal repaid. Rate changes can also impact the behavior of our depositors, especially depositors in non-maturity deposits such as demand, interest checking, savings and money market accounts. While we attempt to minimize our exposure to interest rate risk, we are unable to eliminate it as it is an inherent part of our business. Our net interest spread will depend on many factors that are partly or entirely outside our control, including competition, federal economic, monetary and fiscal policies, and industry-specific conditions and economic conditions generally.

Current levels of market volatility are unprecedented.

     The capital and credit markets have been experiencing volatility and disruption for more than 18 months. Recently, the volatility and disruption has reached unprecedented levels. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. If current levels of market disruption and volatility continue or worsen, there can be no assurance that we will not experience an adverse effect, which may be material, on our ability to access capital and on our business, financial condition and results of operations.

The soundness of other financial institutions could adversely affect us.

     Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial industry. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations.

We may be adversely impacted by changes in the condition of financial markets.

     We are directly and indirectly affected by changes in market conditions. Market risk generally represents the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions. Market risk is inherent in the financial instruments associated with our operations and activities including loans, deposits, securities, short-term borrowings, long-term debt, trading account assets and liabilities, and derivatives. Just a few of the market conditions that may shift from time to time, thereby exposing us to market risk, include fluctuations in interest and currency exchange rates, equity and futures prices, and price deterioration or changes in value due to changes in market perception or

actual credit quality of issuers. Accordingly, depending on the instruments or activities impacted, market risks can have adverse effects on our results of operations and our overall financial condition.

Our concentration in loans secured by real estate may increase our future credit losses, which would negatively affect our financial results.

     We offer a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, home equity, consumer and other loans. Approximately 91% of our loans are secured by real estate, both residential and commercial, substantially all of which are located in our market area. A major change in the region’s real estate market, resulting in a deterioration in real estate values, or in the local or national economy, including changes caused by raising interest rates, could adversely affect our customers’ ability to pay these loans, which in turn could adversely impact us. Risk of loan defaults and foreclosures are inherent in the banking industry, and we try to limit our exposure to this risk by carefully underwriting and monitoring our extensions of credit. We cannot fully eliminate credit risk, and as a result credit losses may occur in the future.

If our allowance for loan losses becomes inadequate, our results of operations may be adversely affected.

     An essential element of our business is to make loans. We maintain an allowance for loan losses that we believe is a reasonable estimate of known and inherent losses in our loan portfolio. Through a periodic review and analysis of the loan portfolio, management determines the adequacy of the allowance for loan losses by considering such factors as general and industry-specific market conditions, credit quality of the loan portfolio, the collateral supporting the loans and financial performance of our loan customers relative to their financial obligations to us. The amount of future losses is impacted by changes in economic, operating and other conditions, including changes in interest rates, which may be beyond our control. Actual losses may exceed our current estimates. Rapidly growing loan portfolios are, by their nature, unseasoned. Estimating loan loss allowances for an unseasoned portfolio is more difficult than with seasoned portfolios, and may be more susceptible to changes in estimates and to losses exceeding estimates. Although we believe the allowance for loan losses is a reasonable estimate of known and inherent losses in our loan portfolio, we cannot fully predict such losses or assert that our loan loss allowance will be adequate in the future. Future loan losses that are greater than current estimates could have a material impact on our future financial performance.

     Banking regulators periodically review our allowance for loan losses and may require us to increase our allowance for loan losses or recognize additional loan charge-offs, based on credit judgments different than those of our management. Any increase in the amount of our allowance or loans charged-off as required by these regulatory agencies could have a negative effect on our operating results.

Nonperforming assets take significant time to resolve and adversely affect our results of operations and financial condition.

     Our nonperforming assets adversely affect our net income in various ways. Until economic and market conditions improve, we expect to continue to incur additional losses relating to an increase in nonperforming loans. We do not record interest income on non-accrual loans, thereby adversely affecting our income and increasing loan administration costs. When we receive collateral through foreclosures and similar proceedings, we are required to mark the related loan to the then fair market value of the collateral less estimated selling costs, which may result in a loss. An increase in the level of nonperforming assets also increases our risk profile and may impact the capital levels our regulators believe is appropriate in light of such risks. We utilize various techniques such as loan sales, workouts and restructurings to manage our problem assets. Decreases in the value of these problem assets, the underlying collateral, or in

the borrowers’ performance or financial condition, could adversely affect our business, results of operations and financial condition.

     In addition, the resolution of nonperforming assets requires significant commitments of time from management and staff, which can be detrimental to performance of their other responsibilities. Such resolution may also require the assistance of third parties, and thus the expense associated with it. There can be no assurance that we will avoid further increases in nonperforming loans in the future.

Our accounting with respect to assets covered under the FDIC shared-loss agreements is not complete, and we may need to restate our results of operations for our 2009 interim periods.

     On January 30, 2009, the Bank entered into a purchase and assumption agreement with the FDIC, as receiver, for SFSB. The Bank assumed all deposit liabilities and purchased certain assets of SFSB. In connection with the SFSB transaction, the Bank entered into two shared-loss agreements with the FDIC with respect to the loan and foreclosed real estate assets purchased. Under the shared-loss agreements, the FDIC will reimburse the Bank for 80% of all losses, including expenses associated with liquidating and maintaining properties arising from covered loan assets, on the first $118 million of all losses on such covered loans, and for 95% of losses on covered loans thereafter.

     To date, we have accounted for this transaction in accordance with FSAB ASC 805, which requires us to record the assets acquired and liabilities assumed at their fair values. In addition, impaired loans that were acquired are accounted for under FASB ASC 310-30 (SOP 03-3, "Accounting for Certain Loans or Debt Securities Acquired in a Transfer”). In order to be able to present the appropriate accounting presentation under this guidance, we must review the details of each loan individually, and not on a pooled basis. Due to the volume of data that is necessary for us to evaluate for this purpose, we have recorded provisional amounts for the covered loans and related FDIC receivable for the period ended September 30, 2009. As a result, material adjustments to the provisional amounts may be necessary once we complete our evaluation. In addition, due to the existence of the FDIC shared-loss agreements, we are in the process, after application of data on a per loan basis, of identifying the value of the FDIC receivable asset and will account for this asset separately from the loans covered by the shared-loss agreements.

     While we expect that full application of the SFSB transaction under FASB ASC 805 and FASB ASC 310-30 will be applied with the filing of our Annual Report on Form 10-K for the year ended December 31, 2009, we also expect that we may file amendments to the Quarterly Reports on Form 10-Q that we have filed in 2009 to reflect this revised accounting presentation. We cannot make any assurance that these adjustments will not materially change our financial condition and results of operations, as previously reported.

The failure of our Board and management to implement and maintain effective risk management programs may adversely affect our operations.

     As a banking organization, we are exposed to a variety of risks across our operations. We define risk generally as the danger of not achieving our financial, operating, or strategic goals as planned. As a result, to ensure our long-term corporate success, we must effectively identify and analyze risks and then manage or mitigate them through appropriate control measures. We have developed a plan to establish and maintain effective risk management programs to address oversight, control, and supervision of the management, major operations and activities across our functional areas. We believe that this plan enables us to recognize and analyze risks early on and to take the appropriate action.

     It is important to note that our organization has grown substantially over the past 18 months. In May 2008, we merged with each of BOE Financial Services of Virginia, Inc., the then holding company for our wholly-owned operating subsidiary, Essex Bank (the “Bank”), and TransCommunity Financial Corporation, the holding company for TransCommunity Bank, N.A., and, in July 2008, TransCommunity Bank merged into the Bank. In November 2008, the Bank acquired certain assets and assumed all deposit liabilities of The Community Bank in Georgia and, in January 2009, the Bank acquired certain assets and assumed all deposit liabilities of Suburban Federal Savings Bank. This significant growth has put considerable strain on our organizational structure and the effectiveness of risk management programs that are appropriate for the various functions of an organization of our size and complexity. Furthermore, this growth has strained our control structure, including the structure that supports the effective application of policies and the execution of procedures within the operation of financial reporting controls.

     We have put in place internal remediation plans that address concerns that have arisen in maintaining the effectiveness of our risk management programs. While our Board and management are working diligently to ensure that our organization implements and maintains effective risk management programs, any failure to do so may adversely affect our operations. As a result, we may not be able to achieve our financial, operational and strategic goals.

We have identified a material weakness and significant deficiencies in our internal control over financial reporting that may adversely affect our ability to properly account for non-routine transactions.

     As we have grown and expanded, we have acquired and added, and expect to continue to acquire and add, businesses and other activities that complement our core retail and commercial banking functions. Such acquisitions or additions frequently involve complex operational and financial reporting issues. While we make every effort to thoroughly understand any new activity or acquired entity’s business and plan for proper integration into our company, we can give no assurance that we will not encounter operational and financial reporting difficulties.

     Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the

supervision of our chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. In the Annual Report on Form 10-K for the year ended December 31, 2008, management’s assessment of the effectiveness of our internal control over financial reporting cited a material weakness regarding the accounting for non-routine transactions. While management is not required to re-assess the effectiveness of internal control over financial reporting during the fiscal year, we have concluded that this material weakness continues to exist as of September 30, 2009. Specifically, our financial and accounting department has lacked sufficient resources and expertise to properly account for certain non-routine transactions, our policies and procedures have not provided for timely review of significant non-routine transactions and related accounting entries and we have not maintained sufficient documentation related to the application of GAAP to significant non-routine transactions.

     In addition, our financial and accounting department is currently understaffed for the responsibilities that it has had in recent fiscal quarters. While we have a chief financial officer and a chief accounting officer, we have not had a controller since April 2009. Our financial and accounting department has also had to evaluate numerous non-routine accounting issues in addition to focusing on our day-to-day fiscal operations and periodic filings with the Commission. For example, we acquired the operations of Suburban Federal in January 2009, and the on-going consolidation of those operations and analysis of unprecedented accounting issues relating to shared-loss agreements with the FDIC have strained the resources that we have presently available.

     To address the issues described above, we continue to take appropriate remediation steps. We are evaluating our financial accounting staff levels and expertise and are implementing appropriate oversight and review procedures. Additional information on these and other actions is disclosed in our Quarterly Report on Form 10-Q for the period ended September 30, 2009.

     Despite efforts to strengthen our internal and disclosure controls, we may identify additional other internal or disclosure control deficiencies in the future. Any failure to maintain effective controls or timely effect any necessary improvement of our internal and disclosure controls could, among other things, result in losses from fraud or error, harm our reputation or cause investors to lose confidence in our reported financial information, all of which could have a material adverse effect on our results of operation and financial condition.

We may be required to write down goodwill and other intangible assets, causing our financial condition and results to be negatively affected.

     When we acquire a business, a portion of the purchase price of the acquisition is allocated to goodwill and other identifiable intangible assets. The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired determines the amount of the purchase price that is allocated to goodwill acquired. At September 30, 2009, our goodwill and other identifiable intangible assets were approximately $30.1 million. Under current accounting standards, if we determine that goodwill or intangible assets are impaired, we would be required to write down the value of these assets. We will conduct an annual review to determine whether goodwill and other identifiable intangible assets are impaired. As of May 31, 2009, the one-year anniversary date of our mergers with TransCommunity Financial and BOE Financial, we recorded a goodwill impairment charge of $24.0 million.

     We cannot provide assurance whether we will be required to take an impairment charge in the future. Any impairment charge would have a negative effect on its shareholders’ equity and financial results and may cause a decline in our stock price.

Banking regulators have broad enforcement power, but regulations are meant to protect depositors, and not investors.

     We are subject to supervision by several governmental regulatory agencies, including the Federal Reserve Bank of Richmond and the Bureau of Financial Institutions of the Commonwealth of Virginia. Bank regulations, and the interpretation and application of them by regulators, are beyond our control, may change rapidly and unpredictably and can be expected to influence earnings and growth. In addition, these regulations may limit our growth and the return to investors by restricting activities such as the payment of dividends, mergers with, or acquisitions by, other institutions, investments, loans and interest rates, interest rates paid on depositors and the opening of new branch offices. Although these regulations impose costs on us, they are intended to protect depositors, and should not be assumed to protect the interest of shareholders. The regulations to which we are subject may not always be in the best interest of investors.

Acquisition opportunities may present challenges.

     We continually evaluate opportunities to acquire other businesses. However, we may not have the opportunity to make suitable acquisitions on favorable terms in the future, which could negatively impact the growth of our business. We expect that other banking and financial companies, many of which have significantly greater resources, will compete with us to acquire compatible businesses. This competition could increase prices for acquisitions that we would likely pursue, and our competitors may have greater resources than we do. Also, acquisitions of regulated businesses such as banks are subject to various regulatory approvals. If we fail to receive the appropriate regulatory approvals, we will not be able to consummate an acquisition that we believe is in our best interests.

     Any future acquisitions may result in unforeseen difficulties, which could require significant time and attention from our management that would otherwise be directed at developing our existing business. In addition, we could discover undisclosed liabilities resulting from any acquisitions for which we may become responsible. Further, the benefits that we anticipate from these acquisitions may not develop.

We may not be able to successfully manage our growth or implement our growth strategies, which may adversely affect our results of operations and financial condition.

     During the past 18 months, we have experienced significant growth, and a key aspect of our business strategy is continued growth and expansion in the future. Our ability to continue to grow depends, in part, upon our ability to:

• open new branch offices or acquire existing branches or other financial institutions;

• attract deposits to those locations and cross-sell new and existing depositors additional products and services; and

• identify attractive loan and investment opportunities.

     We may not be able to successfully implement our growth strategy if we are unable to identify attractive markets, locations or opportunities to expand. Our ability to successfully manage our growth will also depend upon our ability to maintain capital levels sufficient to support this growth, maintain effective cost controls and adequate asset quality such that earnings are not adversely impacted to a material degree.

     As we continue to implement our growth strategy by opening new branches or acquiring branches or other banks, we expect to incur increased personnel, occupancy and other operating expenses. In the case of new branches, we must absorb those higher expenses while we begin to generate new deposits, and there is a further time lag involved in redeploying new deposits into attractively priced loans and other higher yielding earning assets. Thus, our plans to branch aggressively could depress our earnings in the short run, even if we efficiently execute our branching strategy.

A loss of our senior officers could impair our relationship with our customers and adversely affect our business.

     Many community banks attract customers based on the personal relationships that the banks’ officers and customers establish with each other and the confidence that the customers have in the officers. We depend on the performance of our senior officers. These officers have many years of experience in the banking industry and have numerous contacts in our market area. The loss of the services of any of our senior officers, or the failure of any of them to perform management functions in the manner anticipated by our board of directors, could have a material adverse effect on our business. Our success will be dependent upon the board’s ability to attract and retain quality personnel, including these individuals.

Our ability to pay dividends is limited and we may be unable to pay future dividends.

     Our ability to pay dividends is limited by regulatory restrictions and the need to maintain sufficient capital in our organization. The ability of our bank subsidiary to pay dividends to us is limited by the Bank’s obligations to maintain sufficient capital, earnings and liquidity and by other general restrictions on their dividends under federal and state bank regulatory requirements.

     In addition, as a bank holding company, our ability to declare and pay dividends is subject to the guidelines of the Board of Governors of the Federal Reserve System regarding capital adequacy and dividends. The Federal Reserve guidelines generally require us to review the effects of the cash payment of dividends on common stock and other Tier 1 capital instruments (i.e., perpetual preferred stock and trust preferred debt) on our financial condition. These guidelines also require that we review our net income for the current and past four quarters, and the level of dividends on common stock and other Tier 1 capital instruments for those periods, as well as our projected rate of earnings retention.

     Under the Federal Reserve’s policy, the board of directors of a bank holding company should also consider different factors to ensure that its dividend level is prudent relative to the organization’s financial position and is not based on overly optimistic earnings scenarios such as any potential events that may occur before the payment date that could affect its ability to pay while still maintaining a strong financial position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should consult with the Federal Reserve and eliminate, defer, or significantly reduce the bank holding company’s dividends if: (i) its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or (iii) it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. If we do not satisfy these regulatory requirements or the Federal Reserve’s policies, we will be unable to pay dividends on our common stock.

     We also are subject to certain limitations on our ability to pay dividends as a result of our issuance of preferred stock to the U.S. Department of the Treasury pursuant to the Capital Purchase Program. The preferred stock is in a superior ownership position compared to our common stock. Dividends must be paid to the

preferred stock holder before they can be paid to our common stockholders. In addition, prior to December 19, 2011, unless we have redeemed the preferred stock or the Department of the Treasury has transferred the preferred stock to a third party, the consent of the Department of the Treasury will be required for us to increase our common stock dividend or repurchase our common stock or other equity or capital securities, other than in certain circumstances.

     If the dividends on the preferred stock have not been paid for an aggregate of six quarterly dividend periods or more, whether or not consecutive, our authorized number of directors will be automatically increased by two and the holders of the preferred stock will have the right to elect those directors at our next annual meeting or at a special meeting called for that purpose. These two directors will be elected annually and will serve until all accrued and unpaid dividends for all past dividend periods have been declared and paid in full. These restrictions could limit our ability to pay dividends on our common stock.

The FDIC has increased deposit insurance premiums to restore and maintain the federal deposit insurance fund, which has increased our costs and could adversely affect our business.

     The FDIC recently adopted a final rule revising its risk-based assessment system, effective April 1, 2009. The changes to the assessment system involve adjustments to the risk-based calculation of an institution’s unsecured debt, secured liabilities and brokered deposits. The potential increase in FDIC deposit insurance premiums could have a significant impact on us.

     On May 22, 2009, the FDIC imposed a special deposit insurance assessment of 5 basis points on each insured institution’s total assets less Tier 1 capital. This emergency assessment was calculated based on the insured institution’s assets at June 30, 2009 and was collected on September 30, 2009. This special assessment is in addition to the regular quarterly risk-based assessment. The FDIC has announced that an additional special assessment in 2009 of up to 5 basis points is probable maintain property of assessments.

     The FDIC deposit insurance fund may suffer additional losses in the future due to bank failures. There can be no assurance that there will not be additional significant deposit insurance premium increases in order to restore the insurance fund’s reserve ratio.

Our participation in the U.S. Department of the Treasury’s Capital Purchase Program imposes restrictions on us that limit our ability to perform certain equity transactions, including the payment of dividends and common stock purchases.

     On December 19, 2008, we issued and sold $17.7 million in preferred stock and a warrant to purchase our common stock to the Department of the Treasury as part of its Capital Purchase Program. The preferred shares will pay a cumulative dividend rate of five percent per annum for the first five years and will reset to a rate of nine percent per annum after year five. The dividends, and potential increase in dividends if we do not redeem the preferred stock, may significantly impact our operating results, liquidity, and capital position.

     The preferred shares are non-voting, other than class voting rights on matters that could adversely affect the shares. The preferred shares will be callable at par after December 19, 2011. Prior to that time, unless we have redeemed all of the preferred stock or the Department of the Treasury has transferred all of the preferred stock to a third party, we are limited in the payment of dividends on our common stock to the current quarterly dividend of $0.04 per share without prior regulatory approval. In addition, our participation limits our ability to repurchase shares of our common stock, with certain exceptions, which include repurchases of shares to offset share dilution from equity-based compensation.

Our participation in the Department of the Treasury’s Capital Purchase Program imposes restrictions on executive compensation corporate governance, which may affect our ability to retain or attract qualified executive officers.

     Companies participating in the Capital Purchase Program must adopt the Department of the Treasury’s standards for executive compensation and corporate governance for the period during which the Department of the Treasury holds preferred stock issued under this program. These standards generally apply to the chief executive officer, chief financial officer, plus the next three most highly compensated executive officers.

     Because we are dependent upon the services of our current executive management team, the unexpected loss of executive officers or the inability to recruit qualified personnel in the future due to these compensation limitations, could have an adverse effect on our business, financial condition, or operating results.

The impact on us of recently enacted legislation, in particular the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009 and their implementing regulations, and actions by the FDIC, cannot be predicted at this time.

     The federal government has recently enacted legislation and other regulations in an effort to stabilize the U.S. financial system. The Emergency Economic Stabilization Act of 2008 (the “EESA”) provided the Department of the Treasury with the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. The Department of the Treasury subsequently announced a program under the EESA pursuant to which it would make senior preferred stock investments in participating financial institutions. The Federal Deposit Insurance Corporation announced the development of a guarantee program under the systemic risk exception to the Federal Deposit Act pursuant to which the FDIC would offer a guarantee of certain financial institution indebtedness in exchange for an insurance premium to be paid to the FDIC by issuing financial institutions. More recently, the American Recovery and Reinvestment Act of 2009 (the “ARRA”) amends certain provisions of the EESA and contains a wide array of provisions aimed at stimulating the U.S. economy.

     The programs established or to be established under the EESA, the ARRA and other troubled asset relief programs may have adverse effects upon us. We may face increased regulation of our industry. Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities. Also, participation in specific programs may subject us to additional restrictions. Similarly, programs established by the FDIC under the systemic risk exception, whether we participate or not, may have an adverse effect on us. The Bank is participating in the FDIC temporary liquidity guarantee program, and such program likely will require the payment of additional insurance premiums to the FDIC. We may be required to pay significantly higher FDIC premiums because market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits. The effects of participating or not participating in any such programs, and the extent of our participation in such programs cannot reliably be determined at this time.

Our businesses and earnings are impacted by governmental, fiscal and monetary policy.

     We are affected by domestic monetary policy. For example, the Federal Reserve Board regulates the supply of money and credit in the United States and its policies determine in large part our cost of funds for lending, investing and capital raising activities and the return we earn on those loans and investments, both of which affect our net interest margin. The actions of the Federal Reserve Board also

can materially affect the value of financial instruments we hold, such as loans and debt securities, and its policies also can affect our borrowers, potentially increasing the risk that they may fail to repay their loans. Our businesses and earnings also are affected by the fiscal or other policies that are adopted by various regulatory authorities of the United States. Changes in fiscal or monetary policy are beyond our control and hard to predict.

Our profitability and the value of any equity investment in us may suffer because of rapid and unpredictable changes in the highly regulated environment in which we operate.

     We are subject to extensive supervision by several governmental regulatory agencies at the federal and state levels. Recently enacted, proposed and future banking and other legislation and regulations have had, and will continue to have, or may have a significant impact on the financial services industry. These regulations, which are generally intended to protect depositors and not our shareholders, and the interpretation and application of them by federal and state regulators, are beyond our control, may change rapidly and unpredictably, and can be expected to influence our earnings and growth. Our success depends on our continued ability to maintain compliance with these regulations. Many of these regulations increase our costs and thus place other financial institutions that may not be subject to similar regulation in stronger, more favorable competitive positions.

If we need additional capital in the future to continue our growth, we may not be able to obtain it on terms that are favorable. This could negatively affect our performance and the value of our common stock.

     Our business strategy calls for continued growth. We anticipate that we will be able to support this growth through the generation of additional deposits at existing and new branch locations, as well as expanded loan and other investment opportunities. However, we may need to raise additional capital in the future to support our continued growth and to maintain desired capital levels. Our ability to raise capital through the sale of additional equity securities or the placement of financial instruments that qualify as regulatory capital will depend primarily upon our financial condition and the condition of financial markets at that time. We may not be able to obtain additional capital in the amounts or on terms satisfactory to us. Our growth may be constrained if we are unable to raise additional capital as needed.

The trading volume in our common stock is less than that of other larger financial services companies.

     Although our common stock is listed for trading on NYSE Amex (formerly known as NYSE Alternext US), the trading volume in our common stock is less than that of other larger financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the lower trading volume of our common stock, significant sales of our common stock, or the expectation of these sales, could cause our stock price to fall.