• Geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad;

• The effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;

• Inflation, interest rate, market and monetary fluctuations;

• The timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;

• The willingness of users to substitute competitors' products and services for our products and services;

• The impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance, and the application thereof by regulatory bodies;

• Technological changes;

• The effect of acquisitions we may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions;

• The growth and profitability of non-interest or fee income being less than expected;

• Changes in the level of our non-performing assets and charge-offs;

• The effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the FASB or other accounting standards setters;

• Possible other-than-temporary impairments of securities held by us;

• The impact of current governmental efforts to restructure the U.S. financial regulatory system;

• Changes in consumer spending and savings habits; and

• Unanticipated regulatory or judicial proceedings.

If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Quarterly Report on Form 10-Q and other reports filed by us with the SEC. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company. These factors and other risks and uncertainties are discussed in Item 1A. Risk Factors in Part II of this Quarterly Report on Form 10-Q and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, which revise certain risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2008, and add certain new risk factors.
APPLICATION OF CRITICAL ACCOUNTING POLICIES The Company's consolidated financial statements are prepared in accordance with GAAP and conform to general practices within the banking industry. The Company's financial position and results of operations are affected by management's application of accounting policies, including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company's consolidated financial position and consolidated results of operations.
Estimates, assumptions, and judgments are necessary principally when assets and liabilities are required to be recorded at estimated fair value, when a decline in the value of an asset carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded based upon the probability of occurrence of a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by third party sources, when available. When third party information is not available, valuation adjustments are estimated by management primarily through the use of internal modeling techniques and appraisal estimates.
The Company's accounting policies are fundamental to understanding Management's Discussion and Analysis of Financial Condition and Results of Operation. The disclosures presented in the Notes to the Consolidated Financial Statements and in Management's Discussion and Analysis provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the accounting for and valuation of investment securities, the determination of the allowance for loan losses, accounting for acquisitions and intangible assets, and accounting for income taxes as the four accounting areas that require the most subjective or complex judgments. The identified critical accounting policies are described in detail in the Company's 2008 Annual Report on Form 10-K.
COMPANY OVERVIEW
The Company is a financial holding company which operates within the five-state region of Virginia, West Virginia, North Carolina, South Carolina, and Tennessee. The Company operates through the Bank, IPC, and GreenPoint to offer a wide range of financial services. The Company reported total assets of $2.30 billion at September 30, 2009.
The Company funds its lending activities primarily through the retail deposit operations of its branch banking network. Retail and wholesale repurchase agreements and borrowings from the Federal Home Loan Bank ("FHLB") provide additional funding as needed. The Company invests its funds primarily in loans to retail and commercial customers. In addition to loans, the Company invests a portion of its funds in various debt securities, including those of United States agencies, state and political subdivisions, and certain corporate notes and debt instruments. The Company also maintains overnight interest-bearing balances with the FHLB and correspondent banks. The difference between interest earned on assets and interest paid on liabilities is the Company's primary source of earnings. Net interest income is supplemented by fees for services, commissions on sales, and various deposit service charges.
The Company also conducts asset management activities through the Bank's Trust and Financial Services Division ("Trust Division") and its registered investment advisory firm, IPC. The Bank's Trust Division and IPC manage assets with an aggregate market value of $841 million as of September 30, 2009. These assets are not assets of the Company, but are managed under various fee-based arrangements as fiduciary or agent.

RECENT MARKET DEVELOPMENTS
The global and U.S. economies continue to experience significantly reduced business activity as a result of recessionary economic conditions and disruptions in the financial system. Dramatic declines in home prices and increasing foreclosures and unemployment have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps, other derivative securities, and to loan portfolios, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Further adverse effects could have an adverse impact on the Company and its business.
MERGERS, ACQUISITIONS AND BRANCHING ACTIVITY On July 31, 2009, the Company completed the acquisition of TriStone Community Bank ("TriStone"), based in Winston-Salem, North Carolina. TriStone had two full service locations in Winston-Salem, North Carolina. At acquisition, TriStone had total assets of approximately $166.82 million, loans of approximately $132.23 million, and deposits of approximately $142.27 million. Under the terms of the merger agreement, subject to dissenter's rights, shares of TriStone were exchanged for .5262 shares of the Company's common stock, resulting in a purchase price of approximately $10.78 million. As a result of the acquisition and purchase price allocation, a preliminary gain of approximately $4.49 million was recorded on the acquisition, which represents the excess fair market value of the net assets acquired and indentified intangibles over the purchase price. On November 14, 2008, the Company completed the acquisition of Coddle Creek Financial Corp. ("Coddle Creek"), based in Mooresville, North Carolina. Coddle Creek had three full service locations in Mooresville, Cornelius, and Huntersville, North Carolina. At acquisition, Coddle Creek had total assets of approximately $158.66 million, loans of approximately $136.99 million, and deposits of approximately $137.06 million. Under the terms of the merger agreement, shares of Coddle Creek were exchanged for .9046 shares of the Company's common stock and $19.60 in cash, for a total purchase price of approximately $32.29 million. As a result of the acquisition and purchase price allocation, approximately $14.41 million in goodwill was recorded, which represents the excess purchase price over the fair market value of the net assets acquired and identified intangibles.
Since January 1, 2008, GreenPoint has acquired a total of five agencies, issuing cash consideration of approximately $2.04 million. Acquisition terms in all instances call for additional cash consideration if certain operating performance targets are met. If those targets are met, the value of the consideration ultimately paid will be added to the cost of the acquisitions. Goodwill and other intangibles associated with GreenPoint's acquisitions total approximately $2.04 million.
The Company opened a new branch location in Richmond, Virginia in July 2009.
RESULTS OF OPERATIONS
Overview
The Company experienced the following developments in the third quarter of 2009:
• For the third quarter of 2009 net income decreased to a loss of $11.30 million and net income available to common shareholders decreased to a loss of $12.31 million from the comparable period in 2008. Net income is reduced by accrued and deemed preferred stock dividends and amortization of a preferred stock discount to arrive at net income available to common shareholders.

• Impairment losses of $30.81 million and $34.80 million were recorded on collateralized debt obligations and bank equity securities for the three- and nine-month periods ended September 30, 2009.

• Net interest margin, on a tax equivalent basis, decreased 22 basis points to 3.68% for the three-months ended September 30, 2009 and 19 basis points to 3.68% for the nine-months ended September 30, 2009, as compared to the three- and nine- month periods ended September 30, 2008.

• For the three- and nine-month periods ended September 30, 2009, earnings per common share decreased to a loss of $0.71 and $0.42, respectively, as compared to earnings of $0.42 and $1.56 in the comparable periods in the prior year. Diluted earnings per share for the three- and nine-month periods ended September 30, 2009 reflects an increase in common shares issued and outstanding due to the issuance of 741,588 shares related to the TriStone merger in July 2009, an accelerated deemed dividend related to the prepayment of $41.5 million of preferred stock, and cash dividends paid on preferred stock.

• The allowance for loan losses as a percentage of total loans increased to 1.25% in the third quarter of 2009, as compared to 1.24% in the third quarter of 2008.

• Average shareholders' equity increased $67.38 million, or 34.96%, from third quarter 2008 primarily due to the sale of 5.29 million shares of common stock in June 2009, which generated net proceeds of approximately $61.67 million.

Net loss available to common shareholders for the three months ended September 30, 2009, was $12.31 million, or $0.71 per diluted share, compared with net income of $4.55 million, or $0.41 per diluted share, for the three months ended September 30, 2008, a decrease of $16.86 million. The principal cause of the decrease in net income between the three months ended September 30, 2009 and 2008 was other-than-temporary impairment of debt securities totaling $30.53 million.
Net loss available to common shareholders for the nine months ended September 30, 2009, was $5.83 million, or $0.42 per diluted share, compared with net income of $17.10 million, or $1.54 per diluted share, for the nine months ended September 30, 2008, a decrease of $22.93 million. The above referenced impairments also led to the decrease in net income between the nine months ended September 30, 2009 and 2008 coupled with increased provisions for loan losses and a special insurance premium assessment by the FDIC. Net Interest Income - Quarterly Comparison (See Table I) Net interest income, the largest contributor to earnings, was $17.54 million for the three months ended September 30, 2009, compared with $16.32 million for the corresponding period in 2008, an increase of $1.21 million, or 7.43%. Tax-equivalent net interest income totaled $18.33 million for the three months ended September 30, 2009, an increase of $1.07 million, or 6.17%, from $17.26 million for the third quarter of 2008. The increase in tax-equivalent net interest income was due primarily to increases in total earning assets and decreases in deposit and borrowing costs.
Compared with the third quarter of 2008, average earning assets increased $219.73 million while interest-bearing liabilities increased $205.44 million during the three months ended September 30, 2009. The changes include the impact of the November 2008 Coddle Creek and the July 2009 TriStone acquisitions. The yield on average earning assets decreased 62 basis points to 5.60% from 6.22% between the three months ended September 30, 2009 and 2008, respectively. Total cost of interest-bearing liabilities decreased 45 basis points between the third quarters of 2008 and 2009, which resulted in a net interest rate spread that was 17 basis points lower at 3.47% for the third quarter of 2009 compared with 3.64% for the same period last year. The Company's tax-equivalent net interest margin of 3.68% for the three months ended September 30, 2009 decreased 22 basis points from 3.90% for the same period of 2008.
The rate earned on loans decreased 39 basis points to 6.14% from 6.53% for the three months ended September 30, 2009 and 2008, respectively. The effect of the cuts in the target federal funds rate by the Federal Open Market Committee and the associated decline in the Prime rate had a significant impact on loan yields throughout 2008 and 2009 and when combined with the addition of Coddle Creek and TriStone resulted in a net increase of $1.79 million, or 9.29%, in tax-equivalent loan interest income for the third quarter of 2009 compared with the third quarter of 2008.
During the three months ended September 30, 2009, the tax-equivalent yield on available-for-sale securities decreased 67 basis points to 4.91%, while the average balance decreased by $36.56 million, or 6.81%, compared with the same period in 2008. The decline in average balance was due largely to declines in the fair value of available-for-sale securities. The average balance of the held-to-maturity securities portfolio continued to decline as securities matured or were called and were not replaced.
Compared with the third quarter of 2008, average interest-bearing balances with banks increased to $71.96 million during the third quarter of 2009, as the yield decreased 220 basis points to 0.30% during the same period. Interest-bearing balances with banks are comprised largely of excess liquidity bearing overnight market rates. The rate earned on these overnight balances during the third quarter of 2009 decreased along with decreases in short-term benchmark interest rates. The Company maintained a strong liquidity position in the third quarter to balance the risks associated with the fed funds market and general economic conditions.
Compared with the same period in 2008, the average balances of interest-bearing demand deposits increased $30.94 million, or 17.32%, while the average rate paid during the third quarter of 2009 increased by five basis points. During the three months ended September 30, 2009, the average balances of savings deposits increased $30.24 million, or 9.77%, while the average rate paid decreased 76 basis points compared to the same period in 2008. Average time deposits increased $256.45 million, or 40.57%, while the average rate paid on time deposits decreased 63 basis points from 3.42% in the third quarter of 2008 to 2.79% in the third quarter of 2009. The level of average non-interest-bearing demand deposits decreased $12.17 million, or 5.77%, to $198.98 million during the quarter ended September 30, 2009, compared with the corresponding period of the prior year. The overall increase in the level of average deposits reflects the addition of Coddle Creek and TriStone. Movements within the deposit types reflect customers seeking yield enhancement and safety within FDIC-insured products.

Retail repurchase agreements, which consist of collateralized retail deposits and commercial treasury accounts, decreased $48.92 million, or 32.62%, to $101.07 million for the third quarter of 2009, while the rate decreased 63 basis points to 1.31% during the same period. The decrease in average balance can be largely attributed to the customers converting retail repurchase agreements to certificates of deposit and businesses using cash during difficult economic times. There were no federal funds purchased on average during the third quarter of 2009, compared with $42.70 million in the same period in 2008. Wholesale repurchase agreements remained unchanged at $50.00 million, while the rate increased 66 basis points between the two periods due to structure within those borrowings. The average balance of FHLB borrowings and other long-term debt decreased by $20.56 million, or 9.48%, in the third quarter of 2009 to $196.23 million, while the rate paid on those borrowings decreased 37 basis points.
Net Interest Income - Year-to-Date Comparison (See Table II) Net interest income was $50.29 million for the nine months ended September 30, 2009, compared with $49.31 million for the corresponding period in 2008, an increase of $982 thousand, or 1.99%. Tax-equivalent net interest income totaled $52.77 million for the nine months ended September 30, 2009, an increase of $293 thousand, or 0.56%, from $52.48 million for the first nine months ended September 30, 2008. The increase in tax-equivalent net interest income was due primarily to decreases in savings and time deposit yields.
Compared with the first nine months of 2008, average earning assets increased $106.84 million while interest-bearing liabilities increased $140.05 million during the nine months ended September 30, 2009. The changes include the impact of the November 2008 Coddle Creek and July 2009 TriStone acquisitions. The yield on average earning assets decreased 63 basis points to 5.76% from 6.39% between the nine months ended September 30, 2009 and 2008, respectively. Total cost of interest-bearing liabilities decreased 56 basis points between the third quarters of 2008 and 2009, which resulted in a net interest rate spread that was seven basis points lower at 3.47% for the first nine months of 2009 compared with 3.54% for the same period last year. The Company's tax-equivalent net interest margin of 3.68% for the nine months ended September 30, 2009 decreased 19 basis points from 3.87% for the same period of 2008.
The rate earned on loans decreased 60 basis points to 6.20% from 6.80% for the nine months ended September 30, 2009 and 2008, respectively. The effect of the cuts in the target federal funds rate by the Federal Open Market Committee and the associated decline in the Prime rate had a significant impact on loan yields throughout 2008 and 2009, although loan income increased $207 thousand, or 0.34%, on a tax-equivalent basis as a result of volume increases, for the first nine months of 2009 compared with the first nine months of 2008. During the nine months ended September 30, 2009, the tax-equivalent yield on available-for-sale securities decreased 27 basis points to 5.34%, while the average balance decreased by $67.09 million, or 11.13%, compared with the same period in 2008. The decline in average balance was due to declines in the fair value of available-for-sale securities. The average balance of the held-to-maturity securities portfolio continued to decline as securities matured or were called and were not replaced.
Compared with the first nine months of 2008, average interest-bearing balances with banks increased to $67.82 million during the first nine months of 2009, as the yield decreased 255 basis points to 0.26% during the same period. Interest-bearing balances with banks is comprised largely of excess liquidity bearing overnight market rates. The rate earned on these overnight balances during the first nine months of 2009 decreased along with decreases in short-term benchmark interest rates.
Compared with the same period in 2008, the average balances of interest-bearing demand deposits increased $27.57 million, or 16.06%, while the average rate paid during the first nine months of 2009 increased one basis point compared with the same period of 2008. During the nine months ended September 30, 2009, the average balances of savings deposits increased $8.48 million, or 2.69%, while the average rate paid decreased 87 basis points compared to the same period in 2008. The decline in yield reflects downward repricing of money market products consistent with declines in short-term benchmark rates. Average time deposits increased $216.22 million, or 33.35%, while the average rate paid on time deposits decreased 79 basis points from 3.81% in the first nine months of 2008 to 3.02% in the first nine months of 2009. The level of average non-interest-bearing demand deposits decreased $13.95 million, or 6.97%, to $199.99 million during the nine months ended September 30, 2009, compared with the corresponding period of the prior year. The overall increase in the level of average deposits reflects the addition of Coddle Creek and TriStone. Movements within the deposit types reflect customers seeking yield enhancement within FDIC insured products.
Retail repurchase agreements, which consist of collateralized retail deposits and commercial treasury accounts, decreased $48.11 million, or 38.84%, to $103.00 million for the first nine months of 2009, while the rate decreased 88 basis points to

1.37% during the same period. The decrease in average balance can be largely attributed to the customers converting retail repurchase agreements to certificates of deposit and lower business account cash balances reflective of recessionary conditions. There were no federal funds purchased on average during the first nine months of 2009, compared with $18.24 million in the same period in 2008. Wholesale repurchase agreements remained unchanged at $50.00 million, while the rate increased 99 basis points between the two periods due to structure within those borrowings. The average balance of FHLB borrowings and other long-term debt decreased by $45.88 million, or 18.17%, in the first nine months of 2009 to $206.64 million, while the rate paid on those borrowings decreased 37 basis points.

Table I
            AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS

                                                Three Months Ended                                         Three Months Ended
. . .