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

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

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 (Address of principal executive offices)		23060 (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.

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 August 3, 2009, there were 21,468,455 shares of the Company’s common stock outstanding.

 

 

COMMUNITY BANKERS TRUST CORPORATION

TABLE OF CONTENTS
FORM 10-Q
June 30, 2009

		Page
PART I — FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Consolidated Statements of Financial Condition (Unaudited)			3
Consolidated Statements of Operations (Unaudited)			4
Consolidated Statements of Changes in 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			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			30
Item 4. Controls and Procedures			31
PART II — OTHER INFORMATION			34
Item 1. Legal Proceedings			34
Item 1A. Risk Factors			34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 3. Defaults upon Senior Securities			34
Item 4. Submission of Matters to a Vote of Security Holders			34
Item 5. Other Information			35
Item 6. Exhibits			35
SIGNATURES			36

PART I — FINANCIAL INFORMATION

Item 1.		Financial Statements

COMMUNITY BANKERS TRUST CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT JUNE 30, 2009 AND DECEMBER 31, 2008
(dollars in thousands)

		June 30, 2009				December 31, 2008
						(Audited)
		(Unaudited)				(Restated)
Assets
Cash and due from banks		$	20,110			$	10,864
Interest bearing bank deposits			14,158				107,376
Federal funds sold			25,830				10,193
Total cash and cash equivalents			60,098				128,433
Securities available for sale, at fair value			178,923				193,992
Securities held to maturity, fair value of $131,752 and $94,965, respectively			130,113				94,865
Equity securities, restricted, at cost			6,838				3,612
Total securities			315,874				292,469
Loans held for resale			668				200
Loans			551,799				523,298
Allowance for loan losses			(12,185	)			(6,939	)
Net loans			539,614				516,359
FDIC covered assets (Note 9)			278,436				—
Bank premises and equipment			37,484				24,111
Other real estate owned			864				223
Bank owned life insurance			6,415				6,300
Core deposit intangibles, net			18,211				17,163
Goodwill (Note 5)			13,152				37,184
Other assets			13,022				7,325
Total assets		$	1,283,838			$	1,029,767
Liabilities
Deposits:
Demand:
Noninterest bearing		$	59,949			$	59,699
Interest bearing			1,007,498				746,649
Total deposits			1,067,447				806,348
Federal funds purchased			—				—
Federal Home Loan Bank advances			37,000				37,900
Trust preferred capital notes			4,124				4,124
Other liabilities			26,379				16,992
Total liabilities		$	1,134,950			$	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			(943	)			(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
Additional paid in capital			144,506				146,076
Retained (deficit) earnings			(13,677	)			1,691
Accumulated other comprehensive income (loss)			70				(1,265	)
Total stockholders’ equity		$	148,888			$	164,403
Total liabilities and stockholders’ equity		$	1,283,838			$	1,029,767

See accompanying notes to unaudited consolidated financial statements

COMMUNITY BANKERS TRUST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(dollars and shares in thousands, except per share data)
(Unaudited)

		For the three months ended								For the six months ended
		June 30, 2009				June 30, 2008				June 30, 2009				June 30, 2008
Interest and dividend income
Interest and fees on loans		$	9,631			$	2,704			$	18,047			$	2,704
Interest and fees on FDIC covered loans			3,016				—				6,286				—
Interest on federal funds sold			12				46				26				46
Interest on deposits in other banks			81				—				202				—
Interest and dividends on securities
Taxable			2,607				282				5,499				687
Nontaxable			820				110				1,577				110
Total interest income			16,167				3,142				31,637				3,547
Interest expense
Interest on deposits			6,299				1,027				12,417				1,027
Interest on federal funds purchased			—				13				—				13
Interest on other borrowed funds			390				80				737				80
Total interest expense			6,689				1,120				13,154				1,120
Net interest income			9,478				2,022				18,483				2,427
Provision for loan losses			540				234				6,040				234
Net interest income after provision for loan losses			8,938				1,788				12,443				2,193
Noninterest income
Service charges on deposit accounts			618				180				1,189				180
Gain on SFSB transaction			—				—				21,260				—
Gain on securities transactions, net			341				—				293				—
Gain on sale of other real estate			—				—				21				—
Other			374				119				669				119
Total noninterest income			1,333				299				23,432				299
Noninterest expense
Salaries and employee benefits			5,028				574				9,454				574
Occupancy expenses			554				112				1,134				112
Equipment expenses			419				108				762				108
Legal fees			305				46				555				99
Professional fees			456				24				1,156				100
FDIC assessment			744				16				874				16
Data processing fees			732				104				1,474				104
Amortization of intangibles			654				149				1,110				149
Impairment of goodwill (Note 5)			24,032				—				24,032				—
Other operating expenses			1,876				582				3,637				673
Total noninterest expense			34,800				1,715				44,188				1,935
(Loss) income before income taxes			(24,529	)			372				(8,313	)			557
Income tax (benefit) expense			(410	)			84				4,872				158
Net (loss) income		$	(24,119	)		$	288			$	(13,185	)		$	399
Dividends accrued on preferred stock			220				—				438				—
Accretion of discount on preferred stock			45				—				88				—
Net (loss) income available to common stockholders		$	(24,384	)		$	288			$	(13,711	)		$	399
Net (loss) income per share — basic		$	(1.14	)		$	0.02			$	(0.64	)		$	0.04
Net (loss) income per share — diluted		$	(1.14	)		$	0.02			$	(0.64	)		$	0.03
Weighted average number of shares outstanding
basic			21,468				13,407				21,468				11,391
diluted			21,468				15,283				21,468				13,553

See accompanying notes to unaudited consolidated financial statements

COMMUNITY BANKERS TRUST CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Dollars and shares in thousands)
(Unaudited)

																										Additional				Retained				Other
		Preferred Stock																Common Stock								Paid in				Earnings				Comprehensive
		Shares				Amount				Warrants				Discount				Shares				Amount				Capital				(Deficit)				Income				Total
Balance December 31, 2007			—			$	—			$	—			$	—				9,375			$	94			$	42,989			$	2,229			$	—			$	45,312
Common stock issued in connection with merger			—				—				—				—				13,501				135				116,035												116,170
Common stock redeemed in connection with merger			—				—				—				—				(1,405	)			(14	)			(10,829	)											(10,843	)
Comprehesive income:
Net income			—				—				—				—				—				—				—				399				—				399
Change in net unrealized gain or loss on securities available for sale			—				—				—				—				—				—				—				—				(835	)			(835	)
Total comprehensive income			—				—				—				—				—				—				—				399				—				(436	)
Balance June 30, 2008			—			$	—			$	—			$	—				21,471			$	215			$	148,195			$	3,027			$	(835	)		$	150,602
Balance December 31, 2008 (restated)			18			$	17,680			$	1,037			$	(1,031	)			21,468			$	215			$	146,076			$	1,691			$	(1,265	)			164,403
Amortization of preferred stock warrants			—				—				—				88				—				—				—				(88	)			—				—
Reclassification for preferred stock dividends			—				—				—				—				—				—				—				37				—				37
Recognize SFSB January 2009 net loss			—				—				—				—				—				—				—				(56	)							(56	)
Repurchase of warrants			—				—				—				—				—				—				(1,570	)			—				—				(1,570	)
Dividends paid on preferred stock			—				—				—				—				—				—				—				(359	)			—				(359	)
Comprehesive income:			—				—				—				—				—				—				—				—				—
Net loss			—				—				—				—				—				—				—				(13,185	)			—				(13,185	)
Change in net unrealized gain or loss on securities available for sale			—				—				—				—				—				—				—				—				1,528
Less: Reclassification adjustment for gain on securities sold, net of tax			—				—				—				—				—				—				—				—				(193	)
Other comprehensive income																																			1,335				1,335
Total comprehensive income																																							(11,850	)
Dividends paid on common stock ($.08 per share)			—				—				—				—				—				—				—				(1,717	)			—				(1,717	)
Balance June 30, 2009			18			$	17,680			$	1,037			$	(943	)			21,468			$	215			$	144,506			$	(13,677	)		$	70			$	148,888

See accompanying notes to unaudited consolidated financial statements

COMMUNITY BANKERS TRUST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND JUNE 30, 2008
(dollars in thousands)
(unaudited)

		June 30, 2009				June 30, 2008
Operating activities:
Net (loss) income		$	(13,185	)		$	399
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and intangibles amortization			2,043				271
Provision for loan losses			6,040				234
Amortization of security premiums and accretion of discounts, net			940				8
Change in loans held for sale			(468	)			535
Net gain on SFSB transaction			(21,260	)			—
Prior period goodwill adjustment			(2,899	)			—
Impairment of goodwill			24,032				—
Net gain on sale of securities			(293	)			—
Net gain on sale of OREO			(21	)			—
Net loss/(gain) on sale of loans			20				(12	)
Cash aquired in acquisitions			35,662				10,016
Changes in assets and liabilities:
Decrease/(increase) in other assets			11,138				(4,022	)
Increase in accrued expenses and other liabilities			7,631				2,065
Net cash provided by operating activities			49,380				9,494
Investing activities:
Proceeds from securities			98,329				56,342
Purchase of securities			(108,075	)			—
Net increase in loans			(5,732	)			(11,230	)
Purchase of premises and equipment, net			(14,268	)			(114	)
Net cash (used in)/provided by investing activities			(29,746	)			44,998
Financing activities:
Net (decrease)/increase in noninterest bearing and interest bearing deposits			(45,898	)			4,919
Net decrease in federal funds purchased			—				(1,287	)
Cash paid to shareholders for converted shares			—				(10,843	)
Cash paid to reduce FHLB borrowings			(38,425	)			—
Cash paid to redeem shares related to asserted appraisal rights and retire warrants			(1,570	)			—
Cash dividends paid on preferred and common stock			(2,076	)			—
Net cash used in financing activities			(87,969	)			(7,211	)
Net (decrease) increase in cash and cash equivalents			(68,335	)			47,281
Cash and cash equivalents:
Beginning of the period		$	128,433			$	162
End of the period		$	60,098			$	47,443
Supplemental disclosures of cash flow information:
Interest paid		$	13,640			$	1,156
Income taxes paid		$	250			$	—
Transfers of OREO property		$	640			$	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			$	68,306
Fixed assets, net		$	37			$	—
Other assets		$	16,582			$	89,857
Deposits		$	306,997			$	491,462
Borrowings		$	37,525			$	32,359
Other liabilities		$	1,756			$	8,861

See accompanying notes to unaudited consolidated financial statements

COMMUNITY BANKERS TRUST CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. 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 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 June 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.

     The financial information with respect to the operations of the Company prior to May 31, 2008, which includes five of the first six months of 2008, and the first two months of the second quarter of 2008, does not provide any meaningful basis for comparison since the Company was not an operating company during those periods. As a result of the acquisitions of TFC and BOE on May 31, 2008, the Company became an operating company. Consequently, the Company did not have meaningful comparable periods to report.

     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 June 30, 2009, and the results of its operations and its cash flows for the three and six months ended June 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.

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 six month period ended June 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 August 10, 2009 for potential recognition or disclosure.

3. RECENT ACCOUNTING PRONOUNCEMENTS

     In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157). 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)). 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 does not expect the implementation of SFAS 141(R) to have a material impact on its consolidated financial statements, at this time.

     In April 2009, the FASB issued FASB Staff Position (FSP) SFAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” FSP SFAS 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 acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect the adoption of FSP SFAS 141(R)-1 to have a material impact on its consolidated financial statements.

     In April 2009, the FASB issued FSP SFAS 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.” FSP SFAS 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 SFAS 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 SFAS 157-4 to have a material impact on its (consolidated) financial statements.

     In April 2009, the FASB issued FSP SFAS 107-1 and Accounting Principles Board (APB) 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” FSP SFAS 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 SFAS 107-1 and APB 28-1 to have a material impact on its consolidated financial statements.

     In April 2009, the FASB issued FSP SFAS 115-1 and SFAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” FSP FAS 115-1 and SFAS 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 SFAS 115-1 and SFAS 124-2 is 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 SFAS 115-1 and SFAS 124-2 to have a material impact on its consolidated financial statements.

     In April 2009, the SEC 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 SFAS 165, “Subsequent Events” (SFAS 165) to provide guidance on when a subsequent event should be recognized in the financial statements. Subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet should be recognized at the balance sheet date. Subsequent events that provide evidence about conditions that arose after the balance sheet date but before financial statements are issued, or are available to be issued, are not required to be recognized. The date through which subsequent events have been evaluated must be disclosed as well as whether it is the date the financial statements were issued or the date the financial statements were available to be issued. For nonrecognized subsequent events which should be disclosed to keep the financial statements from being misleading, the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made, should be disclosed. The standard is effective for interim or annual periods ending after June 15, 2009. See Note 14 for the Company’s evaluation of subsequent events.

     In June 2009, the FASB issued SFAS 166, “Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140” (SFAS 166). SFAS 166 limits the circumstances in which a financial asset should be derecognized when the transferor has not transferred the entire financial asset by taking into consideration the transferor’s continuing involvement. The standard requires that a transferor recognize and initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a sale. The concept of a qualifying special-purpose entity is removed from SFAS 140 along with the exception from applying FIN 46(R). The standard is effective for the first annual reporting period that begins after November 15, 2009, for interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company does not expect SFAS 166 to have a material impact on its consolidated financial statements.

     In June 2009, the FASB issued SFAS 167, “Amendments to FASB Interpretation No. 46(R)” (SFAS 167). The standard amends FASB Interpretation Number (FIN) 46(R) to require a company to analyze whether its interest in a variable interest entity (“VIE”) gives it a controlling financial interest. A company must assess whether it has an implicit financial responsibility to ensure that the VIE operates as designed when determining whether it has the power to direct the activities of the VIE that significantly impact its economic performance. Ongoing reassessments of whether a company is the primary beneficiary is also required by the standard. SFAS 167 amends the criteria to qualify as a primary beneficiary as well as how to determine the existence of a VIE. The standard also eliminates certain exceptions that were available under FIN 46(R). SFAS 167 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. Comparative disclosures will be required for periods after the effective date. The Company does not expect SFAS 167 to have a material impact on its consolidated financial statements.

     In June 2009, the FASB issued SFAS 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162” (SFAS 168). SFAS 168 establishes the FASB Accounting Standards Codification TM (“Codification”) as the source of authoritative generally accepted accounting principles for

nongovernmental entities. SFAS 168 is effective for interim and annual periods ending after September 15, 2009, and is not expected to have a material impact on the Company’s consolidated financial statements.

     In June 2009, the SEC 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 GAAP. The Company does not expect the adoption of SAB 112 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 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 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 is reviewing certain contracts between SFSB and its vendors in order to identify any efficiencies from the merger through contract cancellation. Costs of cancelling certain contracts may be material and would change the amount of any negative goodwill associated with the merger. Additionally, the Company is still determining the value of the intangibles assets and the fair value of assets acquired and liabilities assumed that are used to calculate negative goodwill in the transaction. An estimate of the fair value of the assets acquired and liabilities assumed has been used in the preparation of these unaudited consolidated financial statements, however, these estimates may be revised once the final valuations are performed.

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.

     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.

     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. This adjustment to goodwill has no effect on the Company’s 2008 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 Carrying				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
June 30, 2009
Goodwill		$	37,184							$	24,032			$	13,152
Core deposit intangibles		$	20,290			$	2,079							$	18,211

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 SFAS 157, Fair Value Measurement, 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.

     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. 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. It was determined that the cost value recorded at June 30, 2009 was similar to the fair value, and therefore no adjustment was necessary. Due to the observable market data available in pricing these loans held for sale, they were considered as Level 2.

Loans

     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. Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS 114, Accounting by Creditors for Impairment of a Loan. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At June 30, 2009, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In

accordance with SFAS 157, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

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.

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.

		June 30, 2009
		Total				Level 1				Level 2				Level 3
						(dollars in thousands)
Investment securities available-for-sale		$	178,923			$	1,383			$	177,540			$	—
Loans held for sale			668				—				668				—
Total assets at fair value		$	179,591			$	1,383			$	178,208			$	—
Total liabilities at fair value		$	—			$	—			$	—			$	—

     The Company had no Level 3 assets measured at fair value on a recurring basis at June 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.

		June 30, 2009
		Total				Level 1				Level 2				Level 3
						(dollars in thousands)
Loans — impaired loans		$	90,367			$	—			$	82,002			$	8,365
Other real estate owned (OREO)		$	864			$	—			$	864			$	—
Total assets at fair value		$	91,231			$	—			$	82,866			$	8,365
Total liabilities at fair value		$	—			$	—			$	—			$	—

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

     SFAS 107, “Disclosures about Fair Value of 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 basis or non-recurring basis. The fair values and carrying values are as follows:

		June 30, 2009
		Carrying				Fair
(dollars in thousands)		Value				Value
Financial assets:
Cash and cash equivalents		$	60,098			$	60,137
Securities available for sale			178,923				178,923
Securities held to maturity			130,113				131,752
Equity securities			6,838				6,838
Loans held for sale			668				668
Net loans			539,614				540,433
FDIC covered assets			278,436				281,159
Accrued interest receivable			5,572				5,572
Financial liabilities:
Deposits			1,067,447				1,075,303
Borrowings			41,124				41,676
Accrued interest payable			5,670				5,670

7. SECURITIES

     Amortized costs and fair values of securities available for sale at June 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		$	15,025			$	372			$	(13	)		$	15,384
State, county and municipal			78,162				886				(697	)			78,351
Corporates and other bonds			6,663				86				(1	)			6,748
Mortgage backed securities			75,711				1,502				(156	)			77,057
Other securities			1,278				157				(52	)			1,383
Total securities available for sale		$	176,839			$	3,003			$	(919	)		$	178,923

     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 June 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		$	486			$	(13	)		$	—			$	—			$	486			$	(13	)
State, county and municipal			29,795				(586	)			2,076				(111	)			31,871				(697	)
Corporates and other bonds			1,004				(1	)			250				—				1,254				(1	)
Mortgage backed securities			11,829				(156	)			2				—				11,831				(156	)
Other securities			470				(45	)			12				(7	)			482				(52	)
Total securities available for sale		$	43,584			$	(801	)		$	2,340			$	(118	)		$	45,924			$	(919	)

     As of June 30, 2009, there were $2.3 million of securities available for sale that were in a continuous loss position for more than twelve months with unrealized losses of $118,000 and consisted primarily of municipal obligations. Management continually monitors the fair value and credit quality of the Company’s investment portfolio.

     Amortized costs and fair values of securities held to maturity at June 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		$	748			$	—			$	(15	)		$	733
State, county and municipal			13,111				336				(32	)			13,415
Corporates and other bonds			1,035				9				—				1,044
Mortgage backed securities			115,219				1,750				(409	)			116,560
Total securities held to maturity		$	130,113			$	2,095			$	(456	)		$	131,752

     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 June 30, 2009 were as follows:

		Less than 12 months								12 months or more								Total
						Unrealized								Unrealized								Unrealized
(dollars thousands)		Fair Value				Loss				Fair Value				Loss				Fair Value				Loss
U.S. Treasury issue and other
U.S. Government agencies		$	733			$	(15	)		$	—			$	—			$	733			$	(15	)
State, county and municipal			2,140				(35	)			—				—				2,140				(35	)
Corporates and other bonds			—				—				—				—				—				—
Mortgage backed securities			32,790				(406	)			—				—				32,790				(406	)
Total securities held to maturity		$	35,663			$	(456	)		$	—			$	—			$	35,663			$	(456	)

     Management continually monitors the fair value and credit quality of the Company’s investment portfolio. At June 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 June 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 has suspended dividend payments on it stock and repurchases of excess capital stock during 2009, the Company does not consider this investment to be other than temporarily impaired at June 30, 2009, and therefore no impairment was recorded.

8. LOANS

     The Company’s loan portfolio, excluding FDIC covered assets, at June 30, 2009 and December 31, 2008, was comprised of the following:

		June 30, 2009								December 31, 2008
		(dollars in thousands)
Mortgage loans on real estate
Residential 1-4 family		$	135,701				24.56	%		$	129,607				24.73	%
Commercial			179,079				32.41	%			158,062				30.16	%
Construction			137,951				24.97	%			139,515				26.62	%
Second mortgages			14,356				2.60	%			15,599				2.98	%
Multifamily			9,152				1.66	%			9,370				1.79	%
Agriculture			4,859				0.88	%			5,143				0.98	%
Total real estate loans			481,098				87.08	%			457,296				87.26	%
Commercial loans			45,685				8.27	%			45,320				8.65	%
Consumer installment loans
Personal			13,490				2.44	%			14,457				2.76	%
All other loans			12,228				2.21	%			7,005				1.33	%
Gross loans			552,501				100.00	%			524,078				100.00	%
Less unearned income on loans			(702	)							(780	)
Loans, net of unearned income		$	551,799							$	523,298

     On January 30, 2009, the Bank acquired certain assets and assumed all deposit liabilities relating to seven former branch offices of SFSB. The Bank purchased approximately $348 million in loans and other assets and is providing 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.

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

		Amount
Impaired loans without a valuation allowance		$	65,686
Impaired loans with a valuation allowance			24,681
Total impaired loans		$	90,367
Valuation allowance related to impaired loans		$	6,729
Total nonaccrual loans		$	24,482
Total loans 90 days or more past due and still accruing		$	514
Average investment in impaired loans during the six months ending June 30, 2009		$	92,128
Interest income recognized on impaired loans		$	773
Interest income recognized on a cash basis on impaired loans		$	773

9. FDIC COVERED 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 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 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,” 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 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 “FDIC covered assets”. The carrying amount of FDIC covered assets at June 30, 2009, are as follows:

						Non SOP 03-3
		SOP 03-3 Loans				Loans				Other				Total
Commercial related loans		$	13,753			$	15,536			$	—			$	29,289
Mortgage and other loans			12,101				130,519				—				142,620
Foreclosed real estate			—				—				21,525				21,525
FDIC receivable for covered assets			—				—				83,829				83,829
Estimated loss reimbursement from FDIC for expenses incurred			—				—				1,173				1,173
Total FDIC covered assets		$	25,854			$	146,055			$	106,527			$	278,436

     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 June 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 June 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.

10. ALLOWANCE FOR LOAN LOSSES

     Activity in the allowance for loan losses, for the six months ended June 30, 2009 and 2008, was comprised of the following:

(dollars in thousands)		June 30, 2009				June 30, 2008
Beginning balance		$	6,939			$	4,993
Provision for loan losses			6,040				234
Recoveries of loans charged off			82				25
Loans charged off			(876	)			(70	)
Balance at end of period		$	12,185			$	5,182

     For information reported for June 30, 2008, the figures presented are solely for the month of June 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 June 30, 2009, total impaired loans equaled $90.4 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 six months ended June 30, 2009, as economic conditions deteriorated. In addition, net-charge off activity increased as certain loans were deemed uncollectible.

11. DEPOSITS

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

Balance by deposit type		June 30, 2009				December 31, 2008
		(dollars in thousands)
NOW		$	90,380			$	76,575
MMDA			115,048				55,200
Savings			58,380				34,688
Time deposits less than $100,000			453,953				303,424
Time deposits greater than $100,000			289,737				276,762
Total interest-bearing deposits		$	1,007,498			$	746,649

12. EARNINGS PER SHARE

     Basic 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 June 30, 2009
Basic EPS		$	(24,384	)			21,468			$	(1.14	)
Effect of dilutive stock awards and options							—				—
Diluted EPS		$	(24,384	)			21,468			$	(1.14	)
For the Three Months ended June 30, 2008
Basic EPS		$	288				13,407			$	0.02
Effect of dilutive stock awards and options							1,876				—
Diluted EPS		$	288				15,283			$	0.02
For the Six Months ended June 30, 2009
Basic EPS		$	(13,711	)			21,468			$	(0.64	)
Effect of dilutive stock awards and options							—				—
Diluted EPS		$	(13,711	)			21,468			$	(0.64	)
For the Six Months ended June 30, 2008
Basic EPS		$	399				11,391			$	0.04
Effect of dilutive stock awards and options							2,162				(0.01	)
Diluted EPS		$	399				13,553			$	0.03

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

		Six Months Ended
		June 30, 2009
		(In thousands)
Service cost		$	184
Interest cost			162
Expected return on plan assets			(106	)
Amortization of prior service cost			2
Amortization of net obligation at transition			(2	)
Amortization of net loss			44
Net periodic benefit cost		$	284

     At June 30, 2009, no employer contributions have been made 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)). A determination during fiscal 2009 will be made for the current and future benefits for all full-time employees of the combined entities. The plan was frozen to new entrants prior to BOE’s merger with the Company.

14. SUBSEQUENT EVENTS

     On July 20, 2009, the Company amended its certificate of incorporation to increase the number of authorized shares of common stock to 200,000,000. The Company approved this amendment at the 2009 annual meeting of stockholders.

     On July 30, 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 August 24, 2009, to stockholders of record at the close of business on August 10, 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 June 30, 2009 and results of operations of the Company for the three and six months ended June 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 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;
	•		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, including the integration of SFSB’s operations in the third quarter of 2009;
	•		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 Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and other reports filed from time to time by the Company with the Securities and Exchange Commission.

     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 grading 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 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 of $37.2 million 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 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 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 $654,000 and $1.1 million for the three and six months ended June 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 on the income statement.

Financial Condition

     At June 30, 2009, the Company had total assets of $1.284 billion, an increase of $254.8 million or 24.76% from December 31, 2008. Total loans, excluding FDIC covered assets, equaled $551.8 million at June 30, 2009, increasing $28.5 million, or 5.45% from December 31, 2008. Securities totaled $315.9 million and increased $23.4 million, or 8.00% during the first half of 2009. The Company had federal funds sold of $25.8 million at June 30, 2009, versus $10.2 million at year-end 2008, an increase of $15.6 million or 153.41%.

     The increase in asset size was primarily due to the SFSB transaction in Maryland. At June 30, 2009, FDIC covered assets equaled $278.4 million, which was comprised of loans, other real estate owned, FDIC loss recovery receivable, and reimbursable items related to the covered assets. The FDIC loss recovery receivable is the amount that the Company expects to collect from the FDIC under the shared-loss agreements as a result of the difference between the initial value of the covered assets received from the transaction, less their fair value. Securities from SFSB were incorporated into the Company’s securities portfolio at fair value as of 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 June 30, 2009 AFS portfolio was $178.9 million at June 30, 2009, and the net unrealized gain on the AFS portfolio was $1.3 million, net of taxes, and included as part of the Company’s accumulated other comprehensive income of $70,000. Since December 31, 2008, the interest rate environment has experienced declining rates, and as a result the AFS portfolio shifted from a net unrealized loss of $700,000 to a net unrealized gain of $2.1 million, exclusive of taxes over the first six months of 2009.

     Total deposits at June 30, 2009 were $1.067 billion, which increased $261.1 million from December 31, 2008. Deposit growth was attributed to the SFSB transaction, which was concentrated in certificates of deposit. At June 30, 2009, total deposits in our Maryland branches aggregated $291.2 million of which $221.4 million were time deposits. The Company’s total loans-to-deposits ratio, excluding FDIC covered loans, was 51.69% at June 30, 2009 and 64.90% at December 31, 2008.

     Stockholders’ equity at June 30, 2009 was $148.9 million and represented 11.60% of total assets. Stockholders’ equity was $163.7 million, or 15.91% of total assets at December 31, 2008.

Results of Operations

  Net Income

     For the three months ended June 30, 2009, net losses before dividends and accretion on preferred stock were $24.1 million, compared with net income of $288,000 for the same period in 2008. Net losses available to common stockholders was $24.4 million, which represented $1.14 per share on a fully diluted basis, versus net income available to common stockholders of $288,000, or $0.02 per share on a fully diluted basis for the same period in 2008. Second quarter losses were driven by the goodwill impairment charge of $24.0 million, which is not tax deductible, and was related to the goodwill impairment assessment performed as of the anniversary date of the mergers with each of TFC and BOE.

     For the six months ended June 30, 2009, net losses before dividends and accretion on preferred stock was $13.2 million, compared with net income $399,000 for the same period in 2008. Net losses available to common stockholders was $13.7 million, which represented $0.64 per share on a fully diluted basis, versus net income available to common stockholders of $399,000, or $0.03 per share on a fully diluted basis for the same period in 2008. Losses for the six months ended June 30, 2009, were driven by the goodwill impairment charge, and partially offset by a one-time gain of $21.3 million, excluding taxes, related to the SFSB transaction in the first quarter.

  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 June 30, 2009, the Company’s interest-earning assets exceeded its interest-bearing liabilities by approximately $138.1 million, compared with a $137.9 million excess at December 31, 2008.

     Net interest income was $9.5 million for the three months ended June 30, 2009, compared with $2.0 million for the same period in 2008. The net interest income is useful in determining the net interest margin and the net interest spread. The net interest margin is the net interest income for the reporting period divided by average earning assets for the same period. For the three months ended June 30, 2009, the net interest margin was 3.30%. The net interest spread is the difference between the yield on average earning assets and cost of funds associated with interest-bearing liabilities. For the three months ended June 30, 2009, the net interest spread was 3.02%. For the six months ended June 30, 2009, net interest income was $18.5 million, and equated to a net interest margin of 3.29%, and net interest spread was 2.99%.

     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:

COMMUNITY BANKERS TRUST CORPORATION
NET INTEREST MARGIN ANALYSIS
AVERAGE BALANCE SHEETS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009

		For the three months ended June 30, 2009												For the six months ended June 30, 2009
		Average				Interest				Average				Average				Interest				Average
		Balance				Income/				Rates				Balance				Income/				Rates
		Sheet				Expense				Earned/Paid				Sheet				Expense				Earned/Paid
		(Dollars in thousands)
ASSETS:
Loans, including fees		$	548,577			$	9,631				7.02	%		$	541,184			$	18,047				6.67	%
FDIC covered loans			261,205				3,016				4.62	%			232,513				6,286				5.41	%
Interest bearing bank balances			19,741				81				1.64	%			34,122				202				1.18	%
Federal funds sold			24,142				12				0.20	%			20,041				26				0.26	%
Investments (taxable)			262,007				2,607				3.98	%			264,566				5,499				4.16	%
Investments (tax exempt)			83,505				1,242				5.95	%			80,232				2,389				5.96	%
Total earning assets			1,199,177				16,589				5.53	%			1,172,658				32,449				5.53	%
Allowance for loan losses			(11,009	)											(9,280	)
Non-earning assets			137,175												133,414
Total assets		$	1,325,343											$	1,296,792
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand -
Interest bearing		$	203,965			$	485				0.95	%		$	191,231			$	1,175				1.23	%
Savings			57,364				114				0.79	%			53,252				274				1.03	%
Time deposits			763,276				5,700				2.99	%			744,007				10,968				2.95	%
Total deposits			1,024,605				6,299				2.46	%			988,490				12,417				2.51	%
FHLB and other borrowings			41,913				390				3.72	%			47,437				737				3.11	%
Total interest-bearing liabilities			1,066,518				6,689				2.51	%			1,035,927				13,154				2.54	%
Non-interest bearing deposits			61,421												61,301
Other liabilities			31,056												31,253
Total liabilities			1,158,995												1,128,481
Stockholders’ equity			166,348												168,311
Total liabilities and stockholders’ equity		$	1,325,343											$	1,296,792
Net interest earnings						$	9,900											$	19,295
Interest rate spread											3.02	%											2.99	%
Net interest margin											3.30	%											3.29	%