We present management's discussion and analysis of financial information to aid the reader in understanding and evaluating our financial condition and results of operations. This discussion provides information about our major components of the results of operations, financial condition, liquidity and capital resources. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements presented elsewhere in this report and in the 2008 Form 10-K. Operating results include those of all our operating entities combined for all periods presented.

We provide a broad range of personal and commercial banking services including commercial, consumer and real estate loans. We supplement our lending operations with an array of retail and commercial deposit products and fee-based services. Our services are delivered locally by well-trained and experienced bankers whom we empower to make decisions at the local level so that they can provide timely lending decisions and respond promptly to customer inquiries. We believe that, by offering our customers personalized service and a breadth of products, we can compete effectively as we expand within our existing markets and into new markets.

CRITICAL ACCOUNTING POLICIES

General

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. For example, we use historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio. Actual losses could differ substantially from the historical factors that we use. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.

Allowance for Loan Losses

The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (i) Contingencies (ASC 450), which requires that losses be accrued when their occurrence is probable and estimable and (ii) Receivables (ASC 310) , which requires that losses be accrued based on the differences between the value of the collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.

We evaluate non-performing loans individually for impairment, such as nonaccrual loans, loans past due 90 days or more, restructured loans and other loans selected by management as required by the accounting standards. The evaluations are based upon discounted expected cash flows or collateral valuations. If the evaluation shows that a loan is individually impaired, then a specific reserve is established for the amount of the impairment. If a loan evaluated individually is not impaired, then the loan is assessed for impairment under the accounting standards.

For loans without individual measures of impairment, we make estimates of losses for groups of loans as required by SFAS No. 5. Loans are grouped by similar characteristics, including the type of loan, the assigned loan grade and general collateral type. A loss rate reflecting the expected loss inherent in a group of loans is derived based upon historical loss rates for each loan type, the predominant collateral type for the group and the terms of the loan. The resulting estimates of losses for groups of loans are adjusted for relevant environmental factors and other conditions of the portfolio of loans including:
borrower or industry concentrations; levels and trends in delinquencies, charge-offs and recoveries; changes in risk selection; level of experience, ability and depth of lending staff; and national and local economic conditions.

The amounts of estimated losses for loans individually evaluated for impairment and groups of loans are added together for a total estimate of loan losses. The estimate of losses is compared to our allowance for loan losses as of the evaluation date and, if the estimate of losses is greater than the allowance, an additional provision to the allowance would be considered. If the estimate of losses is less than the allowance, the degree to which the allowance exceeds the estimate is evaluated to determine whether a reduction to the allowance would be necessary. While management uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the valuations. Such adjustments would be made in the relevant period and may be material to the Consolidated Financial Statements.

Impairment of Securities

Impairment of securities occurs when the fair value of a security is less than its amortized cost basis. For debt securities, impairment is considered other-than-temporary and recognized in its entirety in net income if either:
(1) we intend to sell the security or (2) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If, however, we do not intend to sell the security before recovery, we must determine what portion of the impairment is attributable to a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security. If there is no credit loss, there is no other-than-temporary impairment. If there is a credit loss, other-than-temporary impairment exists, and the credit loss must be recognized in earnings on the statements of income and the remaining portion of impairment must be recognized in other comprehensive income. For equity securities, impairment is considered to be other-than-temporary based on our ability and intent to hold the investment until recovery of fair value. Other-than-temporary impairment of an equity security results in a loss that must be included in earnings on the statements of income. On a quarterly basis we review each investment security for other-than-temporary impairment based on criteria that includes cost exceeding

market value by 20% or greater, the duration of the market decline, the financial health of and specific prospects for the issuer, out best estimate of the cash flows expected to be collected from debt securities, our intention with regard to holding the security to maturity and the likelihood that we could be required to sell the security before recovery.

Goodwill and Intangible Assets

The accounting standard (ASC 805) Business Combinations requires the purchase method of accounting be used for all business combinations initiated after June 30, 2001. For purchase acquisitions, we are required to record assets acquired, including identifiable intangible assets, and liabilities at their fair value, which in many instances involves estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analysis or other valuation techniques. Effective January 1, 2001, we adopted Intangibles - Goodwill and Other (ASC 350) which prescribes the accounting for goodwill and intangible assets subsequent to initial recognition. The provisions of the accounting standards discontinue the amortization of goodwill and intangible assets with indefinite lives, but require at least an annual impairment review and more frequently if certain impairment indicators are in evidence.

Goodwill totaled $16.0 million at both September 30, 2009 and December 31, 2008. Based on the testing of goodwill for impairment, no impairment charges have been recorded. Core deposit intangible assets are being amortized over the period of expected benefit, which ranges from 2.39 to 7.0 years. Core deposit intangibles, net of amortization, amounted to $287 thousand and $503 thousand, at September 30, 2009 and December 31, 2008, respectively, and are included in other assets.

OVERVIEW

The third quarter of 2009 presented continued challenges in the management of risks in our earning assets. While broad economic measurements show signs of the beginning of an economic upswing, we are still seeing that our customers are struggling to meet their month to month payments. Our loan quality measures continue to exhibit the difficulties that the economic stress is having on our market. Our investment portfolio has suffered significantly from economic stress and we have experienced an other-than-temporary impairment loss on the portfolio's holdings of pooled trust preferred securities ("TRUPS"). These securities were purchased in 2006 and 2007 or earlier and were acquired for the sole purpose of mitigating interest rate risks, as they carried an interest rate that floated with LIBOR. TRUPS which consist primarily of debt issued by several hundred bank holdings companies demonstrated outstanding performance for the first 12 years of their existence and were considered investment grade securities until the second quarter of 2009. TRUPS began to experience stress in late 2007 and throughout 2008 and the first six months of 2009 to the point that there is no orderly market for these investments. In the third quarter of 2009 the rapid expansion of bank failures and deferrals by weaker banks impacted the value of TRUPS, decreasing the value of the investments by an amount greater than in the entire prior history of the segment. After much deliberation and consultation with an independent appraiser who specializes in valuing illiquid securities, the Board of Directors made the decision to take an impairment charge of $15 million ($9.8 million after tax) as of September 30, 2009. This charge negatively impacted earnings per share for the quarter by $1.64. We anticipate that with this risk removed from our investment portfolio, our improved capital position, our conservative loan loss reserves and strong core deposit growth, we will be well positioned for a healthy 2010.

Community banks including our Company rely primarily on earnings from lending in the local markets that they serve. Community banks are sharing the hardship of their customers and neighbors, as slowing loan payments have resulted in deteriorating asset quality. In the third quarter, our foreclosed real estate ("OREO"), nonaccrual assets and past due loan balances have risen and fallen as we deal with each new issue that arises. We have implemented special loan programs which assist our struggling customers by refinancing their debt, with the bank often absorbing the closing costs.

One of our major challenges in 2009 has been the minimal earnings on the large pool of cash created from rapid core deposit growth as consumers sought a "safe haven" and from the Treasury Capital Purchase Program ("CPP") funds. With interest rates at historic lows, these funds were invested in fed funds or other short-term instruments with yields of less than 0.25%. Over the year, and especially in the third quarter, we have restructured our balance sheet by decreasing the amount in short term investments and allowing higher cost brokered deposits and some of our highly interest-sensitive certificates of deposit to roll off the liability side of our balance sheet. This has allowed us to maximize our earning asset yield, while positioning us to lend money that has a lower funding cost. In the current low interest rate environment, this allows use to improve our interest spread and margin moving forward by better matching earning rates to funding rates to get a consistent spread.

On April 3, 2009, a definitive merger agreement with First Capital Bancorp, Inc. ("FCVA") in the Richmond marketplace was announced. Both companies received shareholder approval of the merger in August 2009. The regulatory approval process has moved much slower than anticipated and is still pending with the result that the projected closing date will not be in 2009. Under the purchase approach to accounting for a combination like this, all merger-related expenses are recognized on the books as they occur, thereby resulting in decreased earnings in 2009.

Third quarter 2009 earnings were negatively impacted by the securities impairment taken, resulting in a loss available to common shareholders of $8.9 million, compared to a loss of $3.1 million in the third quarter of 2008. In both periods, the loss was the result of securities impairments. In 2008, it was for the government service entity ("GSE") investments which lost their value when the government seized the mortgage giants FNMA and FHLMC. In 2009, it was from the TRUPS discussed above. Net interest income was $8.1 million in the third quarter of 2009, compared to $8.4 million in the third quarter 2008, and down slightly from $8.2 million in the second quarter of 2009. Noninterest income/(loss), including the impairment charge, was ($13.2) million for the third quarter, a $10.2 million decline from ($3.0) million for the three months ended September 30, 2008. Noninterest expense increased $327 thousand from $7.0 million in the third quarter of 2008 to $7.3 million for the third quarter of 2009. This increase was primarily from a $183 thousand increase in FDIC expense and $218 thousand of merger-related expense. Net interest margin for the third quarter was 3.20% compared to 3.59% for the third quarter of 2008. Since March 2007, the net interest margin has followed a downward trend which we believe will be reversed beginning in the fourth quarter of 2009. Average earning assets for the third quarter of 2009 were $79.7 million above that of the third quarter of 2008. Average loans were $47.1 million above the average loans for the third quarter of 2008. Federal funds sold decreased to $5.5 million compared to $9.5 million in the same quarter of the prior year while the average yield decreased from 1.94% to 0.22%. Average interest-bearing deposit balances increased $84.8 million, or $37.7 million, more than loan growth in the third quarter of 2009.

Investment income declined from the combination of lower rates on new investments, from the Treasury conservatorship of FNMA and FHLMC which eliminated our agency preferred stock dividends, a decline in the TRUPS earnings and the temporary suspension of dividends from the Atlanta FHLB for the first two quarters of 2009 before the FHLB resumed dividend payments in the third quarter of 2009. Loan loss provision for the third quarter was $850 thousand compared to $1.1 million in the third quarter of 2008. For the year, the provision is $2.5 million compared to $2.8 million through the first nine months of 2008. Management still sees risk in the loan portfolio and expects to continue higher provision expense through the end of 2010.

Looking to the rest of the year, we are still waiting for the federal government's economic stimulus plan to revive loan demand. Our special loan program, started late in the second quarter to relieve some of the payment pressure on our customers, has booked $13.6 million in loans, and we have paid $94 thousand in closing costs related to these loans. We continue to explore other loan products to assist our customers. Over the remainder of the year we anticipate $110 million in certificates of deposit repricing at lower rates which should further enhance our net interest margin. The Federal Reserve continues to focus on reviving the economy, so we do not anticipate any major rate changes unless inflation is rekindled by an economic expansion. The Treasury CPP investment has enhanced our capital position as the Company infused EVB with $20 million more of regulatory capital earlier in the year. We anticipate continued higher than historical loan losses in the short run and have prepared for that possibility. We have quality individuals managing our past due loans and foreclosed properties to minimize our potential losses. As the economy recovers, we are positioned to take advantage of all opportunities that present themselves.

Financial Condition

Return on average assets ("ROA") for the third quarter of 2009 declined to (3.17%), compared to (1.19%) in the same quarter of 2008, and return on common average equity ("ROE") declined to (44.83%) compared to (14.30%) for the quarter ended September 30, 2008. For the first nine months of 2009, ROA declined to (1.30%), compared to 0.12% for the same period in 2008, and ROE declined to (18.59%) compared to 1.28% for the period ended September 30, 2008. For the third quarter of 2009 the net loss was $8.5 million, and the net loss after $372 thousand effective preferred dividend was $8.9 million compared to a net loss of $3.1 million in the third quarter of 2008. For the nine months ended September 30, 2009, the net loss was $9.6 million and the net loss after effective preferred dividend was $10.7 million compared to net income of $857 thousand for the first nine months of 2008.

Total assets at September 30, 2009 were $1.11 billion, up $54.4 million, or 5.2%, from $1.05 billion at year-end 2008 and up $74.7 million, or 7.3% from September 30, 2008, when total assets were $1.03 billion. This increase is the result of strong deposit growth, particularly in the first quarter of 2009 and the addition of $24 million from the issuance of

preferred stock under the Treasury CPP. Loan growth through September 30, 2009 was $24.8 million, or 3.0% compared to the 2008 year-end balance. Actual loan growth in the third quarter of 2009 was $11.3 million or 1.4% which would project to an annualized growth of 5.6%. For the quarter, total average assets were $1.1 billion, an increase of 8.69% compared to $1.02 billion in the third quarter of 2008. For the quarter ended September 30, 2009, average total loans, net of unearned income, were $838.2 million, an increase of $47.1 million, or 6.0%, from $791.1 million for the same period in 2008. For the nine months ended September 30, 2009, total average assets were $1.1 billion, an increase of $109.9 million compared to $987.8 million for the same period in 2008. At September 30, 2009, net loans as a percent of total assets were 75.3%, as compared to 76.9% at December 31, 2008. While this portfolio should be able to generate a strong earnings stream, the current economic uncertainty overshadows our near term earnings

At September 30, 2009, the investment portfolio totaled $171.9 million, an increase of $10.1 million from $161.9 million at December 31, 2008 and an increase of $15.2 million compared to $156.8 million at September 30, 2008. Yield during the first nine months of 2009 was down compared to the same quarter in the prior year. This was the result of the lack of FNMA and FHLMC income in 2009 and elimination of trust preferred income as we have gone through the year. As a result of the impairment taken in the third quarter, our unrealized gain or loss (MTM) in the investment portfolio improved $19.7 million to $1.5 million at September 30, 2009 compared to year-end 2008. The reported balances for 2009 are after the $15.0 million and $3.9 million impairments taken in the third and second quarters, respectively. By taking these impairments, we have substantially lowered the risk profile of our balance sheet. For more detail, see securities Note 2 to the consolidated financial statements earlier in the document. The investment portfolio is designed to balance interest rate risk and provide liquidity. It is an active tool in balance sheet management.

Total deposits continue to grow. At September 30, 2009 deposits were $851.8 million, an increase of $73.7 million, or 9.5%, from $778.2 million at the same point in 2008 and up $38.3 million from the year-end 2008 balance of $813.5 million. Over 92 % of the increase was in core deposits - $48.8 million in NOW accounts and $23.8 million in MMDA. Certificates of deposit increased $3.4 million. Cost of deposits is down $855 thousand compared to the first nine months of 2008 with $674 thousand of that decrease occurring in the third quarter, and our cost of deposits is projected to continue to decrease as $110 million in certificates of deposit reprice over the next three months. Average interest-bearing deposits increased $111.6 million from $645.2 million in the third quarter of 2008 to $756.7 million for the same period in 2009. Average demand deposits declined $5.3 million to $92.2 million at September 30, 2009.

FHLB borrowings at September 30, 2009 totaled $123.9 million, a $10.7 million, or 8.0%, decrease compared to $134.6 million at December 31, 2008 and an $11.4 million decrease from $135.4 million at September 30, 2008.

Accounting standards require the Company to show the effect of market changes in the value of securities available for sale. The valuation is particularly erratic in these stressed economic times. The effect of the change in market value of securities, net of income taxes, is reflected in a line titled "Accumulated other comprehensive (loss), net" in the Shareholders' Equity section of the Consolidated Balance Sheets. The securities portion was a $955 thousand gain at September 30, 2009 compared to an $11.8 million loss at December 31, 2008 and an increase of $11.4 million compared to a $10.4 million loss at June 30, 2009. Also included in this line item is a $3.2 million loss related to the prior year market decrease in the value of the pension plan.

RESULTS OF OPERATIONS

Net Income

With the addition of the preferred stock on our balance sheet, we need to analyze income on two levels: income from operations and income available to common shareholders. Preferred dividends and accretion of discount on the preferred stock are recorded before any dividends are paid to the common stock holders.

For the third quarter 2009, net income/(loss) available to common shareholders was a loss of $8.9 million compared to a loss of $3.0 million in the third quarter of 2008. Diluted and basic earnings per common share decreased $0.98 to a loss of $1.50, compared to a loss of $0.52 for the same quarter in 2008. Without the $10.6 million increase in securities impairment and the merger-related expense of $218 thousand, the Company would have had positive pretax income. Net interest income for the third quarter 2009 was $8.1 million compared to $8.4 million for the same quarter in 2008. The third quarter decrease of $304 thousand is less than the decline in the second quarter of 2009 of $594 thousand as the interest spread decreased. Interest and fees on loans were down $834 thousand, or 6.3 %, while deposit costs were down $674 thousand, or 12.9 % compared to third quarter 2008. An encouraging aspect of this decline is the third quarter deposit interest expense decrease which is approximately 79% of the total year over year change and indicates that the net interest margin should be adjusting upward.

Interest income on investments declined by $296 thousand compared to the third quarter in 2008. While we have made some adjustments in our portfolio that has resulted in increased income from tax exempt securities, these increases could not overcome the loss of FNMA and FHLMC securities income, the decline in trust preferred income and a decreased FHLB dividend. Federal funds sold, with an average balance of $5.5 million and a yield of only 0.22%, earned $3 thousand during the third quarter, a decline of $43 thousand compared to 2008. Our investment in deposits at other banks, with an average balance of $26.1 million, earned $44 thousand for the quarter which offset the fed funds decline. We have clearly benefited from shifting funds out of traditional fed funds category. We continue to explore other higher earning investment alternatives to improve earnings on our excess funds. Interest bearing liabilities expense decreased $826 thousand for the third quarter compared to the same period in 2008. With the decreasing deposit costs, we are anticipating more improvement in our net interest margin over the next twelve months due to continued deposit repricing. Loan loss provision for the third quarter 2009 was $850 thousand, a decline of $200 thousand from $1.1 million in the third quarter 2008. Over the last six quarters, we have set aside $6.1 million in provision and anticipate continuing this higher than usual provision for the near term.

Noninterest income for the third quarter 2009 was ($13.2) million, compared to ($3.0) million in 2008's third quarter. Excluding the impact of the securities impairment for both periods, mentioned above, noninterest income would have increased $363 thousand to $1.8 million for the third quarter 2009 compared to $1.4 million for the same period in 2008. Deposit fees declined $45 thousand while other noninterest income increased $56 thousand primarily from insurance fees, and card fees increased $13 thousand. An OREO gain of $107 thousand compared to a loss in 2008 of $229 thousand was the largest increase in noninterest income before impairments. Without the OREO item, there was still a $24 thousand increase in noninterest income period-to-period.

Noninterest expense for the third quarter of 2009 increased $327 thousand, or 4.7% compared to 2008 from $7.0 million in 2008 to $7.3 million in third quarter 2009. This increase was primarily from a $183 thousand increase in the regular FDIC assessment and the $218 thousand in merger related expenses. Occupancy expense increased $76 thousand due to annual changes in building insurance, rent and service contracts. Management continues to monitor controllable expenses closely.

For the nine months ended September 30, 2009, net income/(loss) available to common shareholders was ($10.7) million, a decrease of ($11.5) million compared to $857 thousand at the same date in 2008. Net interest income decreased $992 thousand, with a decrease of $2.3 million in interest income offset by a decrease in interest expense of $1.3 million. Loan loss provision expense was $2.5 million through September 30, 2009 down $300 thousand from $2.8 million in 2008. Noninterest income for the first nine months of 2009 was ($13.9) million, a decrease of $15.5 million compared to 2008's $1.6 million. In addition to the items mentioned in the second quarter review above, we had a $1.3 million actuarial gain on pension curtailment in 2008. Without the unusual items in both years, noninterest income would have increased $27 thousand as a result of higher card fees. (See table below.) Noninterest expense increased $2.1 million from $20.6 million in 2008 to $22.7 million for the period ended September 30, 2009. Of that increase, $1.6 million is from a $1.1 million increase in FDIC expense and 526 thousand of merger-related expenses. The remainder of the increase is from $203 thousand in salaries and benefits as group insurance and pension costs rose and $364 thousand in occupancy and equipment as a result of our branch purchases in 2008 and annual increases in the third quarter.

                                               YTD through September 30                YTD Change
Dollars in thousands                             2009               2008          Amount         Percent
Total noninterest income/(loss) reported
(GAAP)                                       $     (13,929 )      $  1,552       $ (15,481 )      -997.5 %
. . .