Edgar Filing: Community Bankers Trust Corp

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2011

¨	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 or 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)

n/a

(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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

At June 30, 2011, there were 21,627,549 shares of the Company’s common stock outstanding.

COMMUNITY BANKERS TRUST CORPORATION

TABLE OF CONTENTS

FORM 10-Q

June 30, 2011


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 Stockholders’ Equity (Unaudited)			5
Consolidated Statements of Cash Flows (Unaudited)			6
Notes to Unaudited Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			45
Item 4. Controls and Procedures			47
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			49
Item 1A. Risk Factors			49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			49
Item 3. Defaults upon Senior Securities			49
Item 4. (Removed and Reserved)			49
Item 5. Other Information			49
Item 6. Exhibits			49
SIGNATURES			50

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

COMMUNITY BANKERS TRUST CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF JUNE 30, 2011 AND DECEMBER 31, 2010

(dollars in thousands)


	June 30, 2011			December 31, 2010
	(Unaudited)			(Audited)
ASSETS
Cash and due from banks	$	11,065		$	8,604
Interest-bearing bank deposits		7,408			22,777
Federal funds sold		—			2,000

Total cash and cash equivalents		18,473			33,381

Securities available for sale, at fair value		232,278			215,560
Securities held to maturity, at cost (fair value of $76,689 and $89,026, respectively)		72,388			84,771
Equity securities, restricted, at cost		6,965			7,170

Total securities		311,631			307,501

Loans held for resale		83			—

Loans not covered by FDIC shared loss agreement		501,056			525,548
Loans covered by FDIC shared loss agreement		104,314			115,537

Total loans		605,370			641,085
Allowance for loan losses (non-covered loans of $16,803 and $25,543, respectively; covered loans of $829 and $829, respectively)		(17,632	)		(26,372	)

Net loans		587,738			614,713

FDIC indemnification asset		51,127			58,369
Bank premises and equipment, net		35,017			35,587
Other real estate owned, covered by FDIC shared loss agreement		8,674			9,889
Other real estate owned, non-covered		12,393			5,928
Bank owned life insurance		6,961			6,829
FDIC receivable under shared loss agreement		1,570			7,250
Core deposit intangibles, net		13,689			14,819
Other assets		18,127			21,328

Total assets	$	1,065,483		$	1,115,594


LIABILITIES
Deposits:
Noninterest-bearing	$	64,495		$	62,359
Interest-bearing		845,980			899,366

Total deposits		910,475			961,725

Federal Home Loan Bank advances		37,000			37,000
Trust preferred capital notes		4,124			4,124
Other liabilities		4,806			5,618

Total liabilities		956,405			1,008,467


STOCKHOLDERS’ EQUITY
Preferred stock (5,000,000 shares authorized, $0.01 par value; 17,680 shares issued and outstanding)		17,680			17,680
Warrants on preferred stock		1,037			1,037
Discount on preferred stock		(556	)		(660	)
Common stock (200,000,000 shares authorized, $0.01 par value; 21,627,549 and 21,468,455 shares issued and outstanding, respectively)		216			215
Additional paid in capital		144,181			143,999
Retained deficit		(55,776	)		(54,999	)
Accumulated other comprehensive income		2,296			(145	)

Total stockholders’ equity		109,078			107,127

Total liabilities and stockholders’ equity	$	1,065,483		$	1,115,594

See accompanying notes to unaudited consolidated financial statements

COMMUNITY BANKERS TRUST CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010

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


	Three months ended						Six months ended
	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
Interest and dividend income
Interest and fees on non-covered loans	$	7,328		$	8,478		$	14,562		$	17,201
Interest and fees on FDIC covered loans		4,838			3,386			8,658			6,979
Interest on federal funds sold		2			3			4			4
Interest on deposits in other banks		10			24			24			54
Interest and dividends on securities
Taxable		2,085			2,162			3,997			4,167
Nontaxable		229			880			641			1,774

Total interest and dividend income		14,492			14,933			27,886			30,179
Interest expense
Interest on deposits		2,711			4,486			5,690			9,343
Interest on federal funds purchased		1			1			1			1
Interest on other borrowed funds		367			333			699			664

Total interest expense		3,079			4,820			6,390			10,008

Net interest income		11,413			10,113			21,496			20,171
Provision for loan losses		—			21,282			1,498			26,324

Net interest income after provision for loan losses		11,413			(11,169	)		19,998			(6,153	)

Noninterest income
Service charges on deposit accounts		637			622			1,213			1,187
FDIC indemnification asset amortization		(2,657	)		(362	)		(5,402	)		(739	)
Gain (loss) on securities transactions, net		176			(452	)		837			(98	)
Loss on sale of other real estate, net		(249	)		(1,182	)		(861	)		(3,559	)
Other		662			1,259			1,376			3,509

Total noninterest income		(1,431	)		(115	)		(2,837	)		300

Noninterest expense
Salaries and employee benefits		4,171			4,805			8,375			9,936
Occupancy expenses		733			713			1,547			1,452
Equipment expenses		320			363			650			775
Legal fees		35			96			140			142
Professional fees		198			743			389			1,077
FDIC assessment		761			613			1,633			1,218
Data processing fees		476			572			928			1,078
Amortization of intangibles		565			566			1,130			1,131
Impairment of goodwill		—			5,727			—			5,727
Other operating expenses		2,075			1,977			3,753			3,499

Total noninterest expense		9,334			16,175			18,545			26,035

Income (loss) before income taxes		648			(27,459	)		(1,384	)		(31,888	)
Income tax (expense) benefit		(127	)		7,843			711			9,508

Net income (loss)	$	521		$	(19,616	)	$	(673	)	$	(22,380	)
Dividends accrued on preferred stock		—			221			—			442
Accretion of discount on preferred stock		53			49			104			97
Accumulated preferred dividends		221			—			442			—

Net income (loss) available to common stockholders	$	247		$	(19,886	)	$	(1,219	)	$	(22,919	)

Net income (loss) per share — basic	$	0.01		$	(0.93	)	$	(0.06	)	$	(1.07	)

Net income (loss) per share — diluted	$	0.01		$	(0.93	)	$	(0.06	)	$	(1.07	)

Weighted average number of shares outstanding
basic		21,535			21,468			21,502			21,468
diluted		21,535			21,468			21,502			21,468

See accompanying notes to unaudited consolidated financial statements

COMMUNITY BANKERS TRUST CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND

THE YEAR ENDED DECEMBER 31, 2010

(dollars and shares in thousands)


																	Accumulated
					Discount							Additional					Other
	Preferred				on Preferred			Common Stock				Paid in		Retained			Comprehensive
	Stock		Warrants		Stock			Shares		Amount		Capital		Deficit			Income			Total
Balance January 1, 2010	$	17,680	$	1,037	$	(854	)		21,468	$	215	$	143,999	$	(32,511	)	$	1,536		$	131,102
Amortization of preferred stock warrants		—		—		194			—		—		—		(194	)		—			—
Dividends paid on preferred stock		—		—		—			—		—		—		(442	)		—			(442	)
Comprehensive income:		—		—		—			—		—		—					—
Net loss		—		—		—			—		—		—		(20,993	)		—			(20,993	)
Change in unrealized gain/loss in equity securities		—		—		—			—		—		—		—			(6	)		(6	)
Change in unrealized gain/loss in investment securities, net of tax of $2,338		—		—		—			—		—		—		—			(4,539	)		(4,539	)
Less: Reclassification adjustment for gain on securities sold, net of tax of $1,064		—		—		—			—		—		—		—			2,065			2,065
		—		—		—			—		—		—		—			2,065			2,065
Less: Reclassification adjustment for loss on securities available for sale related to other than temporary impairments, net of tax of $156		—		—		—			—		—		—		—			303			303
Change in funded status of pension plan, net of tax of $256		—		—		—			—		—		—		—			496			496

Total comprehensive loss																					(22,674	)
Dividends paid on common stock ($.04 per share)		—		—		—			—		—		—		(859	)		—			(859	)

Balance December 31, 2010 (Audited)	$	17,680	$	1,037	$	(660	)		21,468	$	215	$	143,999	$	(54,999	)	$	(145	)	$	107,127
Amortization of preferred stock warrants		—		—		104			—		—		—		(104	)		—			—
Issuance of common stock		—		—		—			160		1		182		—			—			183
Comprehensive income:		—		—
Net loss		—		—		—			—		—		—		(673	)		—			(673	)
Change in unrealized gain/loss in investment securities, net of tax of $1,542		—		—		—			—		—		—		—			2,994			2,994
Less: Reclassification adjustment for gain on securities sold, net of tax of $284		—		—		—			—		—		—		—			(553	)		(553	)

Total comprehensive income																					1,768

Balance June 30, 2011 (Unaudited)	$	17,680	$	1,037	$	(556	)		21,628	$	216	$	144,181	$	(55,776	)	$	2,296		$	109,078

See accompanying notes to unaudited consolidated financial statements

COMMUNITY BANKERS TRUST CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010

(dollars in thousands)


	June 30, 2011			June 30, 2010
Operating activities:
Net loss	$	(673	)	$	(22,380	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and intangibles amortization		2,035			2,190
Issuance of common stock		183			—
Provision for loan losses		1,498			26,324
Amortization of security premiums and accretion of discounts, net		907			842
Impairment of goodwill		—			5,727
Net (gain) loss on sale of securities		(837	)		98
Net loss on sale and valuation of other real estate		861			3,559
Changes in assets and liabilities:
Decrease (increase) in other assets		14,649			(15,469	)
Decrease in accrued expenses and other liabilities		(812	)		(5,380	)

Net cash provided by (used in) operating activities		17,811			(4,489	)


Investing activities:
Proceeds from securities sales, calls, maturities, and paydowns		137,479			46,093
Purchase of securities		(137,980	)		(63,695	)
Proceeds from sale of other real estate		2,317			4,327
Net decrease in loans, excluding covered loans		6,930			10,574
Net decrease in loans, covered by FDIC shared loss agreement		9,898			17,719
Principal recoveries of loans previously charged off		221			893
Purchase of premises and equipment, net		(334	)		(298	)

Net cash provided by investing activities		18,531			15,613


Financing activities:
Net (decrease) increase in noninterest-bearing and interest-bearing demand deposits		(51,250	)		13,085
Net decrease in federal funds purchased		—			(8,999	)
Cash dividends paid		—			(1,301	)

Net cash (used in) provided by financing activities		(51,250	)		2,785


Net increase in cash and cash equivalents		(14,908	)		13,909

Cash and cash equivalents:
Beginning of the period	$	33,381		$	32,235

End of the period	$	18,473		$	46,144


	June 30, 2011			June 30, 2010
Supplemental disclosures of cash flow information:
Interest paid	$	6,676		$	10,632
Income taxes paid		—			—
Transfers of OREO property		8,428			6,566

See accompanying notes to unaudited consolidated financial statement

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

1. Nature of Banking Activities and Significant Accounting Policies

Organization

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 24 full-service offices in Virginia, Maryland and Georgia.

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”) in Georgia. On January 30, 2009, the Bank acquired substantially all assets and assumed all deposit and certain other liabilities relating to seven former branch offices of Suburban Federal Savings Bank (“SFSB”) in Maryland.

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. Thirteen 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 closed its office in Rockbridge County, Virginia in April 2011.

Financial Statements

The consolidated statements presented include accounts of the Company and the Bank, its wholly-owned subsidiary. All material intercompany balances and transactions have been eliminated. 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, 2010. 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, changes in stockholder’s equity, and its cash flows at June 30, 2011, as well as the results of its operations, for the three and six months ended June 30, 2011.

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 six month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ended December 31, 2011.

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.

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

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

In preparing these financial statements, the Company has evaluated subsequent events and transactions for potential recognition or disclosure through the date the financial statements were issued.

Recent Accounting Pronouncements

In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The FASB believes the guidance in this ASU will improve financial reporting by creating greater consistency in the way GAAP is applied for various types of debt restructurings. The ASU clarifies which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. The amendments to FASB Accounting Standards Codification™ (Codification) Topic 310, Receivables, clarify the guidance on a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. The guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In May 2011, the FASB has issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU amends the FASB Accounting Standards Codification^TM (Codification) to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect the adoption of the guidance to have a material impact on its consolidated financial statements.

2. SECURITIES

Amortized costs and fair values of securities available for sale and held to maturity at June 30, 2011 and December 31, 2010 were as follows:


	June 30, 2011
(dollars in thousands)	Gross Unrealized
	Amortized Cost		Gains		Losses			Fair Value
Securities Available for Sale
U.S. Treasury issue and other U.S. Government agencies	$	9,820	$	214	$	(16	)	$	10,018
State, county and municipal		48,748		1,737		(177	)		50,308
Corporate and other bonds		5,067		11		(3	)		5,075
Mortgage backed securities		165,163		1,785		(71	)		166,877

Total Securities Available for Sale	$	228,798	$	3,747	$	(267	)	$	232,278


Securities Held to Maturity
State, county and municipal	$	12,181	$	916	$	—		$	13,097
Mortgage backed securities		60,207		3,385		—			63,592

Total Securities Held to Maturity	$	72,388	$	4,301	$	—		$	76,689

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements


	December 31, 2010
	Gross Unrealized
	Amortized Cost		Gains		Losses			Fair Value
Securities Available for Sale
U.S. Treasury issue and other U.S. Government agencies	$	90,849	$	246	$	(1,521	)	$	89,574
State, county and municipal		69,865		1,219		(749	)		70,335
Corporate and other bonds		3,576		14		(17	)		3,573
Mortgage backed securities		51,489		610		(21	)		52,078

Total Securities Available for Sale	$	215,779	$	2,089	$	(2,308	)	$	215,560


Securities Held to Maturity
State, county and municipal	$	13,070	$	693	$	—		$	13,763
Corporate and other bonds		1,002		3		—			1,005
Mortgage backed securities		70,699		3,559		—			74,258

Total Securities Held to Maturity	$	84,771	$	4,255	$	—		$	89,026

Included in other U.S. Government agencies are U.S. Government sponsored agency securities of $7.5 million with an amortized cost of $7.5 million as of June 30, 2011 and $5.8 million with an amortized cost of $5.8 million as of December 31, 2010. U.S. Government sponsored agency securities included in mortgage backed securities available for sale totaled $14.8 million with an amortized cost of $14.7 million as of June 30, 2011 and $3.9 million with an amortized cost of $4.0 million as of December 31, 2010. U.S. Government sponsored agency securities included in mortgage backed securities held to maturity totaled $45.7 million with a fair value of $48.2 million as of June 30, 2011 and $54.3 million with a fair value of $57.0 million as of December 31, 2010.

The amortized cost and fair value of securities as of June 30, 2011 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without any penalties.


(dollars in thousands)	Held to Maturity				Available for Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	46	$	46	$	16,121	$	16,375
Due after one year through five years		44,628		46,890		74,531		75,201
Due after five years through ten years		26,390		28,324		124,825		127,217
Due after ten years		1,324		1,429		13,321		13,485

Total securities	$	72,388	$	76,689	$	228,798	$	232,278

Gains and losses on the sale of securities are recorded on the settlement date and are determined using the specific identification method. Gross realized gains and losses on sales and other than temporary impairments (OTTI) of securities available for sale during the periods were as follows:


(dollars in thousands)	Three Months Ended June 30					Six Months Ended June 30
	2011		2010			2011		2010
Gross realized gains	$	193	$	79		$	854	$	436
Gross realized losses		17		72			17		75
OTTI		—		459			—		459

Net securities gains (loss)	$	176	$	(452	)	$	837	$	(98	)

In estimating OTTI losses, management considers the length of time and the extent to which the fair value has been less than cost, the financial condition and short-term prospects for the issuer, and the intent and ability of management to hold its investment for a period of time to allow a recovery in fair value. At June 30, 2010, the financial institution securities were deemed to have

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

impairment losses that were other than temporary in nature in the amount of $459,000, as management did not intend to hold them until they recovered their value. At June 30, 2011, there were no investments held that had impairment losses other than temporary in nature.

The fair value and gross unrealized losses for securities, segregated by the length of time that individual securities have been in a continuous gross unrealized loss position, at June 30, 2011 and December 31, 2010 were as follows:


	June 30, 2011
(dollars in thousands)	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury issue and other U.S. Government agencies	$	2,483	$	(16	)	$	—	$	—		$	2,483	$	(16	)
State, county and municipal		5,202		(114	)		857		(63	)		6,059		(177	)
Corporate and other bonds		2,784		(3	)		—		—			2,784		(3	)
Mortgage backed securities		19,520		(71	)		—		—			19,520		(71	)

Total	$	29,989	$	(204	)	$	857	$	(63	)	$	30,846	$	(267	)


	December 31, 2010
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury issue and other U.S. Government agencies	$	83,989	$	(1,521	)	$	—	$	—		$	83,989	$	(1,521	)
State, county and municipal		19,103		(644	)		818		(105	)		19,921		(749	)
Corporate and other bonds		3,059		(17	)		—		—			3,059		(17	)
Mortgage backed securities		3,695		(21	)		—		—			3,695		(21	)

Total	$	109,846	$	(2,203	)	$	818	$	(105	)	$	110,664	$	(2,308	)

The unrealized losses in the investment portfolio as of June 30, 2011 and December 31, 2010 are generally a result of market fluctuations that occur daily. The unrealized losses are from 28 securities at June 30, 2011 that are all of investment grade, backed by insurance, U.S. government agency guarantees, or the full faith and credit of local municipalities throughout the United States. The Company considers the reason for impairment, length of impairment and ability to hold until the full value is recovered in determining if the impairment is temporary in nature. Based on this analysis, the Company has determined these impairments to be temporary in nature. The Company does not intend to sell and it is more likely than not that the Company will not be required to sell these securities until they recover in value.

Market prices are affected by conditions beyond the control of the Company. Investment decisions are made by the management group of the Company and reflect the overall liquidity and strategic asset/liability objectives of the Company. Management analyzes the securities portfolio frequently and manages the portfolio to provide an overall positive impact to the Company’s income statement and balance sheet.

Securities with amortized costs of $40.1 million and $36.6 million at June 30, 2011 and December 31, 2010, respectively, were pledged to secure deposits and for other purposes required or permitted by law.

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

3. LOANS NOT COVERED BY FDIC SHARED LOSS AGREEMENT (NON-COVERED LOANS)

The Company’s non-covered loans at June 30, 2011 and December 31, 2010 were comprised of the following:


(dollars in thousands)	June 30, 2011						December 31, 2010
	Amount			% of Non-Covered Loans			Amount			% of Non-Covered Loans
Mortgage loans on real estate:
Residential 1-4 family	$	131,205			26.18	%	$	137,522			26.15	%
Commercial		197,897			39.49			205,034			38.99
Construction and land development		85,002			16.96			103,763			19.73
Second mortgages		8,306			1.66			9,680			1.84
Multifamily		13,397			2.67			9,831			1.87
Agriculture		2,566			0.51			3,820			0.73

Total real estate loans		438,373			87.47			469,650			89.31
Commercial loans		51,511			10.28			44,368			8.44
Consumer installment loans		9,600			1.92			9,811			1.87
All other loans		1,710			0.33			1,993			0.38

Gross loans		501,194			100.00	%		525,822			100.00	%

Less unearned income on loans		(138	)					(274	)

Non-covered loans, net of unearned income	$	501,056					$	525,548

At June 30, 2011 and December 31, 2010, the Company’s allowance for credit losses was comprised of the following: (i) specific valuation allowances calculated in accordance with FASB ASC 310, Receivables, (ii) general valuation allowances calculated in accordance with FASB ASC 450, Contingencies, based on economic conditions and other qualitative risk factors, and (iii) historical valuation allowances calculated using historical loan loss experience. Management identified loans subject to impairment in accordance with ASC 310.

At June 30, 2011 and December 31, 2010, a portion of the construction and land development loans presented above contain interest reserve provisions. The Company follows standard industry practice to include interest reserves and capitalized interest in a construction loan. This practice recognizes interest as an additional cost of the project and, as a result, requires the borrower to put additional equity into the project. In order to monitor the project throughout its life to make sure the property is moving along as planned to ensure appropriateness of continuing to capitalize interest, the Company coordinates an independent property inspection in connection with each disbursement of loan funds. Until completion, there is generally no cash flow from which to make the interest payment. The Company does not advance additional interest reserves to keep a loan from becoming nonperforming.

For the three and six months ended June 30, 2011, there were no interest reserves recognized as interest income on construction loans with interest reserves. There were $10.8 million of construction loans with interest reserves that were nonperforming at June 30, 2011.

Average investment in impaired loans was $47.1 million and $86.7 million as of June 30, 2011 and June 30, 2010, respectively. Interest income on nonaccrual loans, if recognized, is recorded using the cash basis method of accounting. There were no significant amounts recognized during the three and six months ended June 30, 2011 and 2010. For the three months ended June 30, 2011 and 2010, estimated interest income of $916,000 and $705,000, respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms. For the six months ended June 30, 2011 and 2010, estimated interest income of $1.7 million and $1.1 million, respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms.

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

The following table summarizes information related to impaired loans as of June 30, 2011 (dollars in thousands):


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Interest Income Recognized
With an allowance recorded:
Mortgage loans on real estate:
Residential 1-4 family	$	4,044	$	4,044	$	995	$	—
Commercial		1,741		1,741		580		—
Construction and land development		5,645		5,645		1,190		—
Second mortgages		159		159		52		—
Multifamily		—		—		—		—
Agriculture		53		53		12		—

Total real estate loans		11,642		11,642		2,829		—
Commercial loans		997		997		119		—
Consumer installment loans		55		55		17		—
All other loans		—		—		—		—

Subtotal impaired loans with valuation allowance	$	12,694	$	12,694	$	2,965	$	—

With no related allowance recorded:
Mortgage loans on real estate:
Residential 1-4 family	$	4,143	$	4,116	$	—	$	27
Commercial		9,905		9,809		—		96
Construction and land development		17,409		17,401		—		8
Second mortgages		40		40		—		—
Multifamily		—		—		—		—
Agriculture		—		—		—		—

Total real estate loans		31,497		31,366		—		131
Commercial loans		522		522		—		—
Consumer installment loans		19		19		—		—
All other loans		—		—		—		—

Subtotal impaired loans without valuation allowance	$	32,038	$	31,907	$	—	$	131

Total:
Mortgage loans on real estate:
Residential 1-4 family	$	8,187	$	8,160	$	995	$	27
Commercial		11,646		11,550		580		96
Construction and land development		23,054		23,046		1,190		8
Second mortgages		199		199		52		—
Multifamily		—		—		—		—
Agriculture		53		53		12		—

Total real estate loans		43,139		43,008		2,829		131
Commercial loans		1,519		1,519		119		—
Consumer installment loans		74		74		17		—
All other loans		—		—		—		—

Total impaired loans	$	44,732	$	44,601	$	2,965	$	131

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

The following table summarizes information related to impaired loans as of December 31, 2010 (dollars in thousands):


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Interest Income Recognized
With an allowance recorded:
Mortgage loans on real estate:
Residential 1-4 family	$	5,886	$	5,858	$	1,558	$	28
Commercial		3,314		3,314		901		—
Construction and land development		9,189		9,094		3,605		95
Second mortgages		165		161		161		4
Multifamily		—		—		—		—
Agriculture		294		288		100		6

Total real estate loans		18,848		18,715		6,325		133
Commercial loans		1,741		1,741		1,341		—
Consumer installment loans		—		—		—		—
All other loans		—		—		—		—

Subtotal impaired loans with valuation allowance	$	20,589	$	20,456	$	7,666	$	133

With no related allowance recorded:
Mortgage loans on real estate:
Residential 1-4 family	$	5,666	$	5,662	$	—	$	4
Commercial		3,867		3,867		—		—
Construction and land development		13,776		13,774		—		2
Second mortgages		218		218		—		—
Multifamily		—		—		—		—
Agriculture		—		—		—		—

Total real estate loans		23,527		23,521		—		6
Commercial loans		909		907		—		2
Consumer installment loans		91		90		—		1
All other loans		—		—		—		—

Subtotal impaired loans without valuation allowance	$	24,527	$	24,518	$	—	$	9

Total:
Mortgage loans on real estate:
Residential 1-4 family	$	11,552	$	11,520	$	1,558	$	32
Commercial		7,181		7,181		901		—
Construction and land development		22,965		22,868		3,605		97
Second mortgages		383		379		161		4
Multifamily		—		—		—		—
Agriculture		294		288		100		6

Total real estate loans		42,375		42,236		6,325		139
Commercial loans		2,650		2,648		1,341		2
Consumer installment loans		91		90		—		1
All other loans		—		—		—		—

Total impaired loans	$	45,116	$	44,974	$	7,666	$	142

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

The following table represents non-covered nonaccruals by loan category as of June 30, 2011 and December 31, 2010 (dollars in thousands):


	June 30, 2011		December 31, 2010
Mortgage loans on real estate:
Residential 1-4 family	$	7,041	$	9,600
Commercial		8,352		7,181
Construction and land development		20,700		16,854
Second mortgages		199		218
Multifamily		—		—
Agriculture		53		—

Total real estate loans		36,345		33,853
Commercial loans		1,330		2,619
Consumer installment loans		61		60
All other loans		—		—

Total loans	$	37,736	$	36,532

Substandard and doubtful loans still accruing interest are loans that management expects to ultimately collect all principal and interest due, but not under the terms of the original contract. A reconciliation of impaired loans to nonaccrual loans at June 30, 2011 and December 31, 2010 is set forth in the table below (dollars in thousands):


	June 30, 2011		December 31, 2010
Nonaccruals	$	37,736	$	36,532
Substandard and still accruing		6,865		8,088
Doubtful and still accruing		—		354

Total impaired	$	44,601	$	44,974

The following table presents an age analysis of past due status of loans by category as of June 30, 2011 and December 31, 2010 (dollars in thousands):


	June 30, 2011
	30-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing
Mortgage loans on real estate:
Residential 1-4 family	$	2,634	$	7,041	$	9,675	$	121,530	$	131,205	$	—
Commercial		1,841		8,352		10,193		187,704		197,897		—
Construction and land development		2,816		20,700		23,516		61,486		85,002		—
Second mortgages		179		199		378		7,928		8,306		—
Multifamily		—		—		—		13,397		13,397		—
Agriculture		—		53		53		2,513		2,566		—

Total real estate loans		7,470		36,345		43,815		394,558		438,373		—
Commercial loans		686		1,330		2,016		49,495		51,511		—
Consumer installment loans		134		61		195		9,405		9,600		—
All other loans		—		—		—		1,710		1,710		—

Total loans	$	8,290	$	37,736	$	46,026	$	455,168	$	501,194	$	—

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements


	December 31, 2010
	30-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing
Mortgage loans on real estate:
Residential 1-4 family	$	3,444	$	9,989	$	13,433	$	124,089	$	137,522	$	389
Commercial		1,711		7,181		8,892		196,142		205,034		—
Construction and land development		8,241		16,854		25,095		78,668		103,763		—
Second mortgages		194		218		412		9,268		9,680		—
Multifamily		—		—		—		9,831		9,831		—
Agriculture		288		—		288		3,532		3,820		—

Total real estate loans		13,878		34,242		48,120		421,530		469,650		389
Commercial loans		610		2,619		3,229		41,139		44,368		—
Consumer installment loans		121		60		181		9,630		9,811		—
All other loans		—		—		—		1,993		1,993		—

Total loans	$	14,609	$	36,921	$	51,530	$	474,292	$	525,822	$	389

Activity in the allowance for loan losses on non-covered loans for the six months ended June 30, 2011 and the year ended December 31, 2010 was comprised of the following (dollars in thousands):


	Six months ended June 30, 2011			Year ended December 31, 2010
Beginning allowance	$	25,543		$	18,169
Provision for loan losses		1,498			26,483
Recoveries of loans charged off		221			951
Loans charged off		(10,459	)		(20,060	)

Allowance at end of period	$	16,803		$	25,543

The following table presents activity in the allowance for loan losses on non-covered loans by loan category for the six months ended June 30, 2011 (dollars in thousands):


	Year ended December 31, 2010		Provision Allocation			Charge offs			Recoveries		Six months ended June 30, 2011
Mortgage loans on real estate:
Residential 1-4 family	$	6,262	$	(1,317	)	$	(1,504	)	$	16	$	3,457
Commercial		5,287		501			(2,496	)		8		3,300
Construction and land development		10,039		139			(3,510	)		—		6,668
Second mortgages		406		(65	)		(75	)		2		268
Multifamily		260		(86	)		—			—		174
Agriculture		266		(219	)		—			—		47

Total real estate loans		22,520		(1,047	)		(7,585	)		26		13,914
Commercial loans		2,691		2,466			(2,698	)		34		2,493
Consumer installment loans		257		63			(80	)		96		336
All other loans		75		16			(96	)		65		60

Total non-covered loans	$	25,543	$	1,498		$	(10,459	)	$	221	$	16,803

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

The following table presents charge-offs and recoveries for non-covered loans by loan category for the year ended December 31, 2010 (dollars in thousands):


	Year ended December 31, 2010
	Charge-offs		Recoveries			Net Charge-offs
Mortgage loans on real estate:
Residential 1-4 family	$	2,461	$	(1	)	$	2,460
Commercial		1,352		(508	)		844
Construction and land development		12,759		(103	)		12,656
Second mortgages		360		(79	)		281
Multifamily		375		—			375
Agriculture		—		—			—

Total real estate loans		17,307		(691	)		16,616
Commercial loans		2,125		(178	)		1,947
Consumer installment loans		497		(19	)		478
All other loans		131		(63	)		68

Total non-covered loans	$	20,060	$	(951	)	$	19,109

The following table presents information on the non-covered loans evaluated for impairment in the allowance for loan losses as of June 30, 2011 and December 31, 2010 (dollars in thousands):


	June 30, 2011
	Allowance for Loan Losses						Recorded Investment in Loans
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment Total				Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Mortgage loans on real estate:
Residential 1-4 family	$	1,104	$	2,353	$	3,457	$	11,156	$	120,049	$	131,205
Commercial		1,121		2,179		3,300		46,333		151,564		197,897
Construction and land development		2,623		4,045		6,668		35,854		49,148		85,002
Second mortgages		70		198		268		351		7,955		8,306
Multifamily		—		174		174		—		13,397		13,397
Agriculture		12		35		47		222		2,344		2,566

Total real estate loans		4,930		8,984		13,914		93,916		344,457		438,373
Commercial loans		247		2,246		2,493		3,735		47,776		51,511
Consumer installment loans		30		306		336		234		9,366		9,600
All other loans		3		57		60		276		1,434		1,710

Total loans	$	5,210	$	11,593	$	16,803	$	98,161	$	403,033	$	501,194

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements


	December 31, 2010
	Allowance for Loan Losses						Recorded Investment in Loans
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Mortgage loans on real estate:
Residential 1-4 family	$	2,753	$	3,509	$	6,262	$	14,347	$	123,175	$	137,522
Commercial		2,967		2,320		5,287		48,552		156,482		205,034
Construction and land development		5,392		4,647		10,039		39,712		64,051		103,763
Second mortgages		179		227		406		339		9,341		9,680
Multifamily		—		260		260		—		9,831		9,831
Agriculture		174		92		266		1,027		2,793		3,820

Total real estate loans		11,465		11,055		22,520		103,977		365,673		469,650
Commercial loans		1,347		1,344		2,691		4,975		39,393		44,368
Consumer installment loans		30		227		257		209		9,602		9,811
All other loans		—		75		75		—		1,993		1,993

Total loans	$	12,842	$	12,701	$	25,543	$	109,161	$	416,661	$	525,822

Loans individually evaluated for impairment include all loans reviewed regardless of whether or not they were deemed impaired.

Non-covered loans are monitored for credit quality on a recurring basis. These credit quality indicators are defined as follows:

Pass - A pass related loan is not adversely classified, as it does not display any of the characteristics for adverse classification.

Special Mention - A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention loans are not adversely classified and do not warrant adverse classification.

Substandard - A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility of loss if the deficiencies are not corrected.

Doubtful - A doubtful loan has all the weaknesses inherent in a loan classified as substandard with the added characteristics that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values.

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

The following tables present the composition of non-covered loans by credit quality indicator at June 30, 2011 and December 31, 2010 (dollars in thousands):


	June 30, 2011
	Pass		Special Mention		Substandard		Doubtful		Total
Mortgage loans on real estate:
Residential 1-4 family	$	110,189	$	9,830	$	10,613	$	573	$	131,205
Commercial		134,551		17,011		45,835		500		197,897
Construction and land development		35,627		13,523		35,806		46		85,002
Second mortgages		7,335		620		192		159		8,306
Multifamily		9,823		3,574		—		—		13,397
Agriculture		1,985		373		208		—		2,566

Total real estate loans		299,510		44,931		92,654		1,278		438,373
Commercial loans		45,911		1,606		3,994		—		51,511
Consumer installment loans		8,979		379		232		10		9,600
All other loans		1,354		356		—		—		1,710

Total loans	$	355,754	$	47,272	$	96,880	$	1,288	$	501,194


	December 31, 2010
	Pass		Special Mention		Substandard		Doubtful		Total
Mortgage loans on real estate:
Residential 1-4 family	$	112,595	$	8,444	$	13,839	$	2,644	$	137,522
Commercial		140,064		15,619		48,816		535		205,034
Construction and land development		45,448		17,156		39,183		1,976		103,763
Second mortgages		8,615		550		352		163		9,680
Multifamily		6,726		3,105		—		—		9,831
Agriculture		2,440		345		1,035		—		3,820

Total real estate loans		315,888		45,219		103,225		5,318		469,650
Commercial loans		36,452		1,506		4,604		1,806		44,368
Consumer installment loans		9,028		471		278		34		9,811
All other loans		1,993		—		—		—		1,993

Total loans	$	363,361	$	47,196	$	108,107	$	7,158	$	525,822

At June 30, 2011, the Company had 1-4 family mortgages in the amount $176.2 million pledged as collateral to the FHLB for a total borrowing capacity of $109.9 million.

4. LOANS COVERED BY FDIC SHARED LOSS AGREEMENT (COVERED LOANS)

The Company is applying the provisions of FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, to all loans acquired in the SFSB transaction (the “covered loans”). Of the total $198.3 million in loans acquired, $49.1 million met the criteria of ASC 310-30. These loans, consisting mainly of construction loans, were deemed impaired at the acquisition date. The remaining $149.1 million of loans acquired, comprised mainly of residential 1-4 family, were analogized to meet the criteria of ASC 310-30. Analysis of this portfolio revealed that SFSB utilized weak underwriting and documentation standards, which led the Company to believe that significant losses were probable given the economic environment at the time.

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

As of June 30, 2011 and December 31, 2010, the outstanding balance of the covered loans was $173.3 million and $191.5 million, respectively. The carrying amount, by loan type, as of these dates is as follows (dollars in thousands):


	June 30, 2011					December 31, 2010
	Amount		% of Covered Loans			Amount		% of Covered Loans
Mortgage loans on real estate:
Residential 1-4 family	$	91,121		87.35	%	$	99,312		85.96	%
Commercial		1,901		1.82			2,800		2.42
Construction and land development		4,672		4.48			5,751		4.98
Second mortgages		6,567		6.30			7,542		6.53
Multifamily		30		0.03			38		0.03
Agriculture		—		—			—		—

Total real estate loans		104,291		99.98			115,443		99.92
Commercial loans		—		—			—		—
Consumer installment loans		23		0.02			94		0.08
All other loans		—		—			—		—

Gross covered loans	$	104,314		100.00	%	$	115,537		100.00	%

Activity in the allowance for loan losses on covered loans for the six months ended June 30, 2011 and the year ended December 31, 2010 was comprised of the following the following (dollars in thousands):


	Six months ended June 30, 2011		Year ended December 31, 2010
Beginning allowance	$	829	$	—
Provision for loan losses		—		880
Recoveries of loans charged off		—		205
Loans charged off		—		(256	)

Allowance at end of period	$	829	$	829

The following table presents information on the covered loans collectively evaluated for impairment in the allowance for loan losses at June 30, 2011 and December 31, 2010 (dollars in thousands):


	June 30, 2011				December 31, 2010
	Allowance for loan losses		Recorded investment in loans		Allowance for loan losses		Recorded investment in loans
Mortgage loans on real estate:
Residential 1-4 family	$	526	$	91,121	$	526	$	99,312
Commercial		303		1,901		303		2,800
Construction and land development		—		4,672		—		5,751
Second mortgages		—		6,567		—		7,542
Multifamily		—		30		—		38
Agriculture		—		—		—		—

Total real estate loans		829		104,291		829		115,443
Commercial loans		—		—		—		—
Consumer installment loans		—		23		—		94
All other loans		—		—		—		—

Gross covered loans	$	829	$	104,314	$	829	$	115,537

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

The change in the accretable yield balance for the six months ended June 30, 2011 and the year ended December 31, 2010 is as follows (dollars in thousands):


Balance, January 1, 2010	$	56,792
Accretion		(13,759	)
Reclassification from (to) Non-accretable Yield		32,685

Balance, December 31, 2010		75,718
Accretion		(8,607	)
Reclassification from (to) Non-accretable Yield		(4,697	)

Balance, June 30, 2011	$	62,414

The covered loans are not classified as nonperforming assets as of June 30, 2011, as the loans are accounted for on a pooled basis, and interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all purchased loans. As of June 30, 2011, there was an allowance for loan losses recorded on covered loans of $829,000. This allowance is the result of a change in the timing of expected cash flows for one of the covered loan pools.

At December 31, 2010, the acquisition, construction and development (ADC) pool originally purchased from the FDIC in 2009 had a carrying value of $410,000 in accordance with FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The amount and timing of future cash flows on the ADC pool, based on an analysis of the loans in the pool, were determined to be not reasonably estimatable. As a result, during the quarter ended March 31, 2011, management applied the cost recovery method to the ADC loan pool, which requires that all cash payments first be applied to principal. During the first quarter of 2011, sufficient cash payments were received on the ADC pool to lower the carrying value to $0, with excess payments being applied to interest income. Any subsequent payments will now be recognized as interest income.

5. FDIC AGREEMENTS AND FDIC INDEMNIFICATION ASSET

On January 30, 2009, the Company entered into a Purchase and Assumption Agreement with the FDIC to assume all of the deposits and certain other liabilities and acquire substantially all of the assets of SFSB. Under the shared loss agreements that are part of that agreement, the FDIC will reimburse the Bank for 80% of losses arising from covered loans and foreclosed real estate assets on the first $118 million in losses of such covered loans and foreclosed real estate assets and for 95% of losses on covered loans and foreclosed real estate assets thereafter. Under the shared loss agreements, a “loss” on a covered loan or foreclosed real estate is defined generally as a realized loss incurred through a permitted disposition, foreclosure, short-sale or restructuring of the covered loan or foreclosed real estate. 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 tenth anniversary of the closing of the SFSB transaction occurs, and the reimbursements for losses on other covered assets are to be made quarterly until the end of the quarter in which the eighth anniversary of the closing of the SFSB 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 SFSB transaction. New loans made after that date are not covered by the shared loss agreements. The carrying value of the shared loss agreements is detailed below.

The Company is accounting for the shared loss agreements as an indemnification asset pursuant to the guidance in FASB ASC 805, Business Combinations. The FDIC indemnification asset was measured at fair value at the time of acquisition, as it is required to be measured in the same manner as the asset or liability to which it relates. The FDIC indemnification asset is measured separately from the covered loans and other real estate owned assets because it is not contractually embedded in the covered loan and other real estate owned assets and is not transferable should the Company choose to dispose of them. Fair value at the acquisition date was estimated using projected cash flows available for loss sharing based on the credit adjustments estimated for each loan pool and other real estate owned and the loss sharing percentages outlined in the shared loss agreements. These cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursement from the FDIC.

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

Because the acquired loans are subject to a shared loss agreement and the corresponding indemnification asset exists to represent the value of expected payments from the FDIC, increases and decreases in loan accretable yield due to changing loss expectations will also have an impact on the valuation of the FDIC indemnification asset. Improvement in loss expectations will typically increase loan accretable yield and decrease the value of the FDIC indemnification asset and, in some instances, result in an amortizable premium on the FDIC indemnification asset. Increases in loss expectations will typically be recognized as impairment in the current period through allowance for loan losses while resulting in additional noninterest income for the amount of the increase in the FDIC indemnification asset.

In addition to the premium amortization, the balance of the FDIC indemnification asset is affected by expected payments from the FDIC. Under the terms of the shared loss agreements, the FDIC will reimburse the Company for loss events incurred related to the covered loan portfolio. These events include such things as future writedowns due to decreases in the fair market value of other real estate owned (OREO), net loan charge-offs and recoveries, and net gains and losses on OREO sales.

The following table presents the balances of the FDIC indemnification asset related to the SFSB transaction at June 30, 2011 and December 31, 2010 (dollars in thousands):


	Anticipated Expected Losses			Estimated Loss Sharing Value			Amortizable Premium (Discount) at PV			FDIC Indemnification Asset Total
January 1, 2010	$	88,943		$	71,090		$	5,017		$	76,107
Increases:
Writedown of OREO property to FMV		3,028			2,422						2,422
Decreases:
Net accretion of premium								(3,165	)		(3,165	)
Reclassifications to FDIC receivable:
Net loan charge-offs and recoveries		(8,521	)		(6,817	)					(6,817	)
OREO sales		(8,858	)		(7,086	)					(7,086	)
Reimbursements requested from FDIC		(3,865	)		(3,092	)					(3,092	)
Reforecasted Change in Anticipated Expected Losses		(24,477	)		(19,517	)		19,517			—

December 31, 2010		46,250			37,000			21,369			58,369
Increases:
Writedown of OREO property to FMV		586			469						469
Decreases:
Net amortization of premium								(5,402	)		(5,402	)
Reclassifications to FDIC receivable:
Net loan charge-offs and recoveries		(920	)		(736	)					(736	)
OREO sales		(921	)		(737	)					(737	)
Reimbursements requested from FDIC		(1,045	)		(836	)					(836	)
Reforecasted Change in Anticipated Expected Losses		(4,177	)		(3,342	)		3,342			—

June 30, 2011	$	39,773		$	31,818		$	19,309		$	51,127

6. OTHER INTANGIBLES

Core deposit intangible assets are amortized over the period of expected benefit, ranging from 2.6 to 9 years. Core deposit intangibles are recognized, amortized and evaluated for impairment as required by FASB ASC 350, Intangibles. As a result of the mergers with TFC and BOE, the Company recorded $15.0 million in core deposit intangible assets. Core deposit intangibles resulting from the Georgia and Maryland transactions equaled $3.2 million and $2.2 million, respectively, and will be amortized over approximately 9 years.

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

Other intangible assets are presented in the following table (dollars in thousands):


	Core Deposit Intangibles
Balance January 1, 2010	$	17,080
Amortization		(2,261	)

Balance December 31, 2010		14,819
Amortization		(1,130	)

Balance June 30, 2011	$	13,689

7. DEPOSITS

The following table provides interest-bearing deposit information, by type, as of June 30, 2011 and December 31, 2010 (dollars in thousands):


	June 30, 2011		December 31, 2010
NOW	$	111,268	$	106,248
MMDA		121,210		127,594
Savings		67,564		64,121
Time deposits less than $100,000		332,895		367,333
Time deposits $100,000 and over		213,043		234,070

Total interest-bearing deposits	$	845,980	$	899,366

8. FAIR VALUES OF ASSETS AND LIABILITIES

FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs and also establishes a fair value hierarchy that prioritizes the valuation inputs into three broad levels. 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.

•

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 or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3—Valuation is determined using model-based techniques with significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of third party pricing services, option pricing models, discounted cash flow models and similar techniques.

FASB ASC 825, Financial Instruments, allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The Company has not made any material ASC 825 elections as of June 30, 2011.

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The Company utilizes fair value measurements to record adjustments to certain assets to determine fair value disclosures. Securities available for sale are 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 (dollars in thousands).


	June 30, 2011
	Total		Level 1		Level 2		Level 3
Investment securities available for sale
U.S. Treasury issue and U.S. government agencies	$	10,018	$	5,477	$	4,541	$	—
State, county, and municipal		50,308		1,206		49,102		—
Corporate and other bonds		5,075		—		5,075		—
Mortgage backed securities		166,877		65,510		101,367		—

Total investment securities available for sale		232,278		72,193		160,085		—
Loans held for resale		83		—		83		—

Total assets at fair value	$	232,361	$	72,193	$	160,168	$	—

Total liabilities at fair value	$	—	$	—	$	—	$	—


	December 31, 2010
	Total		Level 1		Level 2		Level 3
Investment securities available for sale
U.S. Treasury issue and U.S. government agencies	$	89,574	$	3,254	$	86,320	$	—
State, county, and municipal		70,335		—		70,335		—
Corporate and other bonds		3,573		—		3,573		—
Mortgage backed securities		52,078		—		52,078		—

Total investment securities available for sale		215,560		3,254		212,306		—

Total assets at fair value	$	215,560	$	3,254	$	212,306	$	—

Total liabilities 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 utilizes a third party vendor to provide fair value data for purposes of determining the fair value of its available for sale securities portfolio. The third party vendor uses 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 and an AICPA Statement on Auditing Standard Number 70 (SAS 70) report is obtained from the third party vendor on an annual basis. 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.

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

Loans held for resale

The carrying amounts of loans held for resale approximate fair value.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company is also required to measure and recognize certain other financial assets at fair value on a nonrecurring basis on the consolidated balance sheet. For assets measured at fair value on a nonrecurring basis in 2010 and still held on the consolidated balance sheet at June 30, 2011, the following table provides the fair value measures by level of valuation assumptions used for those assets.


			June 30, 2011
	Total		Level 1		Level 2		Level 3
Impaired loans, non-covered	$	25,141	$	—	$	20,703	$	4,438
Other real estate owned (OREO), non-covered		12,393		—		95		12,298
Other real estate owned (OREO), covered		8,674		—		1,480		7,194

Total assets at fair value	$	46,208	$	—	$	22,278	$	23,930

Total liabilities at fair value	$	—	$	—	$	—	$	—


			December 31, 2010
	Total		Level 1		Level 2		Level 3
Impaired loans, non-covered	$	14,083	$	—	$	8,741	$	5,342
Other real estate owned (OREO), non-covered		5,928		—		—		5,928
Other real estate owned (OREO), covered		9,889		—		1,060		8,829

Total assets at fair value	$	29,900	$	—	$	9,801	$	20,099

Total liabilities at fair value	$	—	$	—	$	—	$	—

Impaired loans, non-covered

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures the impairment in accordance with FASB ASC 310, Receivables. 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 exceeds the recorded investments in such loans. The Bank frequently obtains appraisals prepared by external professional appraisers for classified loans greater than $250,000 when the most recent appraisal is greater than 12 months old. The appraisal, based on the date of preparation, becomes only a part of the determination of the amount of any loan write-off, with current market conditions and the collateral’s location being other determinants. 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 within Level 2.

The Company may also identify collateral deterioration based on current market sales data, including price and absorption, as well as input from real estate sales professionals and developers, county or city tax assessments, market data and on-site inspections by Company personnel. Internally prepared estimates generally result from current market data and actual sales data related to the Company’s collateral or where the collateral is located. When management determines that 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. In instances where an appraisal received subsequent to an internally prepared estimate reflects a higher collateral value, management does not revise the carrying amount. Reviews of classified loans are performed by management on a quarterly basis.

Other real estate owned, covered and non-covered

Other real estate owned (OREO) assets are adjusted to fair value upon transfer of the related loans to OREO property. Subsequent to the transfer, valuations are periodically performed by management and the assets are carried

COMMUNITY BANKERS TRUST CORPORATION

Notes to Consolidated Financial Statements

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 foreclosed asset within Level 2. When an appraised value is not available or management determines that 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 within Level 3 of the fair value hierarchy.

Fair Value of Financial Instruments

FASB ASC 825, Financial Instruments, 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 or nonrecurring basis. FASB ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following reflects the fair value of financial instruments, whether or not recognized on the consolidated balance sheet, at fair value (dollars in thousands).


	June 30, 2011				December 31, 2010
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	18,473	$	18,473	$	33,381	$	33,381
Securities available for sale		232,278		232,278		215,560		215,560
Securities held to maturity		72,388		76,689		84,771		89,027
Equity securities, restricted		6,965		6,965		7,170		7,170
Loans held for resale		83		83		—		—
Loans, non-covered		484,252		475,673		500,005		491,621
Loans, covered		103,485		122,540		114,708		139,952
FDIC indemnification asset		51,127		31,547		58,369		49,765
Accrued interest receivable		3,381		3,381		3,826		3,826

Financial liabilities:
Noninterest-bearing deposits		64,495		64,495		62,359		62,359
Interest-bearing deposits		845,980		848,992		899,366		898,508
Borrowings		41,124		45,293

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company