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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K

(Mark One)

|x | Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------

For the fiscal year ended: December 31, 2009

Or



| ̈ | Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------

For the transition period from  to

Commission File Number: 000-53380





Xenith Bankshares, Inc.

Exact name of registrant as specified in its charter



|                                                                    |  |                                   
|------------------------------------------------------------------- |  | ----------------------------------
|Virginia                                                            |  | 80-0229922                        
|State or other jurisdiction of incorporation or organization        |  | I.R.S. Employer Identification No.
|                                                                    | 
|One James Center, 901 E. Cary Street, Suite 1700 Richmond, Virginia |  | 23219                             
|Address of principal executive offices                              |  | Zip Code                          

(804)
433-2200

Registrants telephone number including area code

Securities registered under Section 12(b) of the Exchange Act:



|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Common Stock, par value $1.00 |  | The NASDAQ Stock Market LLC              
|Title of Class                |  | Name of each exchange on which registered

Securities registered under Section 12(g) of the Exchange Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes  x    No   ̈

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 filings requirements for the past 90
days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 this chapter) is not
contained herein, and will not be contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  x

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 |  |  ̈ |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller reporting company |  | x

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

The aggregate market value of the issuers common stock held by
non-affiliates as of June 30, 2009: $12,510,734.

APPLICABLE ONLY TO CORPORATE REGISTRANTS

The number of shares outstanding of the issuers common stock as of March 25, 2010: 5,846,928 shares.





DOCUMENTS INCORPORATED BY REFERENCE

Portions of the
Proxy Statement for the Companys Annual Meeting of Shareholders to be held on May 6, 2010 are incorporated by reference in Part III of this report.









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XENITH BANKSHARES, INC. AND SUBSIDIARY

2009 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS



|           |  |                                                                                                                |  |     
|---------- |  | -------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                |  | Page
|           |  | PART I                                                                                                         |  |     
|           |  |                                                                                                               
|Item 1     |  | Business                                                                                                       |  | 3   
|Item 1A    |  | Risk Factors                                                                                                   |  | 15  
|Item 2     |  | Properties                                                                                                     |  | 24  
|Item 3     |  | Legal Proceedings                                                                                              |  | 24  
|           |  |                                                                                                               
|           |  | PART II                                                                                                        |  |     
|           |  |                                                                                                               
|Item 5     |  | Market for Registrants Common Equity, Related Shareholder Matters and Issuer Repurchases of Equity Securities |  | 25  
|Item 7     |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                          |  | 25  
|Item 8     |  | Financial Statements and Supplementary Data                                                                    |  | 43  
|Item 9     |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                           |  | 80  
|Item 9A(T) |  | Controls and Procedures                                                                                        |  | 80  
|Item 9B    |  | Other Information                                                                                              |  | 80  
|           |  |                                                                                                               
|           |  | PART III                                                                                                       |  |     
|           |  |                                                                                                               
|Item 10    |  | Directors, Executive Officers and Corporate Governance                                                         |  | 81  
|Item 11    |  | Executive Compensation                                                                                         |  | 81  
|Item 12    |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters                 |  | 81  
|Item 13    |  | Certain Relationships and Related Transactions, and Director Independence                                      |  | 82  
|Item 14    |  | Principal Accounting Fees and Services                                                                         |  | 82  
|Item 15    |  | Exhibits, Financial Statement Schedules                                                                        |  | 83  



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PART I

Item 1 - Business

General

First Bankshares, Inc., a Virginia corporation (First Bankshares), was incorporated in Virginia on
March 4, 2008, and was the holding company for SuffolkFirst Bank, a community bank founded in the City of Suffolk, Virginia in 2002.

Effective December 22, 2009, First Bankshares and Xenith Corporation, a Virginia corporation, completed the merger of Xenith Corporation with and into First Bankshares (the Merger), with
First Bankshares being the surviving entity in the Merger. The Merger was completed in accordance with the terms of the Agreement of Merger and related Plan of Merger, dated as of May 12, 2009 and as amended by Amendment No. 1, dated as of
August 14, 2009; Amendment No. 2, dated as of October 15, 2009; Amendment No. 3, dated as of October 30, 2009; and Amendment No. 4, dated as of November 19, 2009 (collectively, the Merger Agreement),
between First Bankshares and Xenith Corporation. At the effective time of the Merger, First Bankshares amended its articles of incorporation to, among other things, change its name to Xenith Bankshares, Inc. (Xenith Bankshares). In
addition, following the completion of the Merger, SuffolkFirst Bank changed its name to Xenith Bank.

Pursuant to the terms of
the Merger Agreement, First Bankshares shareholders were entitled to elect to retain their shares of First Bankshares common stock or to receive $9.23 in cash per share for some or all of their shares of First Bankshares common stock, subject to
proration in the event the aggregate cash elections exceeded 569,074 shares (or 25% of shares outstanding immediately prior to the effective time of the Merger) (the Cash Election Number). As of 5:00 p.m., Eastern Time, on
October 15, 2009, the deadline for First Bankshares shareholders to elect to receive cash for some or all of their shares of First Bankshares common stock, First Bankshares had received aggregate cash elections with respect to 1,165,311 shares
of First Bankshares common stock, representing approximately 51.2% of the shares of First Bankshares common stock outstanding immediately prior to the effective time of the Merger.

Because aggregate cash elections exceeded the Cash Election Number, the cash elections were reduced proportionally. Pursuant to the terms of
the Merger Agreement, a number of cash election shares held by each First Bankshares shareholder who made a cash election equal to the product of (1) 0.488345171 (or the Cash Election Number divided by the total number of cash election shares)
and (2) the total number of cash election shares held by such shareholder was converted into the right to receive $9.23 in cash (with any resulting factional shares rounded down to the next whole share). Each cash election share that was not
converted into the right to receive $9.23 in cash and each share of First Bankshares common stock for which a cash election was not made represented one share of Xenith Bankshares common stock immediately following the effective time of the Merger.

Pursuant to the terms of the Merger Agreement, each share of Xenith Corporation common stock outstanding immediately prior to
the effective time of the Merger, was cancelled and converted automatically into the right to receive 0.8700 shares of validly issued, fully paid and non-assessable shares of Xenith Bankshares common stock (the Exchange Ratio). Based on
the Exchange Ratio, an aggregate of 4,139,704 shares of Xenith Bankshares common stock were issued to the former shareholders of Xenith Corporation in exchange for their shares of Xenith Corporation common stock. All fractional shares of Xenith
Bankshares common stock that a Xenith Corporation shareholder would otherwise have been entitled to receive as a result of the Merger were aggregated and, if a fractional share resulted from such aggregation, such holder received, instead of the
fractional share, an amount in cash equal to $9.23 multiplied by the fraction of a share of Xenith Bankshares common stock to which such holder would otherwise have been entitled.



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Options to purchase shares of First Bankshares common stock outstanding at the effective
time of the Merger remain outstanding as options to purchase shares of Xenith Bankshares common stock. An aggregate of 906,000 options and warrants to purchase shares of Xenith Corporations common stock outstanding at the effective time of the
Merger were converted into an aggregate of 788,220 options and warrants to purchase shares of Xenith Bankshares common stock based on the Exchange Ratio at an exercise price of $11.49 per share.

Based on the foregoing and the fact that there were an aggregate of 2,276,298 shares of First Bankshares common stock and an aggregate of
94,493 options to purchase shares of First Bankshares common stock outstanding at the effective time of the Merger, there were an aggregate of 5,846,928 shares of Xenith Bankshares common stock outstanding immediately following the effective time of
the Merger, with First Bankshares shareholders immediately prior to the effective time of the Merger beneficially owning approximately 26.8% of the combined companys outstanding shares of common stock and Xenith Corporation shareholders
immediately prior to the effective time of the Merger beneficially owning approximately 73.2% of the combined companys outstanding shares of common stock, on a fully diluted basis.

References in this Annual Report on Form 10-K for the year ended December 31, 2009 (this Annual Report) to Xenith
Bankshares, the Company, we, our and us are to Xenith Bankshares and its wholly-owned subsidiary, Xenith Bank. References in this Annual Report to the Bank are to Xenith Bank.

Xenith Bankshares, through Xenith Bank, operates four full-service branches: one in Richmond, Virginia and three in Suffolk,
Virginia. Xenith Bank continues to do business as SuffolkFirst Bank at its existing locations in Suffolk, Virginia. Xenith Bankshares anticipates opening a fifth branch in Tysons Corner, Virginia during the second or third quarter of 2010.

As the Merger was completed on December 22, 2009, this Annual Report reflects the operations of Xenith Bankshares
(formerly First Bankshares, Inc. and its wholly-owned subsidiary, SuffolkFirst Bank) prior to the Merger. This Annual Report also reflects the post-Merger operations of the consolidated entity for the period from December 22, 2009 through
December 31, 2009.

Business

The Banks core business development currently targets medium-sized business customers in addition to offering various consumer products. Our services and products currently consist primarily of
taking deposits and making loans within our trade areas of the City of Suffolk and its adjacent cities and counties, the City of Richmond and its adjacent cities and counties, and the Northern Virginia markets, including the District of Columbia. We
provide a broad selection of commercial and retail banking products, including commercial and industrial loans and commercial and residential real estate loans and various consumer loans. We also offer a wide range of deposit products, including
time deposit, automated clearing house transactions, remote capture, debit cards, 24-hour ATM access, and Internet banking and bill pay service.

In 2008, the Bank introduced Remote Deposit Express, a service designed to allow business customers to submit their deposits electronically seven days a week. Remote Deposit Express also eliminates the
time, risk, and expense that businesses incur by having their employees deliver deposits to branch locations or by paying for courier pickup. In addition, we provide a variety of deposit products that includes time deposits, automated clearing house
transactions, debit cards, 24-hour ATM access, and Internet banking and bill pay service.



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Executive Officers

The following table lists our executive officers and the periods of their employment.



|                            |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |               
|--------------------------- |  | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------
|Name                        |  | Age |  | Title and Previous Occupation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Employed Since
|T. Gaylon Layfield, III     |  | 58  |  | President and Chief Executive Officer of Xenith Bankshares and Xenith Bank, since December 22, 2009, having previously served as President and Chief Executive Officer of Xenith
Corporation from February 19, 2008 until December 22, 2009. Mr. Layfield is also currently the President of Timber Resource Management, L.L.C., a privately held timber investment management organization, having previously served in various
increasing roles of responsibility with Signet Banking Corporation, a $12 billion bank holding company that was acquired by First Union Corporation (now Wells Fargo & Company), from 1975 until Signets acquisition in November
1997. |  | December 2009 
|                            |  |     | 
|Thomas W. Osgood            |  | 54  |  | Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Treasurer of Xenith Bankshares and Xenith Bank, since December 22, 2009, having previously served
as Chief Financial Officer and Chief Administrative Officer of Xenith Corporation from February 19, 2008 until December 22, 2009. From January 1998 to May 2007, he was with East Coast Fire Protection, Inc., a fire protection firm, where he was
Executive Vice President and served in numerous finance, operating and marketing capacities.                                                                                                                                   |  | December 2009 
|                            |  |     | 
|Ronald E. Davis             |  | 58  |  | Executive Vice President and Corporate Secretary of Xenith Bankshares, Executive Vice President and Chief Lending Officer of Xenith Bank, since December 22, 2009, having previously
served as Executive Vice President of Xenith Corporation from June 2008 until December 22, 2009. From December 2001 until June 2008, he served as President and CEO of Virginia Heartland Bank and then its successor, Second Bank and Trust (part of
Virginia Financial Group) in Fredericksburg, Virginia.                                                                                                                                                                        |  | December 2009 
|                            |  |     | 
|Darrell G. Swanigan         |  | 67  |  | Executive Vice President of Xenith Bank and President of Xenith Banks Hampton Roads Region, since December 22, 2009, having previously served as President and Chief Executive
Officer of First Bankshares and SuffolkFirst Bank from July 2002 until December 22, 2009.                                                                                                                                                                                                                                                                                                                                                                                                |  | July 2002     
|                            |  |     | 
|Wellington W. Cottrell, III |  | 55  |  | Executive Vice President and Chief Credit Officer of Xenith Bank, since December 22, 2009, having previously served as Executive Vice President of Xenith Corporation from May 2008
until December 22, 2009. From 2000 until May 2008, Mr. Cottrell served as Managing Director of Risk Management in the Corporate and Investment Banking Group at SunTrust Bank.                                                                                                                                                                                                                                                                                                       |  | December 2009 
|                            |  |     | 
|W. Jefferson OFlaherty     |  | 55  |  | Executive Vice President of Xenith Bank, since December 22, 2009, having previously served as Executive Vice President of Xenith Corporation from May 2008 until December 22, 2009.
Mr. OFlaherty served as Regional Managing Director of Wachovia Wealth Management for Wachovia Bank (now Wells Fargo & Company) from 2001, when First Union Bank merged with Wachovia Corporation, until December 2007.                                                                                                                                                                                                                                                              |  | December 2009 

Employees

We had 66 employees, including 63 full-time employees, at December 31, 2009, all of whom were employed by Xenith
Bank. None of our employees are represented by a collective bargaining unit, and we believe that relations with our employees are good. Based on the Banks vision statement of creating the bank you have always wanted to do business
with and the bank we have always wanted to work for, we believe that our employees are well-suited for accomplishing this goal and establishing the Bank as a good corporate citizen in our communities.



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Supervision and Regulation

General

Xenith Bank is a Virginia state chartered bank regulated by the Federal Reserve Bank (the Federal Reserve) and the Bureau of Financial Institutions of Virginia (the Bureau of Financial Institutions). Xenith Bank
operates as a subsidiary under Xenith Bankshares, a one bank holding company. Our deposits are insured by the Federal Deposit Insurance Corporation (the FDIC). Xenith Bankshares and the Bank are required by the Federal Reserve and the
Bureau of Financial Institutions to file semi-annual and quarterly financial reports, respectively, on our financial condition and performance. In addition, the Federal Reserve and the Bureau of Financial Institutions conduct periodic onsite and
offsite examinations of the Bank. We must comply with a variety of reporting requirements and banking regulations. The laws and regulations governing us generally have been promulgated to protect depositors and the deposit insurance funds and are
not intended to protect our various shareholders. Additionally, we must bear the cost of compliance with reporting and other regulations; this cost can be significant and could affect our financial performance.

The Federal Reserve, Bureau of Financial Institutions, and FDIC have the authority and responsibility to ensure that financial institutions
are managed in a safe and sound manner and to prevent the continuation of unsafe and unsound activities. Additionally, they must generally approve significant business activities undertaken by financial institutions. Typical examples of such
activities requiring approval include branch locations, mergers, capital transactions, and major organizational structure changes. Obtaining regulatory approval for these types of activities can be time consuming and expensive and ultimately might
not be successful.

Insurance of Accounts and Regulatory Assessments

Our deposit accounts are insured by the Bank Insurance Fund of the FDIC up to the maximum legal limits of the FDIC and are subject to
regulation, supervision, and regular examination by the Bureau of Financial Institutions and the Federal Reserve. The regulations of these various agencies govern most aspects of our business, including required reserves against deposits, loans,
investments, mergers and acquisitions, borrowings, dividends, and location and number of branch offices.

Substantially all of
the deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund (DIF) of the FDIC and are subject to deposit insurance assessments to maintain the DIF. The FDIC utilizes a risk-based assessment system that
imposes insurance premiums based upon a risk matrix that takes into account a banks capital level and supervisory rating (CAMELS rating). The risk matrix utilizes four risk categories which are distinguished by capital levels and
supervisory ratings.

In December 2008, the FDIC issued a final rule that raised the then current assessment rates uniformly
by 7 basis points for the first quarter of 2009 assessment, which resulted in annualized assessment rates for institutions in the highest risk category (Risk Category 1 institutions) ranging from 12 to 14 basis points (basis points
representing cents per $100 of assessable deposits). In February 2009, the FDIC issued final rules to amend the DIF restoration plan, change the risk-based assessment system and set assessment rates for Risk Category 1 institutions beginning in the
second quarter of 2009. For Risk Category 1 institutions that have long-term debt issuer ratings, the FDIC determines the initial base assessment rate using a combination of weighted-average CAMELS component ratings, long-term debt issuer ratings
(converted to numbers and averaged) and the financial ratios method assessment rate (as defined), each equally weighted. The initial base assessment rates for Risk Category 1 institutions range from 12 to 16 basis points, on an annualized basis.
After the effect of potential base-rate adjustments, total base assessment rates range from 7 to 24 basis points. The potential adjustments to a Risk Category 1 institutions initial base assessment rate, include (i) a potential decrease
of up to 5 basis points for long-term unsecured debt, including senior and subordinated debt and (ii) a potential increase of up to 8 basis points for secured liabilities in excess of 25% of domestic deposits.



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In May 2009, the FDIC issued a final rule which levied a special assessment applicable to
all insured depository institutions totaling 5 basis points of each institutions total assets less Tier 1 capital as of June 30, 2009, not to exceed 10 basis points of domestic deposits. The special assessment was part of the FDICs
efforts to rebuild the DIF. Deposit insurance expense during 2009 included $77,800 recognized by the Bank in the second quarter related to the special assessment.

In November 2009, the FDIC issued a rule that required all insured depository institutions, with limited exceptions, to prepay their estimated quarterly risk-based assessments for the fourth quarter of
2009 and for all of 2010, 2011 and 2012. The FDIC also adopted a uniform three-basis point increase in assessment rates effective on January 1, 2011. In December 2009, the Bank paid $1,018,700 in prepaid risk-based assessments, which is
included in other assets on the accompanying consolidated balance sheet as of December 31, 2009.

FDIC insurance expense
totaled $260,560 in 2009. FDIC insurance expense includes deposit insurance assessments and Financing Corporation (FICO) assessments related to outstanding FICO bonds. The FICO is a mixed-ownership government corporation established by
the Competitive Equality Banking Act of 1987 whose sole purpose was to function as a financing vehicle for the now defunct Federal Savings & Loan Insurance Corporation.

Under the Federal Deposit Insurance Act (the FDIA), the FDIC may terminate deposit insurance upon a finding that the institution
has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

Bank Capital Adequacy Guidelines

The Federal Reserve Board (the Federal Reserve Board) has issued risk-based and leverage capital guidelines applicable to banking organizations that it supervises. Under the risk-based capital
requirements, we are generally required to maintain a minimum ratio of total capital to risk-weighted assets (including specific off-balance sheet activities, such as standby letters of credit) of 8%. At least half of total capital (4%) must be
composed of Tier 1 capital, which is defined as common equity, retained earnings, and qualifying perpetual preferred stock less certain intangibles. The remainder may consist of Tier 2 capital, which is defined as specific
subordinated debt, some hybrid capital instruments and other qualifying preferred stock, and a limited amount of the Allowance for Loan Losses. Assets are adjusted under the risk-based guidelines to take into account different risk characteristics,
with the categories ranging from 0% (requiring no risk-based capital) for assets such as cash and certain U.S. Government and Agency Securities to 100% for the bulk of assets which are typically held by a bank holding company, including certain
multi-family residential and commercial real estate loans, commercial business loans, and consumer loans. Residential first mortgage loans on one- to four-family residential real estate and certain seasoned multi-family residential real estate
loans, which are not 90 days or more past due or nonperforming and which have been made in accordance with prudent underwriting standards, are assigned a 50% level in the risk-weighting system, as are certain privately issued mortgage-backed
securities representing indirect ownership of such loans.

In addition to the risk-based capital requirements, the Federal
Reserve has established a minimum 4.0% Leverage Capital Ratio (Tier 1 capital to total adjusted assets) requirement.

The
highest rated banks are those that have well-diversified risk, including no undue interest rate risk exposure, excellent asset quality, high liquidity, and good earnings; and that, in general, are considered a strong banking organization. A bank
having less than the minimum Leverage Capital Ratio requirement shall, within 60 days of the date as of which it fails to comply with such requirement, submit a reasonable



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plan describing the means and timing by which it will achieve its minimum Leverage Capital Ratio requirements. A bank that fails to file such a plan is deemed to be operating in an unsafe and
unsound manner and could be subject to a cease-and-desist order. Any insured depository institution with a Leverage Capital Ratio that is less than 2.05% is deemed to be operating in an unsafe and unsound condition pursuant to Section 8(a) of
the FDIA and is subject to potential termination of deposit insurance. However, such an institution will not be subject to an enforcement proceeding solely on account of its capital ratios, provided it has entered into and is in compliance with a
written agreement to increase its Leverage Capital Ratio and to take such other action as may be necessary to operate in a safe and sound manner. The capital regulations also provide, among other things, for the issuance of a capital directive,
which is a final order issued to a bank that fails to maintain minimum capital or to restore its capital to the minimum capital requirement within a specified time period. Such directive is enforceable in the same manner as a final cease-and-desist
order.

Under these regulations, a commercial bank will be:



| |  |  | well-capitalized if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a
Tier 1 leverage ratio of 5% or greater and is not subject to any written capital order or directive;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adequately capitalized if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater, and
a Tier 1 leverage ratio of 4% or greater (3% in certain circumstances) and does not meet the definition of well-capitalized;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | undercapitalized if it has a total risk-based capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than 4%, and a Tier
1 leverage ratio of less than 4% (3% in certain circumstances);
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | significantly undercapitalized if it has a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than
3%, and a Tier 1 leverage ratio of less than 3%; or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | critically undercapitalized if it has a ratio of tangible equity to total assets that is equal to or less than 2%.
| | - |  | --------------------------------------------------------------------------------------------------------------------

The risk-based capital standards of the Federal Reserve explicitly identify concentrations of credit risk
and the risk arising from non-traditional activities, as well as an institutions ability to manage these risks, as important factors to be taken into account by the agency in assessing an institutions overall capital adequacy. The
capital guidelines also provide that an institutions exposure to a decline in the economic value of its capital due to changes in interest rates be considered by the agency as a factor in evaluating a banking organizations capital
adequacy.

Prompt Corrective Action

Immediately upon becoming undercapitalized, an institution shall become subject to the provisions of Section 38 of the FDIA, which:
(a) restrict payment of capital distributions and management fees; (b) require that the appropriate federal banking agency monitor the condition of the institution and its efforts to restore its capital; (c) require submission of a
capital restoration plan; (d) restrict the growth of the institutions assets; and (e) require prior approval of certain expansion proposals. The appropriate federal banking agency for an undercapitalized institution also may take any
number of discretionary supervisory actions if the agency determines that any of these actions is necessary to resolve the problems of the institution at the least possible long term cost to the deposit insurance fund, subject in certain cases to
specified procedures. These discretionary supervisory actions include: (a) requiring the institution to raise additional capital; (b) restricting transactions with affiliates; (c) requiring divestiture of the institution or the sale
of the institution to a willing purchaser; and (d) any other supervisory action that the agency deems appropriate. These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and
critically undercapitalized institutions.



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Gramm-Leach-Bliley Act of 1999

The Gramm-Leach-Bliley Act (the Act) implemented major changes to the statutory framework for providing banking and other
financial services in the United States. The Act, among other things, eliminated many of the restrictions on affiliations among banks and securities firms, insurance firms, and other financial service providers. A bank holding company that qualifies
as a financial holding company will be permitted to engage in activities that are financial in nature or incident or complimentary to financial activities. The activities that the Act expressly lists as financial in nature include insurance
activities, providing financial and investment advisory services, underwriting services and limited merchant banking activities.

To be eligible for these expanded activities, a bank holding company must qualify as a financial holding company. To qualify as a financial holding company, each insured depository institution controlled by the bank holding company must be
well-capitalized and well-managed and have a least a satisfactory rating under the Community Reinvestment Act of 1977 (See Community Reinvestment Act below). In addition, the bank holding company must file with the Federal Reserve a
declaration of its intention to become a financial holding company.

Although the Act is considered one of the most
significant banking laws since Depression-era statutes were enacted, the act has not, and we do not expect that the act will in the future, materially affect our products, services, or other business activities, nor do we believe that the Act will
have a material adverse impact on our operations. To the extent that it allows banks, securities firms, and insurance firms to affiliate, the financial services industry may experience further consolidation. The Act may have the result of increasing
competition that we face from larger institutions and other companies offering financial products and services, many of which may have substantially greater financial resources.

Payment of Cash Dividends

Xenith Bankshares is a legal entity, separate and distinct from the Bank. Both the Company and the Bank are subject to laws and regulations that limit the payment of dividends, including requirements to
maintain capital at or above regulatory minimums. The Company is organized under the Virginia Stock Corporation Act, which has restrictions prohibiting the payment of dividends if after giving effect to the dividend payment, the Company would not be
able to pay its debts as they become due in the usual course of business, or if the Companys total assets would be less than the sum of its total liabilities plus the amount that would be required, if the Company were to be dissolved, to
satisfy the preferential rights upon dissolution of any preferred shareholders.

Consistent with its policy that bank holding
companies should serve as a source of financial strength for their subsidiary banks, the Federal Reserve has stated that, as a matter of prudence, the Company generally should not maintain a rate of distributions to shareholders unless our available
net income has been sufficient to fully fund the distributions, and the prospective rate of earnings retention appears consistent with the bank holding companys capital needs, asset quality and overall financial condition. Further, the Federal
Reserve issued Supervisory Letter SR 09-4 on February 4, 2009 and revised March 27, 2009, which provides guidance on the declaration and payment of dividends, capital redemptions, and capital repurchases by bank holding company.
Supervisory Letter SR 09-4 provides that, as a general matter, a bank holding company should eliminate, defer, or significantly reduce its dividends if: (1) the bank holding companys net income available to shareholders for the past four
quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, (2) the bank holding companys prospective rate of earnings retention is not consistent with the bank holding companys
capital needs and overall current and prospective financial condition, or (3) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Failure to do so could result in a supervisory
finding that the bank holding company is operating in an unsafe and unsound manner.



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Banking regulators have indicated that Virginia banking organizations should generally pay
dividends only (1) from net undivided profits of the bank, after providing for all expenses, losses, interest and taxes accrued or due by the bank and only (2) if the prospective rate of earnings retention appears consistent with the
organizations capital needs, asset quality and overall financial condition. In particular, under the current supervisory practices of the Federal Reserve Board, prior approval from the Federal Reserve Board and a supermajority of the
Banks shareholders is required if cash dividends declared in any given year exceed net income for that year plus retained earnings of the two preceding years. In addition, under the FDIA, insured depository institutions such as the Bank are
prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become undercapitalized (as such term is used in the statute).

Under Virginia law, no dividend may be declared or paid out of a banks paid-in capital. The Company may be prohibited under Virginia
law from the payment of dividends if the Virginia Bureau of Financial Institutions determines that a limitation of dividends is in the public interest and is necessary to ensure our financial soundness, and may also permit the payment of dividends
not otherwise allowed by Virginia law.

Certain Acquisitions

The Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve before
(i) acquiring more than 5% of the voting stock of any bank or other bank holding company, (ii) acquiring all or substantially all of the assets of any bank or bank holding company, or (iii) merging or consolidating with any other bank
holding company.

Additionally, the Bank Holding Company Act provides that the Federal Reserve may not approve any of these
transactions if it would result in or tend to create a monopoly or substantially lessen competition or otherwise function as a restraint of trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed by the public
interest in meeting the convenience and needs of the community to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the
convenience and needs of the community to be served. The Federal Reserves consideration of financial resources generally focuses on capital adequacy, which is discussed below. As a result of the Patriot Act, which is also discussed below, the
Federal Reserve is required to consider the record of a bank holding company and its subsidiary bank(s) in combating money laundering activities in its evaluation of bank holding company merger or acquisition transactions.

Under the Bank Holding Company Act, if adequately capitalized and adequately managed, any bank holding company located in Virginia may
purchase a bank located outside of Virginia. Conversely, an adequately capitalized and adequately managed bank holding company located outside of Virginia may purchase a bank located inside Virginia. In each case, however, restrictions currently
exist on the acquisition of a bank that has only been in existence for a limited amount of time or will result in specified concentrations of deposits.

Change in Bank Control

Subject to various exceptions, the Bank
Holding Company Act and the Change in Bank Control Act of 1978, together with related regulations, require Federal Reserve approval prior to any person or company acquiring control of a bank holding company. Control is conclusively
presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. With respect to Xenith Bankshares, control is rebuttably presumed to exist if a person or company acquires 10% or more,
but less than 25%, of any class of voting securities.



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Sound Banking Practice

Bank holding companies are not permitted to engage in unsound banking practices. For example, the Federal Reserves Regulation Y
requires a holding company to give the Federal Reserve prior notice of any redemption or repurchase of its own equity securities, if the consideration to be paid, together with the consideration paid for any repurchases in the preceding year, is
equal to 10% or more of the companys consolidated net worth. The Federal Reserve may oppose the transaction if it believes that the transaction would constitute an unsafe or unsound practice or would violate any law or regulation. As another
example, a holding company could not impair its subsidiary banks soundness by causing it to make funds available to non-banking subsidiaries or their customers if the Federal Reserve believed it not prudent to do so.

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) expanded the Federal Reserves authority
to prohibit activities of bank holding companies and their non-banking subsidiaries which represent unsafe and unsound banking practices or which constitute violations of laws or regulations. FIRREA increased the amount of civil money penalties
which the Federal Reserve can assess for activities conducted on a knowing and reckless basis, if those activities caused a substantial loss to a depository institution. The penalties can be as high as $1,000,000 for each day the activity continues.
FIRREA also expanded the scope of individuals and entities against which such penalties may be assessed.

Under FIRREA, a
depository institution, the deposits of which are insured by the FDIC, can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (1) the default of a commonly controlled FDIC-insured
depository institution or (2) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution in danger of default. Default is defined generally as the appointment of a conservator or a
receiver and in danger of default is defined generally as the existence of certain conditions indicating that default is likely to occur in the absence of regulatory assistance. Xenith Bank is an FDIC-insured depository institution, with
respect to which BankCap Partners Fund is a bank holding company. BankCap Partners Fund is also a bank holding company for Atlantic Capital Bank, an Atlanta, Georgia based bank. In some circumstances (depending upon the amount of the loss or
anticipated loss suffered by the FDIC), cross-guarantee liability may result in the ultimate failure or insolvency of one or more insured depository institutions in a holding company structure. In such event, our shareholders will experience a
reduction in the value of the stock owned by them and could experience a complete loss of their investment. Any obligation or liability owed by a subsidiary bank to its parent company is subordinated to the subsidiary banks cross-guarantee
liability with respect to commonly controlled insured depository institutions.

Anti-Tying Restrictions

Bank holding companies and affiliates are prohibited from tying the provision of services, such as extensions of
credit, to other services offered by a holding company or its affiliates.

Temporary Liquidity Guarantee Program

On November 21, 2008, the FDIC adopted final regulations implementing the Temporary Liquidity Guarantee Program
(the TLGP) pursuant to which depository institutions could elect to participate. Pursuant to the TLGP, the FDIC will (i) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt
issued by participating institutions on or after October 14, 2008 and before June 30, 2009 (the Debt Guarantee), and (ii) provide full FDIC deposit insurance coverage for non-interest bearing deposit transaction accounts
regardless of dollar amount for an



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additional fee assessment by the FDIC (the Transaction Account Guarantee). These accounts are mainly payment-processing accounts, such as business payroll accounts. The Transaction
Account Guarantee will expire on June 30, 2010. Participating institutions will be assessed a 10 basis point surcharge on the portion of eligible accounts that exceeds the general limit on deposit insurance coverage.

Coverage under the TLGP was available to any eligible institution that did not elect to opt out of the TLGP on or before December 5,
2008. The Bank participates in the Transaction Account Guarantee portion of the TLGP. The Company and the Bank opted out of participating in the Debt Guarantee program.

Standards for Safety and Soundness

The FDIC has established safety
and soundness standards applicable to the Bank regarding such matters as internal controls, loan documentation, credit underwriting, interest-rate risk exposure, asset growth, compensation and other benefits, and asset quality and earnings. If the
Bank were to fail to meet these standards, the FDIC could require it to submit a written compliance plan describing the steps the Bank will take to correct the situation and the time within which such steps will be taken. The FDIC has authority to
issue orders to secure adherence to the safety and soundness standards.

Reserve Requirement

Under a regulation promulgated by the Federal Reserve, depository institutions, including the Bank, are required to maintain cash reserves
against a stated percentage of their transaction accounts. Effective October 9, 2008, Federal Reserve Banks are now authorized to pay interest on such reserves. The current reserve requirements are as follows:



| |  |  | for transaction accounts totaling $10.3 million or less, a reserve of 0%; and
| | - |  | -----------------------------------------------------------------------------



| |  |  | for transaction accounts in excess of $10.3 million up to and including $44.4 million, a reserve of 3%; and
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | for transaction accounts totaling in excess of $44.4 million, a reserve requirement of $1.023 million plus 10% of that portion of the total transaction
accounts greater than $44.4 million.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The dollar amounts and percentages reported here are all subject to adjustment by the Federal Reserve. As of December 31, 2009, the Bank had no
reserve requirement.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

Privacy

Financial institutions are required to disclose their policies for collecting and protecting confidential information. Customers generally
may prevent financial institutions from sharing personal financial information with nonaffiliated third parties except for third parties that market the institutions own products and services. Additionally, financial institutions generally may
not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing through electronic mail to consumers.

Monetary Policy

Banking is a business that depends on interest rate differentials. In general, the differences between the interest paid by a bank on its deposits and its other borrowings and the interest received by a
bank on loans extended to its customers and securities held in its investment portfolio constitute a major portion of earnings. Thus, our earnings and growth will be subject to the influence of economic conditions generally, both domestic and
foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve, which regulates the supply of money through various means



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including open market transactions in United States government securities. These transactions include the purchase and sale of securities to expand or contract the general liquidity in the
financial system. Additionally, the Board of Governors of the Federal Reserve Board establishes a target Federal Fund Rate and the Discount Rate. The actions taken by the Federal Reserve System will dictate the general condition of interest rates in
the market place.

The Banks earnings are primarily a function of differentials between interest rates. Depending on the
Banks asset/liability strategy, actions taken by the Federal Reserve may have a positive or negative effect on profitability. We cannot predict the actions of the Federal Reserve, nor can we guarantee that our asset/liability strategy is
consistent with action taken by the Federal Reserve.

Community Reinvestment Act

The Community Reinvestment Act requires federal banking regulators to evaluate the record of financial institutions in meeting the credit
needs of their local communities, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions. These factors are also considered in evaluating mergers, acquisitions, and applications to open a
branch or facility. To the knowledge of management, the Bank is meeting its obligations under this act.

Branch and
Interstate Banking

The federal banking agencies are authorized to approve interstate bank merger transactions without
regard to whether such transaction is prohibited by the law of any state, unless the home state of one of the banks has opted out of the interstate bank merger provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the Riegle-Neal Act) by adopting a law after the date of enactment of the Riegle-Neal Act and prior to June 1, 1997 that applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state
banks. Interstate acquisitions of branches are permitted only if the law of the state in which the branch is located permits such acquisitions. Such interstate bank mergers and branch acquisitions are also subject to the nationwide and statewide
insured deposit concentration limitations described in the Riegle-Neal Act.

The Riegle-Neal Act authorizes the federal
banking agencies to approve interstate branching de novo by national and state banks in states which specifically allow for such branching. Virginia has enacted laws which permit interstate acquisitions of banks and bank branches and permit
out-of-state banks to establish de novobranches if the home state of the bank has a reciprocal statute.

Regulatory Enforcement Authority

Federal and state banking law grants substantial enforcement powers to
federal and state banking regulators. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions against banking organizations
and institution-affiliated parties. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with regulatory authorities.

Loans to Insiders

The Federal Reserve Act and related regulations impose specific restrictions on loans to directors, executive officers, and principal
shareholder of banks. Under Section 22(h) of the Federal Reserve Act, any loan to a director, executive officer or principal shareholder of a bank, or to entities controlled by any of the foregoing, may not exceed, together with all outstanding
loans to such persons or entities controlled by such person, the banks loan to one borrower limit. Loans in the aggregate to insiders and their related



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interests as a class may not exceed two times the banks unimpaired capital and unimpaired surplus until the banks total assets equal or exceed $100 million, at which time the
aggregate is limited to the banks unimpaired capital and unimpaired surplus. Section 22(h) also prohibits loans above amounts prescribed by the appropriate federal banking agency to directors, executive officers, and principal
shareholders of a bank or bank holding company, and to entities controlled by such persons, unless such loans are approved in advance by a majority of the board of directors of the bank with any interested director not participating in
the voting. Our policy on loans to insiders established a maximum loan amount, which includes all other outstanding loans to such persons, as to which such prior board of director approval is required, of the greater of $25,000 or 5% of capital and
surplus (up to $500,000). Section 22(h) requires that loans to directors, executive officers, and principal shareholders be made in terms and underwriting standards substantially the same as offered in comparable transactions to other persons.

USA Patriot Act of 2001

The USA Patriot Act of 2001 (the Patriot Act) was enacted in response to the terrorist attacks in New York, Pennsylvania, and Washington, D.C. which occurred on September 11, 2001 and is
intended to strengthen the ability of U.S. law enforcement agencies and the intelligence communities to work cohesively to combat terrorism on a variety of fronts. The potential impact of the Patriot Act on financial institutions of all kinds is
significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and imposes various regulations, including standards for verifying client identification at account opening and rules to promote
cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.

Other Regulation

The Bank is subject to a variety of other
regulations. State and federal laws restrict interest rates on loans, potentially affecting our income. The Truth in Lending Act and the Home Mortgage Disclosure Act impose information requirements on us in making loans. The Equal Credit Opportunity
Act prohibits discrimination in lending on the basis of race, creed, or other prohibited factors. The Fair Credit Reporting Act governs the use and release of information to credit reporting agencies. The Truth in Savings Act requires disclosure of
yields and costs of deposits and deposit accounts. Other acts govern confidentiality of consumer financial records, automatic deposits and withdrawals, check settlement, endorsement and presentment, and reporting of cash transactions as required by
the Internal Revenue Service.

Future Regulatory Uncertainty

Because federal regulation of financial institutions changes regularly and is the subject of constant legislative debate, we cannot forecast
how federal regulation of financial institutions may change in the future and impact our operations. Although Congress in recent years has sought to reduce the regulatory burden on financial institutions with respect to the approval of specific
transactions, we fully expect that the our industry will remain heavily regulated in the near future and that additional laws or regulations may be adopted, further regulating specific banking practices.

Available Information

We are required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the SEC). Investors and other interested
parties may read and copy any document that we file, including this Annual Report, at the SECs Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Investors and other interested parties may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC, from which investors and other interested parties can electronically access our SEC filings.



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We make available free of charge on or through our website (www.xenithbank.com), our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the SEC.

The information on our website is
not, and shall not be deemed to be, a part of this Annual Report or incorporated into any other filings we make with the SEC.

Item 1A - Risk Factors

The following risk factors should be read carefully in connection with evaluating our
business and the forward-looking statements contained in this Annual Report. Any of the following risks could materially adversely affect our business, our operating results, our financial condition and the actual outcome of matters as to which
forward-looking statements are made in this Annual Report.

The integration of Xenith Corporation and First
Bankshares may be more difficult, costly or time-consuming than expected, or could result in the loss of customers.

Until the completion of the Merger on December 22, 2009, Xenith Corporation and First Bankshares operated independently. It is possible that the integration process could result in the loss of key employees, the disruption of ongoing
business or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the Merger.
Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on Xenith Bankshares for an undetermined period after the completion of the Merger. As with any
Merger involving banking institutions, there also may be disruptions that cause us to lose customers or cause customers to withdraw their deposits. There can be no assurance that customers will readily accept changes to their banking arrangements
after the completion of the Merger.

Difficult market conditions have adversely affected the banking industry.

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



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The soundness of other financial institutions with which we do business could
adversely affect us.

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

For
example, in the normal course of its business, SuffolkFirst Bank purchased various loan participations in loans made by Silverton Bank National Association (Silverton) and its subsidiary, Specialty Finance Group, LLC (SFG).
At December 31, 2009, the total of these loans serviced by Silverton and/or SFG was $16.3 million, or approximately 16% of our total loans. On May 1, 2009, Silverton was closed by the Comptroller of the Currency and the FDIC was appointed
as its receiver, charged with the duty of winding up the affairs of Silverton. On May 5, 2009, we were informally advised that SFG remained open for business and intended to continue to service participation agreements in accordance with past
practices. In May 2009, ten of SuffolkFirst Banks loan participation agreements were with SFG and three were with Silverton. At December 31, 2009, ten of these loans were serviced by SFG and no loans were serviced by Silverton, as
Silvertons interests were purchased by other banks. As of February 2010 the FDIC hired Deutsche Bank to sell a significant portion of SFGs loan portfolio, of which five of our ten SFG loans are included. There can be no assurance that
Silvertons failure or the possible sale of SFGs loans will not have an adverse effect on our various loan participations with SFG, which, in turn, could potentially lead to increased provisions for loan losses and otherwise adversely
affect our operating results and financial condition.

Because Xenith Banks loan portfolio includes a substantial
amount of commercial and industrial loans and commercial real estate loans, our earnings are particularly sensitive to the financial and credit risks associated with these types of loans.

The financial and credit risk associated with commercial and industrial loans is a result of several factors, including the concentration of
principal in a limited number of loans and borrowers, the size of loan balances, which is generally larger than consumer-type loans, and the effects of general economic conditions. Any significant failure to pay on time by Xenith Banks
customers or a significant default by Xenith Banks customers would hurt our results of operations.

A significant
portion of our loan portfolio is secured by income producing property. Our commercial real estate loan portfolio represented approximately 60% of our total loan portfolio as of December 31, 2009. Underwriting and portfolio management activities
cannot eliminate all risks related to these loans. Commercial real estate loans will typically be larger than consumer-type loans and may pose higher risks than other types of loans. In addition, it may be more difficult for commercial real estate
borrowers to repay their loans in a timely manner in the current economic climate, as commercial real estate borrowers abilities to repay their loans frequently depends on the successful development of their properties. In addition, we may
incur losses on commercial real estate loans due to declines in occupancy rates and rental rates, which may decrease property values and may decrease the likelihood that a borrower may find permanent financing alternatives. Currently, the
availability of permanent financing alternatives in the market has been reduced and has thereby increased the re-financing risks inherent in our loan portfolio.



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In addition to commercial real estate loans that are or will be secured by commercial real
estate, our commercial and industrial loans include owner-occupied real estate loans that are secured in part by the value of the real estate. The primary source of repayment for owner-occupied real estate loans is the cash flow produced by the
related commercial enterprise, and the value of the real estate is a secondary source of repayment of the loan. Given the continued weaknesses in the commercial real estate market in general, there may be loans where the value of our collateral has
been negatively impacted. Additionally, the weakening of the commercial real estate market may increase the likelihood of default of these commercial real estate loans, which would negatively impact loan portfolio performance and potentially
negatively impact the results of operations and asset quality. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, our earnings and capital could be adversely affected. In
addition, banking regulators are giving greater scrutiny to commercial real estate lending and may require banks with higher levels of commercial real estate loans to implement improved or additional underwriting, internal controls, risk management
policies and portfolio stress testing. In banks with certain levels of commercial real estate loan concentrations, regulators are also considering requiring increased levels of reserves for loan losses as well as the need for additional capital. Any
of these events could increase our costs, require management time and attention and negatively impact our business.

If
the value of assets securing our loans decline materially, the quality of our portfolio could diminish, which could have a material adverse effect on us.

Our loan portfolio contains a significant number of loans that were originated based on values that were higher than values determined under current market conditions. These loans are primarily secured by
real estate. Asset quality issues may arise as a result of the general decrease in market values and could cause our interest income and net interest margin to decrease and our provisions for loan losses to increase, which could adversely affect our
results of operations and financial condition.

Decisions regarding credit risk could be inaccurate and the allowance
for loan losses may be inadequate, which could materially and adversely affect our business, financial condition, results of operations and future prospects.

Xenith Banks loan portfolio and a very small portion of its investment portfolio exposes it to credit risk. Inherent risks in lending include the business behavior of competitors, fluctuations in
interest rates and collateral values, principally real estate, and economic downturns. Making loans will be an essential element of Xenith Banks business, and there is a risk that some portion of the loans will not be repaid.

The risk of nonpayment is affected by a number of factors, including:



| |  |  | the duration of the loan;
| | - |  | -------------------------



| |  |  | credit risks of a particular borrower;
| | - |  | --------------------------------------



| |  |  | changes in economic or industry conditions; and
| | - |  | -----------------------------------------------



| |  |  | in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral.
| | - |  | ------------------------------------------------------------------------------------------------------------------

As do all financial institutions, Xenith Bank will maintain an allowance for loan and lease losses and other reserves to absorb the level of
losses in its portfolios. However, our reserves may not be sufficient to cover the loan and lease losses that we actually incur. While we maintain a reserve at a level management believes is adequate, our charge-offs could exceed these reserves.



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As of the Merger date, as required by purchase accounting rules, we recorded SuffolkFirst
Banks loans at fair value by creating a discount and eliminating the allowance for the loans. However, as we grow the loan portfolio and/or to the extent that the credit losses of the purchased loan portfolio are greater than were believed in
our fair value adjustment at the date of the Merger, our earnings will be negatively impacted.

Going forward, we will use two
separate methods to manage the loan portfolio: we will assess the discount on the purchased loans and make adjustments based on the performance of this portfolio both in terms of credit and interest rate risks. These two variables will impact how we
accrue our discount into income and over what time period. Separately, we will establish an allowance of loan and lease losses that primarily reflects the growth of new loans generated since the Merger date. However, because there is no precise
method of predicting loan losses, there is no assurance that our actual losses will not exceed both our discount and allowance estimates. As a result, we will always face the risk that charge-offs in future periods will exceed our reserves and that
additional increases in our estimates may be required.

In addition, bank regulatory agencies may require us to establish
additional reserves. Additions to the reserves will result in a decrease in net income and capital and could hinder our ability to grow assets.

Commercial real estate lending guidance issued by the federal banking regulators could impact our operations and capital requirements.

The Federal Reserve Board, the Office of the Comptroller of the Currency and the FDIC, along with the other federal banking regulators,
issued final guidance on December 6, 2006, entitled Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices directed at institutions that have particularly high concentrations of commercial real estate
loans within their lending portfolios. This guidance suggests that institutions whose commercial real estate loans exceed certain percentages of capital should implement heightened risk management practices appropriate to their concentration risk
and may be required to maintain higher capital ratios than institutions with lower concentrations in commercial real estate lending. Based on our commercial real estate concentration as of December 31, 2009, we are not subject to additional
supervisory analysis. We do not anticipate that Xenith Banks commercial real estate lending practices will subject it to this guidance. We cannot guarantee that any risk management practices we implement will be effective to prevent losses
relating to Xenith Banks commercial real estate portfolio. Management will undertake controls to monitor Xenith Banks commercial real estate lending, but we cannot predict the extent to which this guidance may impact the future
operations or capital requirements of Xenith.

We have unfunded commitments that arise from our normal course of
business.

At December 31, 2009, we had $13,794,156 of unfunded commitments that do not show up on our balance
sheet. We believe these commitments present no more than normal lending risk and can be funded, if needed, through our normal operations.

We also have exposure in the consumer lending business, including first mortgages, second mortgages, and home equity lines, the preponderance of which is on the primary residences of borrowers in
our market.

The current recession has negatively affected the values of real estate in our market, as well as
employment in our area. While we have monitored this impact and have set reserves against this portfolio, there can be no assurance that our reserves are enough or that this real estate decline will not continue, which could lead to increased
portfolio losses in the future thereby decreasing our net income.



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Failure to implement our business strategies may adversely affect our financial
performance.

The former directors and executive officers of Xenith Corporation who became directors and executive
officers of Xenith Bankshares following the completion of the Merger have developed a business plan that details the strategies they intend to implement for Xenith Bank. If they cannot implement their business strategies, Xenith Bank will be
hampered in its ability to maintain and develop business and serve its customers, which could in turn have an adverse effect on our financial performance. Even if their business strategies are successfully implemented, they may not have the
favorable impact on operations that they anticipate.

We may not be able to access funding sufficient to support our
asset growth.

Our business plan and marketing strategy is based on access to funding from local customer deposits,
such as checking and savings accounts and certificates of deposits. Deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, FDIC insurance costs, returns available to customers on
alternative investments and general economic conditions. If local customer deposits are not sufficient to fund Xenith Banks asset growth, we will look to outside sources such as advances from the Federal Home Loan Bank of Atlanta (the
FHLB). The FHLB is a secured funding outlet. The ability to access advances from the FHLB will be dependent upon whether and to the extent we can provide collateral. We may also look to brokered deposits as a source of liquidity as
discussed immediately below under our use of brokered deposits may be limited or discouraged by bank regulators, which could adversely impact our liquidity.

Our use of brokered deposits may be limited or discouraged by bank regulators, which could adversely impact our liquidity.

Depositors that invest in brokered certificates of deposit are generally interest rate sensitive and well-informed about
alternative markets and investments. Consequently, these types of deposits may not provide the same stability to a banks deposit base as traditional local retail deposit relationships. In addition, our liquidity may be negatively affected if
that funding source experiences supply difficulties due to loss of investor confidence or a flight to other investments. Regulatory developments with respect to wholesale funding, including increased FDIC insurance costs for or limits on the use of
these deposits, may further limit the availability of that alternative. In light of regulatory pressure, there may be a cost premium for locally generated certificates of deposit as compared to brokered deposits, which may increase our expenses.

Xenith Bank will rely on short-term funding, which can be adversely affected by local and general economic conditions.

As of December 31, 2009, $25.6 million, or 22.44%, of Xenith Banks deposits, consisted of demand,
statement savings, money market, and NOW accounts. The $88.5 million remaining balance of deposits includes certificates of deposit, of which approximately $57.5 million, or 50.98% of Xenith Banks total deposits, is due to mature
within one year. The ability of Xenith Bank to attract and maintain deposits, as well as its cost of funds, has been, and will continue to be significantly affected by money market and general economic conditions. If Xenith Bank increases interest
rates paid to retain deposits, its earnings may be adversely affected.

We may not be able to raise additional capital
on terms favorable to us or at all.

We may need additional capital to support our business, expand our operations or
maintain our minimum capital requirements. However, we may not be able to raise additional funds through the issuance of additional shares of our common stock or other securities. Furthermore, the significant amount of our common stock that BankCap
Partners Fund owns may discourage other potential investors



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from offering to acquire newly issued shares. Even if we are able to obtain capital through the issuance of additional shares of our common stock or other securities, the sale of these additional
shares could significantly dilute the ownership interest of then existing shareholders. In addition, the holders of warrants and options for our common stock could exercise them when we could otherwise obtain capital by offering additional
securities on terms more favorable to it than those provided by the warrants and options.

Failure to manage expansion
may adversely affect our financial performance.

Our ability to offer products and services and implement our business
plan successfully in a highly competitive market requires an effective planning and management process. Future expansion efforts, internally or through acquisitions, could be expensive and put a strain on our management, financial, operational, and
technical resources. We also expect to hire a number of new employees. To manage growth effectively, we will likely have to enhance financial and accounting systems and controls, as well as integrate new personnel and manage expanded operations.
There can be no assurance that we will be able to effectively manage our expanding operations. If we are unable to manage growth, our business, financial condition, and results of operations could be materially and adversely affected.

Our business is dependent on technology and an inability to invest in technological improvements or obtain reliable technological
support may adversely affect our results of operation and financial condition.

The financial services industry is
undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to
reduce costs. Our ability to grow and compete will depend in part upon the ability to address the needs of customers by using technology to provide products and services that will satisfy their operational needs, while managing the costs of
expanding our technology infrastructure. Many competitors have substantially greater resources to invest in technological improvements and third-party support. There can be no assurance that we will be able to effectively implement new
technology-driven products and services or be successful in marketing these products and services to our customers. For the foreseeable future, we expect to rely on third-party service providers and on other third parties for services and technical
support. If those products and services become unreliable or fail, the adverse impact on customer relationships and operations could be material.

Fluctuations in interest rates could reduce our profitability as we expect to realize income primarily from the difference between interest earned on loans and investments and interest paid on
deposits and borrowings of Xenith Bank.

We will depend on Xenith Bank for income. Xenith Banks earnings are
significantly dependent on its net interest income, as Xenith Bank is expected to realize income primarily from the difference between interest earned on loans and investments and the interest paid on deposits and borrowings. Xenith Bank will
experience gaps in the interest rate sensitivities of its assets and liabilities, meaning that either its interest-bearing liabilities will be more sensitive to changes in market interest rates than its interest-earning assets, or vice
versa. In either event, if market interest rates should move contrary to Xenith Banks position, this gap may work against Xenith Bank, negatively affecting our earnings. We are not able to predict fluctuations of market interest
rates, which are affected by many factors, including inflation, recession, rising in unemployment, tightening money supply, and disorder and instability in domestic and foreign financial markets. Although we have designed our asset-liability
management strategy to mitigate our risk from changes in market interest rates, we may not be able to prevent changes in interest rates from having a material adverse effect on our results of operations and financial condition.



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We will face intense competition in our target markets.

The financial services industry, including commercial banking, mortgage banking, consumer lending and home equity lending, is highly
competitive, and we have encountered, and will continue to encounter, strong competition for deposits, loans and other financial services in our target markets in each of our lines of business. Xenith Banks principal competitors are other
commercial banks in its target markets. However, additional competition is and will continue to be provided by savings banks, savings and loan associations, mutual funds, money market funds, finance companies, trust companies, insurers, leasing
companies, credit unions and mortgage companies with respect to some of Xenith Banks products and services. Many of Xenith Banks non-bank competitors are not subject to the same degree of regulation as Xenith Bank is and have advantages
over it in providing certain services. Many of Xenith Banks competitors are significantly larger than Xenith Bank and have greater access to capital and other resources, higher lending limits and larger branch networks. Xenith Bank has opened
a branch in Richmond, Virginia and anticipates opening a branch in Tysons Corner in Northern Virginia in the second or third quarter of 2010. SuffolkFirst Bank did not have branches in Richmond or Tysons Corner and, as such, Xenith Bank will
not be able to build from a pre-existing customer base in either of these markets. To expand into Richmond and Tysons Corner, Xenith Bank will have to compete successfully against banks with established businesses, relationships, and reputations in
those markets. There is no assurance that Xenith Bank will be able to do so.

Xenith Bank may become subject to
significant liabilities in the event it forecloses on or takes title to real property.

When underwriting a commercial
real estate loan, Xenith Bank will generally take a lien on the commercial real estate and, in some instances upon a default by the borrower, Xenith Bank may foreclose on and take title to the property, which may lead to potential financial risk for
us under applicable environmental laws. Many environmental laws can impose liability regardless of whether Xenith Bank knew of, or was responsible for, any contamination of property upon which it may foreclose.

An economic downturn or recession, especially one affecting the target markets of Xenith Bank, may have an adverse effect on its
financial performance.

General economic conditions impact the banking industry. Delinquencies and credit losses in the
financial services industry generally increase during economic downturns or recessions. Likewise, loan demand may decline during an economic downturn or recession. Accordingly, an economic downturn or recession, either local or national, could
adversely affect the financial performance of Xenith Bank as customers default on their loans with Xenith Bank or carry lower balances. Unlike many of its larger competitors, the majority of Xenith Bank middle-market businesses and individuals are
located or doing business in the target markets of Xenith Bank. As a result, the operations and profitability of Xenith Bank may be more adversely affected by a local economic downturn or recession than those of larger, more geographically diverse
competitors. Factors that adversely affect the economy in the target markets of Xenith Bank could reduce its deposit base and demand for products and services, which may decrease earnings. An adverse change in the local economy could make it more
difficult for borrowers to repay their loans, which could lead to loan losses for Xenith Bank.

Xenith Bank will depend
on the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend
credit or enter into other transactions, Xenith Bank may rely on information furnished by or on behalf of its customers and counterparties, including financial statements, credit reports and other financial information. Xenith Bank may also rely on
representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other
financial information could have a material adverse impact on business and, in turn, results of operation and financial condition.



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Consumers and businesses may decide not to use banks to complete their financial
transactions.

Technology and other changes are allowing parties to complete financial transactions that historically
have involved banks through alternative methods. The possibility of eliminating banks as intermediaries could result in the loss of interest and fee income, as well as the loss of customer deposits and the related income generated from those
deposits. The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on the results of operations and financial condition of Xenith Bank.

We are dependent on our key personnel, including our executive officers and directors, and the loss of such persons may adversely
affect our operations and financial performance.

We will be for the foreseeable future dependent on the services of
Mr. Layfield, who is our President and Chief Executive Officer; Mr. Osgood, who is our Chief Financial Officer and Chief Administrative Officer; and Messrs. Cottrell, Davis and OFlaherty. Should the services of these individuals or
other key executives become unavailable, there can be no assurance that a suitable successor could be found who would be willing to be employed upon the terms and conditions that we would offer. A failure to replace any of these individuals promptly
could have an adverse effect on our results of operations and financial performance. Additionally, the community involvement, diverse backgrounds, and extensive local business relationships of the individuals who serve as directors of Xenith
Bankshares will be important to our success. If the composition of our Board of Directors were to change materially, our banking business may suffer.

System failure or breaches of our network security could lead to increased operating costs as well as litigation and other liabilities.

The computer systems and network infrastructure that we use could be vulnerable to unforeseen problems. Our operations are dependent in part
upon our ability to protect our computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event. Any damage or failure that causes an interruption in operations could have an adverse effect on
customers. In addition, we must be able to protect the computer systems and network infrastructure utilized by us against physical damage, security breaches and service disruption caused by the Internet or other users. Such computer break-ins and
other disruptions would jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability to us and deter potential customers.

We are subject to extensive regulation in the conduct of their business operations, which could adversely affect our financial
results.

The banking industry is heavily regulated. Banking regulations are primarily intended to protect the federal
deposit insurance funds and depositors, not shareholders. These regulations affect lending practices, capital structure, investment practices, dividend policy and growth, among other things. For example, federal and state consumer protection laws
and regulations will limit the manner in which Xenith Bank may offer and extend credit. From time to time, the U.S. Congress and state legislatures consider changing these laws and may enact new laws or amend existing laws to further regulate the
financial services industry. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. Such changes
could subject us to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws,
regulations or policies could result in



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sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on our business, financial condition and results of operations. In
addition, the laws governing bankruptcy generally favor debtors, making it more expensive or more difficult to collect from customers who have declared bankruptcy.

BankCap Partners Fund is a bank holding company that is deemed to be a multi-bank holding company for two institutions.

Under the Federal Reserve Board guidelines, every bank holding company must serve as a source of strength for each of their bank
subsidiaries. In addition, the Federal Deposit Insurance Corporation Act of 1991 requires that an insured depository institution shall be liable for the loss incurred or anticipated by the FDIC arising from the default of a commonly controlled
insured depository institution or any assistance provided by the FDIC to any commonly controlled insured depository institution in danger of default. Currently, BankCap Partners Fund is deemed a bank holding company for Atlantic Capital Bank, an
Atlanta, Georgia-based bank, and Xenith Bank. The position of BankCap Partners Fund as a source of strength to other depository institutions may limit its ability to serve as a source of strength for Xenith Bank and could adversely affect Xenith
Banks ability to access resources of BankCap Partners Fund. Federal bank regulatory agencies have additional discretion to require a bank holding company to divest itself of any bank or non-bank subsidiary if the agency determines that
divestiture may aid the depository institutions financial condition.

Xenith Bank may be obligated to provide
financial assistance to any other financial institution as to which BankCap Partners Fund is deemed to be a bank holding company.

A bank for which BankCap Partners Fund is deemed to be a bank holding company may be required to indemnify, or cross-guarantee, the FDIC against losses the FDIC incurs with respect to any other bank
controlled by BankCap Partners Fund. Accordingly, Xenith Bank may be obligated to provide financial assistance to Atlantic Capital Bank or any other financial institution regarding which BankCap Partners Fund is deemed to be a bank holding company.
Any financial assistance that Xenith Bank has to provide could reduce our capital.



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Item 2 - Properties

The following table summarizes certain information about our headquarters and the locations of our branch and administrative offices as of
December 31, 2009:



|                                     |  |                 |  |                                                                                  
|------------------------------------ |  | --------------- |  | ---------------------------------------------------------------------------------
|Office Location                      |  | Owned or Leased |  | Lease Terms                                                                      
|One James Center (Headquarters)      |  | Leased          |  | Initial term of 62 months with two options to extend for a three year period each
|901 E. Cary Street, Suite 1700       |  |                 | 
|Richmond, VA 23219                   |  |                 | 
|                                     |  |                
|Boulders (Operations Center)         |  | Leased          |  | Initial term of 65 months with two options to extend for a three year period each
|1011 Boulder Spring Drive, Suite 410 |  |                 | 
|Richmond, VA 23225                   |  |                 | 
|                                     |  |                
|McLean Office                        |  | Leased          |  | Intial term of 87 months with one option to extend for a three year period       
|800 Greensboro Drive, Suite 1400     |  |                 | 
|McLean, VA 22102                     |  |                 | 
|                                     |  |                
|North Suffolk Branch                 |  | Owned           |  |                                                                                  
|3535 Bridge Road                     |  |                 |  |                                                                                  
|Suffolk, VA 23435                    |  |                 |  |                                                                                  
|                                     |  |                
|Plaza Branch                         |  | Leased          |  | Initial term of five years with an automatice five-year renewal                  
|1000 N. Main Street                  |  |                 | 
|Suffolk, VA 23434                    |  |                 | 
|                                     |  |                
|Bosley Branch                        |  | Owned           |  |                                                                                  
|100 Bosley Avenue                    |  |                 |  |                                                                                  
|Suffolk, VA 23434                    |  |                 |  |                                                                                  

We believe that all of our properties are maintained in good operating condition and are suitable
and adequate for our operational needs.

Item 3 - Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our normal course of business. Presently there are no
legal proceedings, existing or pending, of which management is aware.



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PART II

Item 5 - Market for Registrants Common Equity, Related Shareholder Matters and Issuer Repurchase of Equity Securities

Our common stock began trading on the NASDAQ Capital Market in July 2004 under the trading symbol SUFB. Following completion of the Merger on
December 22, 2009, the trading symbol was changed from SUFB to XBKS. The following table summarizes the high and low sales prices, as reported by NASDAQ, for the years ended December 31, 2009 and 2008:

NASDAQ Stock Prices

For the years ended December 31, 2009 and 2008



|        |  |      |      |      |   |      |  |     |      |  |   |     
|------- |  | ---- | ---- | ---- | - | ---- |  | --- | ---- |  | - | ----
|        |  | 2009 |      | 2008
|Quarter |  | High |      | Low  |   | High |  | Low
|First   |  | $    | 4.01 |      | $ | 1.57 |  | $   | 8.00 |  | $ | 6.50
|Second  |  |      | 8.00 |      |   | 1.85 |  |     | 7.88 |  |   | 7.00
|Third   |  |      | 7.39 |      |   | 5.00 |  |     | 7.00 |  |   | 4.54
|Fourth  |  |      | 9.00 |      |   | 3.50 |  |     | 4.85 |  |   | 3.26

As of March 25,
2010, we had 5,846,928 shares of common stock outstanding with a par value of $1.00 per share, held by approximately 1,859 shareholders of record.

We have not paid any dividends since our inception. We do not intend to pay any dividends in the foreseeable future. As discussed in Part I, Item 1, Business  Supervision and Regulation
 Payment of Cash Dividends, state and federal laws and regulations limit the amount of dividends that we may pay. Further, even if we have earnings in an amount sufficient to pay dividends, our board of directors may decide to retain
earnings for the purposes of financing growth. No assurance can be given that our earnings, if any, will ever permit the payment of dividends to our shareholders.

Item 7 - Managements Discussion and Analysis of Financial Conditions and Results

Cautionary Notice About Forward-Looking Statements

We make
forward-looking statements in this Annual Report that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of operations or performance plans and objectives for future
operations, projections of revenues and other financial items that are based on our beliefs as well as assumptions made by and information currently available to us. Also, when we use the words believe, expect,
anticipate, intend, plan, estimate, may, will, should, would, could, project, predict, or similar expressions, we are
making forward-looking statements. Many possible events or factors could materially affect our future financial results and performance. This could cause our results or performance to differ materially from those expressed in our forward-looking
statements. Factors that may cause actual results to differ materially from those contemplated by our forward-looking statements include the following:



| |  |  | those discussed and identified in our public filings with the SEC;
| | - |  | ------------------------------------------------------------------



| |  |  | our ability to integrate our operations following the Merger in a timely and efficient manner;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | general economic or business conditions, which may be worse than expected and may cause further deterioration of asset values;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



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| |  |  | exposure to counterparties in the financial industry;
| | - |  | -----------------------------------------------------



| |  |  | decisions regarding credit risk and levels of allowance for loan losses;
| | - |  | ------------------------------------------------------------------------



| |  |  | our ability to enact our business strategy for the combined company;
| | - |  | --------------------------------------------------------------------



| |  |  | our ability to access funding to support our asset growth;
| | - |  | ----------------------------------------------------------



| |  |  | our use of brokered deposits and any limitations imposed on our ability to do so by our regulators;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | our ability to manage growth;
| | - |  | -----------------------------



| |  |  | reduction of operating margins caused by changes in the interest rate environment;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | competition in our target markets;
| | - |  | ----------------------------------



| |  |  | our dependence on key personnel;
| | - |  | --------------------------------



| |  |  | our dependence on technology;
| | - |  | -----------------------------



| |  |  | legislative or regulatory changes; and
| | - |  | --------------------------------------



| |  |  | costs associated with compliance efforts and regulatory actions.
| | - |  | ----------------------------------------------------------------

We have based our forward-looking statements on our current expectations about future events. Although we believe that the expectations
reflected in our forward-looking statements are reasonable, we cannot guarantee you that these expectations will actually be achieved. We are under no duty to update any of the forward-looking statements to conform those statements to actual
results. In evaluating these statements, you should consider various factors, including the risks outlined in Part I, Item 1A, Risk Factors.

The following discussion is intended to assist readers in understanding and evaluating our financial condition and results of operations. This review should be read in conjunction with our financial
statements and accompanying notes included in Part II, Item 8, Financial Statements and Supplementary Data. The data presented is derived from our audited financial statements and footnotes appearing elsewhere in this Annual Report.

Effect of the Merger

Effective December 22, 2009, First Bankshares and Xenith Corporation completed the merger of Xenith Corporation with and into First Bankshares (the Merger), with First Bankshares being
the surviving entity in the Merger. At the effective time of the Merger, First Bankshares amended its articles of incorporation to, among other things, change its name to Xenith Bankshares, Inc. In addition, following the completion of the Merger,
SuffolkFirst Bank changed its name to Xenith Bank.

Although the Merger was structured as a merger of Xenith Corporation with
and into First Bankshares, with First Bankshares being the surviving entity for legal purposes, Xenith Corporation was treated as the acquirer for accounting purposes. As the Merger was completed on December 22, 2009, this Annual Report
reflects the operations of Xenith Bankshares (formerly First Bankshares, Inc. and its subsidiary SuffolkFirst Bank) prior to the Merger. This Annual Report also reflects the post-Merger operations of the consolidated entity for the period from
December 22, 2009 through December 31, 2009



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and we included information related for the period January 1, 2009 through December 22, 2009 due to the short period subsequent to the date of the Merger and to be more comparable to
operating results for the year ended December 31, 2008.

Unless otherwise stated herein or the context otherwise
requires, references in this Managements Discussion and Analysis of Financial Condition and Results of Operations to the Company, we, our and us at and for the year ended
December 31, 2008 and the period from January 1, 2009 through December 22, 2009 are to First Bankshares and its wholly-owned subsidiary, SuffolkFirst Bank, and references to the Bank are to SuffolkFirst Bank. Unless
otherwise stated herein or the context otherwise requires, references in this Managements Discussion and Analysis of Financial Condition and Results of Operations to the Company, we, our and
us at and for the year ended December 31, 2009 are to Xenith Bankshares and its wholly-owned subsidiary, Xenith Bank, and references to the Bank are to Xenith Bank.

Results of Operations

Overview

The primary source of our revenue is net interest
income, which represents the difference between interest income on earning assets and interest expense on liabilities used to fund those assets. Earning assets include loans, securities, and federal funds sold. Interest-bearing liabilities include
deposits and borrowings. Sources of noninterest income include service charges on deposit accounts, gains on the sale of securities, and other miscellaneous income.

For the period January 1, 2009 through December 22, 2009 and the year ended December 31, 2008 our net loss was $4,306,961, compared to net income of $245,138 in 2008. Our net income and per
share income have declined as indicated in the following table (see page 56 for per share calculations):

Net Income
Comparison

For the period January 1, 2009 through December 22, 2009 and

the year ended December 31, 2008



|                        |  |      |            |   |      |   |        
|----------------------- |  | ---- | ---------- | - | ---- | - | -------
|                        |  | 2009 |            |   | 2008
|Net income (loss)       |  | $    | (4,306,961 | ) |      | $ | 245,138
|Per share income (loss) |  |      | (1.90      | ) |      |   | 0.11   

Net Interest
Income

Net interest income is affected by changes in interest rates, the volume of interest-bearing assets and
liabilities, and the composition of those assets and liabilities. Management strives to maximize net interest income through prudent balance sheet administration, while maintaining appropriate risk levels as determined by senior management with the
oversight of our board of directors. The net interest margin is a commonly utilized statistic related to changes in interest income. The net interest margin is defined as the percentage of net interest income to average earning assets.
Net interest income for the period January 1, 2009 through December 22, 2009 was $4,445,047. By comparison, net interest income for 2008 was $4,245,611. The net interest margin at December 31, 2009 was 2.82% a slight decline from the
2.84% at December 31, 2008.

The following table, Average Balances, Interest Income/Expenses, and Average
Yield/Rates, provides a detailed analysis of the effective yields and rates on interest-earning assets and interest-bearing liabilities for the periods indicated. The average balances and other statistical data used in this table were
calculated using daily average balances.



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Average Balances, Interest Income/Expense, and Average Yield/Rates

For the years ended December 31, 2009, 2008 and 2007



|                                           |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|------------------------------------------ |  | -------------------- | ------- | - | ------------ | - | ------- | ---------------- |  | ------------------ | ------- | - | ------------- | ---- | - | ------------------ | ---- | - | ------------- | ---- | - | ---- | - | ----- |  | ------------- | ------ |  | ------------- | ------ |  | - | ------ | ---- |  | - | ------ | - |  | - | ---- | - |  | - | ----- | - |  | - | ------ | - |  | - | -----
|                                           |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  | 2009 vs. 2008 |        |  | 2008 vs. 2007
|                                           |  | Average Balances [1] |         |   | Yield / Rate |   |         | Income / Expense |  | Increase(Decrease) |         |   | Change due to |      |   | Increase(Decrease) |      |   | Change due to
|                                           |  | 2009                 |         |   | 2008         |   |         | 2007             |  |                    | 2009    |   |               | 2008 |   |                    | 2007 |   |               | 2009 |   | 2008 |   | 2007  |  |               | Rate   |  |               | Volume |  |   |        | Rate |  |   | Volume
|Assets                                     |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Interest-earning assets:                   |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Federal funds sold                         |  | $                    | 1,121   |   |              | $ | 4,745   |                  |  | $                  | 1,306   |   |               | 0.18 | % |                    | 1.26 | % |               | 4.90 | % |      | $ | 2     |  | $             | 60     |  | $             | 64     |  | $ | (58    | )    |  | $ | (12    | ) |  | $ | (46  | ) |  | $ | (4    | ) |  | $ | (173   | ) |  | $ | 169  
|Investment securities                      |  |                      | 47,555  |   |              |   | 46,402  |                  |  |                    | 34,116  |   |               | 5.10 | % |                    | 6.09 | % |               | 5.26 | % |      |   | 2,423 |  |               | 2,825  |  |               | 1,794  |  |   | (402   | )    |  |   | (472   | ) |  |   | 70   |   |  |   | 1,031 |   |  |   | 384    |   |  |   | 647  
|Loans, net [2]                             |  |                      | 113,523 |   |              |   | 113,433 |                  |  |                    | 87,550  |   |               | 5.66 | % |                    | 6.48 | % |               | 7.65 | % |      |   | 6,428 |  |               | 7,348  |  |               | 6,694  |  |   | (920   | )    |  |   | (926   | ) |  |   | 6    |   |  |   | 654   |   |  |   | (1,330 | ) |  |   | 1,984
|                                           |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Total interest-earning assets              |  |                      | 162,199 |   |              |   | 164,580 |                  |  |                    | 122,972 |   |               | 5.46 | % |                    | 6.22 | % |               | 6.95 | % |      |   | 8,853 |  |               | 10,233 |  |               | 8,552  |  |   | (1,380 | )    |  |   | (1,410 | ) |  |   | 30   |   |  |   | 1,681 |   |  |   | (1,119 | ) |  |   | 2,800
|Noninterest-earning assets:                |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Cash and cash equivalents                  |  |                      | 4,160   |   |              |   | 2,996   |                  |  |                    | 3,282   |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Premises and equipment                     |  |                      | 5,471   |   |              |   | 5,728   |                  |  |                    | 3,840   |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Other assets                               |  |                      | 3,172   |   |              |   | 1,990   |                  |  |                    | 1,463   |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Allowance for loan losses                  |  |                      | (2,344  | ) |              |   | (1,050  | )                |  |                    | (871    | ) |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|                                           |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Total noninterest-earning assets           |  |                      | 10,459  |   |              |   | 9,664   |                  |  |                    | 7,714   |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Total assets                               |  | $                    | 172,658 |   |              | $ | 174,244 |                  |  | $                  | 130,686 |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|                                           |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Liabilities and Shareholders Equity       |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Interest-bearing liabilities:              |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Demand and money market accounts           |  | $                    | 6,963   |   |              | $ | 6,246   |                  |  | $                  | 5,691   |   |               | 0.30 | % |                    | 1.17 | % |               | 0.91 | % |      | $ | 21    |  | $             | 73     |  | $             | 52     |  | $ | (52    | )    |  | $ | (60    | ) |  | $ | 8    |   |  | $ | 21    |   |  | $ | 16     |   |  | $ | 5    
|Savings accounts                           |  |                      | 3,433   |   |              |   | 2,621   |                  |  |                    | 2,257   |   |               | 0.76 | % |                    | 1.18 | % |               | 1.20 | % |      |   | 26    |  |               | 31     |  |               | 27     |  |   | (5     | )    |  |   | (15    | ) |  |   | 10   |   |  |   | 4     |   |  |   |       |   |  |   | 4    
|Time deposits                              |  |                      | 101,483 |   |              |   | 103,669 |                  |  |                    | 80,972  |   |               | 3.55 | % |                    | 4.39 | % |               | 4.95 | % |      |   | 3,602 |  |               | 4,551  |  |               | 4,005  |  |   | (949   | )    |  |   | (853   | ) |  |   | (96  | ) |  |   | 546   |   |  |   | (581   | ) |  |   | 1,127
|Federal funds purchased and borrowed funds |  |                      | 28,078  |   |              |   | 30,075  |                  |  |                    | 10,229  |   |               | 2.24 | % |                    | 3.00 | % |               | 4.36 | % |      |   | 628   |  |               | 903    |  |               | 446    |  |   | (275   | )    |  |   | (215   | ) |  |   | (60  | ) |  |   | 457   |   |  |   | (408   | ) |  |   | 865  
|                                           |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Total interest-bearing liabilities         |  |                      | 139,957 |   |              |   | 142,611 |                  |  |                    | 99,149  |   |               | 3.06 | % |                    | 3.90 | % |               | 4.57 | % |      |   | 4,277 |  |               | 5,558  |  |               | 4,530  |  |   | (1,281 | )    |  |   | (1,143 | ) |  |   | (138 | ) |  |   | 1,028 |   |  |   | (973   | ) |  |   | 2,001
|Noninterest-bearing liabilities:           |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Noninterest demand deposits                |  |                      | 14,032  |   |              |   | 14,212  |                  |  |                    | 14,176  |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Other liabilities                          |  |                      | 1,429   |   |              |   | 1,284   |                  |  |                    | 1,192   |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|                                           |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Total noninterest-bearing liabilities      |  |                      | 15,461  |   |              |   | 15,496  |                  |  |                    | 15,368  |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Shareholders equity:                      |  |                      | 17,240  |   |              |   | 16,137  |                  |  |                    | 16,169  |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Total liabilities and shareholders equity |  | $                    | 172,658 |   |              | $ | 174,244 |                  |  | $                  | 130,686 |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|                                           |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Interest rate spread [3]                   |  |                      |         |   |              |   |         |                  |  |                    |         |   |               | 2.40 | % |                    | 2.32 | % |               | 2.38 | % |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|                                           |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Net interest income [4]                    |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      | $ | 4,576 |  | $             | 4,675  |  | $             | 4,022  |  | $ | (99    | )    |  | $ | (267   | ) |  | $ | 168  |   |  | $ | 653   |   |  | $ | (146   | ) |  | $ | 799  
|                                           |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|Net interest margin [5]                    |  |                      |         |   |              |   |         |                  |  |                    |         |   |               | 2.82 | % |                    | 2.84 | % |               | 3.27 | % |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      
|                                           |  |                      |         |   |              |   |         |                  |  |                    |         |   |               |      |   |                    |      |   |               |      |   |      |   |       |  |               |        |  |               |        |  |   |        |      |  |   |        |   |  |   |      |   |  |   |       |   |  |   |        |   |  |   |      



|[1] | Average balances are computed on a daily basis.
|--- | -----------------------------------------------

|[2] | Nonaccrual loans have been included in the average balances. Only the interest collected on such loans has been included as income.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|[3] | Interest rate spread is the average yield earned on interest-earning assets, less the average rate incurred on interest-bearing liabilities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

|[4] | Net interest income is interest income on average interest-earning assets, less interest expense on average interest-bearing liabilities.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

|[5] | Net interest margin is net interest income, expressed as a percentage of average earning assets.
|--- | ------------------------------------------------------------------------------------------------

Noninterest Income

The primary decrease in noninterest income for the period January 1, 2009 through December 22, 2009 compared to the year ended December 31, 2008 was due to $48,000 decrease in service
charges on deposits, $32,000 decrease in gain on sale of investments and reduced dividend income of $150,000 related to Federal Reserve Bank Stock and Federal Home Loan Bank Stock.

Noninterest Expense

The majority of the increase in noninterest expense components was related to salaries and employee benefits, which increased from $2,145,123 in 2008 to $2,495,355 for the period ended December 22,
2009. The increase from 2008 to December 22, 2009 can be attributed to Merger-related compensation. Other significant expenses include FDIC assessments of $247,934; increased data processing expenses, from $130,318 in 2008 to $284,935 for the
period ended December 22, 2009; and increased professional fees, from $197,597 in 2008 to $1,710,727 for the period ended December 22, 2009, due to Merger-related expenses.



28



---

##### Table of Contents

Income Taxes

The Bank realized a loss before income taxes of $6,525,761 for the period ended December 22, 2009. For the year ended December 31,
2008, income before income taxes was $362,438. An income tax benefit of $2,218,800 was realized as of December 22, 2009, compared to income tax expense of $117,300 in 2008.

Financial Condition

Loans

The following table presents information pertaining to the composition of loans as of the
dates indicated:

Loan Portfolio

As of December 31, 2009, 2008 and 2007



|                                 |  |        |             |     |                 |        |   |        |   |             |                 |  |        |        |  |   |                 |     |  |        |  
|-------------------------------- |  | ------ | ----------- | --- | --------------- | ------ | - | ------ | - | ----------- | --------------- |  | ------ | ------ |  | - | --------------- | --- |  | ------ | -
|                                 |  | 2009   |             |     | 2008            |        |   | 2007   |  
|                                 |  | Amount |             |     | Percent ofTotal |        |   | Amount |   |             | Percent ofTotal |  |        | Amount |  |   | Percent ofTotal |    
|Commercial                       |  |        |             |     |                 |        |   |        |   |             |                 |  |        |        |  |   |                 |     |  |        |  
|- Real estate                    |  | $      | 34,978,917  | [1] |                 | 34.28  | % |        | $ | 40,325,987  | [2]             |  | 34.39  | %      |  | $ | 40,553,316      | [3] |  | 38.74  | %
|- Other                          |  |        | 43,467,134  |     |                 | 42.59  | % |        |   | 46,801,108  |                 |  | 39.92  | %      |  |   | 38,055,913      |     |  | 36.36  | %
|Residential real estate          |  |        |             |     |                 |        |   |        |   |             |                 |  |        |        |  |   |                 |     |  |        |  
|- Land and construction          |  |        | 1,475,005   |     |                 | 1.45   | % |        |   | 1,844,873   |                 |  | 1.57   | %      |  |   | 2,254,403       |     |  | 2.15   | %
|- Mortgage, 1-4 family           |  |        | 20,586,270  |     |                 | 20.17  | % |        |   | 25,921,293  |                 |  | 22.11  | %      |  |   | 21,140,546      |     |  | 20.20  | %
|Installment loans to individuals |  |        | 1,523,660   |     |                 | 1.49   | % |        |   | 2,343,175   |                 |  | 2.00   | %      |  |   | 2,612,593       |     |  | 2.50   | %
|Overdrafts                       |  |        | 18,711      |     |                 | 0.02   | % |        |   | 10,859      |                 |  | 0.01   | %      |  |   | 48,929          |     |  | 0.05   | %
|                                 |  |        |             |     |                 |        |   |        |   |             |                 |  |        |        |  |   |                 |     |  |        |  
|Total loans                      |  |        | 102,049,697 |     |                 | 100.00 | % |        |   | 117,247,295 |                 |  | 100.00 | %      |  |   | 104,665,700     |     |  | 100.00 | %
|Less: Unearned fees, net         |  |        |            |     |                 |        |   |        |   |            |                 |  |        |        |  |   | (62,215         | )   |  |        |  
|                                 |  |        |             |     |                 |        |   |        |   |             |                 |  |        |        |  |   |                 |     |  |        |  
|Net loans                        |  |        | 102,049,697 |     |                 |        |   |        |   | 117,247,295 |                 |  |        |        |  |   | 104,727,915     |     |  |        |  
|Less: Allowance for loan losses  |  |        |            |     |                 |        |   |        |   | 1,687,284   |                 |  |        |        |  |   | 941,820         |     |  |        |  
|                                 |  |        |             |     |                 |        |   |        |   |             |                 |  |        |        |  |   |                 |     |  |        |  
|Loans, net of allowance          |  | $      | 102,049,697 |     |                 |        |   |        | $ | 115,560,011 |                 |  |        |        |  | $ | 103,786,095     |     |  |        |  
|                                 |  |        |             |     |                 |        |   |        |   |             |                 |  |        |        |  |   |                 |     |  |        |  



|[1] | As of December 31, 2009, 30% of commercial real estate loans were secured by hotels, 18% were secured by commercial land and construction, 10% were secured by land
development, 9% were secured by condos and condo construction, 1% were secured by residential land and construction, and 32% were secured by other collateral.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[2] | As of December 31, 2008, 30% of commercial real estate loans were secured by hotels, 24% were secured by commercial land and construction, 9% were secured by land
development, 11% were secured by condos and condo construction, 10% were secured by residential land and construction, and 16% were secured by other collateral.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[3] | As of December 31, 2007, 36% of commercial real estate loans were secured by hotels, 21% were secured by commercial land and construction, 9% were secured by land
development, 11% were secured by condos and condo construction, 4% were secured by residential land and construction, and 19% were secured by other collateral.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The information presented below is classified as it was reported for the years ended December 31, 2006 and December 31, 2005.
However, it is not classified in the same manner as the loan portfolio starting in 2007. Loan coding in more recent years has evolved to take into account numerous loan characteristics and segmentation, including collateral codes.



29



---

##### Table of Contents

Loan Portfolio

As of December 31, 2006 and 2005



|                                 |  |        |            |     |                 |        |   |        |   |            |                 |  |        |  
|-------------------------------- |  | ------ | ---------- | --- | --------------- | ------ | - | ------ | - | ---------- | --------------- |  | ------ | -
|                                 |  | 2006   |            |     | 2005            |       
|                                 |  | Amount |            |     | Percent ofTotal |        |   | Amount |   |            | Percent ofTotal | 
|Commercial                       |  |        |            |     |                 |        |   |        |   |            |                 |  |        |  
|- Real estate                    |  | $      | 39,935,903 | [1] |                 | 53.01  | % |        | $ | 32,318,891 | [2]             |  | 51.68  | %
|- Other                          |  |        | 13,140,234 |     |                 | 17.44  | % |        |   | 9,212,737  |                 |  | 14.73  | %
|Real estate                      |  |        |            |     |                 |        |   |        |   |            |                 |  |        |  
|- Land and construction          |  |        | 3,414,123  |     |                 | 4.53   | % |        |   | 2,805,999  |                 |  | 4.48   | %
|- Mortgage, 1-4 family           |  |        | 16,389,489 |     |                 | 21.76  | % |        |   | 15,978,142 |                 |  | 25.55  | %
|Installment loans to individuals |  |        | 2,449,667  |     |                 | 3.25   | % |        |   | 2,210,544  |                 |  | 3.53   | %
|Overdrafts and other loans       |  |        | 2,934      |     |                 | 0.01   | % |        |   | 9,409      |                 |  | 0.03   | %
|                                 |  |        |            |     |                 |        |   |        |   |            |                 |  |        |  
|Total loans                      |  |        | 75,332,350 |     |                 | 100.00 | % |        |   | 62,535,722 |                 |  | 100.00 | %
|Less: Unearned fees, net         |  |        | 51,935     |     |                 |        |   |        |   | 33,411     |                 |  |        |  
|                                 |  |        |            |     |                 |        |   |        |   |            |                 |  |        |  
|Net loans                        |  |        | 75,280,415 |     |                 |        |   |        |   | 62,502,311 |                 |  |        |  
|Less: Allowance for loan losses  |  |        | 826,595    |     |                 |        |   |        |   | 611,504    |                 |  |        |  
|                                 |  |        |            |     |                 |        |   |        |   |            |                 |  |        |  
|Loans, net of allowance          |  | $      | 74,453,820 |     |                 |        |   |        | $ | 61,890,807 |                 |  |        |  
|                                 |  |        |            |     |                 |        |   |        |   |            |                 |  |        |  



|[1] | As of December 31, 2006, 57% of commercial real estate loans were secured by business locations, 18% were secured by rental properties, 2% were secured by
churches, 2% were secured by farms, and 21% were secured by other collateral.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[2] | As of December 31, 2005, 59% of commercial real estate loans were secured by business locations, 18% were secured by rental properties, 11% were secured by
churches, 7% were secured by farms, and 5% were secured by other collateral.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table presents
information regarding the maturity of loans as of the date indicated:

Maturity Analysis of the Loan Portfolio

As of December 31, 2009



|                                    |  |              |             |               |              |            |       |                 |             |  |              |            |       |   |            |  |   |           |  |   |            |  |   |           
|----------------------------------- |  | ------------ | ----------- | ------------- | ------------ | ---------- | ----- | --------------- | ----------- |  | ------------ | ---------- | ----- | - | ---------- |  | - | --------- |  | - | ---------- |  | - | ----------
|                                    |  | Within1
year |             | Variable Rate |              | Fixed Rate |       | TotalMaturities
|                                    |  |              | 1 to 5years |               | After5 years |            | Total |                 | 1 to 5years |  | After5 years |            | Total |  
|Commercial                          |  |              |             |               |              |            |       |                 |             |  |              |            |       |   |            |  |   |           |  |   |            |  |   |           
|- Real estate [1]                   |  | $            | 16,499,422  |               | $            | 10,207,841 |       | $               |            |  | $            | 10,207,841 |       | $ | 4,570,906  |  | $ | 45,256    |  | $ | 4,616,162  |  | $ | 31,323,425
|- Other [2]                         |  |              | 13,678,581  |               |              | 1,312,025  |       |                 | 4,469       |  |              | 1,316,494  |       |   | 26,974,618 |  |   | 1,150,580 |  |   | 28,125,198 |  |   | 43,120,273
|Real estate                         |  |              |             |               |              |            |       |                 |             |  |              |            |       |   |            |  |   |           |  |   |            |  |   |           
|- Residential land and construction |  |              | 254,688     |               |              |           |       |                 |            |  |              |           |       |   | 728,318    |  |   | 491,999   |  |   | 1,220,317  |  |   | 1,475,005 
|- Mortgage, 1-4 family [3]          |  |              | 3,530,233   |               |              | 3,104,027  |       |                 | 825,380     |  |              | 3,929,407  |       |   | 7,588,001  |  |   | 5,411,401 |  |   | 12,999,402 |  |   | 20,459,042
|Installment loans to individuals    |  |              | 580,126     |               |              | 70,843     |       |                 |            |  |              | 70,843     |       |   | 847,248    |  |   | 25,443    |  |   | 872,691    |  |   | 1,523,660 
|Overdrafts and other loans          |  |              | 18,711      |               |              |           |       |                 |            |  |              |           |       |   |           |  |   |          |  |   |           |  |   | 18,711    
|                                    |  |              |             |               |              |            |       |                 |             |  |              |            |       |   |            |  |   |           |  |   |            |  |   |           
|Total loans                         |  | $            | 34,561,761  |               | $            | 14,694,736 |       | $               | 829,849     |  | $            | 15,524,585 |       | $ | 40,709,091 |  | $ | 7,124,679 |  | $ | 47,833,770 |  | $ | 97,920,116
|                                    |  |              |             |               |              |            |       |                 |             |  |              |            |       |   |            |  |   |           |  |   |            |  |   |           



|[1] | Excludes $3,150,167 in nonaccrual variable-rate loans and $505,325 in nonaccrual fixed-rate loans.
|--- | --------------------------------------------------------------------------------------------------

|[2] | Excludes $346,861 in nonaccrual fixed-rate loans.
|--- | -------------------------------------------------

|[3] | Excludes $127,228 in nonaccrual variable-rate loans.
|--- | ----------------------------------------------------

A certain degree of risk is inherent in the extension of credit. Management has established loan and credit policies designed to control both the types and amounts of risks we take and to minimize losses.
Such policies include limits on loan-to-collateral ratios for each type of loan, requirements for appraisals of real estate collateral, problem loan management practices and collection procedures, and nonaccrual and charge-off guidelines.



Commercial loans primarily represent loans made to
businesses and may be made on either a secured or an unsecured basis. When taken, collateral consists of liens on receivables, equipment, inventories, furniture, and fixtures. Unsecured business loans are generally short-term with an emphasis on
repayment strengths and low debt-to-worth ratios. Commercial lending involves significant risk because repayment usually depends on the cash flows generated by a borrowers business, and the debt service capacity of a business can deteriorate
as a result of downturns in national and local economic conditions. To control risk, initial and continuing analysis of a borrowers financial information is required.

Real estate residential construction loans generally consist of financing the construction of 1-4 family dwellings. As of December 31,
2009, real estate residential construction loans totaled $170,000.

Loans secured by real estate comprised 88.5% of our loan
portfolio at December 31, 2009 and 83.67% at December 31, 2008. Residential real estate loans consist primarily of first and second mortgage loans on single family homes. Loan-to-value ratios for these loans are generally limited to 90%.
Nonfarm, nonresidential loans are secured by business and commercial properties with loan-to-value ratios generally limited to 80%. The repayment of both residential and commercial real estate loans depends primarily on the income and cash flows of
the borrowers, with the real estate serving as a secondary or liquidation source of repayment.



30



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##### Table of Contents

Allowance for Loan Losses

Management determines the Allowance for Loan Losses based on an ongoing evaluation of the loan portfolio. This evaluation is a combination of
quantitative and qualitative analysis. Quantitative factors include loss history for varying types of loans that we incur in our portfolio as well as loss history form banks across the country often assimilated by regulatory agencies and other
banking industry groups. Qualitative factors are many and include, among other things, the amounts and timing of borrower cash flows as well as the ultimate value upon disposition of collateral when applicable. These quantitative and qualitative
factors and estimates may be subject to significant change. Increases to the Allowance for Loan Losses are made by charges to the provision for loan losses, which is reflected on the Consolidated Statements of Operations and Comprehensive Income
(Loss). Loans deemed to be uncollectible are charged against the Allowance for Loan Losses, and recoveries of previously charged-off amounts are credited to the Allowance for Loan Losses.

The Allowance for Loan Losses consists of (1) a component for individual loan impairment recognized and measured pursuant to FASB ASC
Topic 310, Accounting by Creditors for Impairment of a Loan, and (2) components of collective loan impairment recognized pursuant to Topic 450, Accounting for Contingencies. We maintain specific reserves for individually impaired
loans pursuant to Topic 310. A loan is impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due (interest as well as principal) according to the contractual terms of the loan
agreement. On a quarterly basis, management reviews all commercial and consumer relationships that have been classified as substandard or doubtful. Loans are considered impaired when the borrower does not have the cash flow capacity or willingness
to service the debt according to contractual terms, or it does not appear reasonable to assume the borrower will continue to pay according to the contractual agreement. At December 31, 2009, the Bank had $7,710,500 of impaired loans with a fair
value of $4,557,471, or 7.03% of total loans, compared to $676,566 of impaired loans, or 0.58% of total loans, at December 31, 2008.

Reserves established pursuant to the provisions of Topic 450 on collective loan impairment are primarily based on historical charge-off experience. However, reserves may be adjusted to reflect the effects
of current conditions. The Bank considers information derived from its loan risk ratings; internal observable data related to trends within the loan portfolio, including credit quality and concentrations, aging of the portfolio, and external
observable data related to industry and general economic trends; and any significant, relevant changes to the Banks policies and procedures. Each loan is assigned a risk grade at origination. Our risk grades are based on our
assessment of our borrowers financial capacity and collateral quality in relation to its ability to meet contractual obligations under a loan agreement.

Although management uses various data and information sources to establish the Allowance for Loan Losses, future adjustments to the Allowance for Loan Losses may be necessary if economic conditions are
substantially different from the assumptions used in making the valuations.

At December 22, 2009, prior to the Merger,
the Allowance for Loan Losses stood at $6,700,000 and reflected an expense of $5,500,646. At December 31, 2009, post Merger, the Allowance for Loan Losses was reduced to zero as a result of purchase accounting. We will begin to establish a
reserve for loan losses as necessary on the new loans added to our loan portfolio.

The Allowance for Loan Losses is primarily
determined by managements estimate of possible losses that are inherent in the portfolio as of the balance sheet date and is also guided by managements analysis of economic conditions.



31



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##### Table of Contents

The following table presents our loan loss experience for the years indicated:

Analysis of the Allowance for Loan Losses

For the years ended December 31, 2009, 2008, 2007, 2006, and 2005



|                                                                                         |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                                         |  | 2009 |            |   | 2008 |   |           | 2007 |  |   | 2006    |   |  | 2005 |        
|Balance at beginning of period                                                           |  | $    | 1,687,283  |   |      | $ | 941,820   |      |  | $ | 826,595 |   |  | $    | 611,504 |   |  | $ | 331,621 |  
|Charge-offs:                                                                             |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial                                                                               |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  
|- Real estate                                                                            |  |      | 133,267    |   |      |   |          |      |  |   |        |   |  |      |        |   |  |   |        |  
|- Other                                                                                  |  |      | 187,065    |   |      |   | 79,032    |      |  |   | 3,950   |   |  |      | 3,950   |   |  |   |        |  
|Real estate                                                                              |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  
|- Residential land and construction                                                      |  |      |           |   |      |   |          |      |  |   |        |   |  |      |        |   |  |   |        |  
|- Mortgage, 1-4 family                                                                   |  |      | 214,352    |   |      |   |          |      |  |   |        |   |  |      |        |   |  |   |        |  
|Installment loans to individuals                                                         |  |      | 4,953      |   |      |   | 10,660    |      |  |   | 1,418   |   |  |      | 300     |   |  |   | 463     |  
|                                                                                         |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total charge-offs                                                                        |  |      | 539,637    |   |      |   | 89,692    |      |  |   | 5,368   |   |  |      | 4,250   |   |  |   | 463     |  
|                                                                                         |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  
|Recoveries:                                                                              |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial                                                                               |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  
|- Real estate                                                                            |  |      | 18,954     |   |      |   |          |      |  |   |        |   |  |      |        |   |  |   |        |  
|- Other                                                                                  |  |      | 31,644     |   |      |   | 6,311     |      |  |   | 3,949   |   |  |      |        |   |  |   |        |  
|Real estate                                                                              |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  
|- Residential land and construction                                                      |  |      |           |   |      |   |          |      |  |   |        |   |  |      |        |   |  |   |        |  
|- Mortgage, 1-4 family                                                                   |  |      |           |   |      |   |          |      |  |   |        |   |  |      |        |   |  |   |        |  
|Installment loans to individuals                                                         |  |      | 1,110      |   |      |   | 188       |      |  |   | 575     |   |  |      |        |   |  |   |        |  
|                                                                                         |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total recoveries                                                                         |  |      | 51,708     |   |      |   | 6,499     |      |  |   | 4,524   |   |  |      |        |   |  |   |        |  
|                                                                                         |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net charge-offs                                                                          |  |      | 487,929    |   |      |   | 83,193    |      |  |   | 844     |   |  |      | 4,250   |   |  |   | 463     |  
|                                                                                         |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  
|Allowance, net of charge-offs and recoveries                                             |  |      | 1,199,354  |   |      |   | 858,627   |      |  |   | 825,751 |   |  |      | 607,254 |   |  |   | 331,158 |  
|Additions to the allowance for loan losses                                               |  |      | 5,500,646  |   |      |   | 828,656   |      |  |   | 116,069 |   |  |      | 219,341 |   |  |   | 280,346 |  
|                                                                                         |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  
|Allowance after additions                                                                |  |      | 6,700,000  |   |      |   | 1,687,283 |      |  |   | 941,820 |   |  |      | 826,595 |   |  |   | 611,504 |  
|Purchase accounting adjustment                                                           |  |      | (6,700,000 | ) |      |   |          |      |  |   |        |   |  |      |        |   |  |   |        |  
|                                                                                         |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  
|Balance at end of period                                                                 |  | $    |           |   |      | $ | 1,687,283 |      |  | $ | 941,820 |   |  | $    | 826,595 |   |  | $ | 611,504 |  
|                                                                                         |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  
|Ratio of net charge-offs during the period to average loans oustanding during the period |  |      | 0.43       | % |      |   | 0.07      | %    |  |   | 0.00    | % |  |      | 0.01    | % |  |   | 0.00    | %
|                                                                                         |  |      |            |   |      |   |           |      |  |   |         |   |  |      |         |   |  |   |         |  

A breakdown by loan category of the allocation of the Allowance for Loan Losses as of the dates indicated
and the ratio of related outstanding loan balance to total loans are as follows:

Allocation of the Allowance for Loan
Losses

For the years ended December 31, 2009, 2008, 2007, 2006, and 2005



|                                                                       |  |        |            |   |                                               |        |   |        |   |                                               |      |        |        |      |   |                                               |   |  |        |    |                                               |   |         |        |        |                                               |  |   |         |  |        |  
|---------------------------------------------------------------------- |  | ------ | ---------- | - | --------------------------------------------- | ------ | - | ------ | - | --------------------------------------------- | ---- | ------ | ------ | ---- | - | --------------------------------------------- | - |  | ------ | -- | --------------------------------------------- | - | ------- | ------ | ------ | --------------------------------------------- |  | - | ------- |  | ------ | -
|                                                                       |  | 2009   |            |   | 2008                                          |        |   | 2007   |   |                                               | 2006 |        |        | 2005 |  
|                                                                       |  | Amount |            |   | Percent ofloans in eachcategory tototal loans |        |   | Amount |   | Percent ofloans in eachcategory tototal loans |      |        | Amount |      |   | Percent ofloans in eachcategory tototal loans |   |  | Amount |    | Percent ofloans in eachcategory tototal loans |   |         | Amount |        | Percent ofloans in eachcategory tototal loans | 
|Balance at end of period applicable to:                                |  |        |            |   |                                               |        |   |        |   |                                               |      |        |        |      |   |                                               |   |  |        |    |                                               |   |         |        |        |                                               |  |   |         |  |        |  
|Commercial                                                             |  |        |            |   |                                               |        |   |        |   |                                               |      |        |        |      |   |                                               |   |  |        |    |                                               |   |         |        |        |                                               |  |   |         |  |        |  
|- Real estate                                                          |  | $      | 4,980,026  |   |                                               | 74.34  | % |        | $ | 863,536                                       |      | 51.18  | %      |      | $ | 597,056                                       |   |  | 63.39  | %  |                                               | $ | 477,983 |        | 57.83  | %                                             |  | $ | 268,268 |  | 43.87  | %
|- Other                                                                |  |        | 1,245,830  |   |                                               | 18.59  | % |        |   | 588,957                                       |      | 34.91  | %      |      |   | 208,762                                       |   |  | 22.17  | %  |                                               |   | 174,501 |        | 21.11  | %                                             |  |   | 109,697 |  | 17.94  | %
|Real estate                                                            |  |        |            |   |                                               |        |   |        |   |                                               |      |        |        |      |   |                                               |   |  |        |    |                                               |   |         |        |        |                                               |  |   |         |  |        |  
|- Residential land and construction                                    |  |        | 7,352      |   |                                               | 0.11   | % |        |   | 18,774                                        |      | 1.11   | %      |      |   | 21,400                                        |   |  | 2.27   | %  |                                               |   | 42,257  |        | 5.11   | %                                             |  |   | 12,675  |  | 2.07   | %
|- Mortgage, 1-4 family                                                 |  |        | 427,044    |   |                                               | 6.37   | % |        |   | 168,876                                       |      | 10.01  | %      |      |   | 98,874                                        |   |  | 10.50  | %  |                                               |   | 89,520  |        | 10.83  | %                                             |  |   | 92,254  |  | 15.09  | %
|Installment loans to individuals                                       |  |        | 39,748     |   |                                               | 0.59   | % |        |   | 32,930                                        |      | 1.95   | %      |      |   | 39,304                                        |   |  | 4.17   | %  |                                               |   | 36,363  |        | 4.40   | %                                             |  |   | 30,546  |  | 5.00   | %
|Unallocated                                                            |  |        |           |   |                                               |       |   |        |   | 14,210                                        |      | 0.84   | %      |      |   | (23,576                                       | ) |  | (2.50  | %) |                                               |   | 5,971   |        | 0.72   | %                                             |  |   | 98,064  |  | 16.03  | %
|                                                                       |  |        |            |   |                                               |        |   |        |   |                                               |      |        |        |      |   |                                               |   |  |        |    |                                               |   |         |        |        |                                               |  |   |         |  |        |  
|Total allowance for loan losses                                        |  |        | 6,700,000  |   |                                               | 100.00 | % |        |   | 1,687,283                                     |      | 100.00 | %      |      |   | 941,820                                       |   |  | 100.00 | %  |                                               |   | 826,595 |        | 100.00 | %                                             |  |   | 611,504 |  | 100.00 | %
|Purchase accounting adjustment                                         |  |        | (6,700,000 | ) |                                               |        |   |        |   |                                              |      |        |        |      |   |                                              |   |  |        |    |                                               |   |        |        |        |                                               |  |   |        |  |        |  
|                                                                       |  |        |            |   |                                               |        |   |        |   |                                               |      |        |        |      |   |                                               |   |  |        |    |                                               |   |         |        |        |                                               |  |   |         |  |        |  
|Total allowance for loan losses, net of purchase accounting adjustment |  | $      |           |   |                                               |        |   |        | $ | 1,687,283                                     |      |        |        |      | $ | 941,820                                       |   |  |        |    |                                               | $ | 826,595 |        |        |                                               |  | $ | 611,504 |  |        |  
|                                                                       |  |        |            |   |                                               |        |   |        |   |                                               |      |        |        |      |   |                                               |   |  |        |    |                                               |   |         |        |        |                                               |  |   |         |  |        |  



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##### Table of Contents

Nonperforming Loans

It is our policy to discontinue accrual of interest income when a loan is 90 days past due as to interest and principal or when there is
serious doubt as to collectability, unless the estimated net realized value of collateral is sufficient to assure collection of principal balance and accrued interest.

As of December 31, 2009, management identified $7.1 million in nonperforming loans with a fair value of $4.1 million, which represents 4.05% of total outstanding loans. As of December 31, 2008,
management recognized $676,566 in total nonperforming loans, which represented 0.58% of total outstanding loans as of that date. Nonperforming loans included $87,831 in nonaccrual interest as of December 31, 2009 and $48,879 in nonaccrual
interest as of December 31, 2008. The majority of this increase is contained in our commercial real estate portfolio, primarily in the Silverton/SFG participations.

Management believes the significant increase in nonperforming assets is a combination of several factors, including the recession and the decline in real estate values.

Other Real Estate Owned

At December 31, 2009, the Bank had $463,700 in other real estate owned (OREO), representing one single-family residence, compared to no other real estate owned at December 31, 2008.
Our OREO policy is to initially record value at the lower of net loan principal balance or estimated fair market value less estimated selling costs. The estimated fair value is determined by appraisal at the time of acquisition.

The following table summarizes nonperforming assets as of the dates indicated:

Nonperforming Assets

As of December 31, 2009,
2008, 2007, 2006, and 2005



|                                                              |  |      |           |   |      |   |         |      |  |   |         |   |  |      |        |   |  |   |      |  
|------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------ | - |  | - | ---- | -
|                                                              |  | 2009 |           |   | 2008 |   |         | 2007 |  |   | 2006    |   |  | 2005 |       
|Nonaccrual loans                                              |  | $    | 4,129,581 |   |      | $ | 676,566 |      |  | $ |        |   |  | $    |       |   |  | $ |     |  
|Other real estate owned                                       |  |      | 463,700   |   |      |   |        |      |  |   |        |   |  |      |       |   |  |   |     |  
|                                                              |  |      |           |   |      |   |         |      |  |   |         |   |  |      |        |   |  |   |      |  
|Total nonperforming assets                                    |  | $    | 4,593,281 |   |      | $ | 676,566 |      |  | $ |        |   |  | $    |       |   |  | $ |     |  
|                                                              |  |      |           |   |      |   |         |      |  |   |         |   |  |      |        |   |  |   |      |  
|Loans 90 days or more past due and still accruing             |  | $    |          |   |      | $ |        |      |  | $ |        |   |  | $    |       |   |  | $ |     |  
|                                                              |  |      |           |   |      |   |         |      |  |   |         |   |  |      |        |   |  |   |      |  
|Loans 30-89 days past due                                     |  | $    | 789,683   |   |      | $ | 208,609 |      |  | $ | 208,609 |   |  | $    | 53,946 |   |  | $ |     |  
|                                                              |  |      |           |   |      |   |         |      |  |   |         |   |  |      |        |   |  |   |      |  
|Nonperforming loans as a percentage of total loans            |  |      | 4.05      | % |      |   | 0.58    | %    |  |   | N/A     |   |  |      | N/A    |   |  |   | N/A  |  
|Nonperforming assets as a percentage of total loans           |  |      | 4.50      | % |      |   | 0.58    | %    |  |   | N/A     |   |  |      | N/A    |   |  |   | N/A  |  
|Nonperforming assets as a percentage of total assets          |  |      | 2.28      | % |      |   | 0.37    | %    |  |   | N/A     |   |  |      | N/A    |   |  |   | N/A  |  
|Loans 30-89 days past due as a percentage of total loans      |  |      | 0.77      | % |      |   | 0.18    | %    |  |   | 0.18    | % |  |      | 0.07   | % |  |   | N/A  |  
|Net charge-offs as a percentage of average loans              |  |      | N/A       |   |      |   | 0.08    | %    |  |   | 0.00    | % |  |      | 0.01   | % |  |   | 0.00 | %
|Allowance for loan losses as a percentage of total loans      |  |      | N/A       |   |      |   | 1.44    | %    |  |   | 0.90    | % |  |      | 1.10   | % |  |   | 0.80 | %
|Net charge-offs as a percentage of allowance for loan losses  |  |      | N/A       |   |      |   | 4.93    | %    |  |   | 0.09    | % |  |      | 0.64   | % |  |   | 0.17 | %
|Nonaccrual loans as a percentage of allowance for loan losses |  |      | N/A       |   |      |   | 40.10   | %    |  |   | N/A     |   |  |      | N/A    |   |  |   | N/A  |  
|Allowance for loan losses to nonaccrual loans                 |  |      | N/A       |   |      |   | 249.39  | %    |  |   | N/A     |   |  |      | N/A    |   |  |   | N/A  |  
|Foregone interest income on nonaccrual loans                  |  | $    | 87,831    |   |      | $ | 48,563  |      |  |   | N/A     |   |  |      | N/A    |   |  |   | N/A  |  
|Interest income received on nonaccrual loans                  |  |      | 133,474   |   |      |   |        |      |  |   | N/A     |   |  |      | N/A    |   |  |   | N/A  |  



33



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##### Table of Contents

Deposits

Deposits represent the primary source of funds and are comprised of demand deposits, savings deposits, and time deposits. Deposits at
December 31, 2009 totaled $114,147,634, compared to deposits of $130,284,637 as of December 31, 2008 a 12.39% decrease. The overall change in deposits is represented by an increase in demand and savings accounts of $1,970,662 and a
decrease in time deposits of $18,107,665. This decline in deposits is attributed to decreased loan demand in 2009.

The
following table presents the average balances and rates paid, by deposit category, as of December 31, 2009 and 2008:

Average Desposits and Rates Paid

As of December 31, 2009, 2008 and 2007



|                                      |  |        |             |      |      |   |        |      |             |  |      |        |  |      |             |  |      |  
|------------------------------------- |  | ------ | ----------- | ---- | ---- | - | ------ | ---- | ----------- |  | ---- | ------ |  | ---- | ----------- |  | ---- | -
|                                      |  | 2009   |             |      | 2008 |   |        | 2007 |            
|                                      |  | Amount |             | Rate |      |   | Amount |      | Rate        |  |      | Amount |  | Rate |            
|Noninterest-bearing demand deposits   |  | $      | 14,032,483  |      |      |   |        | $    | 14,212,300  |  |      |        |  | $    | 14,176,354  |  |      |  
|Interest-bearing deposits:            |  |        |             |      |      |   |        |      |             |  |      |        |  |      |             |  |      |  
|Checking (NOW) accounts               |  |        | 4,667,838   |      | 0.19 | % |        |      | 4,266,732   |  | 0.89 | %      |  |      | 3,646,307   |  | 0.71 | %
|Money market accounts                 |  |        | 2,295,349   |      | 0.52 | % |        |      | 1,978,869   |  | 1.77 | %      |  |      | 2,045,067   |  | 1.27 | %
|Savings accounts                      |  |        | 3,432,598   |      | 0.76 | % |        |      | 2,620,795   |  | 1.19 | %      |  |      | 2,257,350   |  | 1.21 | %
|Time deposits $100,000 or greater [1] |  |        | 23,023,613  |      | 3.82 | % |        |      | 27,091,313  |  | 4.44 | %      |  |      | 19,181,042  |  | 4.97 | %
|Time deposits less than $100,000      |  |        | 78,459,376  |      | 3.47 | % |        |      | 76,577,954  |  | 4.37 | %      |  |      | 61,791,035  |  | 4.94 | %
|                                      |  |        |             |      |      |   |        |      |             |  |      |        |  |      |             |  |      |  
|Total interest-bearing                |  |        | 111,878,774 |      | 3.26 | % |        |      | 112,535,663 |  | 4.14 | %      |  |      | 88,920,801  |  | 1.59 | %
|                                      |  |        |             |      |      |   |        |      |             |  |      |        |  |      |             |  |      |  
|Total average deposits                |  | $      | 125,911,257 |      | 2.90 | % |        | $    | 126,747,963 |  | 3.67 | %      |  | $    | 103,097,155 |  | 3.96 | %
|                                      |  |        |             |      |      |   |        |      |             |  |      |        |  |      |             |  |      |  



|[1] | Includes brokered deposits.
|--- | ---------------------------

Capital Adequacy

Capital management in a regulated financial services industry must properly
balance return on equity to shareholders while maintaining sufficient capital levels and related risk-based capital ratios to satisfy regulatory requirements. The Banks capital management strategies have been developed to maintain its
well-capitalized position. Total capital at December 31, 2009 of $54,072,033 included $68,154 in comprehensive income.

We are subject to various regulatory capital requirements administered by federal and other bank regulators. Failure to meet minimum capital requirements can trigger certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet
specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and reclassifications are also subject to qualitative
judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by
regulation to ensure capital adequacy require us to maintain minimum amounts and ratios of total and Tier 1 capital to average assets. As of December 31, 2009, we had met all minimum capital adequacy requirements to which we are subject and are
categorized as well-capitalized. Since December 31, 2009, there are no conditions or events that management believes have changed our status as well-capitalized.



34



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##### Table of Contents

The following tables reflect the Banks capital ratios and the minimum capital ratios
required by regulators as of the dates indicated:

Risk-based Capital Analysis

(Dollars in thousands)

As of years ending December 31, 2009, 2008 and 2007



|                                                           |  |      |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                           |  | 2009 |         |   | 2008 |   |         | 2007 | 
|Tier 1 capital:                                            |  |      |         |   |      |   |         |      |  |   |         |  
|Common stock                                               |  | $    | 5,847   |   |      | $ | 7,284   |      |  | $ | 7,284   |  
|Additional paid-in capital                                 |  |      | 57,615  |   |      |   | 8,938   |      |  |   | 8,938   |  
|Retained (deficit)                                         |  |      | (9,458  | ) |      |   | 663     |      |  |   | 484     |  
|Accumulated other comprehensive income                     |  |      | 68      |   |      |   | (175    | )    |  |   |        |  
|                                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Total bank equity capital                                  |  |      | 54,072  |   |      | $ | 16,710  |      |  | $ | 16,706  |  
|Net unrealized (gain) on available-for-sale securities     |  |      | (68     | ) |      |   | (175    | )    |  |   | (67     | )
|                                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Disallowed goodwill and other disallowed intangible assets |  |      | (10,670 | ) |      |   |        |      |  |   |        |  
|                                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Total Tier 1 capital                                       |  | $    | 43,334  |   |      | $ | 16,885  |      |  | $ | 16,639  |  
|                                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Tier 2 capital:                                            |  |      |         |   |      |   |         |      |  |   |         |  
|Allowance for loan losses                                  |  | $    |        |   |      | $ | 1,687   |      |  | $ | 942     |  
|                                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Total risk-based capital                                   |  | $    | 43,334  |   |      | $ | 18,572  |      |  | $ | 17,581  |  
|                                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Average total assets                                       |  | $    | 161,988 |   |      | $ | 174,244 |      |  | $ | 151,585 |  
|                                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Risk-weighted assets                                       |  | $    | 118,156 |   |      | $ | 123,678 |      |  | $ | 117,549 |  
|                                                           |  |      |         |   |      |   |         |      |  |   |         |  

Risk-based Capital Ratios

As of Decemer 31, 2009 and 2008



|                                |  |       |   |  |       |   |  |                   |   |  |                 |  
|------------------------------- |  | ----- | - |  | ----- | - |  | ----------------- | - |  | --------------- | -
|                                |  | 2009  |   |  | 2008  |   |  | RegulatoryMinimum |   |  | WellCapitalized |  
|Tier 1 leverage ratio           |  | 26.75 | % |  | 9.33  | % |  | 4.00              | % |  | > 5.00          | %
|Tier 1 risk-based capital ratio |  | 36.68 | % |  | 13.65 | % |  | 4.00              | % |  | > 6.00          | %
|Total risk-based capital ratio  |  | 36.68 | % |  | 15.02 | % |  | 8.00              | % |  | > 10.00         | %

Liquidity

Liquidity is identified as the ability to generate or acquire sufficient amounts of
cash when needed and at a reasonable cost to accommodate withdrawals, payments of debt, and increased loan demand. These events may occur daily or in other short-term intervals in the normal operation of business. Historical trends help management
predict the amount of cash required. In assessing liquidity, management gives consideration to relevant factors including stability of deposits, quality of assets, economy of market served, concentrations of business and industry, competition, and
our overall financial condition. Our primary sources of liquidity are cash, due from banks, federal funds sold, and securities in our available-for-sale portfolio. We also have access to substantial lines of credit from our correspondent banks, in
addition to an arrangement to borrow from the Federal Home Loan Bank in aggregate of 30% of total assets and from the Federal Reserve under certain conditions. Theses credit lines are available through our correspondent banks for short term
liquidity needs and are subject to prevailing interest rates. In managements opinion, we maintain the ability to generate sufficient amounts of cash to cover normal requirements and any additional needs which may arise, within realistic
limitations, for the foreseeable future.



35



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##### Table of Contents

Interest Rate Sensitivity

Financial institutions can be exposed to several market risks which may impact the value or future earnings capacity of an organization. Our
primary market risk is interest rate risk. Interest rate risk is inherent in banking because as a financial institution, we derive a significant amount of the operating revenue from purchasing funds (customer deposits and borrowings) at
various terms and rates. These funds are invested into earning assets (loans, investments, etc.) at various terms and rates.

Interest rate risk is the exposure to fluctuations in our future earnings (earnings at risk) and value (market value at risk) resulting from changes in interest rates. This exposure results from differences between the amounts of
interest-earning assets and interest-bearing liabilities that re-price within a specific time period as a result of scheduled maturities and repayment and contractual interest rate changes.

The asset/liability goal of the Bank is to optimally manage net interest margin while not exceeding policy limits. The balance sheet may be
asset or liability sensitive at a given time. The banks asset or liability sensitivity will be managed to maximize earnings and to minimize interest rate risk within policy limits.

Management strives to control the Banks exposure to interest rate volatility, and we operate under an Asset and Liability Management
Policy approved by our Board of Directors. In addition, we emphasize the loan and deposit pricing characteristics that best meet our current view on the future direction of interest rates and use sophisticate analytical tools to support our asset
and liability processes.

Gap Analysis

Gap analysis tools monitor the gap between interest-sensitive assets and interest-sensitive liabilities. The Bank uses a
simulation model to forecast future balance sheet and income statement behavior. By studying the effects on net interest income of rising, stable, and falling interest rate scenarios, the Bank can position itself to take advantage of anticipated
interest rate movements by understanding the dynamic nature of its balance sheet components. We evaluate our securities, loan, and deposit portfolios to manage our interest rate risk position.

The following table, Gap Report, indicates that, on a cumulative basis through the next 12 months, the Company reflects
rate-sensitive assets exceeding rate-sensitive liabilities, resulting in an asset-sensitive position at December 31, 2009 of $6.1 million. This net asset-sensitive position was a result of $73.2 million in rate-sensitive assets being available
for re-pricing during the next 12 months and $67.1 million in rate-sensitive liabilities being available for re-pricing during the next 12 months, which reflects a cumulative positive gap of $6.1 million. Our gap position at December 31, 2009
is considered by management to be favorable in a flat to increasing interest rate environment. A negative interest sensitivity gap results when interest-sensitive liabilities exceed interest-sensitive assets for a specific re-pricing
horizon. The gap is positive when interest-sensitive assets exceed interest-sensitive liabilities. For a bank with a positive gap, rising interest rates would be expected to have a positive effect on net interest income and falling rates
would be expected to have the opposite effect. The following table reflects the balances of interest-earning assets and interest-bearing liabilities at the earlier of their re-pricing or maturity dates. Amounts of fixed-rate loans are reflected at
the earlier of their contractual maturity date or their contractual re-pricing date. Time deposits are reflected at the deposits maturity dates. Borrowed funds are reflected in the earliest contractual re-pricing interval due to the
immediately available nature of these funds. Interest-bearing liabilities with no contractual maturity, such as interest-bearing transaction accounts and savings deposits, are reflected in the earliest re-pricing interval due to contractual
arrangements which give management the opportunity to vary the rates paid on these deposits within a 30 day or shorter period.



36



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##### Table of Contents

Fixed-rate time deposits and advances are reflected at their contractual maturity dates,
whereas variable-rate advances are reflected at the earliest repricing interval since they were borrowed under the daily rate credit option and re-price daily.

Gap Report

At December 31, 2009

(in thousands)



|                                   |  |           |        |             |   |         |          |  |   |             |   |        |   |        |  |   |        
|---------------------------------- |  | --------- | ------ | ----------- | - | ------- | -------- |  | - | ----------- | - | ------ | - | ------ |  | - | -------
|                                   |  | 0-180Days |        | 181-360Days |   |         | 1-3Years |  |   | Over 3Years |   | TOTAL 
|                                   |  | Volume    |        | Volume      |   |         | Volume   |  |   | Volume      |   | Volume
|ASSETS:                            |  |           |        |             |   |         |          |  |   |             |   |        |   |        |  |   |        
|Cash and due from banks            |  | $         |       |             | $ |        |          |  | $ |            |   |        | $ |       |  |   | 35,105 
|U.S. agencies                      |  |           | 11,000 |             |   | 1,998   |          |  |   |            |   |        |   | 5,000  |  |   | 17,998 
|Mortgage-backed securities         |  |           | 97     |             |   | 298     |          |  |   | 7,224       |   |        |   | 4,085  |  |   | 11,704 
|Municipals                         |  |           |       |             |   | 518     |          |  |   |            |   |        |   | 2,000  |  |   | 2,518  
|Preferred securities               |  |           |       |             |   |        |          |  |   |            |   |        |   | 4,523  |  |   | 4,523  
|Unrealized gains/losses            |  |           |       |             |   |        |          |  |   |            |   |        |   |       |  |   | 103    
|Other investments                  |  |           |       |             |   |        |          |  |   |            |   |        |   |       |  |   | 54     
|Commercial loans                   |  |           |        |             |   |         |          |  |   |             |   |        |   |        |  |   |        
|- Real estate                      |  |           | 26,631 |             |   | 2,614   |          |  |   | 1,438       |   |        |   | 3,089  |  |   | 33,772 
|- Other                            |  |           | 8,571  |             |   | 9,264   |          |  |   | 19,363      |   |        |   | 7,476  |  |   | 44,674 
|Real estate loans                  |  |           |        |             |   |         |          |  |   |             |   |        |   |        |  |   |        
|- Residential Jr Lien              |  |           | 148    |             |   | 755     |          |  |   | 653         |   |        |   | 821    |  |   | 2,377  
|- Residential construction         |  |           | 261    |             |   | 371     |          |  |   | 414         |   |        |   | 444    |  |   | 1,490  
|- Residential mortgage, 1-4 family |  |           | 1,275  |             |   | 2,657   |          |  |   | 2,669       |   |        |   | 3,265  |  |   | 9,866  
|- Home Equity Lines                |  |           | 5,550  |             |   | 25      |          |  |   | 17          |   |        |   | 3,100  |  |   | 8,692  
|Consumer loans                     |  |           | 690    |             |   | 331     |          |  |   | 437         |   |        |   | 66     |  |   | 1,524  
|Other loans                        |  |           | 138    |             |   |        |          |  |   |            |   |        |   |       |  |   | 138    
|Nonaccrual loans                   |  |           |       |             |   |        |          |  |   |            |   |        |   |       |  |   | 7,117  
|Premises and fixed assets          |  |           |       |             |   |        |          |  |   |            |   |        |   |       |  |   | 5,286  
|Other real estate owned            |  |           |       |             |   |        |          |  |   |            |   |        |   |       |  |   | 464    
|Other assets                       |  |           |       |             |   |        |          |  |   |            |   |        |   |       |  |   | 14,186 
|                                   |  |           |        |             |   |         |          |  |   |             |   |        |   |        |  |   |        
|TOTAL ASSETS                       |  | $         | 54,361 |             | $ | 18,831  |          |  | $ | 32,215      |   |        | $ | 33,869 |  | $ | 201,591
|                                   |  |           |        |             |   |         |          |  |   |             |   |        |   |        |  |   |        
|LIABLIITIES & CAPITAL:             |  |           |        |             |   |         |          |  |   |             |   |        |   |        |  |   |        
|Demand deposits                    |  | $         |       |             | $ |        |          |  | $ |            |   |        | $ |       |  | $ | 14,646 
|NOW accounts                       |  |           | 198    |             |   | 594     |          |  |   | 1,584       |   |        |   | 3,233  |  |   | 5,609  
|MMDA                               |  |           | 247    |             |   | 742     |          |  |   | 1,073       |   |        |   |       |  |   | 2,062  
|Savings                            |  |           | 396    |             |   | 1,187   |          |  |   | 1,713       |   |        |   |       |  |   | 3,296  
|Time deposits > 100K               |  |           | 2,311  |             |   | 19,407  |          |  |   | 14,141      |   |        |   | 1,268  |  |   | 37,127 
|Time deposits < 100K               |  |           | 5,806  |             |   | 29,988  |          |  |   | 12,566      |   |        |   | 3,048  |  |   | 51,408 
|Federal funds purchased            |  |           | 1,552  |             |   |        |          |  |   |            |   |        |   |       |  |   | 1,552  
|Other borrowings                   |  |           | 4,700  |             |   |        |          |  |   | 5,000       |   |        |   | 20,008 |  |   | 29,708 
|Other liabilities                  |  |           |       |             |   |        |          |  |   |            |   |        |   |       |  |   | 2,111  
|Shareholders equity               |  |           |       |             |   |        |          |  |   |            |   |        |   |       |  |   | 54,072 
|                                   |  |           |        |             |   |         |          |  |   |             |   |        |   |        |  |   |        
|TOTAL LIABILITIES & CAPITAL        |  | $         | 15,210 |             | $ | 51,918  |          |  | $ | 36,077      |   |        | $ | 27,557 |  | $ | 201,591
|                                   |  |           |        |             |   |         |          |  |   |             |   |        |   |        |  |   |        
|DISCRETE:                          |  |           |        |             |   |         |          |  |   |             |   |        |   |        |  |   |        
|GAP                                |  |           | 39,151 |             |   | (33,087 | )        |  |   | (3,862      | ) |        |   | 6,312  |  |   |        
|CUMULATIVE:                        |  |           |        |             |   |         |          |  |   |             |   |        |   |        |  |   |        
|GAP                                |  |           | 39,151 |             |   | 6,064   |          |  |   | 2,202       |   |        |   | 8,514  |  |   |        



37



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##### Table of Contents

Short-Term Borrowings

The following table summarizes the year-end balances, highest month-end balances, average balance and weighted average rate of short-term
borrowings for each of the years indicated:

Short Term Borrowings

For the years ended December 31, 2009, 2008, and 2007



|                            |  |                 |           |                         |      |                |  |                     |           |  |                 |   |                         |   |                |  |                     |            |  |                 |            |                         |      |                |  |                     |            |  |   |            |  |   |            |  |      |  
|--------------------------- |  | --------------- | --------- | ----------------------- | ---- | -------------- |  | ------------------- | --------- |  | --------------- | - | ----------------------- | - | -------------- |  | ------------------- | ---------- |  | --------------- | ---------- | ----------------------- | ---- | -------------- |  | ------------------- | ---------- |  | - | ---------- |  | - | ---------- |  | ---- | -
|                            |  | 2009            |           |                         | 2008 |                |  | 2007                |          
|                            |  | Year EndBalance |           | HighestMonth EndBalance |      | AverageBalance |  | WeightedAverageRate |           |  | Year EndBalance |   | HighestMonth EndBalance |   | AverageBalance |  | WeightedAverageRate |            |  | Year EndBalance |            | HighestMonth EndBalance |      | AverageBalance |  | WeightedAverageRate |           
|Federal funds purchased     |  | $               | 1,552,000 |                         | $    | 2,526,000      |  | $                   | 518,841   |  | 0.79            | % |                         | $ |               |  | $                   | 2,270,000  |  | $               | 374,164    |                         | 2.76 | %              |  | $                   | 2,547,000  |  | $ | 3,951,000  |  | $ | 1,057,507  |  | 5.00 | %
|Other borrowings            |  |                 | 4,700,000 |                         |      | 12,000,000     |  |                     | 3,472,329 |  | 0.53            | % |                         |   | 16,000,000     |  |                     | 21,000,000 |  |                 | 11,006,284 |                         | 3.77 | %              |  |                     | 45,000,000 |  |   | 45,000,000 |  |   | 9,164,110  |  | 4.29 | %
|                            |  |                 |           |                         |      |                |  |                     |           |  |                 |   |                         |   |                |  |                     |            |  |                 |            |                         |      |                |  |                     |            |  |   |            |  |   |            |  |      |  
|Total short-term borrowings |  | $               | 6,252,000 |                         | $    | 14,526,000     |  | $                   | 3,991,170 |  | 0.57            | % |                         | $ | 16,000,000     |  | $                   | 23,270,000 |  | $               | 11,380,448 |                         | 3.74 | %              |  | $                   | 47,547,000 |  | $ | 48,951,000 |  | $ | 10,221,617 |  | 4.36 | %
|                            |  |                 |           |                         |      |                |  |                     |           |  |                 |   |                         |   |                |  |                     |            |  |                 |            |                         |      |                |  |                     |            |  |   |            |  |   |            |  |      |  



38



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##### Table of Contents

Securities Portfolio

The securities portfolio was held as available for sale at December 31, 2009 and represented a market value of $36,846,737. The
following tables show the approximate weighted average yield and average life of the portfolio:

Securities Portfolio

As of December 31, 2009, 2008 and 2007



|                           |  |            |            |            |   |                      |  |                       |  |      |  
|-------------------------- |  | ---------- | ---------- | ---------- | - | -------------------- |  | --------------------- |  | ---- | -
|                           |  | 2009       |           
|                           |  | Book Value |            | Fair Value |   | WeightedAverage Life |  | WeightedAverage Yield | 
|U.S. agencies              |  | $          | 17,700,601 |            | $ | 17,810,442           |  | 13.07 years           |  | 5.16 | %
|Mortgage-backed securities |  |            |            |            |   |                      |  |                       |  |      |  
|- Fixed rate               |  |            | 4,938,564  |            |   | 5,000,110            |  | 1.97 years            |  | 5.47 | %
|- Variable rate            |  |            | 7,102,185  |            |   | 7,160,290            |  | 7.96 years            |  | 3.57 | %
|Municipals                 |  |            |            |            |   |                      |  |                       |  |      |  
|- Taxable                  |  |            | 2,111,980  |            |   | 2,073,280            |  | 8.08 years            |  | 6.32 | %
|- Tax exempt [1]           |  |            | 535,600    |            |   | 534,615              |  | 0.92 years            |  | 5.64 | %
|Other securities [2]       |  |            | 4,262,500  |            |   | 4,268,000            |  | 17.16 years           |  | 7.44 | %
|                           |  |            |            |            |   |                      |  |                       |  |      |  
|Total securities [3]       |  | $          | 36,696,430 |            | $ | 36,846,737           |  | 10.71 years           |  | 5.25 | %
|                           |  |            |            |            |   |                      |  |                       |  |      |  



|[1] | Yields on tax exempt securities are calculated on a tax equivalent basis.
|--- | -------------------------------------------------------------------------

|[2] | Weighted average life calculations are based on the current level of prepayments as of December 31, 2009.
|--- | ---------------------------------------------------------------------------------------------------------

|[3] | The key driver of the difference in the weighted average lives between the portfolios in 2008 and 2009 relates primarily to two agency notes, the average lives of which
were extended due to changes in interest rates between the end of 2008 and the end of 2009.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                           |  |            |            |            |   |                      |  |                       |  |      |  
|-------------------------- |  | ---------- | ---------- | ---------- | - | -------------------- |  | --------------------- |  | ---- | -
|                           |  | 2008       |           
|                           |  | Book Value |            | Fair Value |   | WeightedAverage Life |  | WeightedAverage Yield | 
|U.S. agencies              |  | $          | 23,658,025 |            | $ | 23,960,625           |  | 1.49 years            |  | 5.20 | %
|Mortgage-backed securities |  |            |            |            |   |                      |  |                       |  |      |  
|- Fixed rate               |  |            | 15,801,604 |            |   | 16,284,963           |  | 5.62 years            |  | 5.48 | %
|- Variable rate            |  |            | 9,153,315  |            |   | 8,993,426            |  | 7.08 years            |  | 4.48 | %
|Municipals                 |  |            |            |            |   |                      |  |                       |  |      |  
|- Tax exempt [1]           |  |            | 525,933    |            |   | 520,735              |  | 1.92 years            |  | 5.59 | %
|Other securities [2]       |  |            | 4,539,565  |            |   | 3,652,962            |  | 18.16 years           |  | 7.40 | %
|                           |  |            |            |            |   |                      |  |                       |  |      |  
|Total securities           |  | $          | 53,678,442 |            | $ | 53,412,711           |  | 5.04 years            |  | 5.35 | %
|                           |  |            |            |            |   |                      |  |                       |  |      |  



|[1] | Yields on tax exempt securities are calculated on a tax equivalent basis.
|--- | -------------------------------------------------------------------------

|[2] | Weighted average life calculations are based on the current level of prepayments as of December 31, 2008.
|--- | ---------------------------------------------------------------------------------------------------------



|                                    |  |            |            |            |   |                      |  |                       |  |      |  
|----------------------------------- |  | ---------- | ---------- | ---------- | - | -------------------- |  | --------------------- |  | ---- | -
|                                    |  | 2007       |           
|                                    |  | Book Value |            | Fair Value |   | WeightedAverage Life |  | WeightedAverage Yield | 
|U.S. agencies                       |  | $          | 42,863,380 |            | $ | 43,023,600           |  | 0.33 years            |  | 4.97 | %
|Mortgage-backed securities          |  |            |            |            |   |                      |  |                       |  |      |  
|- Fixed rate                        |  |            | 537,210    |            |   | 520,055              |  | 3.31 years            |  | 4.82 | %
|- Variable rate                     |  |            | 13,983,074 |            |   | 13,930,912           |  | 8.09 years            |  | 4.83 | %
|Collateralized mortgage obligations |  |            | 11,669     |            |   | 11,624               |  | 0.36 years            |  | 2.91 | %
|Other securities [1]                |  |            | 4,558,440  |            |   | 4,568,225            |  | 0.54 years            |  | 7.20 | %
|                                    |  |            |            |            |   |                      |  |                       |  |      |  
|Total securities                    |  | $          | 61,953,773 |            | $ | 62,054,416           |  | 2.12 years            |  | 5.11 | %
|                                    |  |            |            |            |   |                      |  |                       |  |      |  



|[1] | Weighted average life calculations are based on the current level of prepayments as of December 31, 2008.
|--- | ---------------------------------------------------------------------------------------------------------



39



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##### Table of Contents

The following table presents information pertaining to the composition of our securities
portfolio by contractual maturity as of the date indicated. Interest on tax-exempt securities is presented on a tax-equivalent basis (which converts the income on investments for which no income taxes are paid to the equivalent yield if income taxes
were paid using the federal corporate tax rate of 34% in the year presented):

Scheduled Maturities of Available-for-Sale
Securities

As of December 31, 2009



|                           |  |              |   |                      |   |                            |   |                     |  |                              |  |                      |           |  |                |   |                      |   |            |       |      |                      |  |   |            |  |      |  
|-------------------------- |  | ------------ | - | -------------------- | - | -------------------------- | - | ------------------- |  | ---------------------------- |  | -------------------- | --------- |  | -------------- | - | -------------------- | - | ---------- | ----- | ---- | -------------------- |  | - | ---------- |  | ---- | -
|                           |  | 2009         |  
|                           |  | Within1 Year |   | WeightedAverageYield |   | After 1 YearThrough5 Years |   | WeighedAverageYield |  | After 5 YearsThrough10 Years |  | WeightedAverageYield |           |  | After 10 Years |   | WeightedAverageYield |   |            | Total |      | WeightedAverageYield | 
|U.S. agencies              |  | $            |  |                      |  |                            | $ |                    |  |                             |  | $                    |          |  |               |   |                      | $ | 17,810,442 |       | 5.16 | %                    |  | $ | 17,810,442 |  | 5.16 | %
|Mortgage-backed securities |  |              |   |                      |   |                            |   |                     |  |                              |  |                      |           |  |                |   |                      |   |            |       |      |                      |  |   |            |  |      |  
|- Fixed rate               |  |              |  |                      |  |                            |   |                    |  |                             |  |                      |          |  |               |   |                      |   | 5,000,110  |       | 5.47 | %                    |  |   | 5,000,110  |  | 5.47 | %
|- Variable rate [1]        |  |              |  |                      |  |                            |   |                    |  |                             |  |                      |          |  |               |   |                      |   | 7,160,290  |       | 3.57 | %                    |  |   | 7,160,290  |  | 3.57 | %
|Municipals                 |  |              |   |                      |   |                            |   |                     |  |                              |  |                      |           |  |                |   |                      |   |            |       |      |                      |  |   |            |  |      |  
|- Taxable                  |  |              |  |                      |  |                            |   |                    |  |                             |  |                      | 2,073,280 |  | 6.32           | % |                      |   |           |       |     |                      |  |   | 2,073,280  |  | 6.32 | %
|- Tax exempt [2]           |  |              |  |                      |  |                            |   |                    |  |                             |  |                      |          |  |               |   |                      |   | 534,615    |       | 5.64 | %                    |  |   | 534,615    |  | 5.64 | %
|Other securities           |  |              |  |                      |  |                            |   |                    |  |                             |  |                      |          |  |               |   |                      |   | 4,268,000  |       | 7.44 | %                    |  |   | 4,268,000  |  | 7.44 | %
|                           |  |              |   |                      |   |                            |   |                     |  |                              |  |                      |           |  |                |   |                      |   |            |       |      |                      |  |   |            |  |      |  
|Total securities           |  | $            |  |                      |  |                            | $ |                    |  |                             |  | $                    | 2,073,280 |  | 6.32           | % |                      | $ | 34,773,457 |       | 5.25 | %                    |  | $ | 36,846,737 |  | 5.25 | %
|                           |  |              |   |                      |   |                            |   |                     |  |                              |  |                      |           |  |                |   |                      |   |            |       |      |                      |  |   |            |  |      |  



|[1] | Includes $6,966,339 in variable rate mortgage-backed securities that reset within one to ten years.
|--- | ---------------------------------------------------------------------------------------------------

|[2] | Yields on tax exempt securities are calculated on a tax equivalent basis.
|--- | -------------------------------------------------------------------------



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##### Table of Contents

The following tables summarize the book values of our securities greater than 10% of
Shareholders equity:

Book Value of Securities Greater than 10% of Shareholders Equity

As of December 31, 2009, 2008, and 2007



|                                         |  |            |            |            |   |                                                 |  |        |  
|---------------------------------------- |  | ---------- | ---------- | ---------- | - | ----------------------------------------------- |  | ------ | -
|                                         |  | 2009       |           
|                                         |  | Book Value |            | Fair Value |   | Book Value as aPercentage ofShareholdersEquity | 
|U.S. agencies                            |  |            |            |            |   |                                                 |  |        |  
|- Federal Home Loan Mortgage Corporation |  |            | 15,000,000 |            |   | 14,776,594                                      |  | 27.74  | %
|Mortgage-backed securities               |  |            |            |            |   |                                                 |  |        |  
|- Federal National Mortgage Association  |  |            | 6,568,617  |            |   | 6,798,519                                       |  | 12.15  | %
|                                         |  |            |            |            |   |                                                 |  |        |  
|Total securities                         |  | $          | 21,568,617 |            | $ | 21,575,113                                      |  | 39.89  | %
|                                         |  |            |            |            |   |                                                 |  |        |  
|                                         | 
|                                         |  | 2008       |           
|                                         |  | Book Value |            | Fair Value |   | Book Value as aPercentage ofShareholdersEquity | 
|U.S. agencies                            |  |            |            |            |   |                                                 |  |        |  
|- Federal Home Loan Mortgage Corporation |  |            | 20,660,000 |            |   | 20,850,091                                      |  | 123.64 | %
|- Federal National Mortgage Association  |  |            | 1,998,025  |            |   | 2,091,820                                       |  | 11.96  | %
|Mortgage-backed securities               |  |            |            |            |   |                                                 |  |        |  
|- Federal Home Loan Mortgage Corporation |  |            | 15,539,622 |            |   | 15,875,724                                      |  | 93.00  | %
|- Federal National Mortgage Association  |  |            | 8,831,948  |            |   | 8,824,289                                       |  | 52.85  | %
|Other securities                         |  |            |            |            |   |                                                 |  |        |  
|- First Union Capital I                  |  |            | 2,268,585  |            |   | 1,767,128                                       |  | 13.58  | %
|- NB Capital Trust IV                    |  |            | 2,270,980  |            |   | 1,885,834                                       |  | 13.59  | %
|                                         |  |            |            |            |   |                                                 |  |        |  
|Total securities                         |  | $          | 51,569,160 |            | $ | 51,294,886                                      |  | 308.62 | %
|                                         |  |            |            |            |   |                                                 |  |        |  
|                                         | 
|                                         |  | 2007       |           
|                                         |  | Book Value |            | Fair Value |   | Book Value as aPercentage ofShareholdersEquity | 
|U.S. agencies                            |  |            |            |            |   |                                                 |  |        |  
|- Federal Farm Credit Bank               |  |            | 9,924,125  |            |   | 10,099,990                                      |  | 59.40  | %
|- Federal Home Loan Bank                 |  |            | 31,939,255 |            |   | 31,920,867                                      |  | 191.18 | %
|Mortgage-backed securities               |  |            |            |            |   |                                                 |  |        |  
|- Federal Home Loan Mortgage Corporation |  |            | 3,239,331  |            |   | 3,247,412                                       |  | 19.39  | %
|- Federal National Mortgage Association  |  |            | 10,471,941 |            |   | 10,397,019                                      |  | 62.68  | %
|Other securities                         |  |            |            |            |   |                                                 |  |        |  
|- First Union Capital I                  |  |            | 2,276,619  |            |   | 2,277,000                                       |  | 13.63  | %
|- NB Capital Trust IV                    |  |            | 2,281,822  |            |   | 2,291,225                                       |  | 13.66  | %
|                                         |  |            |            |            |   |                                                 |  |        |  
|Total securities                         |  | $          | 60,133,093 |            | $ | 60,233,513                                      |  | 359.94 | %
|                                         |  |            |            |            |   |                                                 |  |        |  



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##### Table of Contents

The following tables present information pertaining to securities with gross unrealized
losses:

Unrealized Losses on Securities



|                           |  |                     |            |                  |                     |            |            |       |                  |           |  |            |          |                  |  |   |            |  |   |            |  
|-------------------------- |  | ------------------- | ---------- | ---------------- | ------------------- | ---------- | ---------- | ----- | ---------------- | --------- |  | ---------- | -------- | ---------------- |  | - | ---------- |  | - | ---------- | -
|                           |  | December 31, 2009   |           
|                           |  | Less than 12 months |            |                  | More than 12 months |            |            | Total |                 
|                           |  | Fair Value          |            | UnrealizedLosses |                     |            | Fair Value |       | UnrealizedLosses |           |  | Fair Value |          | UnrealizedLosses | 
|U.S. agencies              |  | $                   | 15,763,328 |                  | $                   | (236,672   | )          |       | $                |          |  | $          |         |                  |  | $ | 15,763,328 |  | $ | (236,672   | )
|Mortgage-backed securities |  |                     |            |                  |                     |            |            |       |                  |           |  |            |          |                  |  |   |            |  |   |            |  
|- Variable rate            |  |                     | 54,115     |                  |                     | (184       | )          |       |                  |          |  |            |         |                  |  |   | 54,115     |  |   | (184       | )
|Other securities           |  |                     |           |                  |                     |           |            |       |                  | 4,268,000 |  |            | (254,787 | )                |  |   | 4,268,000  |  |   | (254,787   | )
|                           |  |                     |            |                  |                     |            |            |       |                  |           |  |            |          |                  |  |   |            |  |   |            |  
|Total securities           |  | $                   | 15,817,443 |                  | $                   | (236,856   | )          |       | $                | 4,268,000 |  | $          | (254,787 | )                |  | $ | 20,085,443 |  | $ | (491,643   | )
|                           |  |                     |            |                  |                     |            |            |       |                  |           |  |            |          |                  |  |   |            |  |   |            |  
|                           | 
|                           |  | December 31, 2008   |           
|                           |  | Less than 12 months |            |                  | More than 12 months |            |            | Total |                 
|                           |  | Fair Value          |            | UnrealizedLosses |                     |            | Fair Value |       | UnrealizedLosses |           |  | Fair Value |          | UnrealizedLosses | 
|Mortgage-backed securities |  |                     |            |                  |                     |            |            |       |                  |           |  |            |          |                  |  |   |            |  |   |            |  
|- Variable rate            |  | $                   | 3,954,961  |                  | $                   | (109,036   | )          |       | $                | 2,346,183 |  | $          | (75,492  | )                |  | $ | 6,301,144  |  | $ | (184,528   | )
|Municipals                 |  |                     |            |                  |                     |            |            |       |                  |           |  |            |          |                  |  |   |            |  |   |            |  
|- Tax exempt               |  |                     | 520,735    |                  |                     | (5,198     | )          |       |                  |          |  |            |         |                  |  |   | 520,735    |  |   | (5,198     | )
|Other securities           |  |                     | 3,652,962  |                  |                     | (886,603   | )          |       |                  |          |  |            |         |                  |  |   | 3,652,962  |  |   | (886,603   | )
|                           |  |                     |            |                  |                     |            |            |       |                  |           |  |            |          |                  |  |   |            |  |   |            |  
|Total securities           |  | $                   | 8,128,658  |                  | $                   | (1,000,837 | )          |       | $                | 2,346,183 |  | $          | (75,492  | )                |  | $ | 10,474,841 |  | $ | (1,076,329 | )
|                           |  |                     |            |                  |                     |            |            |       |                  |           |  |            |          |                  |  |   |            |  |   |            |  

Critical Accounting Policies

Recent Accounting Pronouncements

Our reporting policies are in accordance with generally accepted accounting policies of the United States of America. Certain critical accounting policies affect the more significant judgments and
estimates used in the preparation of our financial statements. The Banks single most critical accounting policy relates to the Allowance for Loan Losses, which reflects the estimated losses resulting from the inability of our borrowers to make
required loan payments. If the financial condition of the Banks borrowers were to deteriorate, resulting in an impairment of their ability to make payments, adjustments to the Banks estimates would be made and additional provisions for
loan losses could be required. Further discussion of the estimates used in determining the Allowance for Loan Losses is contained in the discussion under Allowance for Loan Losses above.

Recent accounting pronouncements affecting us are described in Note 21 of the Notes to Financial Statements included in Item 8.



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##### Table of Contents

Item 8 - Financial Statements and Supplementary Data

Xenith Bankshares, Inc. and Subsidiary

Financial Statements include:

Report of Witt Mares, PLC

Report of Ernst & Young LLP

Balance Sheets

Xenith Bankshares, Inc. and Subsidiary 
December 31, 2009

First Bankshares, Inc. and Subsidiary  December 31, 2008

Xenith Bank [In Organization]  December 31, 2008

Statement of Operations and Comprehensive Income (Loss), Changes in Shareholders Equity, and Cash Flows

Xenith Bankshares, Inc. and Subsidiary  December 31, 2009

First
Bankshares, Inc. and Subsidiary  December 22, 2009

First Bankshares, Inc. and Subsidiary  December 31,
2008

Xenith Bank [In Organization]  December 31, 2008



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

Xenith Bankshares, Inc. (the
Company)

Richmond, Virginia

We have audited the accompanying consolidated balance sheets of Xenith Bankshares, Inc. and subsidiary as of December 31, 2009 and First Bankshares, Inc. and subsidiary as of December 31, 2008, and the related consolidated
statements of operations and comprehensive income (loss), changes in shareholders equity, and cash flows of Xenith Bankshares, Inc. and subsidiary for the year ended December 31, 2009 and First Bankshares, Inc. and subsidiary for the
period January 1, 2009 through December 22, 2009 and for the year ended December 31, 2008. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Xenith Bankshares, Inc. and subsidiary as of December 31, 2009 and First Bankshares, Inc. and subsidiary as of December 31, 2008, and the results of operations and cash flows of Xenith Bankshares, Inc.
and subsidiary for the year ended December 31, 2009 and First Bankshares, Inc. and subsidiary for the period January 1, 2009 through December 22, 2009 and for the year ended December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.

/s/    Witt Mares, PLC

Norfolk, Virginia

March 31, 2010



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors

Xenith Bank [In
Organization]

We have audited the accompanying Balance Sheet of Xenith Bank [In Organization] as of December 31, 2008, and the related
Statements of Income, Owners Equity and Cash Flows for the period from February 19, 2008 (Inception) to December 31, 2008. These financial statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit
of the Companys internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for
our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
Xenith Bank [In Organization] at December 31, 2008 and the results of its operations and its cash flows for the period from February 19, 2008 (Inception) to December 31, 2008 in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements for the period from February 19, 2008 (Inception) to December 31, 2008, have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the financial statements (not included in the accompanying 2009 financial statements), the Companys losses from Inception and current inability to obtain sufficient
commitments for additional financing to support planned principal operations raise substantial doubt about its ability to continue as a going concern. Managements plans concerning these matters are also discussed in Note 2 to the financial
statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Ernst &
Young LLP

Richmond, Virginia

April
27, 2009



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Consolidated Balance Sheet

As of December 31, 2009 and 2008



|                                                                                                                                                                                                                                            |  |                      |             |   |                     |   |             |                                 |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ----------- | - | ------------------- | - | ----------- | ------------------------------- |  | - | ---------- | -
|                                                                                                                                                                                                                                            |  | XenithBankshares2009 |             |   | FirstBankshares2008 |   |             | XenithBank[In Organization]2008 | 
|Assets                                                                                                                                                                                                                                      |  |                      |             |   |                     |   |             |                                 |  |   |            |  
|Cash and cash equivalents                                                                                                                                                                                                                   |  |                      |             |   |                     |   |             |                                 |  |   |            |  
|Cash and due from banks                                                                                                                                                                                                                     |  | $                    | 35,203,187  |   |                     | $ | 4,541,961   |                                 |  | $ | 280,201    |  
|Federal funds sold                                                                                                                                                                                                                          |  |                      |            |   |                     |   | 651,000     |                                 |  |   |           |  
|                                                                                                                                                                                                                                            |  |                      |             |   |                     |   |             |                                 |  |   |            |  
|Total cash and cash equivalents                                                                                                                                                                                                             |  |                      | 35,203,187  |   |                     |   | 5,192,961   |                                 |  |   | 280,201    |  
|Securities available for sale, at fair value                                                                                                                                                                                                |  |                      | 36,846,737  |   |                     |   | 53,412,711  |                                 |  |   |           |  
|Loans, net                                                                                                                                                                                                                                  |  |                      | 102,049,697 |   |                     |   | 115,560,011 |                                 |  |   |           |  
|Bank premises and equipment, net                                                                                                                                                                                                            |  |                      | 6,980,689   |   |                     |   | 5,567,656   |                                 |  |   | 2,098,007  |  
|Other real estate owned                                                                                                                                                                                                                     |  |                      | 463,700     |   |                     |   |            |                                 |  |   |           |  
|Intangible assets                                                                                                                                                                                                                           |  |                      | 10,670,427  |   |                     |   |            |                                 |  |   |           |  
|Accrued interest receivable                                                                                                                                                                                                                 |  |                      | 976,908     |   |                     |   | 1,171,615   |                                 |  |   |           |  
|Deferred tax asset                                                                                                                                                                                                                          |  |                      | 3,679,400   |   |                     |   | 403,500     |                                 |  |   |           |  
|Other assets                                                                                                                                                                                                                                |  |                      | 4,719,958   |   |                     |   | 2,849,769   |                                 |  |   | 436,756    |  
|                                                                                                                                                                                                                                            |  |                      |             |   |                     |   |             |                                 |  |   |            |  
|Total assets                                                                                                                                                                                                                                |  | $                    | 201,590,703 |   |                     | $ | 184,158,223 |                                 |  | $ | 2,814,964  |  
|                                                                                                                                                                                                                                            |  |                      |             |   |                     |   |             |                                 |  |   |            |  
|Liabilities and Shareholders Equity                                                                                                                                                                                                        |  |                      |             |   |                     |   |             |                                 |  |   |            |  
|Deposits                                                                                                                                                                                                                                    |  |                      |             |   |                     |   |             |                                 |  |   |            |  
|Demand and money market                                                                                                                                                                                                                     |  | $                    | 22,316,474  |   |                     | $ | 20,691,337  |                                 |  | $ |           |  
|Savings                                                                                                                                                                                                                                     |  |                      | 3,295,930   |   |                     |   | 2,950,405   |                                 |  |   |           |  
|Time                                                                                                                                                                                                                                        |  |                      | 88,535,230  |   |                     |   | 106,642,895 |                                 |  |   |           |  
|                                                                                                                                                                                                                                            |  |                      |             |   |                     |   |             |                                 |  |   |            |  
|Total deposits                                                                                                                                                                                                                              |  |                      | 114,147,634 |   |                     |   | 130,284,637 |                                 |  |   |           |  
|Accrued interest payable                                                                                                                                                                                                                    |  |                      | 505,297     |   |                     |   | 891,697     |                                 |  |   |           |  
|Federal funds purchased and borrowed funds                                                                                                                                                                                                  |  |                      | 31,260,151  |   |                     |   | 36,010,972  |                                 |  |   |           |  
|Other liabilities                                                                                                                                                                                                                           |  |                      | 1,605,588   |   |                     |   | 261,071     |                                 |  |   | 1,708,389  |  
|                                                                                                                                                                                                                                            |  |                      |             |   |                     |   |             |                                 |  |   |            |  
|Total liabilities                                                                                                                                                                                                                           |  |                      | 147,518,670 |   |                     |   | 167,448,377 |                                 |  |   | 1,708,389  |  
|                                                                                                                                                                                                                                            |  |                      |             |   |                     |   |             |                                 |  |   |            |  
|Shareholders equity                                                                                                                                                                                                                        |  |                      |             |   |                     |   |             |                                 |  |   |            |  
|Preferred stock, $1.00 par value, 25,000,000 shares authorized; 0 shares issued and outstanding                                                                                                                                             |  |                      |            |   |                     |   |            |                                 |  |   |           |  
|Common stock, $1.00 par value, 100,000,000; and $3.20 par value, 10,000,000 shares authorized as of December 31, 2009 and
2008, respectively; 5,846,928 and 2,276,298 issued and outstanding as of December 31, 2009 and 2008, respectively |  |                      | 5,846,928   |   |                     |   | 7,284,154   |                                 |  |   |           |  
|Additional paid-in capital                                                                                                                                                                                                                  |  |                      | 57,614,520  |   |                     |   | 8,938,444   |                                 |  |   | 4,295,300  |  
|Retained earnings (deficit)                                                                                                                                                                                                                 |  |                      | (9,457,569  | ) |                     |   | 662,458     |                                 |  |   | (3,188,725 | )
|Accumulated other comprehensive income (loss), net                                                                                                                                                                                          |  |                      | 68,154      |   |                     |   | (175,210    | )                               |  |   |           |  
|                                                                                                                                                                                                                                            |  |                      |             |   |                     |   |             |                                 |  |   |            |  
|Total shareholders equity                                                                                                                                                                                                                  |  |                      | 54,072,033  |   |                     |   | 16,709,846  |                                 |  |   | 1,106,575  |  
|                                                                                                                                                                                                                                            |  |                      |             |   |                     |   |             |                                 |  |   |            |  
|Total liabilities and shareholders equity                                                                                                                                                                                                  |  | $                    | 201,590,703 |   |                     | $ | 184,158,223 |                                 |  | $ | 2,814,964  |  
|                                                                                                                                                                                                                                            |  |                      |             |   |                     |   |             |                                 |  |   |            |  

See notes to financial statements.



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Consolidated Statements of Operations and Comprehensive Income (Loss)

For the period ended December 22, 2009 and the years ended December 31, 2009 and 2008



|                                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|----------------------------------------------------------- |  | ------------------------------------------------- | ---------- | - | -------------------------------------------------- | - | ---------- | ------------------------------------------------ |  | - | --------------------------------------------------------------------------------------- | - |  | - | ---------- | -
|                                                            |  | XenithBanksharesfor
theyear endedDecember 31,2009 |            |   | FirstBanksharesfor
theperiod endedDecember 22,2009 |   |            | FirstBanksharesfor
theyear endedDecember 31,2008 |  |   | Xenith Bank[In Organization]February 19, 2008(date of inception)throughDecember 31,2008 |  
|Interest income                                             |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Interest and fees on loans                                  |  | $                                                 | 151,720    |   |                                                    | $ | 6,275,815  |                                                  |  | $ | 7,347,771                                                                               |   |  | $ |           |  
|Interest on securities                                      |  |                                                   | 61,417     |   |                                                    |   | 2,361,776  |                                                  |  |   | 2,395,585                                                                               |   |  |   |           |  
|Interest on federal funds sold                              |  |                                                   |           |   |                                                    |   | 2,226      |                                                  |  |   | 60,302                                                                                  |   |  |   |           |  
|                                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Total interest income                                       |  |                                                   | 213,137    |   |                                                    |   | 8,639,817  |                                                  |  |   | 9,803,658                                                                               |   |  |   |           |  
|                                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Interest expense                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Interest on deposits                                        |  |                                                   | 42,307     |   |                                                    |   | 2,728,654  |                                                  |  |   | 3,453,054                                                                               |   |  |   |           |  
|Interest on time certificates of $100,000 and over          |  |                                                   | 19,017     |   |                                                    |   | 859,414    |                                                  |  |   | 1,202,346                                                                               |   |  |   |           |  
|Interest on federal funds purchased and borrowed funds      |  |                                                   | 20,748     |   |                                                    |   | 606,702    |                                                  |  |   | 902,647                                                                                 |   |  |   |           |  
|                                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Total interest expense                                      |  |                                                   | 82,072     |   |                                                    |   | 4,194,770  |                                                  |  |   | 5,558,047                                                                               |   |  |   |           |  
|                                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Net interest income                                         |  |                                                   | 131,065    |   |                                                    |   | 4,445,047  |                                                  |  |   | 4,245,611                                                                               |   |  |   |           |  
|Provision for loan losses                                   |  |                                                   |           |   |                                                    |   | 5,500,646  |                                                  |  |   | 828,656                                                                                 |   |  |   |           |  
|                                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Net interest income (loss) after provision for loan losses  |  |                                                   | 131,065    |   |                                                    |   | (1,055,599 | )                                                |  |   | 3,416,955                                                                               |   |  |   |           |  
|                                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Noninterest income                                          |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Service charges on deposit accounts                         |  |                                                   | 4,431      |   |                                                    |   | 260,132    |                                                  |  |   | 307,914                                                                                 |   |  |   |           |  
|Gains on sales of investments                               |  |                                                   |           |   |                                                    |   | 232,161    |                                                  |  |   | 264,625                                                                                 |   |  |   |           |  
|Other                                                       |  |                                                   | 10,509     |   |                                                    |   | 59,549     |                                                  |  |   | 266,048                                                                                 |   |  |   |           |  
|                                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Total noninterest income                                    |  |                                                   | 14,940     |   |                                                    |   | 551,842    |                                                  |  |   | 838,587                                                                                 |   |  |   |           |  
|                                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Noninterest expense                                         |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Salaries and employee benefits                              |  |                                                   | 2,616,012  |   |                                                    |   | 2,495,355  |                                                  |  |   | 2,145,123                                                                               |   |  |   | 1,551,749  |  
|Expenses of premises and equipment                          |  |                                                   | 329,593    |   |                                                    |   | 517,842    |                                                  |  |   | 569,717                                                                                 |   |  |   | 208,067    |  
|Lease expense                                               |  |                                                   | 695,740    |   |                                                    |   | 74,503     |                                                  |  |   | 67,519                                                                                  |   |  |   |           |  
|Bank franchise tax                                          |  |                                                   | 317,083    |   |                                                    |   | 145,477    |                                                  |  |   | 98,100                                                                                  |   |  |   |           |  
|FDIC assessment                                             |  |                                                   | 12,626     |   |                                                    |   | 247,934    |                                                  |  |   |                                                                                        |   |  |   |           |  
|Advertising                                                 |  |                                                   |           |   |                                                    |   | 12,589     |                                                  |  |   | 45,911                                                                                  |   |  |   |           |  
|Data processing                                             |  |                                                   | 268,388    |   |                                                    |   | 284,935    |                                                  |  |   | 130,318                                                                                 |   |  |   |           |  
|Office supplies                                             |  |                                                   | 29,646     |   |                                                    |   | 47,758     |                                                  |  |   | 64,123                                                                                  |   |  |   | 24,012     |  
|Professional fees                                           |  |                                                   | 525,309    |   |                                                    |   | 1,710,727  |                                                  |  |   | 197,597                                                                                 |   |  |   | 1,156,458  |  
|Merger-related expense                                      |  |                                                   | 1,430,962  |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Telecommunications                                          |  |                                                   | 113,583    |   |                                                    |   | 36,793     |                                                  |  |   | 39,943                                                                                  |   |  |   | 35,009     |  
|Other operating expenses                                    |  |                                                   | 207,307    |   |                                                    |   | 448,091    |                                                  |  |   | 534,753                                                                                 |   |  |   | 213,430    |  
|                                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Total noninterest expense                                   |  |                                                   | 6,546,249  |   |                                                    |   | 6,022,004  |                                                  |  |   | 3,893,104                                                                               |   |  |   | 3,188,725  |  
|                                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Income (loss) before income tax expense                     |  |                                                   | (6,400,244 | ) |                                                    |   | (6,525,761 | )                                                |  |   | 362,438                                                                                 |   |  |   | (3,188,725 | )
|Income tax expense (benefit)                                |  |                                                   | (131,400   | ) |                                                    |   | (2,218,800 | )                                                |  |   | 117,300                                                                                 |   |  |   |           |  
|                                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Net income (loss)                                           |  |                                                   | (6,268,844 | ) |                                                    |   | (4,306,961 | )                                                |  |   | 245,138                                                                                 |   |  |   | (3,188,725 | )
|Other comprehensive income, net of income tax expense:      |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Net unrealized gain (loss) on securities available for sale |  |                                                   | 68,154     |   |                                                    |   | 208,255    |                                                  |  |   | (241,872                                                                                | ) |  |   |           |  
|                                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Comprehensive income (loss)                                 |  | $                                                 | (6,200,690 | ) |                                                    | $ | (4,098,706 | )                                                |  | $ | 3,266                                                                                   |   |  | $ | (3,188,725 | )
|                                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  
|Per share data:                                             |  | $                                                 | (2.76      | ) |                                                    | $ | (1.90      | )                                                |  | $ | 0.11                                                                                    |   |  | $ |           |  
|                                                            |  |                                                   |            |   |                                                    |   |            |                                                  |  |   |                                                                                         |   |  |   |            |  

See notes to financial statements.



47



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Consolidated Statements of Changes in Shareholders Equity

For the period ended December 22, 2009 and years ended December 31, 2009 and 2008



|                                                                                                               |  |              |           |                            |   |                              |  |   |                                            |   |  |                          |          |   |  |   |            |  
|-------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | -------------------------- | - | ---------------------------- |  | - | ------------------------------------------ | - |  | ------------------------ | -------- | - |  | - | ---------- | -
|                                                                                                               |  | Common Stock |           | Additional Paid-in Capital |   | AccumulatedEarnings(Deficit) |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | TotalShareholdersEquity |         
|First Bankshares, Inc. Pre-Acquistion                                                                          |  |              |           |                            |   |                              |  |   |                                            |   |  |                          |          |   |  |   |            |  
|Balances at January 1, 2008                                                                                    |  | $            | 7,284,154 |                            | $ | 8,938,444                    |  | $ | 417,320                                    |   |  | $                        | 66,662   |   |  | $ | 16,706,580 |  
|                                                                                                               |  |              |           |                            |   |                              |  |   |                                            |   |  |                          |          |   |  |   |            |  
|Net income                                                                                                     |  |              |          |                            |   |                             |  |   | 245,138                                    |   |  |                          |         |   |  |   | 245,138    |  
|Change in net unrealized loss on available-for-sale securities, net of deferred income tax expense of $124,567 |  |              |          |                            |   |                             |  |   |                                           |   |  |                          | (241,872 | ) |  |   | (241,872   | )
|                                                                                                               |  |              |           |                            |   |                              |  |   |                                            |   |  |                          |          |   |  |   |            |  
|Balances at December 31, 2008                                                                                  |  |              | 7,284,154 |                            |   | 8,938,444                    |  |   | 662,458                                    |   |  |                          | (175,210 | ) |  |   | 16,709,846 |  
|                                                                                                               |  |              |           |                            |   |                              |  |   |                                            |   |  |                          |          |   |  |   |            |  
|Net income                                                                                                     |  |              |          |                            |   |                             |  |   | (4,306,961                                 | ) |  |                          |         |   |  |   | (4,306,961 | )
|Change in net unrealized loss on available-for-sale securities, net of deferred income tax expense of $74,818  |  |              |          |                            |   |                             |  |   |                                           |   |  |                          | 208,255  |   |  |   | 208,255    |  
|                                                                                                               |  |              |           |                            |   |                              |  |   |                                            |   |  |                          |          |   |  |   |            |  
|Balances at December 22, 2009                                                                                  |  |              | 7,284,154 |                            |   | 8,938,444                    |  |   | (3,644,503                                 | ) |  |                          | 33,045   |   |  |   | 12,611,140 |  
|                                                                                                               |  |              |           |                            |   |                              |  |   |                                            |   |  |                          |          |   |  |   |            |  
|Xenith Bankshares, Inc. (formerly Xenith Bank [In Organization])                                               |  |              |           |                            |   |                              |  |   |                                            |   |  |                          |          |   |  |   |            |  
|Balance at February 19, 2008 (Inception)                                                                       |  | $            |          |                            | $ |                             |  | $ |                                           |   |  | $                        |         |   |  | $ |           |  
|Net loss                                                                                                       |  |              |           |                            |   |                              |  |   | (3,188,725                                 | ) |  |                          |          |   |  |   | (3,188,725 | )
|Contributed Capital                                                                                            |  |              |          |                            |   | 4,295,300                    |  |   |                                           |   |  |                          |         |   |  |   | 4,295,300  |  
|                                                                                                               |  |              |           |                            |   |                              |  |   |                                            |   |  |                          |          |   |  |   |            |  
|Balances at December 31, 2008                                                                                  |  | $            |          |                            | $ | 4,295,300                    |  | $ | (3,188,725                                 | ) |  | $                        |         |   |  | $ | 1,106,575  |  
|                                                                                                               |  |              |           |                            |   |                              |  |   |                                            |   |  |                          |          |   |  |   |            |  
|Issuance of Xenith Corporation common shares in acquisition of First Bankshares                                |  |              | 5,846,928 |                            |   | 53,319,220                   |  |   |                                           |   |  |                          |         |   |  |   | 59,166,148 |  
|Net loss, consolidated entity                                                                                  |  |              |           |                            |   |                              |  |   | (6,268,844                                 | ) |  |                          |          |   |  |   | (6,268,844 | )
|Change in net unrealized loss on                                                                               |  |              |           |                            |   |                              |  |   |                                            |   |  |                          |          |   |  |   |            |  
|available-for-sale securities, net of                                                                          |  |              |           |                            |   |                              |  |   |                                            |   |  |                          |          |   |  |   |            |  
|deferred income tax expense of                                                                                 |  |              |           |                            |   |                              |  |   |                                            |   |  |                          |          |   |  |   |            |  
|$35,110                                                                                                        |  |              |          |                            |   |                             |  |   |                                           |   |  |                          | 68,154   |   |  |   | 68,154     |  
|                                                                                                               |  |              |           |                            |   |                              |  |   |                                            |   |  |                          |          |   |  |   |            |  
|Balances at December 31, 2009                                                                                  |  | $            | 5,846,928 |                            | $ | 57,614,520                   |  | $ | (9,457,569                                 | ) |  | $                        | 68,154   |   |  | $ | 54,072,033 |  
|                                                                                                               |  |              |           |                            |   |                              |  |   |                                            |   |  |                          |          |   |  |   |            |  

See notes to financial statements.



48



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the period ended December 22, 2009 and years ended December 31, 2009 and 2008



|                                                                                                  |  |                                                   |            |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ---------- | - | -------------------------------------------------- | - | ----------- | ------------------------------------------------ |  | - | --------------------------------------------------------------------------------------- | - |  | - | ---------- | -
|                                                                                                  |  | XenithBanksharesfor the yearendedDecember 31,2009 |            |   | FirstBanksharesfor the
periodendedDecember 22,2009 |   |             | FirstBanksharesfor the
yearendedDecember 31,2008 |  |   | Xenith Bank[In
Organization]February 19, 2008(date of inception)throughDecember 31,2008 |  
|Cash flows from operating activities                                                              |  |                                                   |            |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|Net income (loss)                                                                                 |  | $                                                 | (6,268,844 | ) |                                                    | $ | (4,306,961  | )                                                |  | $ | 245,138                                                                                 |   |  | $ | (3,188,725 | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |  |                                                   |            |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|Depreciation                                                                                      |  |                                                   | 507,381    |   |                                                    |   | 314,472     |                                                  |  |   | 344,019                                                                                 |   |  |   | 24,063     |  
|Net amortization of investment securities                                                         |  |                                                   | 658        |   |                                                    |   | 47,087      |                                                  |  |   | 39,480                                                                                  |   |  |   |           |  
|Amortization of leasehold incentive                                                               |  |                                                   | (65,001    | ) |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|Gains on sales of securities                                                                      |  |                                                   |           |   |                                                    |   | (232,161    | )                                                |  |   | (265,573                                                                                | ) |  |   |           |  
|Loss on sale of premises and equipment                                                            |  |                                                   |           |   |                                                    |   | 7,898       |                                                  |  |   |                                                                                        |   |  |   |           |  
|Loss on sale of OREO                                                                              |  |                                                   |           |   |                                                    |   | 43,197      |                                                  |  |   |                                                                                        |   |  |   |           |  
|Unrealized gain/loss on OREO                                                                      |  |                                                   |            |   |                                                    |   | 186,500     |                                                  |  |   |                                                                                         |   |  |   |            |  
|Provision for loan losses                                                                         |  |                                                   |           |   |                                                    |   | 5,500,646   |                                                  |  |   | 828,656                                                                                 |   |  |   |           |  
|Loan (charge-offs)                                                                                |  |                                                   |           |   |                                                    |   | (487,929    | )                                                |  |   | (89,237                                                                                 | ) |  |   |           |  
|Change in operating assets and liabilities                                                        |  |                                                   |            |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |           |  
|Prepaid expenses                                                                                  |  |                                                   |           |   |                                                    |   |            |                                                  |  |   |                                                                                        |   |  |   | (108,774   | )
|Accounts receivable                                                                               |  |                                                   |           |   |                                                    |   |            |                                                  |  |   |                                                                                        |   |  |   | (32,262    | )
|Accrued interest receivable                                                                       |  |                                                   | (8,117     | ) |                                                    |   | 202,824     |                                                  |  |   | (174,498                                                                                | ) |  |   |           |  
|Deferred tax assets                                                                               |  |                                                   | 23,768     |   |                                                    |   | (2,434,245  | )                                                |  |   | (129,933                                                                                | ) |  |   |           |  
|Other assets                                                                                      |  |                                                   | (658,680   | ) |                                                    |   | 103,208     |                                                  |  |   | 59,218                                                                                  |   |  |   | (295,720   | )
|Accounts payable                                                                                  |  |                                                   |           |   |                                                    |   |            |                                                  |  |   |                                                                                        |   |  |   | 198,378    |  
|Accrued expenses                                                                                  |  |                                                   |           |   |                                                    |   |            |                                                  |  |   |                                                                                        |   |  |   | 44,070     |  
|Accrued interest payable                                                                          |  |                                                   | 48,304     |   |                                                    |   | (434,704    | )                                                |  |   | (20,027                                                                                 | ) |  |   |           |  
|Other liabilities                                                                                 |  |                                                   | (1,364,896 | ) |                                                    |   | 417,900     |                                                  |  |   | (206,575                                                                                | ) |  |   | 442,378    |  
|                                                                                                  |  |                                                   |            |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|Net cash provided by (used in) operating activities                                               |  |                                                   | (7,785,427 | ) |                                                    |   | (1,072,268  | )                                                |  |   | 630,668                                                                                 |   |  |   | (2,916,592 | )
|                                                                                                  |  |                                                   |            |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|Cash flows from investing activities                                                              |  |                                                   |            |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|Proceeds from maturities and calls of available-for-sale securities                               |  |                                                   |           |   |                                                    |   | 20,478,975  |                                                  |  |   | 73,365,159                                                                              |   |  |   |           |  
|Purchase of available-for-sale securities                                                         |  |                                                   |           |   |                                                    |   | (3,475,000  | )                                                |  |   | (64,863,800                                                                             | ) |  |   |           |  
|Purchase of Federal Reserve stock                                                                 |  |                                                   |           |   |                                                    |   |            |                                                  |  |   | (9,350                                                                                  | ) |  |   |           |  
|Net proceeds from the sale of FHLB stock                                                          |  |                                                   |           |   |                                                    |   | 193,900     |                                                  |  |   | 309,700                                                                                 |   |  |   |           |  
|Sale of FRB stock                                                                                 |  |                                                   |           |   |                                                    |   | 10,850      |                                                  |  |   |                                                                                        |   |  |   |           |  
|Proceeds from the sale of OREO                                                                    |  |                                                   |            |   |                                                    |   | 606,318     |                                                  |  |   |                                                                                         |   |  |   |            |  
|Net increase (decrease) in loans                                                                  |  |                                                   | 678,396    |   |                                                    |   | 5,519,686   |                                                  |  |   | (12,513,335                                                                             | ) |  |   |           |  
|Net purchases of premises and equipment                                                           |  |                                                   | (592,254   | ) |                                                    |   | (52,523     | )                                                |  |   | (189,755                                                                                | ) |  |   | (1,098,507 | )
|                                                                                                  |  |                                                   |            |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|Net cash provided by (used in) investing activities                                               |  |                                                   | 86,142     |   |                                                    |   | 23,282,206  |                                                  |  |   | (3,901,381                                                                              | ) |  |   | (1,098,507 | )
|                                                                                                  |  |                                                   |            |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|Cash flows from financing activities                                                              |  |                                                   |            |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|Net increase (decrease) in demand deposits and savings accounts                                   |  |                                                   | 657,802    |   |                                                    |   | 1,312,860   |                                                  |  |   | 836,857                                                                                 |   |  |   |           |  
|Net increase (decrease) in time deposits                                                          |  |                                                   | 322,531    |   |                                                    |   | (20,562,196 | )                                                |  |   | 15,699,630                                                                              |   |  |   |           |  
|Net increase (decrease) in Federal funds purchased and borrowed funds                             |  |                                                   | 1,247,151  |   |                                                    |   | (5,997,972  | )                                                |  |   | (11,540,923                                                                             | ) |  |   |           |  
|Net proceeds from stock offering                                                                  |  |                                                   | 43,286,000 |   |                                                    |   |            |                                                  |  |   |                                                                                        |   |  |   |           |  
|Cash paid to shareholders for converted shares                                                    |  |                                                   | (5,251,804 | ) |                                                    |   |            |                                                  |  |   |                                                                                        |   |  |   |           |  
|Issuance of warrants                                                                              |  |                                                   | 205,000    |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|Cash acquired in merger                                                                           |  |                                                   | 2,155,591  |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|Capital contributions                                                                             |  |                                                   |           |   |                                                    |   |            |                                                  |  |   |                                                                                        |   |  |   | 4,295,300  |  
|                                                                                                  |  |                                                   |            |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|Net cash provided by (used in) financing activities                                               |  |                                                   | 42,622,271 |   |                                                    |   | (25,247,308 | )                                                |  |   | 4,995,564                                                                               |   |  |   | 4,295,300  |  
|                                                                                                  |  |                                                   |            |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|Net increase (decrease) in cash & cash equivalents                                                |  | $                                                 | 34,922,986 |   |                                                    | $ | (3,037,370  | )                                                |  | $ | 1,724,851                                                                               |   |  | $ | 280,201    |  
|Cash and cash equivalents                                                                         |  |                                                   |            |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|Beginning of period                                                                               |  | $                                                 | 280,201    |   |                                                    | $ | 5,192,961   |                                                  |  | $ | 3,468,110                                                                               |   |  | $ |           |  
|                                                                                                  |  |                                                   |            |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  
|End of period                                                                                     |  | $                                                 | 35,203,187 |   |                                                    | $ | 2,155,591   |                                                  |  | $ | 5,192,961                                                                               |   |  | $ | 280,201    |  
|                                                                                                  |  |                                                   |            |   |                                                    |   |             |                                                  |  |   |                                                                                         |   |  |   |            |  



See notes to financial statements.



49



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the years ended December 31, 2009 and 2008

Note 1 - Organization

SuffolkFirst Bank was incorporated on December 14, 2001, chartered on December 10, 2002 and began operations on
January 27, 2003 as a Virginia chartered bank engaged in lending and deposit-collecting activities in Suffolk, Virginia. On February 23, 2008, SuffolkFirst Banks Board of Directors announced the approval of the formation of a bank
holding company, First Bankshares, Inc. (First Bankshares), which was incorporated in Virginia on March 4, 2008 and of which SuffolkFirst Bank became a wholly owned subsidiary on August 15, 2008. The reorganization was
consummated through a share exchange in which each of SuffolkFirst Banks shareholders received one share of First Bankshares common stock in exchange for each of their shares of SuffolkFirst Banks common stock. SuffolkFirst Bank operates
under the laws of Virginia and the Rules and Regulations of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC).

Effective December 22, 2009, First Bankshares and Xenith Corporation, a Virginia corporation, completed the merger of Xenith Corporation with and into First Bankshares (the Merger), with
First Bankshares being the surviving entity in the Merger. The Merger was completed in accordance with the terms of the Agreement of Merger and related Plan of Merger, dated as of May 12, 2009 and as amended by Amendment No. 1, dated as of
August 14, 2009, Amendment No. 2, dated as of October 15, 2009, Amendment No. 3, dated as of October 30, 2009, and Amendment No. 4, dated as of November 19, 2009 (collectively, the Merger Agreement),
between First Bankshares and Xenith Corporation. At the effective time of the Merger, First Bankshares amended its articles of incorporation to, among other things, change its name to Xenith Bankshares, Inc. (Xenith Bankshares). In
addition, following the completion of the Merger, SuffolkFirst Bank changed its name to Xenith Bank.

Pursuant to the terms of
the Merger Agreement, First Bankshares shareholders were entitled to elect to retain their shares of First Bankshares common stock or to receive $9.23 in cash per share for some or all of their shares of First Bankshares common stock, subject to
proration in the event the aggregate cash elections exceeded 569,074 shares (or 25% of shares outstanding immediately prior to the effective time of the Merger) (the Cash Election Number). As of 5:00 p.m., Eastern Time, on
October 15, 2009, the deadline for First Bankshares shareholders to elect to receive cash for some or all of their shares of First Bankshares common stock, First Bankshares had received aggregate cash elections with respect to 1,165,311 shares
of First Bankshares common stock, representing approximately 51.2% of the shares of First Bankshares common stock outstanding immediately prior to the effective time of the Merger.

Because aggregate cash elections exceeded the Cash Election Number, the cash elections were reduced proportionally. Pursuant to the terms of
the Merger Agreement, a number of cash election shares held by each First Bankshares shareholder who made a cash election equal to the product of (1) 0.488345171 (or the Cash Election Number divided by the total number of cash election shares)
and (2) the total number of cash election shares held by such shareholder was converted into the right to receive $9.23 in cash (with any resulting fractional shares rounded down to the next whole share). Each cash election share that was not
converted into the right to receive $9.23 in cash and each share of First Bankshares common stock for which a cash election was not made represented one share of Xenith Bankshares common stock immediately following the effective time of the Merger.



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Pursuant to the terms of the Merger Agreement, each share of Xenith Corporation common
stock outstanding immediately prior to the effective time of the Merger, was cancelled and converted automatically into the right to receive 0.8700 shares of validly issued, fully paid and nonassessable shares of Xenith Bankshares common stock (the
Exchange Ratio). Based on the Exchange Ratio, an aggregate of 4,139,704 shares of Xenith Bankshares common stock were issued to the former shareholders of Xenith Corporation in exchange for their shares of Xenith Corporation common
stock. All fractional shares of Xenith Bankshares common stock that a Xenith Corporation shareholder would otherwise have been entitled to receive as a result of the Merger were aggregated and, if a fractional share resulted from such aggregation,
such holder received, instead of the fractional share, an amount in cash equal to $9.23 multiplied by the fraction of a share of Xenith Bankshares common stock to which such holder would otherwise have been entitled.

Options to purchase shares of First Bankshares common stock outstanding at the effective time of the Merger remain outstanding as options to
purchase shares of Xenith Bankshares common stock. An aggregate of 906,000 options and warrants to purchase shares of Xenith Corporations common stock outstanding at the effective time of the Merger were converted into an aggregate of 788,220
options and warrants to purchase shares of Xenith Bankshares common stock based on the Exchange Ratio at an exercise price of $11.49 per share.

Based on the foregoing and the fact that there were an aggregate of 2,276,298 shares of First Bankshares common stock and an aggregate of 94,493 options to purchase shares of First Bankshares common stock
outstanding at the effective time of the Merger, there were an aggregate of 5,846,928 shares of Xenith Bankshares common stock outstanding immediately following the effective time of the Merger, with First Bankshares shareholders immediately prior
to the effective time of the Merger beneficially owning approximately 26.8% of the combined companys outstanding shares of common stock and Xenith Corporation shareholders immediately prior to the effective time of the Merger beneficially
owning approximately 73.2% of the combined companys outstanding shares of common stock, on a fully diluted basis.

Unless otherwise stated herein or the context otherwise requires, references herein to the Company, we, our and us at and for the year ended December 31, 2008 and the period from
January 1, 2009 through December 22, 2009 are to First Bankshares and its wholly-owned subsidiary, SuffolkFirst Bank, and references to the Bank are to SuffolkFirst Bank. Unless otherwise stated herein or the context otherwise
requires, references herein to the Company, we, our and us at and for the year ended December 31, 2009 are to Xenith Bankshares and its wholly-owned subsidiary, Xenith Bank, and references to
the Bank are to Xenith Bank.

Xenith Bankshares, through Xenith Bank, operates four full-service branches: one in
Richmond, Virginia and three in Suffolk, Virginia. Xenith Bank continues to do business as SuffolkFirst Bank at its existing locations in Suffolk, Virginia.

Although the Merger was structured as a merger of Xenith Corporation with and into First Bankshares, with First Bankshares being the surviving entity for legal purposes, Xenith Corporation was treated as
the acquirer for accounting purposes. Accordingly, the assets and liabilities of First Bankshares were recorded at their fair value on December 22, 2009. See Note 2 for further details.

From its inception on February 19, 2008 until the completion of the Merger on December 22, 2009, Xenith Corporation (formerly Xenith
Bank [In Organization]) had no substantial operations. Accordingly, since Xenith Corporations operating activities prior to the Merger were insignificant relative to those of First Bankshares, management believes that First Bankshares is the
Companys predecessor. However, as mentioned above, Xenith Corporation is treated as the acquirer for accounting purposes. Management has reached this conclusion based upon an evaluation of facts and circumstances, including the historical life
of First Bankshares, the historical level of operations of First Bankshares, the purchase price paid for First Bankshares and the fact that the consolidated companys operations, revenues and expenses after the Merger are most similar in all
respects to those of First Bankshares historical periods. Accordingly, the consolidated balance sheets of First Bankshares as of December 31, 2008, the consolidated statements of operations and comprehensive



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



income of First Bankshares for the period ended December 22, 2009 and the year ended December 31, 2008, the consolidated statements of cash flows of First Bankshares for the period
ended December 22, 2009 and the year ended December 31, 2008 and changes in shareholders equity at December 22, 2009 have been presented. However, due to the adjustments to the basis of assets and liabilities as a result of the
acquisition method of accounting, the financial statements of the successor and predecessor are not directly comparable.

Note 2 - Summary
of Significant Accounting Policies

The accounting and reporting policies of the Company are in accordance with accounting
principles generally accepted in the United States of America and conform to the general practices within the banking industry. The following is a description of the significant accounting and reporting policies the Company follows in preparing and
presenting its financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of Xenith Bankshares and its wholly-owned subsidiary, Xenith Bank. All material
intercompany balances and transactions have been eliminated.

Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid debt instruments with original maturities,
or maturities when purchased, of three months or less to be cash equivalents. Cash and cash equivalents include cash, due from banks, federal funds sold, and short term debt securities.

Securities

Marketable securities of the Bank are classified into three categories:



| | (1) | debt securities that the Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at
amortized cost. Amortization of premiums and accretion of discounts are adjusted on a basis which approximates the level yield method;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and
reported at fair value, with unrealized gains and losses included in net income; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and
reported at fair value, with unrealized gains and losses excluded from net income and reported in a separate component of shareholders equity.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Bank does not engage in trading securities or in held-to-maturity securities. Gains or losses on disposition of securities are based on the net proceeds and adjusted carrying values of the securities
called or sold, using the specific identification method.

A decline in the market value of any available-for-sale security
below cost that is deemed other than temporary is charged to net income, resulting in the establishment of a new cost basis for the security.



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Equity Securities Restricted

As a member of the Federal Home Loan Bank (the FHLB), the Bank is required to own shares of FHLB capital stock in an amount equal
to at least 0.20% of total assets plus 4.50% of any outstanding advances.

As a member of the Federal Reserve Bank (the
FRB), the Bank is required to own shares of FRB capital stock in an amount equal to 6.0% of total common stock and capital surplus. FHLB stock and FRB stock are carried at cost.

Loans

Loans are carried at their principal amount outstanding less fair value adjustments. Interest income is recorded as earned on an accrual basis. The Bank uses the allowance method in providing for possible loan losses. The Allowance for Loan
Losses is based on managements estimate of the amount needed to maintain the Allowance for Loan Losses at an adequate level to cover known and inherent risk of loss in the loan portfolio. In determining the provision amount, management gives
consideration to current and anticipated economic conditions, the growth and composition of the loan portfolio, and the relationship of the Allowance for Loan Losses to outstanding loans, among other factors. Loan origination fees, net of
origination costs, are deferred and recognized as an adjustment to the yield (interest income) of the related loans.

Management believes that the Allowance for Loan Losses is adequate. While management uses the best information available to make evaluations, future adjustments may be necessary if economic and other conditions differ substantially from the
assumptions used.

In addition, various regulatory agencies, as an integral part of their examination process, periodically
review the Banks Allowance for Loan Losses. Such agencies may require the Bank to recognize additions to the Allowance for Loan Losses based on their judgments of information available to them at the time of their examination.

Management considers loans to be impaired when, based on current information and events, it is probable that the Bank will be unable to
collect all amounts due according to the contractual terms of the loan agreement. Factors that influence managements judgments include, but are not limited to, loan payment pattern, source of repayment, and value of any collateral. A loan
would not be considered impaired if an insignificant delay in loan payment occurs and management expects to collect all amounts due. The major sources for identification of loans to be evaluated for impairment include past due and nonaccrual
reports, internally generated lists of certain risk grades, loan review personnels analyses, and regulatory examinations. Impaired loans are measured using either the discounted expected cash flow method or the value of collateral method. When
the ultimate collectability of an impaired loans principal is in doubt, wholly or partially, all cash receipts are applied to principal. At December 31, 2009, the Company had $7,710,500 of impaired loans, or 7.03% of total loans.

Premises, Equipment, and Depreciation

Xenith Bankshares, through Xenith Bank, operates four full-service branches: one in Richmond, Virginia and three in Suffolk, Virginia. Xenith
Bank continues to do business as SuffolkFirst Bank at its existing locations in Suffolk, Virginia. Xenith Bankshares anticipates opening a fifth branch in Tysons Corner, Virginia during the second or third quarter of 2010.



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Premises and equipment, including leasehold improvements, are stated at cost less
accumulated depreciation. Depreciation is calculated over the estimated useful lives of the respective assets on a straight-line basis. Leasehold improvements are amortized over a term which includes the remaining lease term and probable renewal
periods. It is the Banks policy to charge maintenance and repairs to expense as incurred and to capitalize major additions and improvements and depreciate the cost of their estimated useful lives as follows:



|                                   |  |              
|---------------------------------- |  | -------------
|Building and Improvements          |  | 5 to 40 years
|                                   | 
|Equipment, Furniture, and Fixtures |  | 3 to 20 years

Goodwill and Core
Deposit and Other Intangible Assets

Goodwill represents the excess of the cost of an acquired entity over the fair
value of the identifiable net assets acquired. Similar to goodwill, other intangible assets, which include core deposit intangibles, also lack physical substance but, as required by GAAP, portions of the cost of an acquired entity have been assigned
to such assets. The Company accounts for goodwill and other intangible assets in accordance with GAAP, which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually at the reporting unit
level, which is either at the same level or one level below an operating segment. Other acquired intangible assets with finite lives, such as core deposit intangibles, are required to be amortized over their estimated lives. Core deposit and other
intangible assets are generally amortized using accelerated methods over estimated useful lives of five to ten years. As of December 31, 2009, the core deposit intangible subject to amortization for a period of 10 years totals $1,240,000. The
Company periodically assesses whether events or changes in circumstances indicate that the carrying amounts of core deposit and other intangible assets may be impaired.

Accounting for the Merger

The Merger of Xenith Corporation and
First Bankshares is treated as a reverse acquisition for accounting purposes. Therefore, the Merger is accounted for using the acquisition method of accounting, and accordingly, the assets acquired and liabilities assumed of First Bankshares will be
recognized at fair value on the date of the Merger, with Xenith Corporation being treated as the acquirer.

In a reverse
acquisition, fair value of the consideration transferred is based on the number of shares Xenith Corporation would have had to issue to give the owners of First Bankshares the same percentage equity interest in the combined entity that resulted from
the Merger. Cash consideration is also included. The Merger Agreement provided for consideration of $9.23 per share paid in cash based on elections by the First Bankshares shareholders, subject to pro-ration since aggregate cash elections exceeded
25% of shares outstanding (the maximum allowed per the Merger Agreement) immediately prior to the effective time of the Merger.

As a result of the Merger, owners of Xenith Corporation as of the Merger date own 73.2% of Xenith Bankshares, and owners of First Bankshares as of the Merger date own the remaining 26.8% of Xenith Bankshares.

A reconciliation of the excess consideration paid by Xenith Corporation over First Bankshares net assets acquired
(Goodwill) is as follows:



|                                                           |  |   |            |  
|---------------------------------------------------------- |  | - | ---------- | -
|Costs to acquire First Bankshares:                         |  |   |            |  
|Issuance of Xenith Corporation common stock                |  | $ | 15,758,196 |  
|Cash consideration paid                                    |  |   | 5,251,804  |  
|                                                           |  |   |            |  
|Total consideration to acquire First Bankshares            |  |   | 21,010,000 |  
|                                                           |  |   |            |  
|                                                           | 
|First Bankshares net assets at fair value:                |  |   |            |  
|First Bankshares shareholders equity at December 22, 2009 |  |   | 12,611,140 |  
|Adjustments to reflect assets acquired at fair value:      |  |   |            |  
|Net loans                                                  |  |   | (900,000   | )
|Other real estate owned                                    |  |   | (100,000   | )
|Premises and equipment                                     |  |   | (500,000   | )
|Core deposit intangibles                                   |  |   | 1,240,000  |  
|Deferred tax assets                                        |  |   | 1,491,332  |  
|Adjustments to reflect liabilities assumed at fair value:  |  |   |            |  
|Interest-bearing deposits                                  |  |   | (2,132,000 | )
|Other                                                      |  |   | (130,899   | )
|                                                           |  |   |            |  
|Adjusted identifiable net assets acquired                  |  |   | 11,579,573 |  
|                                                           |  |   |            |  
|                                                           | 
|Total Goodwill                                             |  | $ | 9,430,427  |  
|                                                           |  |   |            |  

Xenith Corporation and First Bankshares decided to merge because of the shared belief that the combination
of the two companies would create an institution uniquely positioned to compete with the larger, more established super-regional and national banks, as well as the smaller, locally-managed community banks throughout eastern, central and northern
Virginia. The resulting Goodwill effectively represents the synergies expected to be realized through the Merger.

Intangible
Assets on the balance sheet as of December 31, 2009 are comprised of Goodwill (calculated above) and the Core Deposit Intangible (referenced above). The Core Deposit Intangible is amortized for book and tax purposes over the expected life of
the underlying deposits. Goodwill is not amortized for book or tax purposes. All Intangible Assets are reviewed at least annually for potential impairment.

Income Taxes

The Company computes its income taxes in accordance
with the provisions of FASB Accounting Standards Codification (ASC) Topic 740, Accounting for Income Taxes. Under Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statements carrying amount of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered in income. Deferred tax assets are reduced by a valuation allowance until it is probable that these tax benefits will be realized.

Comprehensive Income

ASC Topic 220, Reporting Comprehensive Income, establishes standards for reporting and presentation of comprehensive income and its components in a full set of general purpose financial
statements. Topic 220 was issued to address concerns over the practice of reporting elements of comprehensive income directly in equity. In accordance with the provisions of the Topic 220, the Company has included in the accompanying financial
statements comprehensive income resulting from such activities. Comprehensive income consists of the net income and net unrealized gains (losses) on securities available for sale.

These amounts are reported net of the income tax benefit (expense) less any related allowance for realization. Also, accumulated other
comprehensive income (loss) is included as a separate disclosure within the Consolidated Statement of Changes in Shareholders Equity in the accompanying consolidated financial statements.



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Earnings per Share

Earnings per share is computed based on the weighted average number of shares outstanding of 2,364,337 and 2,276,298 for the years ended
December 31, 2009 and 2008, respectively. The table on page 56, Basic and Dilutive Income per Share, reflects earnings per share information.

Advertising

The Bank expenses advertising costs when incurred.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, as well as the amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain prior year amounts have been reclassified to conform to the 2009 presentation. These reclassifications have no effect on previously reported net income (loss).

Stock Options

Pro forma information regarding net income and earnings per share have been determined as if the Company had accounted for its stock options using the fair value method, as presented below for the years
ended December 31, 2009 and 2008.

The following is a summary of the basic and diluted income (loss) per share
calculation for the period of January 1, 2009 through December 22, 2009 and for the year ended December 31, 2008. The loss per share as of the period ended December 22, 2009 does not involve the 94,493 stock options and 563,760
stock warrants, which are potential common stock equivalents, because the effective is anti-dilutive. For the year ended December 31, 2008 the 94,493 stock options are not included as potential common stock equivalents because the exercise
price for the stock options was higher than the market price for the Companys common stock.



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Basic and Diluted Income per Share

For the period ended December 22, 2009 and for the years ended December 31, 2008 and 2007



|                                                                                   |  |      |            |   |      |   |         |  |   |        
|---------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ------- |  | - | -------
|                                                                                   |  | 2009 |            |   | 2008 |   | 2007   
|Net income (loss)                                                                  |  | $    | (4,306,961 | ) |      | $ | 245,138 |  | $ | 606,566
|Deduct: Total stock-based compensation cost determined under the fair value method |  |      |           |   |      |   |        |  |   |       
|Add: Forfeitures                                                                   |  |      |           |   |      |   |        |  |   | 30,866 
|                                                                                   |  |      |            |   |      |   |         |  |   |        
|Pro forma                                                                          |  | $    | (4,306,961 | ) |      | $ | 245,138 |  | $ | 637,432
|                                                                                   |  |      |            |   |      |   |         |  |   |        
|Basic and diluted earnings per share                                               |  | $    | (1.90      | ) |      | $ | 0.11    |  | $ | 0.27   
|                                                                                   |  |      |            |   |      |   |         |  |   |        
|Pro forma                                                                          |  | $    | (1.90      | ) |      | $ | 0.11    |  | $ | 0.28   
|                                                                                   |  |      |            |   |      |   |         |  |   |        

Basic and diluted earnings per share calculations for
the period January 1, 2009 through December 22, 2009 and for the years ended December 31, 2008 are based on the weighted average shares outstanding of 2,276,298 and 2,276,298, respectively. There were 8,700 options were granted in
2009 and no options were granted in 2008.

Xenith Bank [In Organization] at December 31, 2008

Summary of Significant Accounting Policies

Business and Principles of Consolidation

Xenith Bank [In
Organization] (Xenith), is a bank in organization, headquartered in Richmond, Virginia. Xenith plans to be a Virginia state bank and operate as a full service commercial bank, specifically targeting the financial needs of middle market
corporations, emerging growth companies, real estate developers and investors, and the principals of these companies, as well as affluent families. It plans to offer a wide array of financial products and services to its targeted customer base by
using a team of experienced bankers with significant experience in the Mid-Atlantic region.

On February 19, 2008, CCB
Organizing Group, LLC (Organizing Group) was formed for the purpose of forming a Virginia state bank. The Organizing Group was funded primarily through equity contributions by BankCap Partners Fund I, L.P (BankCap Partners).

On June 9, 2008, Xenith was incorporated as a Virginia banking corporation in organization with no shareholders.
Pursuant to an Assignment, Transfer, and Assumption Agreement dated June 30, 2008, the Organizing Group conveyed to Xenith a full interest in its assets and the assumption of its liabilities. Since Xenith and Organizing Group were entities
under common control, this combination was accounted for in a manner similar to a pooling-of-interest in accordance with ASC Topic 805, Business Combinations.



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Basis of Financial Statement Presentation

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In
preparing the financial statements, Management is required to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

Previously reported amounts in the statement of cash flows have been reclassified. The impact of the change increased net cash used in
operating activities and decreased net cash used in investing activities by $1,023,563.

Cash and Cash Equivalents

Cash represents FDIC-insured bank balances. Generally, cash and cash equivalents have maturities of three months or
less, and accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value.

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. For leasehold improvements, depreciation is computed using the straight line method over the shorter of the estimated useful life of
the improvement or lease term. Major additions and improvements are treated as additions to the asset accounts while maintenance and repairs that do not improve or extend the useful lives of the assets are treated as expenses as incurred. When
assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any gain or loss is reflected in the results of operations for the period.

Operating Leases

Xenith has operating leases for its four office locations. The lease agreements for certain locations contain rent escalation clauses, rent holidays, and leasehold improvement allowances. For scheduled
rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy, Xenith records minimum rental expenses on a straight-line basis over the terms of the leases in occupancy expense.

Xenith has a liability related to the difference between actual payments and the straight-lining of rent of $436,296, of
which $372,830 is recorded in Other Liabilities and $63,466 is recorded in Other Current Liabilities as of December 31, 2008. Other Assets represents lease deposits.

Income Taxes

Deferred tax assets and liabilities are recorded for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax benefits, such as net operating loss carryforwards, are recognized
to the extent that realization



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and
liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

In the event the future tax consequences of differences between the financial reporting bases and the tax bases of Xeniths assets and
liabilities results in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such assets is required. A valuation allowance is provided when it is more likely than not that some portion or
all of the deferred tax asset will not be realized. In assessing the ability to realize the deferred tax assets, Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies.

Note 3 - Restrictions of Cash

To comply with Federal Reserve regulations, the Bank is required to maintain certain average cash reserve balances. The daily average cash reserve requirements were $380,970 and $376,470 for the weeks of
December 31, 2009 and 2008, respectively.



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Note 4 - Securities

A summary of the securities available for sale at December 31,2009 and 2008 follow:

Amortized Costs and Fair Values of Securities

As of December 31, 2009 and 2008



|                           |  |               |            |                  |          |         |            |   |            |   |  |   |           
|-------------------------- |  | ------------- | ---------- | ---------------- | -------- | ------- | ---------- | - | ---------- | - |  | - | ----------
|                           |  | 2009         
|                           |  | AmortizedCost |            | Gross Unrealized |          |         | Fair Value
|                           |  |               | Gains      |                  | (Losses) |         |           
|U.S. agencies              |  | $             | 17,700,601 |                  | $        | 116,508 |            | $ | (6,667     | ) |  | $ | 17,810,442
|Mortgage-backed securities |  |               |            |                  |          |         |            |   |            |   |  |   |           
|- Fixed rate               |  |               | 4,983,564  |                  |          | 37,086  |            |   | (20,540    | ) |  |   | 5,000,110 
|- Variable rate            |  |               | 7,102,185  |                  |          | 64,279  |            |   | (6,174     | ) |  |   | 7,160,290 
|Municipals                 |  |               |            |                  |          |         |            |   |            |   |  |   |           
|- Taxable                  |  |               | 2,111,980  |                  |          |        |            |   | (38,700    | ) |  |   | 2,073,280 
|- Tax exempt               |  |               | 535,600    |                  |          |        |            |   | (985       | ) |  |   | 534,615   
|Other securities           |  |               | 4,262,500  |                  |          | 5,500   |            |   |           |   |  |   | 4,268,000 
|                           |  |               |            |                  |          |         |            |   |            |   |  |   |           
|Total securities           |  | $             | 36,696,430 |                  | $        | 223,373 |            | $ | (73,066    | ) |  | $ | 36,846,737
|                           |  |               |            |                  |          |         |            |   |            |   |  |   |           
|                           | 
|                           |  | 2008         
|                           |  | AmortizedCost |            | Gross Unrealized |          |         | Fair Value
|                           |  |               | Gains      |                  | (Losses) |         |           
|U.S. agencies              |  | $             | 23,658,025 |                  | $        | 302,600 |            | $ |           |   |  | $ | 23,960,625
|Mortgage-backed securities |  |               |            |                  |          |         |            |   |            |   |  |   |           
|- Fixed rate               |  |               | 15,801,604 |                  |          | 483,359 |            |   |           |   |  |   | 16,284,963
|- Variable rate            |  |               | 9,153,315  |                  |          | 24,639  |            |   | (184,528   | ) |  |   | 8,993,426 
|Municipals                 |  |               |            |                  |          |         |            |   |            |   |  |   |           
|- Tax exempt               |  |               | 525,933    |                  |          |        |            |   | (5,198     | ) |  |   | 520,735   
|Other securities           |  |               | 4,539,565  |                  |          |        |            |   | (886,603   | ) |  |   | 3,652,962 
|                           |  |               |            |                  |          |         |            |   |            |   |  |   |           
|Total securities           |  | $             | 53,678,442 |                  | $        | 810,598 |            | $ | (1,076,329 | ) |  | $ | 53,412,711
|                           |  |               |            |                  |          |         |            |   |            |   |  |   |           

The fair values of securities at December 31, 2009 and 2008, by contractual
maturity, are shown below. Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.



59



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Securities by Contractual Maturity



|                                   |  |                   |   |                            |   |                              |  |               |           |       |   |            |  |   |           
|---------------------------------- |  | ----------------- | - | -------------------------- | - | ---------------------------- |  | ------------- | --------- | ----- | - | ---------- |  | - | ----------
|                                   |  | December 31, 2009
|                                   |  | Within 1 year     |   | After 1 yearthrough 5years |   | After 5 yearsthrough 10years |  | Over 10 years |           | Total
|Available for sale, at fair value: |  |                   |   |                            |   |                              |  |               |           |       |   |            |  |   |           
|U.S. agencies                      |  | $                 |  |                            | $ |                             |  | $             |          |       | $ | 17,810,442 |  | $ | 17,810,442
|Mortgage-backed                    |  |                   |   |                            |   |                              |  |               |           |       |   |            |  |   |           
|- Fixed rate                       |  |                   |  |                            |   |                             |  |               |          |       |   | 5,000,110  |  |   | 5,000,110 
|- Variable rate                    |  |                   |  |                            |   |                             |  |               |          |       |   | 7,160,290  |  |   | 7,160,290 
|Municipals                         |  |                   |   |                            |   |                              |  |               |           |       |   |            |  |   |           
|- Taxable                          |  |                   |  |                            |   |                             |  |               | 2,073,280 |       |   |           |  |   | 2,073,280 
|- Tax exempt                       |  |                   |  |                            |   |                             |  |               |          |       |   | 534,615    |  |   | 534,615   
|Other securities                   |  |                   |  |                            |   |                             |  |               |          |       |   | 4,268,000  |  |   | 4,268,000 
|                                   |  |                   |   |                            |   |                              |  |               |           |       |   |            |  |   |           
|Total securities                   |  | $                 |  |                            | $ |                             |  | $             | 2,073,280 |       | $ | 34,773,457 |  | $ | 36,846,737
|                                   |  |                   |   |                            |   |                              |  |               |           |       |   |            |  |   |           
|                                   | 
|                                   |  | December 31, 2008
|                                   |  | Within 1 year     |   | After 1 yearthrough 5years |   | After 5 yearsthrough 10years |  | Over 10 years |           | Total
|Available for sale, at fair value: |  |                   |   |                            |   |                              |  |               |           |       |   |            |  |   |           
|U.S. agencies                      |  | $                 |  |                            | $ |                             |  | $             |          |       | $ | 23,960,625 |  | $ | 23,960,625
|Mortgage-backed                    |  |                   |   |                            |   |                              |  |               |           |       |   |            |  |   |           
|- Fixed rate                       |  |                   |  |                            |   |                             |  |               |          |       |   | 16,284,963 |  |   | 16,284,963
|- Variable rate                    |  |                   |  |                            |   |                             |  |               |          |       |   | 8,993,426  |  |   | 8,993,426 
|Municipals                         |  |                   |   |                            |   |                              |  |               |           |       |   |            |  |   |           
|- Tax exempt                       |  |                   |  |                            |   |                             |  |               |          |       |   | 520,735    |  |   | 520,735   
|Other securities                   |  |                   |  |                            |   |                             |  |               |          |       |   | 3,652,962  |  |   | 3,652,962 
|                                   |  |                   |   |                            |   |                              |  |               |           |       |   |            |  |   |           
|Total securities                   |  | $                 |  |                            | $ |                             |  | $             |          |       | $ | 53,412,711 |  | $ | 53,412,711
|                                   |  |                   |   |                            |   |                              |  |               |           |       |   |            |  |   |           

The unrealized gain positions on securities at
December 31, 2009 were directly related to interest rate movements, as there is minimal credit risk exposure in these investments. Investment securities with unrealized losses have interest rates that are less than the current interest rate
environment and not a result of credit impairment. All securities are investment grade. Management does not consider the unrealized losses to be other than temporary based on volatility of the securities market price. The securities portfolio
reflects unrealized losses of $73,066 and includes individual securities with unrealized losses ranging from $1 to $38,700.

Securities were pledged as collateral for Federal Home Loan Bank borrowings and public deposits in 2009 and 2008. The amortized costs of these securities were $20,556,854 and $30,024,948 and the fair values of these pledged securities were
$20,664,121 and $30,138,981 as of December 31, 2009 and 2008, respectively.



60



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Note 5 - Loans and Allowance for Loan Losses

Loans at December 31, 2009 and 2008 are summarized as follows:

Loan Portfolio

As of December 31, 2009 and 2008



|                                              |  |        |             |     |                 |        |   |        |   |             |                 |  |        |  
|--------------------------------------------- |  | ------ | ----------- | --- | --------------- | ------ | - | ------ | - | ----------- | --------------- |  | ------ | -
|                                              |  | 2009   |             |     | 2008            |       
|                                              |  | Amount |             |     | Percent ofTotal |        |   | Amount |   |             | Percent ofTotal | 
|Commercial                                    |  |        |             |     |                 |        |   |        |   |             |                 |  |        |  
|- Real estate                                 |  | $      | 34,978,917  | [1] |                 | 34.28  | % |        | $ | 40,325,987  | [2]             |  | 34.39  | %
|- Other                                       |  |        | 43,467,134  |     |                 | 42.59  | % |        |   | 46,801,108  |                 |  | 39.92  | %
|Residential real estate                       |  |        |             |     |                 |        |   |        |   |             |                 |  |        |  
|- Land and construction                       |  |        | 1,475,005   |     |                 | 1.45   | % |        |   | 1,844,873   |                 |  | 1.57   | %
|- Mortgage, 1-4 family                        |  |        | 20,586,270  |     |                 | 20.17  | % |        |   | 25,921,293  |                 |  | 22.11  | %
|Installment loans to individuals              |  |        | 1,523,660   |     |                 | 1.49   | % |        |   | 2,343,175   |                 |  | 2.00   | %
|Overdrafts                                    |  |        | 18,711      |     |                 | 0.02   | % |        |   | 10,859      |                 |  | 0.01   | %
|                                              |  |        |             |     |                 |        |   |        |   |             |                 |  |        |  
|Total loans                                   |  |        | 102,049,697 |     |                 | 100.00 | % |        |   | 117,247,295 |                 |  | 100.00 | %
|Unearned income                               |  |        |            |     |                 |        |   |        |   |            |                 |  |        |  
|                                              |  |        |             |     |                 |        |   |        |   |             |                 |  |        |  
|Total loans, net of unearned income           |  |        | 102,049,697 |     |                 |        |   |        |   | 117,247,295 |                 |  |        |  
|Less: Allowance for loan losses               |  |        |            |     |                 |        |   |        |   | 1,687,284   |                 |  |        |  
|                                              |  |        |             |     |                 |        |   |        |   |             |                 |  |        |  
|Total loans, net of allowance for loan losses |  | $      | 102,049,697 |     |                 |        |   |        | $ | 115,560,011 |                 |  |        |  
|                                              |  |        |             |     |                 |        |   |        |   |             |                 |  |        |  



|[1] | As of December 31, 2009, 30% of commercial real estate loans were secured by hotels, 18% were secured by commercial land 10% secured by land development, 9% were
secured by condos and condo construction, 1% were secured by residential land and construction and 32% were secured by other collateral.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[2] | As of December 31, 2008, 30% of commercial real estate loans were secured by hotels, 24% were secured by commercial land development and construction, 11% were
secured by condos and condo construction, 10% were secured by residential land and construction, 9% were secured by land development, and 16% were secured by other collateral.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



The activity in the Allowance for Loan Losses for 2009 and 2008 is summarized as
follows:

Analysis of the Allowance for Loan Losses

For the years ended December 31, 2009 and 2008



|                                                                                          |  |      |            |   |      |   |           |  
|----------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | -
|                                                                                          |  | 2009 |            |   | 2008 |  
|Balance at beginning of period                                                            |  | $    | 1,687,283  |   |      | $ | 941,820   |  
|Charge-offs:                                                                              |  |      |            |   |      |   |           |  
|Commercial                                                                                |  |      |            |   |      |   |           |  
|- Real estate                                                                             |  |      | 133,267    |   |      |   |          |  
|- Other                                                                                   |  |      | 187,065    |   |      |   | 79,032    |  
|Real estate                                                                               |  |      |            |   |      |   |           |  
|- Residential land                                                                        |  |      |           |   |      |   |          |  
|- Residential construction                                                                |  |      |           |   |      |   |          |  
|- Mortgage, 1-4 family                                                                    |  |      | 214,352    |   |      |   |          |  
|Installment loans to individuals                                                          |  |      | 4,953      |   |      |   | 10,660    |  
|                                                                                          |  |      |            |   |      |   |           |  
|Total charge-offs                                                                         |  |      | 539,637    |   |      |   | 89,692    |  
|                                                                                          |  |      |            |   |      |   |           |  
|Recoveries:                                                                               |  |      |            |   |      |   |           |  
|Commercial                                                                                |  |      |            |   |      |   |           |  
|- Real estate                                                                             |  |      | 18,954     |   |      |   |          |  
|- Other                                                                                   |  |      | 31,644     |   |      |   | 6,311     |  
|Real estate                                                                               |  |      |            |   |      |   |           |  
|- Residential land                                                                        |  |      |            |   |      |   |           |  
|- Residential construction                                                                |  |      |            |   |      |   |           |  
|- Mortgage, 1-4 family                                                                    |  |      |            |   |      |   |           |  
|Installment loans to individuals                                                          |  |      | 1,110      |   |      |   | 188       |  
|                                                                                          |  |      |            |   |      |   |           |  
|Total recoveries                                                                          |  |      | 51,708     |   |      |   | 6,499     |  
|                                                                                          |  |      |            |   |      |   |           |  
|Net charge-offs                                                                           |  |      | 487,929    |   |      |   | 83,193    |  
|                                                                                          |  |      |            |   |      |   |           |  
|Allowance, net of charge-offs and recoveries                                              |  |      | 1,199,354  |   |      |   | 858,627   |  
|Additions to the allowance for loan losses                                                |  |      | 5,500,646  |   |      |   | 828,656   |  
|                                                                                          |  |      |            |   |      |   |           |  
|Allowance after additions                                                                 |  |      | 6,700,000  |   |      |   | 1,687,283 |  
|Acquisition accounting adjustment                                                         |  |      | (6,700,000 | ) |      |   |          |  
|                                                                                          |  |      |            |   |      |   |           |  
|Balance at end of period                                                                  |  | $    |           |   |      | $ | 1,687,283 |  
|                                                                                          |  |      |            |   |      |   |           |  
|Ratio of net charge-offs during the period to average loans outstanding during the period |  |      | 0.43       | % |      |   | 0.07      | %
|                                                                                          |  |      |            |   |      |   |           |  



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Note 6 - Related Parties

Both the Companys and the Banks officers and directors and their related interests have various types of loan relationships with
the Bank. At December 31, 2009 and 2008, the total of these related-party loans were $1,832,671 and $5,971,006. New loans to officers and directors in 2009 and 2008 totaled $653,500 and $4,319,746 and repayments in 2009 and 2008 amounted to
$4,115,667 and $882,748, respectively. Such transactions were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with
other customers and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features.

Deposits of officers and directors as of December 31, 2009 and 2008 represent $1,289,546 and $730,924, respectively.

Xenith Bank [In Organization] as of December 31, 2008

Xenith entered into a licensing and
administrative support agreement with an affiliate of BankCap Partners, BankCap Partners GP, L.P. (Licensor), to a) use and otherwise access intellectual property the Licensor currently licenses from an unaffiliated third party and b)
obtain administrative support services to facilitate the commencement of Xenith operations. The Licensor will receive a total fee of $600,000 in consideration for such licensing and administrative support services, which fee will be payable by
Xenith in one lump sum if, and only if, Xenith receives all required regulatory approvals and successfully opens for business. As such, no accrual has been made for this amount as of the balance sheet date.

BankCap Partners has also agreed to incur direct expenses on behalf of Xenith, which may include but are not limited to legal, professional,
recruiting and travel expenses. Xenith will reimburse BankCap Partners for these expenses up to a limit of $150,000 after Xeniths opening for business. The amount of these expenses which has been accrued at December 31, 2008, is $66,443.

Note 7 - Premises, Equipment, and Depreciation

Property, equipment, and depreciation at December 31, 2009 and 2008 are summarized as follows:

Property, Equipment, and Depreciation

As of December 31, 2009 and 2008



|                                    |  |      |           |   |      |   |            |  
|----------------------------------- |  | ---- | --------- | - | ---- | - | ---------- | -
|                                    |  | 2009 |           |   | 2008 |  
|Land                                |  | $    | 1,139,500 |   |      | $ | 1,139,500  |  
|Building and leasehold improvements |  |      | 4,053,613 |   |      |   | 3,997,643  |  
|Equipment, furniture, and fixtures  |  |      | 2,306,427 |   |      |   | 1,406,588  |  
|Vehicles                            |  |      | 12,593    |   |      |   | 121,603    |  
|                                    |  |      |           |   |      |   |            |  
|Total property and equipment        |  |      | 7,512,133 |   |      |   | 6,665,334  |  
|Less: Accumulated depreciation      |  |      | (531,444  | ) |      |   | (1,097,678 | )
|                                    |  |      |           |   |      |   |            |  
|Net property and equipment          |  | $    | 6,980,689 |   |      | $ | 5,567,656  |  
|                                    |  |      |           |   |      |   |            |  

Depreciation expense for the years ended December 31, 2009 and 2008 was $338,000 and $344,019,
respectively.



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Xenith Bank [In Organization] as of December 31, 2008

A summary of premises and equipments and their useful lives as of December 31, 2008 is as follows:



|                              |  |             |  |      |           |  
|----------------------------- |  | ----------- |  | ---- | --------- | -
|                              |  | Useful Life |  | 2008 |          
|Leasehold Improvements        |  | 5 years     |  | $    | 841,740   |  
|Equipment and Furniture       |  | 1-10 years  |  |      | 1,280,330 |  
|                              |  |             |  |      |           |  
|Premises and Equipment        |  |             |  |      | 2,122,070 |  
|Less Accumulated Depreciation |  |             |  |      | (24,063   | )
|                              |  |             |  |      |           |  
|Net Premises and Equipment    |  |             |  | $    | 2,098,007 |  
|                              |  |             |  |      |           |  

Depreciation expense was $24,063 in 2008.

Note 8 - Deposits

A summary of deposit accounts at December 31, 2009
and 2008 follows:

Deposit Accounts

As of December 31, 2009 and 2008



|                                    |  |      |             |      |   |            
|----------------------------------- |  | ---- | ----------- | ---- | - | -----------
|                                    |  | 2009 |             | 2008
|Noninterest-bearing demand deposits |  | $    | 14,646,206  |      | $ | 14,154,006 
|Interest-bearing:                   |  |      |             |      |   |            
|NOW Accounts                        |  |      | 7,670,269   |      |   | 6,537,331  
|Savings and money market accounts   |  |      | 3,295,930   |      |   | 2,950,405  
|Time deposits of $100,000 or more   |  |      | 37,127,448  |      |   | 23,435,862 
|Other time deposits                 |  |      | 51,407,781  |      |   | 83,207,033 
|                                    |  |      |             |      |   |            
|Total deposit accounts              |  | $    | 114,147,634 |      | $ | 130,284,637
|                                    |  |      |             |      |   |            

At December 31, 2009 maturities of time deposits
are scheduled as follows:

Maturities of Time Deposits

As of December 31, 2009



|      |  |         |           
|----- |  | ------- | ----------
|Year  |  | Balance
|2010  |  | $       | 57,511,800
|2011  |  |         | 16,452,716
|2012  |  |         | 10,254,039
|2013  |  |         | 554,292   
|2014  |  |         | 1,374,937 
|      |  |         |           
|Total |  | $       | 86,147,784
|      |  |         |           



64



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Maturities of Large Denomination Time Deposits [1] [2]

As of December 31, 2009



|              |  |                |           |            |   |             |  |               |            |       |   |                          |  |   |            |  |       |  
|------------- |  | -------------- | --------- | ---------- | - | ----------- |  | ------------- | ---------- | ----- | - | ------------------------ |  | - | ---------- |  | ----- | -
|              |  | Within 3Months |           | 3-6 Months |   | 6-12 Months |  | Over 12Months |            | Total |   | Percent ofTotal Deposits | 
|Time deposits |  | $              | 2,310,667 |            | $ | 7,557,476   |  | $             | 11,891,347 |       | $ | 15,367,958               |  | $ | 37,127,448 |  | 32.53 | %



|[1] | Time deposits issued in denominations of $100,000 or greater
|--- | ------------------------------------------------------------

|[2] | Includes some brokered deposits
|--- | -------------------------------

Note 9 -
Income Taxes

The Company reported a loss before income taxes of $6,400,244 and income before income taxes of $362,438 for
the years ending December 31, 2009 and 2008, respectively. An income tax benefit of $131,400 and income tax expense of $117,300 were recorded in 2009 and 2008, respectively.

Income Tax Expense

For the years ended
December 31, 2009 and 2008



|                                                  |  |      |            |   |      |   |          |  
|------------------------------------------------- |  | ---- | ---------- | - | ---- | - | -------- | -
|                                                  |  | 2009 |            |   | 2008 |  
|Income (loss) before income tax expense (benefit) |  | $    | (6,400,244 | ) |      | $ | 362,438  |  
|                                                  |  |      |            |   |      |   |          |  
|At statutory rates                                |  | $    |           |   |      | $ | 117,300  |  
|Recognition of loss of benefits                   |  |      | (131,400   | ) |      |   |         |  
|                                                  |  |      |            |   |      |   |          |  
|Net tax expense (benefit)                         |  | $    | (131,400   | ) |      | $ | 117,300  |  
|                                                  |  |      |            |   |      |   |          |  
|Current income tax expense                        |  | $    |           |   |      | $ | 247,600  |  
|Deferred income tax (benefit)                     |  |      | (131,400   | ) |      |   | (130,300 | )
|                                                  |  |      |            |   |      |   |          |  
|Net tax expense (benefit)                         |  | $    | (131,400   | ) |      | $ | 117,300  |  
|                                                  |  |      |            |   |      |   |          |  



65



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



The tax effects of timing differences between taxable income and income for financial
reporting purposes result in deferred tax assets and liabilities as presented below:

Deferred Tax Assets and Liabilities

For the years ended December 31, 2009 and 2008



|                                                   |  |      |           |      |   |        
|-------------------------------------------------- |  | ---- | --------- | ---- | - | -------
|                                                   |  | 2009 |           | 2008
|Deferred tax assets                                |  |      |           |      |   |        
|Allowance for loan losses                          |  | $    | 1,704,300 |      | $ | 574,000
|Unrealized losses on available-for-sale securities |  |      |          |      |   | 90,000 
|Accrued sick leave                                 |  |      | 44,600    |      |   |       
|Net operating loss carryforward                    |  |      | 5,479,000 |      |   |       
|                                                   |  |      |           |      |   |        
|Gross deferred tax assets                          |  |      | 7,227,900 |      |   | 664,000
|                                                   |  |      |           |      |   |        
|Deferred tax liabilities                           |  |      |           |      |   |        
|Depreciation                                       |  |      | 192,600   |      |   | 206,200
|Unearned loan costs in excess of loan fees         |  |      | 40,000    |      |   | 54,300 
|Unrealized gains on available-for-sale securities  |  |      | 35,000    |      |   |       
|Vaulation allowance                                |  |      | 3,280,900 |      |   |       
|                                                   |  |      |           |      |   |        
|Gross deferred tax liabilities                     |  |      | 3,548,500 |      |   | 260,500
|                                                   |  |      |           |      |   |        
|Net deferred tax asset                             |  | $    | 3,679,400 |      | $ | 403,500
|                                                   |  |      |           |      |   |        

Xenith Bank [In Organization] as of
December 31, 2008

A full valuation allowance was recorded in 2008, since realization of income tax benefits
resulting from losses from Inception was uncertain. Therefore, there is no current or deferred income tax provision.

The
income tax benefit is less than that computed by applying the federal statutory rate of 34% in 2008, as indicated in the following analysis (in thousands):



|                                            |  |                                                                 |            |  
|------------------------------------------- |  | --------------------------------------------------------------- | ---------- | -
|                                            |  | Period fromFebruary 19,2008(date ofinception)toDecember 31,2008 |           
|Tax benefit based on federal statutory rate |  | $                                                               | 1,084,167  |  
|State tax benefit, net of federal benefit   |  |                                                                 | 115,314    |  
|Stock issuance costs                        |  |                                                                 | (91,349    | )
|Other                                       |  |                                                                 | (2,747     | )
|Valuation allowance                         |  |                                                                 | (1,105,385 | )
|                                            |  |                                                                 |            |  
|2008 Income tax benefit                     |  | $                                                               |           |  
|                                            |  |                                                                 |            |  



66



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



The following summarizes the net deferred tax asset which is recorded net of the
valuation allowance at December 31, 2008:



|                                |  |      |            |  
|------------------------------- |  | ---- | ---------- | -
|                                |  | 2008 |           
|Deferred start-up costs         |  | $    | 1,051,091  |  
|Deferred lease expenses         |  |      | 45,159     |  
|Depreciation                    |  |      | 9,135      |  
|                                |  |      |            |  
|Total gross deferred tax assets |  |      | 1,105,385  |  
|Valuation allowance             |  |      | (1,105,385 | )
|                                |  |      |            |  
|Total net deferred tax assets   |  | $    |           |  
|                                |  |      |            |  

In assessing the realizability of deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Due to the limited history of Xenith and the subjectivity of the timing of Xenith
generating taxable income, Xeniths valuation allowance totaled $1,105,385 at December 31, 2008.

Xeniths and
Organization Groups 2008 income tax returns are subject to examination by both U.S. federal and state jurisdictions.

Note 10 - Stock
Option Plans

In May 2003, the shareholders of the Bank adopted the 2003 Stock Incentive Plan for directors, officers, and
employees. The Board of Directors authorized 137,500 options with an exercise price of $7.27 per share, the fair market price on the date of grant. Options totaling 66,825 shares vested immediately upon grant by the Board. On January 22, 2004,
the Board granted 1,375 options, immediately vesting upon grant at an exercise price and fair market value of $9.69 per share. On November 18, 2004, the Board of Directors granted options totaling 58,520 shares which vested immediately upon
grant by the Board of Directors. The options were granted at an exercise price of $8.36 on the date of grant which was also the fair market price on the date of the grant. The stock options for two Directors and one employee were forfeited during
2005 due to their resignation. The stock options for seven individuals were forfeited during 2007 due to their resignations. In addition, one Director exercised options during 2007. Stock options prices and shares are reflective of a 5-for-4 stock
split in 2004 and an 11-for-10 stock split in 2006.

In connection with the Merger, Xenith Bankshares assumed the Xenith
Corporation 2009 Stock Incentive Plan, which was subsequently amended and restated to become the Amended and Restated Xenith Bankshares, Inc. 2009 Stock Incentive Plan (the 2009 Plan). An aggregate of 258,000 options to purchase shares
of Xenith Corporation common stock outstanding at the effective time of the Merger, which had been granted under the Xenith Corporation 2009 Stock Incentive Plan, were converted into an aggregate of 224,460 options to purchase shares of Xenith
Corporation common stock based on the Exchange Ratio at an exercise price of $11.49 per share. On December 22, 2009, the Compensation and Governance Committee of the Board of Directors, pursuant to authority delegated to it by the Board of
Directors, granted an aggregate of 8,700 options to purchase shares of Xenith Bankshares common stock at an exercise price of $11.49 per share. These options have a 10-year term and will vest in three equal installments on each anniversary of the
completion of the Merger.



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Stock splits are reflected in the following table:



|                                     |  |                           |   |  |                              |  
|------------------------------------ |  | ------------------------- | - |  | ---------------------------- | -
|                                     |  | Shares Availablefor Grant |   |  | Shares Vestedand Exercisable |  
|Balance at January 27, 2003          |  |                          |   |  |                             |  
|Authorized May 8, 2003               |  | 137,500                   |   |  |                             |  
|Granted and vested July 24, 2003     |  | (66,825                   | ) |  | 66,825                       |  
|                                     |  |                           |   |  |                              |  
|Balance at December 31, 2003         |  | 70,675                    |   |  | 66,825                       |  
|                                     |  |                           |   |  |                              |  
|Granted and vested January 22, 2004  |  | (1,375                    | ) |  | 1,375                        |  
|Granted and vested November 18, 2004 |  | (58,520                   | ) |  | 58,520                       |  
|                                     |  |                           |   |  |                              |  
|Balance at December 31, 2004         |  | 10,780                    |   |  | 126,720                      |  
|                                     |  |                           |   |  |                              |  
|Expired May 10, 2005                 |  | 9,020                     |   |  | (9,020                       | )
|Expired October 19, 2005             |  | 6,270                     |   |  | (6,270                       | )
|Expired December 14, 2005            |  | 550                       |   |  | (550                         | )
|                                     |  |                           |   |  |                              |  
|Balance at December 31, 2005         |  | 26,620                    |   |  | 110,880                      |  
|                                     |  |                           |   |  |                              |  
|Granted or expired in 2006           |  |                          |   |  |                             |  
|                                     |  |                           |   |  |                              |  
|Balance at December 31, 2006         |  | 26,620                    |   |  | 110,880                      |  
|                                     |  |                           |   |  |                              |  
|Expired January 15, 2007             |  | 274                       |   |  | (274                         | )
|Expired May 28, 2007                 |  | 6,518                     |   |  | (6,518                       | )
|Expired July 30, 2007                |  | 137                       |   |  | (137                         | )
|Expired August 10, 2007              |  | 3,520                     |   |  | (3,520                       | )
|Expired October 23, 2007             |  | 219                       |   |  | (219                         | )
|Expired November 30, 2007            |  | 219                       |   |  | (219                         | )
|Exercised August 10, 2007            |  |                          |   |  | (5,500                       | )
|                                     |  |                           |   |  |                              |  
|Balance at December 31, 2007         |  | 37,507                    |   |  | 94,493                       |  
|                                     |  |                           |   |  |                              |  
|Granted or expired in 2008           |  |                          |   |  |                             |  
|                                     |  |                           |   |  |                              |  
|Balance at December 31, 2008         |  | 37,507                    |   |  | 94,493                       |  
|                                     |  |                           |   |  |                              |  
|Authorized December 22, 2009         |  | 1,043,391                 |   |  |                             |  
|Granted in 2009                      |  | 233,160                   |   |  |                             |  
|                                     |  |                           |   |  |                              |  
|Expired in 2009                      |  |                          |   |  |                             |  
|                                     |  |                           |   |  |                              |  
|Balance at December 31, 2009         |  | 847,738                   |   |  | 94,493                       |  
|                                     |  |                           |   |  |                              |  



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



The following summarizes information concerning currently outstanding and exercisable
options:

Stock Options Exercisable

As of December 31, 2009



|              |      |                                      |        |                         |     |               |       
|------------- | ---- | ------------------------------------ | ------ | ----------------------- | --- | ------------- | ------
|ExercisePrice |      | OptionsRemainingGranted /Outstanding |        | ContractualLife (Years) |     | OptionsVested
|$             | 7.27 |                                      | 49,226 |                         | 3.5 |               | 49,226
|              | 9.69 |                                      | 1,375  |                         | 4   |               | 1,375 
|              | 8.36 |                                      | 43,892 |                         | 5   |               | 43,892
|              |      |                                      |        |                         |     |               |       
|              |      |                                      | 94,493 |                         |     |               | 94,493
|              |      |                                      |        |                         |     |               |       

In accordance with SFAS No. 123(R),
Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure  An Amendment of FASB Statement No. 123(R), and included in the
FASB codification under ASC Topic 718, the Company has adopted the disclosure-only option and elected to apply the provisions of APB No. 25 for financial statement purposes. No stock-based employee compensation cost is reflected in net income
for these plans.

Note 11 - Warrants

An aggregate of 648,000 warrants to purchase shares of Xenith Corporations common stock outstanding at the effective time of the Merger were converted into an aggregate of 563,760 warrants to
purchase shares of Xenith Bankshares common stock based on the Exchange Ratio at an exercise price of $11.49 per share. These warrants are exercisable immediately and expire on May 8, 2019.

Note 12 - 401(k) Plan

The
Company sponsors two 401(k) defined contribution plan and may elect to contribute a matching contribution to the plans in an amount up to 50% of the first 6% of the elective contributions made by participants. The Company had no expense for the year
ended December 31, 2009, compared to expense of $46,585 for the year ended December 31, 2008.

Note 13 - Shareholders
Equity

Under Virginia law, no dividend may be declared or paid out of a Virginia charter banks paid-in capital.
Xenith Bankshares, as the holding company for Xenith Bank, may be prohibited under Virginia law from the payment of dividends if the Virginia Bureau of Financial Institutions determines that a limitation of dividends is in the public interest and is
necessary to ensure our financial soundness; however, we may also be permitted the payment of dividends not otherwise allowed by Virginia law. The Company had negative retained earnings in 2009 of $9,457,569 and positive retained earnings in 2008 of
$662,458.



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Xenith Bank [In Organization] as of December 31, 2008

In March 2008, three organizers contributed $100 each to form the Organization Group with an initial capitalization of $300. On
June 1, 2008, Xenith executed a Memorandum of Understanding with BankCap Partners, in which BankCap Partners committed to fund up to $5,000,000 of organizational, pre-opening and other expenses related to the filing of regulatory applications,
leasing of office space, the retention of key officers and preparing to commence the operations of Xenith. As of December 31, 2008, BankCap Partners had contributed $4,295,100, which is classified as Contributed Capital on the balance sheet.
This Contributed Capital will ultimately be converted to shares in Xenith; additionally, BankCap will also receive warrants for its at risk funding of Xeniths start-up expenses. BankCap Partners has committed to contribute
approximately $30,600,000 of additional equity upon the commencement of operations of Xenith.

Note 14 - Regulatory Matters

We are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of the Companys assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.
Our capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require us to maintain
minimum amounts and ratios (set forth in the table below) of total capital and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined).

Management believes that we meet all capital adequacy requirements to which we are subject at December 31, 2009 and 2008.

The Company is considered to be well-capitalized under the regulatory definition of a well-capitalized bank. To be categorized as
well-capitalized, the Company must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed
our category.

The Banks actual regulatory capital amounts and ratios for December 31, 2009 and 2008 are also
presented in the table below. Dollar amounts are in thousands.



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##### Table of Contents

Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Regulatory Capital Amounts and Ratios

As of December 31, 2009 and 2008

(dollars in thousands)



|                  |  |             |        |       |                      |   |         |                        |       |  |       |         |  |       |        |  |        |  
|----------------- |  | ----------- | ------ | ----- | -------------------- | - | ------- | ---------------------- | ----- |  | ----- | ------- |  | ----- | ------ |  | ------ | -
|                  |  | 2009 Actual |        |       | For Capital Adequacy |   |         | To Be Well Capitalized |      
|                  |  | Capital     |        | Ratio |                      |   | Capital |                        | Ratio |  |       | Capital |  | Ratio |       
|Tier 1 leverage   |  | $           | 43,334 |       | 26.75                | % |         | $                      | 6,480 |  | > 4.0 | %       |  | $     | 8,100  |  | > 5.0  | %
|Tier 1 risk-based |  |             | 43,334 |       | 36.68                | % |         |                        | 4,726 |  | > 4.0 | %       |  |       | 7,088  |  | > 6.0  | %
|Total risk-based  |  |             | 43,334 |       | 36.68                | % |         |                        | 9,451 |  | > 8.0 | %       |  |       | 11,814 |  | > 10.0 | %
|                  |  |             |       
|                  |  | 2008 Actual |        |       | For Capital Adequacy |   |         | To Be Well Capitalized |      
|                  |  | Capital     |        | Ratio |                      |   | Capital |                        | Ratio |  |       | Capital |  | Ratio |       
|Tier 1 leverage   |  | $           | 16,884 |       | 9.33                 | % |         | $                      | 7,239 |  | > 4.0 | %       |  | $     | 9,049  |  | > 5.0  | %
|Tier 1 risk-based |  |             | 16,884 |       | 13.65                | % |         |                        | 4,925 |  | > 4.0 | %       |  |       | 7,387  |  | > 6.0  | %
|Total risk-based  |  |             | 18,571 |       | 15.02                | % |         |                        | 9,849 |  | > 8.0 | %       |  |       | 12,311 |  | > 10.0 | %

Note 15 - Commitments and
Contingencies

In the normal course of business, there are outstanding off-balance sheet commitments related to extension
of credit which are not reflected in the financial statements. These commitments represent no more than the normal lending risk that we commit to our borrowers. If these commitments are drawn, we will obtain collateral as deemed necessary based on
managements credit evaluation of the borrower.

Management believes that these commitments can be funded through normal
operations.



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Off-Balance Sheet Commitments

As of December 31, 2009 and 2008



|                                  |  |      |            |      |   |           
|--------------------------------- |  | ---- | ---------- | ---- | - | ----------
|                                  |  | 2009 |            | 2008
|Construction loans                |  |      |            |      |   |           
|- Residential                     |  | $    |           |      | $ | 361,810   
|- Commercial                      |  |      | 2,924,801  |      |   | 6,327,551 
|Commercial lines of credit        |  |      | 4,691,773  |      |   | 4,360,803 
|Home equity lines of credit       |  |      | 6,069,903  |      |   | 5,183,174 
|Consumer and overdraft protection |  |      | 107,678    |      |   | 707,149   
|Letters of credit                 |  |      | 0          |      |   | 123,550   
|                                  |  |      |            |      |   |           
|Total commitments                 |  | $    | 13,794,156 |      | $ | 17,064,037
|                                  |  |      |            |      |   |           

Under non-cancelable leases, the Company leased four
banking facilities. The lease terms are as follows:



|                                     |  |                 |  |                                                                                  
|------------------------------------ |  | --------------- |  | ---------------------------------------------------------------------------------
|Office Location                      |  | Owned or Leased |  | Lease Terms                                                                      
|One James Center (Headquarters)      |  | Leased          |  | Initial term of 62 months with two options to extend for a three year period each
|901 E. Cary Street, Suite 1700       |  |                 | 
|Richmond, VA 23219                   |  |                 | 
|                                     |  |                
|Boulders (Operations Center)         |  | Leased          |  | Initial term of 65 months with two options to extend for a three year period each
|1011 Boulder Spring Drive, Suite 410 |  |                 | 
|Richmond, VA 23225                   |  |                 | 
|                                     |  |                
|McLean Office                        |  | Leased          |  | Intial term of 87 months with one option to extend for a three year period       
|800 Greensboro Drive, Suite 1400     |  |                 | 
|McLean, VA 22102                     |  |                 | 
|                                     |  |                
|Plaza Branch                         |  | Leased          |  | Initial term of five years with an automatice five-year renewal                  
|1000 N. Main Street                  |  |                 | 
|Suffolk, VA 23434                    |  |                 | 

Rental expense under operating leases for banking facilities was
$707,243 and $695,740 for the years ended December 31, 2009 and 2008, respectively.

The current minimum annual
commitments under non-cancelable leases in effect at December 31, 2009 are as follows:

Minimum Lease Commitments

As of December 31, 2009



|                        |  |            |          
|----------------------- |  | ---------- | ---------
|Year                    |  | Commitment
|2010                    |  | $          | 858,644  
|2011                    |  |            | 875,985  
|2012                    |  |            | 893,742  
|2013                    |  |            | 911,913  
|2014                    |  |            | 332,248  
|                        |  |            |          
|Total lease commitments |  | $          | 3,872,532
|                        |  |            |          

Xenith Bank [In Organization] as of
December 31, 2008

Xenith leases four offices in Virginia. At December 31, 2008, minimum operating lease
commitments are summarized as follows:



|                             |  |   |          
|---------------------------- |  | - | ---------
|2009                         |  | $ | 563,253  
|2010                         |  |   | 789,513  
|2011                         |  |   | 806,852  
|2012                         |  |   | 824,612  
|2013                         |  |   | 842,774  
|Thereafter                   |  |   | 644,318  
|                             |  |   |          
|Total minimum lease payments |  | $ | 4,471,322
|                             |  |   |          

Rent expense for the year ended December 31, 2008 was $163,491.

Xenith is subject to certain claims and legal actions arising in the ordinary course of business. As of December 31,
2008, management has no knowledge of any pending claims or legal actions against Xenith.



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Note 16 - Concentration of Credit Risk

The Bank has a diversified loan portfolio consisting of commercial, real estate, and consumer (installment) loans. Our customers are
primarily residents of or operate business ventures in our market area. At December 31, 2009, loans for commercial and business purposes, including working capital and equipment, represented $85,373,187, or 77.86% of total loans, while loans
secured by residential real estate located beyond or within our immediate market represented $22,661,679, or 20.66% of total loans. Therefore, a major factor in determining debtors ability to honor contracts, as well as the Banks ability
to realize the value of any underlying collateral, is influenced by economic conditions in these market areas.

The Bank has
purchased loans from other banks (participation loans) that include hotel loans. Hotel loans are identified as a concentration of credit as it relates to the percentage of total outstanding loans. Hotel loans at December 31, 2009 represented
$16,157,571, or 15.83% of the loan portfolio.

The Bank maintains its cash balances with several financial institutions. As of
October 2009, these accounts are insured by the FDIC up to $250,000. At December 31, 2009 and 2008, the Bank had $724 and $856, respectively, of uninsured funds in these financial institutions.

Note 17 - Supplemental Cash Flow Information

The Bank paid $4,663,242 and $5,578,074 in interest for the years ended December 31, 2009 and 2008. For the years ended December 31, 2009 and 2008, the Company paid Federal income taxes of
$284,407 and $435,000, respectively.

Note 18 - Disclosures about Fair Value of Financial Instruments

ASC Topic 825, Disclosures about Fair Value of Financial Instruments, requires the Company to disclose estimated fair values of
its financial instruments.

Accrued Interest

The carrying amounts of accrued interest approximate fair value.

Deposits

The balance of demand deposits, NOW accounts, and money market and savings deposits reflects the fair value payable on demand to the accountholder. Management believes the purchase of an independent evaluation software model to determine
the fair value estimates of fixed-maturity time deposits and certificates of deposit is not cost effective at this time.

Commitments to Extend Credit and Standby Letters of Credit

The only amounts recorded for commitments to
extend credit and standby letters of credit are the deferred fees arising from these unrecognized financial instruments. These deferred fees are not deemed significant at December 31, 2009 and 2008 and as such, the related fair values have not
been estimated.



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



The carrying amounts and approximate fair values of the Companys financial
instruments are as follows at December 31, 2009 and 2008:

Fair Values of Financial Instruments



|                              |  |                   |             |                     |   |                |  |                     |             |  |   |            
|----------------------------- |  | ----------------- | ----------- | ------------------- | - | -------------- |  | ------------------- | ----------- |  | - | -----------
|                              |  | December 31, 2009 |             | December 31, 2008  
|                              |  | CarryingAmount    |             | EstimatedFair Value |   | CarryingAmount |  | EstimatedFair Value
|Financial Assets              |  |                   |             |                     |   |                |  |                     |             |  |   |            
|Cash and cash equivalents     |  | $                 | 35,203,187  |                     | $ | 35,203,187     |  | $                   | 4,541,961   |  | $ | 4,541,961  
|Federal funds sold            |  |                   |            |                     |   |               |  |                     | 651,000     |  |   | 651,000    
|Securities available for sale |  |                   | 36,846,737  |                     |   | 36,846,737     |  |                     | 53,412,711  |  |   | 53,412,711 
|Other investments             |  |                   | 2,278,752   |                     |   | 2,278,752      |  |                     | 2,483,500   |  |   | 2,483,500  
|Loans                         |  |                   | 102,049,697 |                     |   | 102,049,697    |  |                     | 117,247,295 |  |   | 117,247,295
|Accrued interest receivable   |  |                   | 976,908     |                     |   | 976,908        |  |                     | 1,171,615   |  |   | 1,171,615  
|                              |  |                   |             |                     |   |                |  |                     |             |  |   |            
|Total financial assets        |  | $                 | 177,355,281 |                     | $ | 177,355,281    |  | $                   | 179,508,082 |  | $ | 179,508,082
|                              |  |                   |             |                     |   |                |  |                     |             |  |   |            
|Financial Liabilities         |  |                   |             |                     |   |                |  |                     |             |  |   |            
|Federal funds purchased       |  | $                 | 1,552,000   |                     | $ | 1,552,000      |  | $                   |            |  | $ |           
|Other borrowed funds          |  |                   |             |                     |   |                |  |                     |             |  |   |            
|- Short-term borrowings       |  |                   | 4,708,151   |                     |   | 4,708,151      |  |                     | 16,010,972  |  |   | 16,010,972 
|- Long-term borrowings        |  |                   | 25,000,000  |                     |   | 25,000,000     |  |                     | 20,000,000  |  |   | 20,000,000 
|Deposits                      |  |                   | 114,147,634 |                     |   | 114,147,634    |  |                     | 130,284,637 |  |   | 130,284,637
|Accrued interest payable      |  |                   | 505,297     |                     |   | 505,297        |  |                     | 891,697     |  |   | 891,697    
|                              |  |                   |             |                     |   |                |  |                     |             |  |   |            
|Total financial liabilities   |  | $                 | 145,913,082 |                     | $ | 145,913,082    |  | $                   | 167,187,306 |  | $ | 167,187,306
|                              |  |                   |             |                     |   |                |  |                     |             |  |   |            

Fair value estimates are made at a specific point in
time and based on relevant market information, as well as information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Companys entire holdings of a
particular financial instrument. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets that are not considered financial assets include deferred tax assets, premises and equipment, and other real estate
owned. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Note 19 - Financial Statements of Parent Company

The following balance sheets reflect the assets, liabilities, and shareholders equity of Xenith Bankshares, Inc. and First Bankshares, Inc. for 2009 and 2008, respectively. Xenith Bankshares, Inc.
is the parent company of Xenith Bank for the year ended December 31, 2009 and First Bankshares, Inc. was the parent company of SuffolkFirst Bank for year ended December 31, 2008. No income or expense was recognized for years ended 2009 and
2008.



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Xenith Bankshares, Inc.

(Parent Company Only)

Balance Sheet

As of December 31,



|                                                                                                                                                                                                                                                                                                                        |  |      |            |   |      |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                                                                                                                                                                                        |  | 2009 |            |   | 2008 |  
|Assets                                                                                                                                                                                                                                                                                                                  |  |      |            |   |      |   |            |  
|Investment in subsidiary                                                                                                                                                                                                                                                                                                |  | $    | 54,072,033 |   |      | $ | 16,709,846 |  
|                                                                                                                                                                                                                                                                                                                        |  |      |            |   |      |   |            |  
|Total assets                                                                                                                                                                                                                                                                                                            |  | $    | 54,072,033 |   |      | $ | 16,709,846 |  
|                                                                                                                                                                                                                                                                                                                        |  |      |            |   |      |   |            |  
|Liabilities and Shareholders Equity                                                                                                                                                                                                                                                                                    |  |      |            |   |      |   |            |  
|Shareholders equity                                                                                                                                                                                                                                                                                                    |  |      |            |   |      |   |            |  
|Preferred stock, $1.00 par value, 25,000,000 shares authorized; -0- issued and
outstanding Common stock, $1.00 par value; 100,000,000 and $3.20 par value, 10,000,000 shares
authorized as of December 31, 2009 and 2008, 5,846,928 and 2,276,298 issued and outstanding as of December 31, 2009 and 2008, respectively |  | $    | 5,846,928  |   |      | $ | 7,284,154  |  
|Additional paid-in capital                                                                                                                                                                                                                                                                                              |  |      | 57,614,520 |   |      |   | 8,938,444  |  
|Retained earnings                                                                                                                                                                                                                                                                                                       |  |      | (9,457,569 | ) |      |   | 662,458    |  
|Accumulated other comprehensive income (loss), net                                                                                                                                                                                                                                                                      |  |      | 68,154     |   |      |   | (175,210   | )
|                                                                                                                                                                                                                                                                                                                        |  |      |            |   |      |   |            |  
|Total shareholders equity                                                                                                                                                                                                                                                                                              |  | $    | 54,072,033 |   |      | $ | 16,709,846 |  
|                                                                                                                                                                                                                                                                                                                        |  |      |            |   |      |   |            |  

Note 20 - Disclosures about Fair Value of Assets and Liabilities

The Company measures fair value pursuant with ASC Topic 820 Fair Value Measurements and Disclosures, which provides a framework
for measuring fair value under accounting principles generally accepted in the United States of America. The topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The topic also addresses the valuation techniques used to measure fair value. These valuation techniques include the market approach, income approach and cost approach. The market approach uses
prices or relevant information generated by market transactions that are identical to or comparable with assets or liabilities being valued. The income approach involves converting future amounts based on current market expectations about those
future amounts to a single present amount. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset.



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



ASC Topic 820 of the Codification establishes a fair value hierarchy, which prioritizes
the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The reported fair value of a financial instrument is categorized within the fair value hierarchy based upon the lowest level of input that is significant to the instruments fair value measurement. The three
levels within the fair value hierarchy consist of the following:

Fair Value of Financial Assets

As of December 31, 2009



|                              |  |         |            |                                                             |   |                                             |  |                                        |            |  |   |          
|----------------------------- |  | ------- | ---------- | ----------------------------------------------------------- | - | ------------------------------------------- |  | -------------------------------------- | ---------- |  | - | ---------
|                              |  |         |            | Fair Value Measurements Using                              
|                              |  | Balance |            | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   | Significant OtherObservable Inputs(Level 2) |  | SignificantUnobservableInputs(Level 3)
|Available-for-sale securities |  | $       | 36,846,737 |                                                             | $ |                                            |  | $                                      | 36,846,737 |  | $ |         
|Impaired loans                |  |         | 4,557,471  |                                                             |   |                                            |  |                                        |           |  |   | 4,557,471
|Other real estate owned       |  |         | 463,700    |                                                             |   |                                            |  |                                        |           |  |   | 463,700  



| | Level 1 | Quoted prices in active markets for identical assets or liabilities.
| | ------- | --------------------------------------------------------------------



| | Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in active markets that are not active, or other
inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
| | ------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
| | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------

Following is a description of the valuation methodologies used for instruments measured at fair value on a
recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-Sale Securities

Securities are classified within
Level 1 of the valuation hierarchy where quoted market prices are available in an active market. Level 1 securities include highly liquid government bonds, mortgage products, and exchange-traded equities. If quoted market prices are not available,
then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Level 2 securities include U.S. agency securities; mortgage-backed agency securities; obligations of states
and political subdivisions; and certain corporate, asset-backed, and other securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Currently, all of the
Companys securities are considered to be Level 2 securities. Following is a description of the valuation methodologies used for instruments measured at fair value on a non-recurring basis and recognized in the accompanying balance sheet, as
well as the general classification of such instruments pursuant to the valuation hierarchy.

Impaired Loans

Loan impairment is reported when full payment under the loan terms is not expected. Impaired loans are carried at the present
value of estimated future cash flows using the loans existing rate or the fair value of collateral if the loan is collateral dependent. A portion of the Allowance for Loan Losses is allocated to impaired loans if the value of such loans is
deemed to be less than the unpaid balance. If these allocations cause the Allowance for Loan Losses to increase, such increases are reported as a component of the provision for loan losses. Loan losses are charged against the Allowance for Loan
Losses when Management believes the uncollectability of a loan is confirmed. At December 31, 2009, the Bank had



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



$7,710,500 of impaired loans, or 7.54% of total loans, compared to $676,566 in impaired loans, or 0.58% of total loans, at December 31, 2008. It is the opinion of management that the
Allowance for Loan Losses is adequate to absorb any loss related to these loans. The valuation would be considered Level 3.

Note 21 -
Recent Accounting Pronouncements

On July 1, 2009, the Financial Accounting Standards Board
(FASB) issued the FASB Accounting Standards CodificationTM(the Codification) to become the single official source of authoritative, nongovernmental U.S. Generally Accepted Accounting Principles (GAAP), except for rules and interpretive
releases of the SEC, which are also sources of authoritative GAAP for SEC registrants. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Codification did not change
GAAP but reorganizes the literature using a consistent structure organized by topic, subtopic, section and paragraph, each of which is identified by a numerical designation. As the Codification was not intended to change or alter existing GAAP, it
did not impact the consolidated financial statements. However, the Company ceased using prior GAAP references and is using the new Codification when referring to GAAP in these Notes to Consolidated Financial Statements.

New accounting guidance issued after the effective date of the Codification will be issued in the form of Accounting Standards Updates
(ASUs). ASUs will not be considered authoritative in their own right, but instead will serve to update the Codification.

In September 2009, the FASB issued ASU 2009-12, Fair Values and Measurements Topic  Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent) (ASU 2009-12), which provides additional
guidance on how the fair value of alternative investments such as private equity investments should be estimated and requires additional disclosures of the investments attributes. Under the updated guidance, the fair value of investments
within its scope can be determined using the investments net asset value per share or its equivalent. The Company elected to early adopt ASU 2009-12 as of September 30, 2009, as permitted. The impact of adoption was not significant. See
Note 18  Disclosures about Fair Value of Financial Instruments for more information regarding the attributes of the Companys private equity investments.

In June 2009, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 166, Accounting for Transfers of Financial Assetsan amendment of FASB Statement No. 140and SFAS
No. 167, Amendments to FASB Interpretation No. 46(R), which were subsequently codified by ASU 2009-16 in the Transfers and Servicing Topic and by ASU 2009-17 in the Consolidations Topic. Changes to the Transfers and Servicing Topic
eliminate the concept of a QSPE, change the requirements for derecognizing financial assets, and require additional disclosures regarding an entitys continuing involvement in and exposure to risks related to transferred financial assets. The
changes to the Consolidations Topic replace the quantitative approach previously required for determining which enterprise should consolidate a variable interest entity with a consolidation approach focused on which enterprise has the power to
direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. The updated Consolidations Topic also requires ongoing reassessments of whether an enterprise is
the primary beneficiary of a variable interest entity, and eliminates an exception indicating that a troubled debt restructuring, as defined by the Debt Topic of the Codification, is not an event that required reconsideration of whether an entity is
a variable interest entity and whether an enterprise is the primary beneficiary of a variable interest entity. The changes to the Transfers and Servicing Topic and the Consolidations Topic are effective for the Company on January 1, 2010.

In February 2010, the FASB issued Accounting Standards Update, The Consolidation Topic, Amendments to Statement 167 for
Certain Investment Funds, that would defer the effective date of ASU 2009-17 for certain entities and provide for other amendments to The Consolidation Topic.

The adoption of ASU 2009-16 and ASU 2009-17, including its amendment, did not have a material impact on the financial statements and related disclosures.

In May 2009, the FASB issued the Subsequent Events Topic of the Codification, which sets forth general standards for potential recognition
or disclosure of events that occur after the balance sheet date but before financial

statements are issued or are available to be issued. This
topic became effective in the second quarter of 2009 and did not have a material impact on the consolidated financial statements.



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



In April 2009, the FASB issued additional application guidance and required enhanced
disclosures regarding fair value measurements and impairments of investment securities. Additional application guidance included in the Fair Value Measurements and Disclosures Topic of the Codification relates to estimating fair value, when the
volume and level of activity for the asset or liability have decreased significantly and for identifying circumstances that indicate a transaction is not orderly. Application guidance included in the InvestmentsDebt and Equity Securities Topic
of the Codification amended previous other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity
securities in the financial statements. No amendments were made related to the recognition and measurement guidance related to other-than-temporary impairments of equity securities. As permitted, the Company elected to early adopt this application
guidance as of January 1, 2009. This topic did not have a material impact on the consolidated financial statements.

Enhanced disclosures related to the Financial Instruments Topic of the Codification require disclosures about the fair value of financial instruments in interim reporting periods of publicly traded companies as well as in annual financial
statements. These disclosure provisions were effective for the Companys quarter ended June 30, 2009. See Note 18  Disclosures about Fair Value of Financial Instruments for information regarding the fair value of financial
instruments.

On January 1, 2009, the Company adopted updated accounting and reporting guidance under the Consolidation
Topic of the Codification for ownership interests in consolidated subsidiaries held by parties other than the parent, previously known as minority interests and now known as noncontrolling interests, including the accounting treatment upon the
deconsolidation of a subsidiary. The updated accounting and reporting guidance clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as a separate component within total
equity in the consolidated financial statements. Additionally, consolidated net income is now reported with separate disclosure of the amounts attributable to the parent and to the noncontrolling interests. This topic did not have a material impact
on the consolidated financial statements.

Note 22 - Short Term Borrowings

At December 31, 2009 and 2008, the Bank had federal funds purchased of $1,552,000 and $0 and short term FHLB borrowings of $4,700,000
and $16,000,000, respectively. Interest on federal funds purchased is paid on a daily basis. Interest only is payable on a monthly basis on FHLB borrowings until their maturity. The following table summarizes federal funds purchased and FHLB
borrowings for the years ended December 31, 2009 and 2008:

Short Term Borrowings



|                            |  |                                  |           |                         |      |                |  |                     |           |  |                 |   |                         |   |                |  |                     |            |  |   |            |  |      |  
|--------------------------- |  | -------------------------------- | --------- | ----------------------- | ---- | -------------- |  | ------------------- | --------- |  | --------------- | - | ----------------------- | - | -------------- |  | ------------------- | ---------- |  | - | ---------- |  | ---- | -
|                            |  | For the years ended December 31, |          
|                            |  | 2009                             |           |                         | 2008 |               
|                            |  | Year EndBalance                  |           | HighestMonth EndBalance |      | AverageBalance |  | WeightedAverageRate |           |  | Year EndBalance |   | HighestMonth EndBalance |   | AverageBalance |  | WeightedAverageRate |           
|Federal funds purchased     |  | $                                | 1,552,000 |                         | $    | 2,526,000      |  | $                   | 518,841   |  | 0.79            | % |                         | $ |               |  | $                   | 2,270,000  |  | $ | 374,164    |  | 2.76 | %
|Other borrowings            |  |                                  | 4,700,000 |                         |      | 12,000,000     |  |                     | 3,472,329 |  | 0.53            | % |                         |   | 16,000,000     |  |                     | 21,000,000 |  |   | 11,006,284 |  | 3.77 | %
|                            |  |                                  |           |                         |      |                |  |                     |           |  |                 |   |                         |   |                |  |                     |            |  |   |            |  |      |  
|Total short-term borrowings |  | $                                | 6,252,000 |                         | $    | 14,526,000     |  | $                   | 3,991,170 |  | 0.57            | % |                         | $ | 16,000,000     |  | $                   | 23,270,000 |  | $ | 11,380,448 |  | 3.74 | %
|                            |  |                                  |           |                         |      |                |  |                     |           |  |                 |   |                         |   |                |  |                     |            |  |   |            |  |      |  



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Xenith Bankshares, Inc. and Subsidiary

Notes to Consolidated Financial Statements(Continued)

For the years ended December 31, 2009 and 2008



Note 23 - Long Term Borrowings

At December 31, 2009 and 2008, the Bank had long term borrowings from the FHLB totaling $25,000,000 and $20,000,000, respectively.
Interest is payable on a monthly basis on fixed-rate borrowings and on a quarterly basis on convertible borrowings until maturity. Maturities of FHLB borrowings at December 31, 2009 are as follows:

Long Term Borrowings

As of December 31, 2009



|                 |  |             |  |              |   |  |         |           
|---------------- |  | ----------- |  | ------------ | - |  | ------- | ----------
|Maturity Date    |  | Type        |  | InterestRate |   |  | Balance
|March 4, 2011    |  | Fixed rate  |  | 2.07         | % |  | $       | 5,000,000 
|January 25, 2013 |  | Convertible |  | 2.495        | % |  |         | 20,000,000

The convertible
advance is at a fixed interest rate until January 25, 2010, at which time, if the Bank does not retire the debt, the FHLB has the option to convert to the variable interest rate and spread being offered at that time. The borrowings are
collateralized by whole loans and a portion of our pledged securities with a total carrying value of $20,069,250 at December 31, 2009.

Note 24 - Subsequent Events

Subsequent events have been evaluated for their potential impact in the financial
statements and there have been no significant events identified that require disclosure for this period.



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##### Table of Contents

Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None

Item 9A(T) - Controls and Procedures

Disclosure Controls and Procedures

The Company maintains a system of disclosure controls and procedures
that is designed to ensure that material information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As
required, management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Companys disclosure controls and procedures, as defined in Rules 13a-15(e) and 15(d)-15(e)
under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that disclosure
controls and procedures were effective to ensure that information required to be disclosed in reports that the Company files or submits pursuant to the rules and regulations of the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.

Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company to disclose material information otherwise required
to be set forth in periodic reports.

Managements Report on Internal Control over Financial Reporting

Management is also responsible for establishing and maintaining adequate internal control over financial reporting as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Companys internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation.

Management assessed the effectiveness of the Companys internal control over financial reporting as of
December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control  Integrated Framework. Based on this
assessment, management concluded that, as of December 31, 2009, the Companys internal control over financial reporting was effective based on those criteria.

This annual report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only managements assessment in this annual report.

Changes in Internal Controls

No changes in our internal control over financial reporting occurred during the year ended December 31, 2009 that materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.

Item 9B - Other Information

None



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##### Table of Contents

PART III

Except as otherwise indicated, information called for by the following items under Part III is contained in the Proxy Statement for the
Companys 2010 Annual Meeting of Shareholders (Proxy Statement) to be held on May 6, 2010.

Item 10 - Directors, Executive Officers of the Registrant and Corporate Governance

The information set forth under the captions Election of Directors  Nominees for the Board of Directors, Election of Directors  Committees of the Board of Directors  Audit and Compliance Committee,
and The Audit and Compliance Committee Report in the Proxy Statement and is incorporated herein by reference. The information set forth under the caption Section 16(a) Beneficial Ownership Reporting Compliance in the Proxy
Statement is incorporated herein by reference. Information concerning the Companys executive officers is included in Part I of this Annual Report under the caption Executive Officers of the Registrant.

On January 20, 2010, the Companys Board of Directors approved and adopted the Companys Code of Business Conduct and Ethics
(the Code). The Code is the Companys code of ethics that applies to all directors, officers and employees of the Company and its subsidiary, including the Companys principal executive officer, principal financial officer and
principal accounting officer. The Code amended and restated the Companys code of ethics as in effect prior to the Board of Directors action generally to make certain non-material updating changes to the Code. The amendments to the Code
did not result in any waiver, explicit or implicit, from any provision of the Code (as in effect prior to the Board of Directors action to amend and restate the Code) with respect to any director, officer or employee of the Company or its
subsidiary.

The Code, as amended and restated, is available on the Companys website at www.xenithbank.com. The Company
intends to continue to satisfy the disclosure requirements of Form 8-K with respect to any waivers of or amendments to the Code with respect to certain officers by posting such disclosures on the Companys website at www.xenithbank.com. The
Company may, however, elect to disclose any such amendment or waiver in a report on Form 8-K filed with the SEC in addition to or in lieu of the website disclosure.

Item 11 - Executive Compensation

The
information set forth under the caption Compensation of Executive Officers in the Proxy Statement is incorporated herein by reference. The information is set forth under the caption Election of Compensation of Directors in
the Proxy Statement is incorporated herein by reference.

Item 12 - Security Ownership of Certain Beneficial
Owners and Management and Related Shareholder Matter

The information set forth under the caption Stock Ownership of
Certain Beneficial Owners and Management in the Proxy Statement and is incorporated herein by reference.

The following
table sets forth information as of December 31, 2009 with respect to certain compensation plans under which equity securities of the Company are authorized for issuance.



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|                                                           |  |                                                                                               |  |                                                                               |       |                                                                                                                                           |         |    
|---------------------------------------------------------- |  | --------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------- | ----- | ----------------------------------------------------------------------------------------------------------------------------------------- | ------- | ---
|Plan Category                                              |  | Number of securities tobe issued upon exerciseof outstanding
options,warrants, and rights (a) |  | Weighted averageexercise price
ofoutstanding options,warrants, and rights (b) |       | Number of securitiesremaining available forfuture issuance underequity compensationplans
[excludingsecurities reflected incolumn (a)] (c) |        
|Equity Compensation Plans Approved by Security Holders     |  |                                                                                               |  |                                                                               |       |                                                                                                                                           |         |    
|2003 Stock Incentive Plan                                  |  | 94,493                                                                                        |  | $                                                                             | 7.82  |                                                                                                                                           | 37,507  |    
|Amended and Restated 2009 Stock Incentive Plan             |  | 233,160                                                                                       |  |                                                                               | 11.49 |                                                                                                                                           | 810,231 | [1]
|Equity Compensation Plans Not Approved by Security Holders |  |                                                                                               |  |                                                                               |       |                                                                                                                                           |         |    
|Warrants                                                   |  | 563,760                                                                                       |  |                                                                               | 11.49 |                                                                                                                                           |        | [2]
|                                                           |  |                                                                                               |  |                                                                               |       |                                                                                                                                           |         |    
|Total                                                      |  | 891,413                                                                                       |  | $                                                                             | 11.10 |                                                                                                                                           | 847,738 |    
|                                                           |  |                                                                                               |  |                                                                               |       |                                                                                                                                           |         |    



|[1] | These shares are available to be granted in the form of stock options under the 2003 Stock Incentive Plan and the amended and restated 2009 Stock Incentive Plan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|[2] | In connection with the Merger, Xenith Bankshares assumed the Xenith Corporation 2009 Stock Incentive Plan, which was subsequently amended and restated to become the
Amended and Restated Xenith Bankshares, Inc. 2009 Stock Incentive Plan (the 2009 Plan). An aggregate of 258,000 options to purchase shares of Xenith Corporation common stock outstanding at the effective time of the Merger, which had been
granted under the Xenith Corporation 2009 Stock Incentive Plan, were converted into an aggregate of 224,460 options to purchase shares of Xenith Corporation common stock based on the Exchange Ratio at an exercise price of $11.49 per share. These
224,460 options, which are included in the 233,160 options set forth in column (a) above, have a 10-year term and will vest in three equal installments on each anniversary of the completion of the Merger.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

An aggregate of 648,000 warrants to purchase shares of Xenith Corporations common stock outstanding at the effective time of the Merger
were converted into an aggregate of 563,760 warrants to purchase shares of Xenith Bankshares common stock based on the Exchange Ratio at an exercise price of $11.49 per share. These warrants are exercisable immediately and expire on May 8,
2019.

Item 13 - Certain Relationships and Related Transactions, and Director Independence

The information set forth under the captions Certain Relationships and Related Transactions and Election of Directors
 Independence of Directors in the Proxy Statement is incorporated herein by reference.

Item 14 -
Principal Accountant Fees and Services

The information set forth under the captions The Audit and Compliance
Committee Report  Fees Billed by Independent Registered Public Accounting Firm and The Audit and Compliance Committee Report  Pre-Approval Policy in the Proxy Statement is incorporated herein by reference.



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PART IV

Item 15 - Exhibits, Financial Statement Schedules



|               |  |                                                                                                                                                                                                                                                                                                                                                                        
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                            
|               | 
|2.1            |  | Agreement and Plan of Reorganization and Plan of Share Exchange, by and between First Bankshares, Inc. and SuffolkFirst Bank, dated March 5, 2008 (incorporated herein by
reference to Exhibit 2.1 to Current Report on Form 8-K filed August 18, 2008 (File No. 000-53380)).                                                                                          
|               | 
|2.2            |  | Agreement of Merger, dated as of May 12, 2009, between First Bankshares, Inc. and Xenith Corporation (incorporated herein by reference to Exhibit 2.1 to Current Report on Form
8-K filed May 14, 2009 (File No. 000-53380)).                                                                                                                                          
|               | 
|2.2.1          |  | Amendment No. 1, dated as of August 14, 2009, to Agreement of Merger, dated May 12, 2009, between First Bankshares, Inc. and Xenith Corporation (incorporated herein by reference to
Exhibit 2.2.1 to Current Report on Form 8-K filed August 14, 2009 (File No. 000-53380)).                                                                                          
|               | 
|2.2.2          |  | Amendment No. 2, dated as of October 15, 2009, to Agreement of Merger, dated May 12, 2009 and amended as of August 14, 2009, between First Bankshares, Inc. and Xenith Corporation
(incorporated herein by reference to Exhibit 2.2.2 to Current Report on Form 8-K filed October 16, 2009 (File No. 000-53380)).                                                      
|               | 
|2.2.3          |  | Amendment No. 3, dated as of October 30, 2009, to Agreement of Merger, dated May 12, 2009 and amended as of August 14, 2009 and as of October 15, 2009, between First Bankshares,
Inc. and Xenith Corporation (incorporated herein by reference to Exhibit 2.2.3 to Current Report on Form 8-K filed November 5, 2009 (File No. 000-53380)).                           
|               | 
|2.2.4          |  | Amendment No. 4, dated as of November 19, 2009, to Agreement of Merger, dated May 12, 2009 and amended as of August 14, 2009, as of October 15, 2009, and as of October 30,
2009, between First Bankshares, Inc. and Xenith Corporation (incorporated herein by reference to Exhibit 2.2.4 to Current Report on Form 8-K filed November 25, 2009 (File No. 000-53380)).
|               | 
|3.1            |  | Amended and Restated Articles of Incorporation of Xenith Bankshares, Inc. (incorporated herein by reference to Exhibit 3.1 to Current Report on Form 8-K filed December 29, 2009
(File No. 000-53380)).                                                                                                                                                                
|               | 
|3.2            |  | Amended and Restated Bylaws of Xenith Bankshares, Inc. (incorporated herein by reference to Exhibit 3.2 to Current Report on Form 8-K filed December 29, 2009 (File No. 000-53380)).                                                                                                                                                                                   
|               | 
|4.1            |  | Investor Rights Agreement, dated as of June 26, 2009, among Xenith Corporation and the Investor Shareholders and Other Shareholders Listed on Exhibit A thereto (incorporated herein
by reference to Exhibit 4.1 to Current Report on Form 8-K filed December 29, 2009 (File No. 000-53380)).                                                                          
|               | 
|4.2            |  | First Amendment to Investor Rights Agreement, dated as of December 21, 2009, among Xenith Corporation, BCP Fund I Virginia Holdings, LLC and the Holders listed on Exhibit A thereto
(incorporated herein by reference to Exhibit 4.2 to Current Report on Form 8-K filed December 29, 2009 (File No. 000-53380)).                                                     
|               | 
|10.1           |  | First Bankshares, Inc. Stock Option Plan (incorporated herein by reference to Exhibit 99.1 to registration statement on Form S-8 filed August 21, 2008 (Registration No.
333-153118))                                                                                                                                                                                  
|               | 
|10.2           |  | Form of Director Stock Option Agreement (incorporated herein by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q filed August 7, 2009 (File No.
000-53380)).                                                                                                                                                                                                 
|               | 
|10.3           |  | Form of Employee Stock Option Agreement (incorporated herein by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q filed August 7, 2009 (File No.
000-53380))                                                                                                                                                                                                  
|               | 
|10.4           |  | Amended and Restated Xenith Bankshares, Inc. 2009 Stock Incentive Plan.                                                                                                                                                                                                                                                                                                



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|        |  |                                                                                                                                                                                                                                                                                                        
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|10.5    |  | Form of Executive Officer Stock Option Agreement.                                                                                                                                                                                                                                                      
|        | 
|10.6    |  | Form of Non-Employee Director Stock Option Agreement.                                                                                                                                                                                                                                                  
|        | 
|10.7    |  | Employment Agreement dated as of May 8, 2009, between Xenith Corporation and T. Gaylon Layfield, III (incorporated herein by reference to Exhibit 10.4 to Current Report on Form 8-K
filed December 29, 2009 (File No. 000-53380)).                                                                    
|        | 
|10.8    |  | Employment Agreement, dated as of May 8, 2009, between Xenith Corporation and Thomas W. Osgood (incorporated herein by reference to Exhibit 10.5 to Current Report on Form 8-K filed
December 29, 2009 (File No. 000-53380)).                                                                          
|        | 
|10.9    |  | Employment Agreement, dated as of May 8, 2009, between Xenith Corporation and Ronald E. Davis.                                                                                                                                                                                                         
|        | 
|10.10   |  | Employment Agreement dated as of May 8, 2009, between Xenith Corporation and Wellington W. Cottrell, III.                                                                                                                                                                                              
|        | 
|10.11   |  | Employment Agreement, dated as of May 8, 2009, between Xenith Corporation and W. Jefferson OFlaherty.                                                                                                                                                                                                 
|        | 
|10.12   |  | Employment Agreement, dated as of December 22, 2009, between Xenith Bankshares, Inc. and Darrell G. Swanigan (incorporated herein by reference to Exhibit 10.6 to Current Report on
Form 8-K filed December 29, 2009 (File No. 000-53380)).                                                            
|        | 
|10.13   |  | Employment Agreement, dated as of December 22, 2009, between Xenith Bankshares, Inc. and Keith B. Hawkins (incorporated herein by reference to Exhibit 10.7 to Current Report on Form
8-K filed December 29, 2009 (File No. 000-53380)).                                                               
|        | 
|10.14   |  | Loan Officer Incentive Bonus Plan Summary (incorporated herein by reference to Exhibit 10.11 to Quarterly Report on Form 10-Q filed August 7, 2009 (File No.
000-53380)).                                                                                                                              
|        | 
|10.15   |  | Deed of Lease, dated October 7, 2003, by and between Suffolk Plaza Shopping Center, L.C., SuffolkFirst Bank and S.L. Nusbaum Realty Co. (incorporated herein by reference to Exhibit
10.9 to Quarterly Report on Form 10-Q filed August 7, 2009 (File No. 000-53380)).                                 
|        | 
|10.16   |  | Deed of Lease, dated as of July 14, 2008, between James Center Property, LLC, and Xenith Bank (in organization) (incorporated herein by reference to Exhibit 10.1 to Current Report
on Form 8-K filed December 29, 2009 (File No. 000-53380)).                                                         
|        | 
|10.17   |  | Office Lease, dated as of November 5, 2008, between Greensboro Drive Property LLC and Xenith Bank (in organization) (incorporated herein by reference to Exhibit 10.2 to Current
Report on Form 8-K filed December 29, 2009 (File No. 000-53380)).                                                     
|        | 
|10.17.1 |  | First Modification Agreement, dated as of June 8, 2009, between Greensboro Drive Property LLC and Xenith Corporation (formerly known as Xenith Bank (in organization)) (incorporated
herein by reference to Exhibit 10.2.1 to Current Report on Form 8-K filed December 29, 2009 (File No. 000-53380)).
|        | 
|10.18   |  | Service Agreement, dated as of September 26, 2008, between Parkway Properties LP and Xenith Bank (in organization) (incorporated herein by reference to Exhibit 10.3 to Current
Report on Form 8-K filed December 29, 2009 (File No. 000-53380)).                                                      



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|        |  |                                                                                                                                                                                                                                                                                                         
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|10.18.1 |  | First Amendment to Service Agreement, dated as of July 10, 2009, between Parkway Properties LP and Xenith Corporation (formerly known as Xenith Bank (in organization))
(incorporated herein by reference to Exhibit 10.3.1 to Current Report on Form 8-K filed December 29, 2009 (File No. 000-53380)).
|        | 
|23.1    |  | Consent of Witt Mares, PLC.                                                                                                                                                                                                                                                                             
|        | 
|23.2    |  | Consent of Ernst & Young LLP                                                                                                                                                                                                                                                                            
|        | 
|31.1    |  | Certification of CEO pursuant to Rule 13a-14(a).                                                                                                                                                                                                                                                        
|        | 
|31.2    |  | Certification of CFO pursuant to Rule 13a-14(a).                                                                                                                                                                                                                                                        
|        | 
|32.1    |  | CEO Certification pursuant to 18 U.S.C. § 1350.                                                                                                                                                                                                                                                         
|        | 
|32.2    |  | CFO Certification pursuant to 18 U.S.C. § 1350.                                                                                                                                                                                                                                                         



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.



|               |  |  |  |                                      
|-------------- |  |  |  | -------------------------------------
|               |  |  |  | XENITH BANKSHARES, INC. (Registrant) 
|               |  | 
|March 31, 2010 |  |  |  | /s/    T. GAYLON LAYFIELD,
III       
|Date           |  |  |  | T. Gaylon Layfield, III              
|               |  |  |  | President and Chief Executive Officer
|               |  |  |  | (Principal Executive Officer)        



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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                                       |  |                                                                                                                                |  |               
|------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------ |  | --------------
|Signature                                              |  | Title                                                                                                                          |  | Date          
|                                                       |  |                                                                                                                               
|/S/    T. GAYLON
LAYFIELD, III T. Gaylon Layfield, III |  | President, Chief Executive Officer and Director(Principal Executive Officer)                                                   |  | March 31, 2010
|                                                       |  |                                                                                                                               
|/S/    THOMAS W.
OSGOOD Thomas W. Osgood               |  | Executive Vice President, Chief Financial Officer, and Chief Administrative Officer and Treasurer(Principal Financial
Officer) |  | March 31, 2010
|                                                       |  |                                                                                                                               
|/S/    ROBERT E.
CLARY Robert E. Clary, CPA            |  | Senior Vice President and Controller of Xenith Bank (Principal Accounting Officer)                                             |  | March 31, 2010
|                                                       |  |                                                                                                                               
|/S/    MALCOLM S.
MCDONALD Malcolm S.
McDonald         |  | Chairman and Director                                                                                                          |  | March 31, 2010
|                                                       |  |                                                                                                                               
|/S/    LARRY L.
FELTON Larry L. Felton                 |  | Director                                                                                                                       |  | March 31, 2010
|                                                       |  |                                                                                                                               
|/S/    PALMER P.
GARSON Palmer P. Garson               |  | Director                                                                                                                       |  | March 31, 2010
|                                                       |  |                                                                                                                               
|/S/    PETER C.
JACKSON Peter C. Jackson               |  | Director                                                                                                                       |  | March 31, 2010
|                                                       |  |                                                                                                                               
|/S/    BRIAN D.
JONES Brian D. Jones                   |  | Director                                                                                                                       |  | March 31, 2010
|                                                       |  |                                                                                                                               
|/S/    ROBERT J.
MERRICK Robert J. Merrick             |  | Director                                                                                                                       |  | March 31, 2010
|                                                       |  |                                                                                                                               
|/S/    SCOTT A.
REED Scott A. Reed                     |  | Director                                                                                                                       |  | March 31, 2010
|                                                       |  |                                                                                                                               
|/S/    MARK B.
SISISKY Mark B. Sisisky                 |  | Director                                                                                                                       |  | March 31, 2010
|                                                       |  |                                                                                                                               
|/S/    JAMES E. TURNER,
JR. James E. Turner, Jr.       |  | Director                                                                                                                       |  | March 31, 2010
|                                                       |  |                                                                                                                               
|/S/    PATRICK D.
HANLEY Patrick D. Hanley             |  | Director                                                                                                                       |  | March 31, 2010



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