| NORTH CAROLINA                                 |   | 56-2259050               |
|-----------------------------------------------------|--------|--------------------------|
| (State or Other Jurisdiction of |   | (I.R.S. Employer    |
| Incorporation or Organization)            |   | Identification No.) |

| Large accelerated filer | o                                                                                 | Accelerated filer              | o      |
|-----------------------------------|-----------------------------------------------------------------------------------|-------------------------------------|--------|
|                              |                                                                              |                                |   |
| Non-accelerated filer        | o (Do not check if a smaller reportingcompany) | Smaller reporting company | þ |

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|                                   |   FORM 10-K |  PROXYSTATEMENT |  ANNUALREPORT |
|--------------------------------------------------|-----------------------|----------------------|--------------------|
|                                             |                  |                 |               |
| PART I                                           |                  |                 |               |
|                                             |                  |                 |               |
| Item 1 – Business                          | 3                     |                 |               |
| Item 1A – Risk Factors                     | 23                    |                 |               |
| Item 2 – Properties                        | 23                    |                 |               |
| Item 3 – Legal Proceedings                 | 25                    |                 |               |
| Item 4 – [Removed and Reserved]            | 25                    |                 |               |
|                                             |                  |                 |               |
| PART II                                          |                  |                 |               |
|                                             |                  |                 |               |
| Item 5 – Market for Registrant’s     | 25                    |                 |               |
| Common Equity, Related                           |                  |                 |               |
| Stockholder Matters and Issuer                   |                  |                 |               |
| Purchases of Equity Securities                   |                  |                 |               |
| Item 6 – Selected Financial Data           | 26                    |                 |               |
| Item 7 – Management’s Discussion and | 28                    |                 |               |
| Analysis of Financial Condition                  |                  |                 |               |
| and Results of Operation                         |                  |                 |               |
| Item 7A – Quantitative and Qualitative     | 49                    |                 |               |
| Disclosures About Market                         |                  |                 |               |
| Risk                                             |                  |                 |               |
| Item 8 – Financial Statements and          | 50                    |                 |               |
| Supplementary Data                               |                  |                 |               |
| Item 9 – Changes in and Disagreements      | 98                    |                 |               |
|  with Accountants on                        |                  |                 |               |
|  Accounting and Financial                   |                  |                 |               |
|  Disclosure                                 |                  |                 |               |
| Item 9A – Controls and Procedures          | 98                    |                 |               |
| Item 9B – Other Information                | 99                    |                 |               |
|                                             |                  |                 |               |
| PART III                                         |                  |                 |               |
|                                             |                  |                 |               |
| Item 10 – Directors and Executive          | 99                    |                 |               |
|    Officers and Corporate              |                  |                 |               |
|    Governance                          |                  |                 |               |
| Item 11 – Executive Compensation           | 105                   |                 |               |
| Item 12 – Security Ownership of Certain    | 111                   |                 |               |
|    Beneficial Owners and               |                  |                 |               |
|    Management and Related              |                  |                 |               |
|    Stockholder Matters                 |                  |                 |               |
| Item 13 – Certain Relationships and        | 114                   |                 |               |
|    Related Transactions, and Director  |                  |                 |               |
|    Independence                        |                  |                 |               |
| Item 14 – Principal Accountant Fees and    | 114                   |                 |               |
|    Services                            |                  |                 |               |
|                                             |                  |                 |               |
| PART IV                                          |                  |                 |               |
|                                             |                  |                 |               |
| Item 15 – Exhibits and Financial           | 115                   |                 |               |
| Statement Schedules                              |                  |                 |               |

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|                                    |   | At December 31, |    |
|-----------------------------------------|--------|---------------------------|---------|
|                               |   | 2010                      |    |   | 2009 |   |   | 2008 |   |
|                               |   |                      |    |   | % of Total |   |   |   |   |   | % of Total |   |   |   |   |   | % of Total |   |
|                                    |   | Amount                    |    |   | Loans |   |   | Amount |   |   | Loans |   |   | Amount |   |   | Loans |   |
|                                    |   | (Dollars in thousands)    |    |
|                                    |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real estate - commercial                |   | $                         | 345,902 |   |   |   | 51.05 | % |   | $ | 359,450 |   |   |   | 47.28 | % |   | $ | 305,808 |   |   |   | 38.88 | % |
| Real estate - residential               |   |                      | 81,645  |   |   |   | 12.05 | % |   |   | 96,731 |   |   |   | 12.73 | % |   |   | 89,873 |   |   |   | 11.43 | % |
| Construction loans                      |   |                      | 140,849 |   |   |   | 20.79 | % |   |   | 179,228 |   |   |   | 23.58 | % |   |   | 242,771 |   |   |   | 30.87 | % |
| Commercial and industrial loans         |   |                      | 48,144  |   |   |   | 7.11 | % |   |   | 55,360 |   |   |   | 7.28 | % |   |   | 81,000 |   |   |   | 10.30 | % |
| Home equity loans and lines of credit   |   |                      | 57,125  |   |   |   | 8.43 | % |   |   | 64,484 |   |   |   | 8.48 | % |   |   | 63,772 |   |   |   | 8.11 | % |
| Loans to individuals                    |   |                      | 3,838   |   |   |   | 0.57 | % |   |   | 4,966 |   |   |   | 0.65 | % |   |   | 3,199 |   |   |   | 0.41 | % |
|                                    |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans                             |   |                      | 677,503 |   |   |   | 100.00 | % |   |   | 760,219 |   |   |   | 100.00 | % |   |   | 786,423 |   |   |   | 100.00 | % |
| Less:  Net deferred loan fees |   |                      | (700    | ) |   |   |   |   |   |   | (871 | ) |   |   |   |   |   |   | (1,046 | ) |   |   |   |   |
| Total loans, net                        |   | $                         | 676,803 |   |   |   |   |   |   | $ | 759,348 |   |   |   |   |   |   | $ | 785,377 |   |   |   |   |   |

|                                    |   | At December 31, |    |
|-----------------------------------------|--------|---------------------------|---------|
|                               |   | 2007                      |    |   | 2006 |   |
|                               |   |                      |    |   | % of Total |   |   |   |   |   | % of Total |   |
|                                    |   | Amount                    |    |   | Loans |   |   | Amount |   |   | Loans |   |
|                                    |   | (Dollars in thousands)    |    |
|                                    |   |                      |    |   |   |   |   |   |   |   |   |   |
| Real estate - commercial                |   | $                         | 350,961 |   |   |   | 51.85 | % |   | $ | 304,823 |   |   |   | 55.36 | % |
| Real estate - residential               |   |                      | 18,257  |   |   |   | 2.70 | % |   |   | 20,224 |   |   |   | 3.67 | % |
| Construction loans                      |   |                      | 184,019 |   |   |   | 27.18 | % |   |   | 110,033 |   |   |   | 19.99 | % |
| Commercial and industrial loans         |   |                      | 72,930  |   |   |   | 10.77 | % |   |   | 67,822 |   |   |   | 12.32 | % |
| Home equity loans and lines of credit   |   |                      | 45,258  |   |   |   | 6.69 | % |   |   | 42,704 |   |   |   | 7.76 | % |
| Loans to individuals                    |   |                      | 5,489   |   |   |   | 0.81 | % |   |   | 4,977 |   |   |   | 0.90 | % |
|                                    |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans                             |   |                      | 676,914 |   |   |   | 100.00 | % |   |   | 550,583 |   |   |   | 100.00 | % |
| Less:  Net deferred loan fees |   |                      | (998    | ) |   |   |   |   |   |   | (764 | )  |   |   |   |   |
| Total loans, net                        |   | $                         | 675,916 |   |   |   |   |   |   | $ | 549,819 |   |   |   |   |   |

|                        |   | Within              |    |   | 1-5    |   |    | After 5 |   |   |   |   |
|-----------------------------|--------|---------------------|---------|--------|--------|--------|---------|--------------|--------|--------|--------|--------|
|                   |   | 1 Year         |    |   | Years  |   |    | Years        |   |   | Total  |   |
|                   |   | (In thousands) |    |
|                   |   |                |    |   |   |   |    |         |   |   |   |   |   |
| Commercial mortgage         |   | $                   | 71,436  |   |   | $      | 250,733 |         |   | $      | 23,733 |   |   | $ | 345,902 |   |
| Residential mortgage        |   |                | 29,049  |   |   |   | 37,009  |         |   |   | 15,587 |   |   |   | 81,645 |   |
| Construction loans          |   |                | 95,643  |   |   |   | 44,563  |         |   |   | 643    |   |   |   | 140,849 |   |
| Commercial and industrial   |   |                | 29,627  |   |   |   | 17,127  |         |   |   | 1,390  |   |   |   | 48,144 |   |
| Home equity lines and loans |   |                | 4,812   |   |   |   | 5,532   |         |   |   | 46,781 |   |   |   | 57,125 |   |
| Individuals                 |   |                | 1,569   |   |   |   | 2,192   |         |   |   | 77     |   |   |   | 3,838 |   |
|                        |   |                |    |   |   |   |    |         |   |   |   |   |   |   |   |   |
| Total                       |   | $                   | 232,136 |   |   | $      | 357,156 |         |   | $      | 88,211 |   |   | $ | 677,503 |   |
|                        |   |                |    |   |   |   |    |         |   |   |   |   |   |   |   |   |
| Fixed rate loans            |   |                |    |   |   |   |    |         |   |   |   |   |   | $ | 428,243 |   |
| Variable rate loans         |   |                |    |   |   |   |    |         |   |   |   |   |   |   | 17,124 |   |
|                        |   |                |    |   |   |   |    |         |   |   |   |   |   |   |   |   |
|                        |   |                |    |   |   |   |    |         |   |   |   |   |   | $ | 445,367 |   |

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|                             |   | For the Year Ended December 31, |    |
|----------------------------------|--------|----------------------------------------------------------|---------|
|                        |   | 2010                                                     |    |   | 2009 |   |   | 2008 |   |
|                        |   | (Dollars in thousands)                         |    |
|                        |   | Average                                                  |    |   | Average |   |   | Average |   |   | Average |   |   | Average |   |   | Average |   |
|                        |   | Balance                                                  |    |   | Rate |   |   | Balance |   |   | Rate |   |   | Balance |   |   | Rate |   |
|                             |   |                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest bearing deposits    |   | $                                                        | 58,889  |   |   |   | - |   |   | $ | 62,247 |   |   |   | - |   |   | $ | 64,938 |   |   |   | - |   |
|                             |   |                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing demand deposits |   |                                                     | 121,589 |   |   |   | 2.52 | % |   |   | 60,556 |   |   |   | 1.74 | % |   |   | 34,073 |   |   |   | 0.19 | % |
| Money market deposits            |   |                                                     | 68,445  |   |   |   | 1.32 | % |   |   | 75,444 |   |   |   | 1.48 | % |   |   | 79,145 |   |   |   | 2.80 | % |
| Savings deposits                 |   |                                                     | 63,608  |   |   |   | 0.94 | % |   |   | 59,441 |   |   |   | 1.22 | % |   |   | 78,759 |   |   |   | 2.26 | % |
| Time deposits over $100,000      |   |                                                     | 312,778 |   |   |   | 3.00 | % |   |   | 376,260 |   |   |   | 3.81 | % |   |   | 338,193 |   |   |   | 4.50 | % |
| Time deposits under $100,000     |   |                                                     | 88,560  |   |   |   | 2.52 | % |   |   | 73,584 |   |   |   | 3.60 | % |   |   | 80,397 |   |   |   | 4.73 | % |
|                             |   |                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total interest bearing deposits  |   |                                                     | 654,980 |   |   |   | 2.47 | % |   |   | 645,285 |   |   |   | 3.08 | % |   |   | 610,567 |   |   |   | 3.78 | % |
|                             |   |                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total average deposits           |   | $                                                        | 713,869 |   |   |   | 2.27 | % |   | $ | 707,532 |   |   |   | 2.81 | % |   | $ | 675,505 |   |   |   | 3.41 | % |

|                             |   | For the Year Ended December 31, |    |
|----------------------------------|--------|----------------------------------------------------------|---------|
|                        |   | 2007                                                     |    |   | 2006 |   |
|                        |   | (Dollars in thousands)                         |    |
|                        |   | Average                                                  |    |   | Average |   |   | Average |   |   | Average |   |
|                             |   | Balance                                                  |    |   | Rate |   |   | Balance |   |   | Rate |   |
|                             |   |                                                     |    |   |   |   |   |   |   |   |   |   |
| Non-interest bearing deposits    |   | $                                                        | 70,660  |   |   |   | - |   |   | $ | 56,376 |   |   |   | - |   |
|                             |   |                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing demand deposits |   |                                                     | 33,453  |   |   |   | 0.97 | % |   |   | 37,876 |   |   |   | 1.46 | % |
| Money market deposits            |   |                                                     | 58,214  |   |   |   | 3.48 | % |   |   | 51,926 |   |   |   | 3.52 | % |
| Savings deposits                 |   |                                                     | 105,107 |   |   |   | 4.29 | % |   |   | 40,694 |   |   |   | 4.51 | % |
| Time deposits over $100,000      |   |                                                     | 254,533 |   |   |   | 5.11 | % |   |   | 154,538 |   |   |   | 4.82 | % |
| Time deposits under $100,000     |   |                                                     | 70,710  |   |   |   | 5.03 | % |   |   | 72,440 |   |   |   | 3.51 | % |
|                             |   |                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total interest bearing deposits  |   |                                                     | 522,017 |   |   |   | 4.49 | % |   |   | 357,474 |   |   |   | 3.97 | % |
|                             |   |                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total average deposits           |   | $                                                        | 592,677 |   |   |   | 3.95 | % |   | $ | 413,850 |   |   |   | 3.43 | % |

| Remaining maturity:                 |   | (in thousands) |    |
|-------------------------------------|--------|---------------------|---------|
| Three months or less                |   | $                   | 45,597  |   |
| Over three months through one year  |   |                | 99,483  |   |
| Over one year through three years   |   |                | 95,773  |   |
| Over three years through five years |   |                | 56,073  |   |
| Over five years                     |   |                | 6,000   |   |
| Total                               |   | $                   | 302,926 |   |

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|   | - | publicly available annual financial condition and management reports for certain financial institutions, including audits by independent accountants, |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | the establishment of uniform accounting standards by federal banking agencies, |
|--------|---|--------------------------------------------------------------------------------|

|   | - | the establishment of a “prompt corrective action” system of regulatory supervision and intervention, based on capitalization levels, with greater scrutiny and restrictions placed on depository institutions with lower levels of capital, |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | additional grounds for the appointment of a conservator or receiver, and |
|--------|---|--------------------------------------------------------------------------|

|   | - | restrictions or prohibitions on accepting brokered deposits, except for institutions which significantly exceed minimum capital requirements. |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------|

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|   | -  | a leverage capital requirement expressed as a percentage of adjusted total assets; |
|--------|---------|------------------------------------------------------------------------------------|

|   | -  | a risk-based requirement expressed as a percentage of total risk-weighted assets; and |
|--------|---------|---------------------------------------------------------------------------------------|

|   | -  | a Tier 1 leverage requirement expressed as a percentage of adjusted total assets. |
|--------|---------|-----------------------------------------------------------------------------------|

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| Office Locations                                                                |    | YearOpened |    | ApproximateSquare Footage |    | Owned or Leased         |
|--------------------------------------------------------------------------------------|--------------|------------|--------------|--------------------------------|--------------|-----------------------------------|
| Main Office1005 High House RoadCary, NC                                         |         | 2000       |         | 8,100                          |         | Leased                            |
| Cary Office1155 Kildaire Farm RoadCary, NC                                      |         | 1998       |         | 2,960                          |         | Leased                            |
| Apex Office303 South Salem StreetApex, NC                                       |         | 1999       |         | 3,500                          |         | Leased                            |
| Clayton Office315 East Main StreetClayton, NC                                   |         | 2000       |         | 2,990                          |         | Leased                            |
| Holly Springs Office700 Holly Springs RoadHolly Springs, NC                     |         | 2003       |         | 3,500                          |         | Owned                             |
| Pinehurst Office211-M Central Park AvenuePinehurst, NC                          |         | 2003       |         | 2,850                          |         | Leased                            |
| Southern Pines Office185 Morganton RoadSouthern Pines, NC                       |         | 2003       |         | 3,500                          |         | Leased                            |
| Sanford Office870 Spring LaneSanford, NC                                        |         | 2004       |         | 3,500                          |         | Structure owned with ground lease |
| Garner Office945 Vandora Springs RoadGarner, NC                                 |         | 2007       |         | 3,500                          |         | Leased                            |
| Falls of Neuse Office6408 Falls of Neuse RoadRaleigh, NC                        |         | 2006       |         | 2,442                          |         | Owned                             |
| Wilmington Main Office1508 Military Cutoff RoadWilmington, NC  28403  |         | 2006       |         | 6,634                          |         | Leased                            |
| Knightdale Office7120 Knightdale BoulevardKnightdale, NC                        |         | 2007       |         | 2,518                          |         | Owned                        |
| Wilmington Independence Office2506 Independence BoulevardWilmington, NC         |         | 2008       |         | 3,712                          |         | Structure owned with ground lease |
| Raleigh Creedmoor Office7100 Creedmoor RoadRaleigh, NC                          |         | 2008       |         | 3,712                          |         | Owned                             |
| Raleigh Main Office4711 Six Forks RoadRaleigh, NC                               |         | 2009       |         | 18,250                         |         | Leased                            |
| Raw landZebulon, NC                                                             |         | 2006       |         | 1.38 acres                     |         | Owned                             |
| Raw landSanford, NC                                                                  |         | 2007       |         | 1.37 acres                     |         | Owned                             |

|  Operations Locations |    | YearOpened |    | ApproximateSquare Footage |    |  Owned or Leased |
|---------------------------------|--------------|------------|--------------|--------------------------------|--------------|---------------------------------|
| 206 High House RoadCary, NC     |    | 2005       |    | 12,535                         |    | Leased                          |

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|                                 |   | Low    |   | High   |
|--------------------------------------|--------|--------|--------|--------|
| January 1, 2009 to March 31, 2009    |   | 2.80   |   | 4.80   |
|                                 |   |   |   |   |
| April 1, 2009 to June 30, 2009       |   | 2.89   |   | 4.50   |
|                                 |   |   |   |   |
| July 1, 2009 to September 30, 2009   |   | 3.45   |   | 4.95   |
|                                 |   |   |   |   |
| October 1, 2009 to December 31, 2009 |   | 3.00   |   | 4.89   |
|                                 |   |   |   |   |
| January 1, 2010 to March 31, 2010    |   | 2.80   |   | 3.70   |
|                                 |   |   |   |   |
| April 1, 2010 to June 30, 2010       |   | 2.50   |   | 5.05   |
|                                 |   |   |   |   |
| July 1, 2010 to September 30, 2010   |   | 2.50   |   | 2.94   |
|                                 |   |   |   |   |
| October 1, 2010 to December 31, 2010 |   | 2.00   |   | 2.80   |

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|                                                          |   | At or for the Years Ended December 31, |      |
|---------------------------------------------------------------|--------|---------------------------------------------------------------------------|-----------|
|                                                          |   | 2010                                                                      |      |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                                          |   | (Dollars in thousands, except share and per share data)                   |      |
| Summary of Operations                                         |   |                                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                                               |   | $                                                                         | 50,780    |   |   | $ | 56,206 |   |   | $ | 54,405 |   |   | $ | 54,872 |   |   | $ | 36,707 |   |
| Interest expense                                              |   |                                                                      | 22,322    |   |   |   | 26,620 |   |   |   | 29,070 |   |   |   | 28,217 |   |   |   | 17,257 |   |
| Net interest income                                           |   |                                                                      | 28,458    |   |   |   | 29,586 |   |   |   | 25,335 |   |   |   | 26,655 |   |   |   | 19,450 |   |
| Provision for loan losses                                     |   |                                                                      | 20,347    |   |   |   |  11,526 |   |   |   | 6,485 |   |   |   | 1,684 |   |   |   | 991 |   |
| Net interest income after the provisionfor loan losses        |   |                                                                      | 8,111     |   |   |   | 18,060 |   |   |   | 18,850 |   |   |   | 24,971 |   |   |   | 18,459 |   |
| Non-interest income                                           |   |                                                                      | 4,909     |   |   |   | 4,328 |   |   |   | 3,732 |   |   |   | 2,621 |   |   |   | 2,612 |   |
| Non-interest expense                                          |   |                                                                      | 26,964    |   |   |   |  53,943 |   |   |   | 19,972 |   |   |   | 17,823 |   |   |   | 13,387 |   |
| Income (loss) before income taxes                             |   |                                                                      | (13,944   | ) |   |   | (31,555 | ) |   |   | 2,610 |   |   |   | 9,769 |   |   |   | 7,684 |   |
| Income tax expense (benefit)                                  |   |                                                                      | (4,070    | ) |   |   |  (1,329 | ) |   |   | 599 |   |   |   | 3,520 |   |   |   | 2,780 |   |
| Net income (loss)                                             |   |                                                                      | (9,874    | ) |   |   | (30,226 | ) |   |   | 2,011 |   |   |   | 6,249 |   |   |   | 4,904 |   |
| Effective dividend on preferred stock                         |   |                                                                      | 1,689     |   |   |   |  1,617 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Net income available (loss attributed) to common shareholders |   | $                                                                         | (11,563   | ) |   | $ | (31,843 | ) |   | $ | 2,011 |   |   | $ | 6,249 |   |   | $ | 4,904 |   |
|                                                          |   |                                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per Share and Shares Outstanding(1)                           |   |                                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss), basic(2)                                   |   | $                                                                         | (1.21     | ) |   | $ | (3.33 | ) |   | $ | 0.21 |   |   | $ | 0.68 |   |   | $ | 0.67 |   |
| Net income (loss), diluted(2)                                 |   | $                                                                         | (1.21     | ) |   | $ | (3.33 | ) |   | $ | 0.21 |   |   | $ | 0.65 |   |   | $ | 0.64 |   |
| Book value at end of period                                   |   | $                                                                         | 5.76      |   |   | $ | 6.92 |   |   | $ | 9.88 |   |   | $ | 9.75 |   |   | $ | 9.13 |   |
| Tangible book value                                           |   | $                                                                         | 5.69      |   |   | $ | 6.83 |   |   | $ | 6.64 |   |   | $ | 6.42 |   |   | $ | 5.67 |   |
| Weighted average shares outstanding:                          |   |                                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                         |   |                                                                      | 9,579,633 |   |   |   | 9,569,290 |   |   |   | 9,500,103 |   |   |   | 9,211,779 |   |   |   | 7,281,016 |   |
| Diluted                                                       |   |                                                                      | 9,579,633 |   |   |   | 9,569,290 |   |   |   | 9,680,484 |   |   |   | 9,635,694 |   |   |   | 7,614,804 |   |
| Shares outstanding at period end                              |   |                                                                      | 9,664,059 |   |   |   | 9,626,559 |   |   |   | 9,626,559 |   |   |   | 9,404,579 |   |   |   | 9,091,649 |   |
|                                                          |   |                                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet Data                                            |   |                                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                  |   | $                                                                         | 973,019   |   |   | $ | 1,032,805 |   |   | $ | 968,311 |   |   | $ | 835,540 |   |   | $ | 697,909 |   |
| Total investments(3)                                          |   |                                                                      | 233,171   |   |   |   | 227,341 |   |   |   | 113,278 |   |   |   | 97,858 |   |   |   | 89,069 |   |
| Total loans held for investment, net                          |   |                                                                      | 656,101   |   |   |   | 741,781 |   |   |   | 772,792 |   |   |   | 667,643 |   |   |   | 542,874 |   |
| Total deposits                                                |   |                                                                      | 724,383   |   |   |   | 722,635 |   |   |   | 714,883 |   |   |   | 605,431 |   |   |   | 541,881 |   |
| Borrowings                                                    |   |                                                                      | 164,748   |   |   |   | 216,748 |   |   |   | 154,454 |   |   |   | 135,003 |   |   |   | 69,699 |   |
| Stockholders’ equity                                    |   |                                                                      | 79,015    |   |   |   | 89,520 |   |   |   | 95,092 |   |   |   | 91,659 |   |   |   | 83,034 |   |
|                                                          |   |                                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selected Performance Ratios                                   |   |                                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return on average assets                                      |   |                                                                      | (1.00     | )% |   |   | (2.85 | )% |   |   | 0.22 | % |   |   | 0.80 | % |   |   | 0.93 | % |
| Return on average stockholders’ equity                  |   |                                                                      | (11.18    | )% |   |   | (24.85 | )% |   |   | 2.13 | % |   |   | 7.15 | % |   |   | 8.72 | % |
| Net interest spread(4)                                        |   |                                                                      | 2.90      | % |   |   | 2.74 | % |   |   | 2.55 | % |   |   | 3.08 | % |   |   | 3.29 | % |
| Net interest margin(5)                                        |   |                                                                      | 3.18      | % |   |   | 3.09 | % |   |   | 3.05 | % |   |   | 3.79 | % |   |   | 4.03 | % |
| Non-interest income as a percentage oftotal revenue(6)        |   |                                                                      | 17.26     | % |   |   | 12.76 | % |   |   | 12.85 | % |   |   | 8.95 | % |   |   | 11.84 | % |
| Non-interest income as a percentage ofaverage assets          |   |                                                                      | 0.50      | % |   |   | 0.41 | % |   |   | 0.41 | % |   |   | 0.34 | % |   |   | 0.49 | % |
| Non-interest expense to averageassets                         |   |                                                                      | 2.73      | % |   |   | 5.08 | % |   |   | 2.18 | % |   |   | 2.29 | % |   |   | 2.53 | % |
| Efficiency ratio(7)                                           |   |                                                                      | 80.81     | % |   |   | 159.06 | % |   |   | 68.71 | % |   |   | 60.88 | % |   |   | 60.68 | % |
| Average stockholders’ equity toaverage total assets     |   |                                                                      | 8.95      | % |   |   | 11.46 | % |   |   | 10.32 | % |   |   | 11.24 | % |   |   | 10.64 | % |
|                                                          |   |                                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Asset Quality Ratios                                          |   |                                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net charge-offs to average loansoutstanding                   |   |                                                                      | 2.38      | % |   |   | 0.84 | % |   |   | 0.29 | % |   |   | 0.06 | % |   |   | 0.02 | % |
| Allowance for loan losses to period endloans                  |   |                                                                      | 3.06      | % |   |   | 2.31 | % |   |   | 1.60 | % |   |   | 1.22 | % |   |   | 1.26 | % |
| Allowance for loan losses to non-performing loans             |   |                                                                      | 68        | % |   |   | 95 | % |   |   | 96 | % |   |   | 303 | % |   |   | 5,145 | % |
| Non-performing loans to period endloans                       |   |                                                                      | 4.52      | % |   |   | 2.39 | % |   |   | 1.67 | % |   |   | 0.40 | % |   |   | 0.02 | % |
| Non-performing assets to total assets(8)                      |   |                                                                      | 4.74      | % |   |   | 2.40 | % |   |   | 1.53 | % |   |   | 0.36 | % |   |   | 0.03 | % |

----

|                                    |   | At or for the Years Ended December 31,                       |   |
|-----------------------------------------|--------|-------------------------------------------------------------------------------------------------|--------|
|                               |   | 2010                                                                                            |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                               |   | (Dollars in thousands, except share and per share data) |   |
| Capital Ratios                     |   |                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total risk-based capital ratio          |   |                                                                                            | 12.57  | % |   |   | 13.53 | % |   |   | 10.68 | % |   |   | 10.51 | % |   |   | 11.03 | % |
| Tier 1 risk-based capital ratio         |   |                                                                                            | 10.34  | % |   |   | 11.37 | % |   |   | 8.53 | % |   |   | 9.37 | % |   |   | 9.88 | % |
| Leverage ratio                          |   |                                                                                            | 8.35   | % |   |   | 9.03 | % |   |   | 7.67 | % |   |   | 8.56 | % |   |   | 9.13 | % |
| Equity to assets ratio                  |   |                                                                                            | 8.12   | % |   |   | 8.67 | % |   |   | 9.82 | % |   |   | 10.97 | % |   |   | 11.90 | % |
| Other Data                              |   |                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number of full-service banking offices  |   |                                                                                            | 15     |   |   |   | 15 |   |   |   | 13 |   |   |   | 12 |   |   |   | 11 |   |
| Number of full-time equivalentemployees |   |                                                                                            | 164    |   |   |   | 158 |   |   |   | 147 |   |   |   | 126 |   |   |   | 122 |   |

| (1) | Adjusted to reflect the 10 % stock dividend distributed in 2007. |
|-----|------------------------------------------------------------------|

| (2) | Computed based on the weighted average number of shares outstanding during each period. |
|-----|-----------------------------------------------------------------------------------------|

| (3) | Consists of interest-earning deposits, federal funds sold, investment securities and FHLB stock. |
|-----|--------------------------------------------------------------------------------------------------|

| (4) | Net interest spread is the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Net interest margin is net interest income divided by average interest-earning assets on a tax equivalent basis. |
|-----|------------------------------------------------------------------------------------------------------------------|

| (6) | Total revenue consists of net interest income and non-interest income. |
|-----|------------------------------------------------------------------------|

| (7) | Efficiency ratio is non-interest expense divided by the sum of net interest income and non-interest income. |
|-----|-------------------------------------------------------------------------------------------------------------|

| (8) | Non-performing assets consist of non-accrual loans, accruing loans 90 days or more past due, restructured loans only if in non-accrual status, and foreclosed assets, where applicable. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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|                                                                              |   | For the Years Ended December 31, |    |
|-----------------------------------------------------------------------------------|--------|-----------------------------------------------------------|---------|
|                                                                         |   | 2010                                                      |    |   | 2009 |   |   | 2008 |   |
|                                                                         |   | Average                                                   |    |   |   |   |   | Average |   |   | Average |   |   |   |   |   | Average |   |   | Average |   |   |   |   |   | Average |   |
|                                                                              |   | balance                                                   |    |   | Interest |   |   | rate |   |   | balance |   |   | Interest |   |   | rate |   |   | balance |   |   | Interest |   |   | rate |   |
|                                                                              |   | (Dollars in thousands)                                    |    |
| Interest-earning assets:                                                          |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan portfolio                                                                    |   | $                                                         | 722,150 |   |   | $ | 43,420 |   |   |   | 6.01 | % |   | $ | 777,275 |   |   | $ | 47,989 |   |   |   | 6.17 | % |   | $ | 741,829 |   |   | $ | 49,479 |   |   |   | 6.67 | % |
| Investment securities                                                             |   |                                                      | 193,812 |   |   |   | 7,326 |   |   |   | 4.37 | % |   |   | 201,204 |   |   |   | 8,203 |   |   |   | 4.51 | % |   |   | 103,101 |   |   |   | 4,843 |   |   |   | 5.19 | % |
| Federal funds and other interest-earning assets                                   |   |                                                      | 15,255  |   |   |   | 34 |   |   |   | 0.22 | % |   |   | 7,177 |   |   |   | 14 |   |   |   | 0.20 | % |   |   | 3,896 |   |   |   | 83 |   |   |   | 2.13 | % |
|                                                                              |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total interest-earning assets                                                     |   |                                                      | 931,217 |   |   |   | 50,780 |   |   |   | 5.57 | % |   |   | 985,656 |   |   |   | 56,206 |   |   |   | 5.79 | % |   |   | 848,826 |   |   |   | 54,405 |   |   |   | 6.47 | % |
|                                                                              |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest-earning assets                                                       |   |                                                      | 56,327  |   |   |   |   |   |   |   |   |   |   |   | 75,317 |   |   |   |   |   |   |   |   |   |   |   | 66,746 |   |   |   |   |   |   |   |   |   |
|                                                                              |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                                      |   | $                                                         | 987,544 |   |   |   |   |   |   |   |   |   |   | $ | 1,060,973 |   |   |   |   |   |   |   |   |   |   | $ | 915,572 |   |   |   |   |   |   |   |   |   |
|                                                                              |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                                     |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                         |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing NOW                                                              |   | $                                                         | 121,589 |   |   |   | 3,061 |   |   |   | 2.52 | % |   | $ | 60,556 |   |   |   | 1,053 |   |   |   | 1.74 | % |   | $ | 34,073 |   |   |   | 64 |   |   |   | 0.19 | % |
| Money market and savings                                                          |   |                                                      | 132,053 |   |   |   | 1,503 |   |   |   | 1.14 | % |   |   | 134,885 |   |   |   | 1,848 |   |   |   | 1.37 | % |   |   | 157,904 |   |   |   | 3,995 |   |   |   | 2.53 | % |
| Time deposits                                                                     |   |                                                      | 401,338 |   |   |   | 11,621 |   |   |   | 2.90 | % |   |   | 449,844 |   |   |   | 16,970 |   |   |   | 3.77 | % |   |   | 418,590 |   |   |   | 19,003 |   |   |   | 4.54 | % |
| Short-term borrowings                                                             |   |                                                      | 28,249  |   |   |   | 419 |   |   |   | 1.48 | % |   |   | 102,227 |   |   |   | 1,705 |   |   |   | 1.67 | % |   |   | 17,830 |   |   |   | 657 |   |   |   | 3.68 | % |
| Long-term debt                                                                    |   |                                                      | 152,910 |   |   |   | 5,718 |   |   |   | 3.74 | % |   |   | 126,255 |   |   |   | 5,045 |   |   |   | 4.00 | % |   |   | 124,493 |   |   |   | 5,351 |   |   |   | 4.30 | % |
| Total interest-bearing liabilities                                                |   |                                                      | 836,139 |   |   |   | 22,322 |   |   |   | 2.67 | % |   |   | 873,767 |   |   |   | 26,621 |   |   |   | 3.05 | % |   |   | 752,890 |   |   |   | 29,070 |   |   |   | 3.86 | % |
|                                                                              |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other liabilities                                                                 |   |                                                      | 63,068  |   |   |   |   |   |   |   |   |   |   |   | 65,579 |   |   |   |   |   |   |   |   |   |   |   | 68,156 |   |   |   |   |   |   |   |   |   |
|                                                                              |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                                 |   |                                                      | 899,207 |   |   |   |   |   |   |   |   |   |   |   | 939,346 |   |   |   |   |   |   |   |   |   |   |   | 821,046 |   |   |   |   |   |   |   |   |   |
|                                                                              |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stockholders’ equity                                                        |   |                                                      | 88,337  |   |   |   |   |   |   |   |   |   |   |   | 121,627 |   |   |   |   |   |   |   |   |   |   |   | 94,526 |   |   |   |   |   |   |   |   |   |
| Total liabilities and stockholders’ equity                                  |   | $                                                         | 987,544 |   |   |   |   |   |   |   |   |   |   | $ | 1,060,973 |   |   |   |   |   |   |   |   |   |   | $ | 915,572 |   |   |   |   |   |   |   |   |   |
|                                                                              |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income and interest rate spread                                      |   |                                                      |    |   |   | $ | 28,458 |   |   |   | 2.90 | % |   |   |   |   |   | $ | 29,585 |   |   |   | 2.74 | % |   |   |   |   |   | $ | 25,335 |   |   |   | 2.61 | % |
|                                                                              |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest margin                                                               |   |                                                      |    |   |   |   |   |   |   |   | 3.18 | %  |   |   |   |   |   |   |   |   |   |   | 3.09 | % |   |   |   |   |   |   |   |   |   |   | 3.05 | % |
|                                                                              |   |                                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio of average interest-earning assets to average interest- bearing liabilities |   |                                                      | 111.37  | % |   |   |   |   |   |   |   |   |   |   | 112.81 | % |   |   |   |   |   |   |   |   |   |   | 112.74 | % |   |   |   |   |   |   |   |   |

----

|                                            |   | Year Ended                                |   |   | Year Ended                                |   |
|-------------------------------------------------|--------|------------------------------------------------|--------|--------|------------------------------------------------|--------|
|                                       |   | December 31, 2010 vs. 2009 |   |   | December 31, 2009 vs. 2008 |   |
|                                       |   | Increase (Decrease) Due to      |   |   | Increase (Decrease) Due to      |   |
|                                       |   | Volume                                         |   |   | Rate                                           |   |   | Total |   |   | Volume |   |   | Rate |   |   | Total |   |
|                                       |   | (Dollars in thousands)               |   |
| Interest income:                           |   |                                           |   |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan portfolio                                  |   | $                                              | (3,338 | )      |                                           | $      | (1,231 | ) |   | $ | (4,569 | ) |   | $ | 2,295 |   |   | $ | (3,785 | ) |   | $ | (1,490 | ) |
| Investment securities                           |   |                                           | (469   | )      |                                           |   | (408 | ) |   |   | (877 | ) |   |   | 4,185 |   |   |   | (825, | ) |   |   | 3,360 |   |
| Federal funds and other interest-earning assets |   |                                           | 18     |   |                                           |   | 2 |   |   |   | 20 |   |   |   | 966 |   |   |   | (1,035 | ) |   |   | (69 | ) |
|                                            |   |                                           |   |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total interest income                           |   |                                           | (3,789 | )      |                                           |   | (1,637 | ) |   |   | (5,426 | ) |   |   | 7446 |   |   |   | (5,645 | ) |   |   | (1,801 | ) |
|                                            |   |                                           |   |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense:                               |   |                                           |   |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                       |   |                                           |   |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing NOW                            |   |                                           | 1,391  |   |                                           |   | 617 |   |   |   | 2,008 |   |   |   | 7 |   |   |   | 982 |   |   |   | 989 |   |
| Money market and savings                        |   |                                           | (38    | )      |                                           |   | (307 | ) |   |   | (345 | ) |   |   | (518 | ) |   |   | (1,629 | ) |   |   | (2,147 | ) |
| Time deposits                                   |   |                                           | (1,695 | )      |                                           |   | (3,654 | ) |   |   | (5,349 | ) |   |   | 1,345 |   |   |   | (3,378 | ) |   |   | (2,033 | ) |
| Short-term borrowings                           |   |                                           | (1,115 | )      |                                           |   | (171 | ) |   |   | (1,286 | ) |   |   | 1,585 |   |   |   | (537 | ) |   |   | 1,048 |   |
| Long-term debt                                  |   |                                           | 1,013  |   |                                           |   | (340 | ) |   |   | 673 |   |   |   | 75 |   |   |   | (381 | ) |   |   | (306 | ) |
|                                            |   |                                           |   |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total interest expense                          |   |                                           | (444   | )      |                                           |   | (3,855 | ) |   |   | (4,299 | ) |   |   | 2,494 |   |   |   | (4,943 | ) |   |   | (2,449 | ) |
|                                            |   |                                           |   |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income increase (decrease)         |   | $                                              | (3,345 | )      |                                           | $      | 2,218 |   |   | $ | (1,127 | ) |   | $ | 4,952 |   |   | $ | (702 | ) |   | $ | 4,250 |   |

----

|                                                                                           |   | At December 31,        |   |
|------------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                           |   | 2010                   |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                                                                           |   | (Dollars in thousands) |   |
| Nonaccrual loans                                                                               |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction                                                                                   |   | $                      | 16,835 |   |   | $ | 6,692 |   |   | $ | 7,696 |   |   | $ | 2,190 |   |   | $ | 127 |   |
| Commercial real estate                                                                         |   |                   | 7,633  |   |   |   | 4,655 |   |   |   | 365 |   |   |   | 417 |   |   |   | - |   |
| Residential mortgage                                                                           |   |                   | 4,166  |   |   |   | 2,758 |   |   |   | 4,448 |   |   |   | - |   |   |   | - |   |
| Home equity loans and lines                                                                    |   |                   | 1,314  |   |   |   | 1,314 |   |   |   | 82 |   |   |   | 106 |   |   |   | - |   |
| Commercial and industrial                                                                      |   |                   | 616    |   |   |   | 2,706 |   |   |   | 503 |   |   |   | 13 |   |   |   | 8 |   |
| Consumer loans                                                                                 |   |                   | 5      |   |   |   | 9 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total nonaccrual loans                                                                         |   |                   | 30,569 |   |   |   | 18,134 |   |   |   | 13,094 |   |   |   | 2,726 |   |   |   | 135 |   |
|                                                                                           |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accruing loans past due 90 days or more                                                        |   |                   | -      |   |   |   | 381 |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                                                           |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total nonperforming loans                                                                      |   |                   | 30,569 |   |   |   | 18,515 |   |   |   | 13,094 |   |   |   | 2,726 |   |   |   | 135 |   |
|                                                                                           |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real estate owned                                                                              |   |                   | 13,574 |   |   |   | 6,306 |   |   |   | 1,716 |   |   |   | 272 |   |   |   | 98 |   |
| Repossessed assets                                                                             |   |                   | 1,950  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                                                           |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total nonperforming assets                                                                     |   | $                      | 46,093 |   |   | $ | 24,821 |   |   | $ | 14,810 |   |   | $ | 2,998 |   |   | $ | 233 |   |
|                                                                                           |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Restructured loans in accrual status not included above                                        |   | $                      | 8,601  |   |   | $ | 13,691 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
|                                                                                           |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses                                                                      |   | $                      | 20,702 |   |   | $ | 17,567 |   |   | $ | 12,585 |   |   | $ | 8,273 |   |   | $ | 6,945 |   |
|                                                                                           |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonperforming loans to period end loans held for investment                               |   |                   | 4.52   | % |   |   | 2.39 | % |   |   | 1.53 | % |   |   | 0.40 | % |   |   | 0.02 | % |
|                                                                                           |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonperforming loans and loans past due 90 days or more to period end loans held for investment |   |                   | 4.52   | % |   |   | 2.44 | % |   |   | 1.53 | % |   |   | 0.40 | % |   |   | 0.02 | % |
|                                                                                           |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses to period end loans held for investment                              |   |                   | 3.06   | % |   |   | 2.31 | % |   |   | 1.60 | % |   |   | 1.22 | % |   |   | 1.26 | % |
|                                                                                           |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses to  nonaccrual loans                                       |   |                   | 67.72  | % |   |   | 96.87 | % |   |   | 96.12 | % |   |   | 303.45 | % |   |   | 5,144.96 | % |
|                                                                                           |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses to nonperforming loans                                               |   |                   | 67.72  | % |   |   | 94.88 | % |   |   | 96.12 | % |   |   | 303.45 | % |   |   | 5,144.96 | % |
|                                                                                           |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonperforming loans to total assets                                                            |   |                   | 3.14   | % |   |   | 1.79 | % |   |   | 1.35 | % |   |   | 0.33 | % |   |   | 0.02 | % |
|                                                                                           |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonperforming assets to total assets                                                           |   |                   | 4.74   | % |   |   | 2.40 | % |   |   | 1.53 | % |   |   | 0.36 | % |   |   | 0.03 | % |

----

----

----

|                                  |   | At December 31, |   |
|---------------------------------------|--------|---------------------------|--------|
|                             |   | 2010                      |   |   | 2009 |   |   | 2008 |   |
|                             |   |                      |   |   | % of Total |   |   |   |   |   | % of Total |   |   |   |   |   | % of Total |   |
|                             |   | Amount                    |   |   | Loans (1) |   |   | Amount |   |   | Loans (1) |   |   | Amount |   |   | Loans (1) |   |
|                                  |   | (Dollars in thousands)    |   |
|                                  |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real estate - commercial              |   | $                         | 5,345  |   |   |   | 51.06 | % |   | $ | 5,811 |   |   |   | 47.28 | % |   | $ | 6,003 |   |   |   | 59.82 | % |
| Real estate - residential             |   |                      | 1,360  |   |   |   | 12.05 | % |   |   | 1,075 |   |   |   | 12.73 | % |   |   | 103 |   |   |   | 2.43 | % |
| Construction loans                    |   |                      | 9,775  |   |   |   | 20.79 | % |   |   | 6,439 |   |   |   | 23.58 | % |   |   | 3,694 |   |   |   | 20.47 | % |
| Commercial and industrial loans       |   |                      | 2,689  |   |   |   | 7.10 | % |   |   | 2,854 |   |   |   | 7.28 | % |   |   | 1,953 |   |   |   | 9.68 | % |
| Home equity loans and lines of credit |   |                      | 1,453  |   |   |   | 8.43 | % |   |   | 1,134 |   |   |   | 8.48 | % |   |   | 469 |   |   |   | 6.91 | % |
| Loans to individuals                  |   |                      | 80     |   |   |   | 0.57 | % |   |   | 254 |   |   |   | 0.65 | % |   |   | 363 |   |   |   | 0.69 | % |
|                                  |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total allowance                       |   | $                         | 20,702 |   |   |   | 100.00 | % |   | $ | 17,567 |   |   |   | 100.00 | % |   | $ | 12,585 |   |   |   | 100.00 | % |

|                                  |   | At December 31, |   |
|---------------------------------------|--------|---------------------------|--------|
|                             |   | 2007                      |   |   | 2006 |   |
|                             |   |                      |   |   | % of Total |   |   |   |   |   | % of Total |   |
|                             |   | Amount                    |   |   | Loans (1) |   |   | Amount |   |   | Loans (1) |   |
|                             |   | (Dollars in thousands)    |   |
|                                  |   |                      |   |   |   |   |   |   |   |   |   |   |
| Real estate - commercial              |   | $                         | 3,771  |   |   |   | 51.85 | % |   | $ | 3,920 |   |   |   | 55.36 | % |
| Real estate - residential             |   |                      | 130    |   |   |   | 2.70 | % |   |   | 121 |   |   |   | 3.67 | % |
| Construction loans                    |   |                      | 2,362  |   |   |   | 27.18 | % |   |   | 1,379 |   |   |   | 19.99 | % |
| Commercial and industrial loans       |   |                      | 1,536  |   |   |   | 10.77 | % |   |   | 1,161 |   |   |   | 12.32 | % |
| Home equity loans and lines of credit |   |                      | 334    |   |   |   | 6.69 | % |   |   | 269 |   |   |   | 7.76 | % |
| Loans to individuals                  |   |                      | 140    |   |   |   | 0.81 | % |   |   | 95 |   |   |   | 0.90 | % |
|                                  |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total allowance                       |   | $                         | 8,273  |   |   |   | 100.00 | % |   | $ | 6,945 |   |   |   | 100.00 | % |

| (1) | Represents total of all outstanding loans in each category as a percent of total loans outstanding. |
|-----|-----------------------------------------------------------------------------------------------------|

----

|                                                                           |   | At or for the Year Ended December 31, |    |
|--------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|---------|
|                                                                      |   | 2010                                                                     |    |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                                                      |   | (Dollars in thousands)                                         |    |
|                                                                      |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at beginning of period                                                 |   | $                                                                        | 17,567  |   |   | $ | 12,585 |   |   | $ | 8,273 |   |   | $ | 6,945 |   |   | $ | 4,351 |   |
|                                                                           |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Charge-offs:                                                                   |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction loans                                                             |   |                                                                     | 5,518   |   |   |   | 3,290 |   |   |   | 277 |   |   |   | - |   |   |   | - |   |
| Commercial real estate                                                         |   |                                                                     | 4,071   |   |   |   | 24 |   |   |   | 503 |   |   |   | 213 |   |   |   | - |   |
| Commercial and industrial loans                                                |   |                                                                     | 1,999   |   |   |   | 1,819 |   |   |   | 1,363 |   |   |   | 89 |   |   |   | 14 |   |
| Residential real estate                                                        |   |                                                                     | 6,406   |   |   |   | 1,717 |   |   |   | - |   |   |   | 45 |   |   |   | 64 |   |
| Loans to individuals                                                           |   |                                                                     | 68      |   |   |   | 90 |   |   |   | 44 |   |   |   | 15 |   |   |   | 8 |   |
|                                                                           |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total charge-offs                                                              |   |                                                                     | 18,062  |   |   |   | 6,940 |   |   |   | 2,187 |   |   |   | 362 |   |   |   | 86 |   |
|                                                                           |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Recoveries:                                                                    |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial loans                                                |   |                                                                     | 408     |   |   |   | 116 |   |   |   | 4 |   |   |   | 5 |   |   |   | 1 |   |
| Commercial real estate                                                         |   |                                                                     | 39      |   |   |   | - |   |   |   | 3 |   |   |   | - |   |   |   | - |   |
| Construction loans                                                             |   |                                                                     | 242     |   |   |   | 270 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Residential real estate                                                        |   |                                                                     | 158     |   |   |   | 10 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Loans to individuals                                                           |   |                                                                     | 3       |   |   |   | - |   |   |   | 7 |   |   |   | 1 |   |   |   | 1 |   |
|                                                                           |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total recoveries                                                               |   |                                                                     | 850     |   |   |   | 396 |   |   |   | 14 |   |   |   | 6 |   |   |   | 2 |   |
|                                                                           |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net charge-offs                                                                |   |                                                                     | 17,212  |   |   |   | 6,544 |   |   |   | 2,173 |   |   |   | 356 |   |   |   | 84 |   |
|                                                                           |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance acquired from Port City Capital Bank merger                          |   |                                                                     | -       |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,687 |   |
|                                                                           |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses                                                      |   |                                                                     | 20,347  |   |   |   | 11,526 |   |   |   | 6,485 |   |   |   | 1,684 |   |   |   | 991 |   |
|                                                                           |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at the end of the year                                                 |   | $                                                                        | 20,702  |   |   | $ | 17,567 |   |   | $ | 12,585 |   |   | $ | 8,273 |   |   | $ | 6,945 |   |
|                                                                           |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans held for investments outstanding at year-end                       |   | $                                                                        | 676,803 |   |   | $ | 759,348 |   |   | $ | 785,377 |   |   | $ | 675,916 |   |   | $ | 549,819 |   |
|                                                                           |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average loans held for investment outstanding for the year                     |   | $                                                                        | 701,628 |   |   | $ | 777,275 |   |   | $ | 741,629 |   |   | $ | 615,322 |   |   | $ | 414,644 |   |
|                                                                           |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses to loans held for investments outstanding            |   |                                                                     | 3.06    | % |   |   | 2.31 | % |   |   | 1.60 | % |   |   | 1.22 | % |   |   | 1.26 | % |
|                                                                           |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio of net loan charge-offs to average loans held for investment outstanding |   |                                                                     | 2.45    | % |   |   | 0.84 | % |   |   | 0.29 | % |   |   | 0.06 | % |   |   | 0.02 | % |

----

|                                                                   |   | At December 31, 2010 |    |   | At December 31, 2009 |   |    | At December 31, 2008 |   |
|------------------------------------------------------------------------|--------|-------------------------------------|---------|--------|-------------------------------------|--------|---------|-------------------------------------|--------|
|                                                              |   | Amortized                           |    |   | Fair                                |   |    | Amortized                           |   |   | Fair |   |   | Amortized |   |   | Fair |   |
|                                                              |   | cost                                |    |   | value                               |   |    | cost                                |   |   | value |   |   | cost |   |   | value |   |
|                                                                   |   | (In thousands)                      |    |
| Securities available for sale:                                         |   |                                |    |   |                                |   |    |                                |   |   |   |   |   |   |   |   |   |   |
| U.S. government securities and obligations of U.S. government agencies |   | $                                   | 9,346   |   |                                | $      | 9,838   |                                |   | $ | 12,235 |   |   | $ | 12,683 |   |   | $ | 10,665 |   |   | $ | 10,832 |   |
| Mortgage-backed                                                        |   |                                | 38,080  |   |                                |   | 39,725  |                                |   |   | 58,767 |   |   |   | 60,203 |   |   |   | 67,309 |   |   |   | 68,976 |   |
| Collateralized mortgage obligations                                    |   |                                | 76,554  |   |                                |   | 78,450  |                                |   |   | 70,301 |   |   |   | 70,863 |   |   |   | - |   |   |   | - |   |
| Municipal                                                              |   |                                | 51,068  |   |                                |   | 50,618  |                                |   |   | 48,820 |   |   |   | 49,029 |   |   |   | 26,089 |   |   |   | 25,350 |   |
| Corporate bonds                                                        |   |                                | 2,777   |   |                                |   | 2,769   |                                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Marketable equity                                                      |   |                                | 441     |   |                                |   | 516     |                                |   |   | 402 |   |   |   | 345 |   |   |   | 565 |   |   |   | 491 |   |
|                                                                   |   |                                |    |   |                                |   |    |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total securities available for sale                               |   | $                                   | 178,266 |   |                                | $      | 181,916 |                                |   | $ | 190,525 |   |   | $ | 193,123 |   |   | $ | 104,628 |   |   | $ | 105,649 |   |

----

----

| Net Interest Income at Risk |   |                            |   |   |   |   |
|-----------------------------|--------|---------------------------------|--------|--------|--------|--------|
| (dollars in thousands)      |   | Estimated Exposure to |   |
|                   |   | Net Interest Income   |   |
| Rate change            |   | 2010                            |   |   | 2009   |   |
|                        |   |                            |   |   |   |   |
| +200 basis points shock     |   | $                               | 1,304  |   |   | $      | (775 | ) |
| -200 basis point shock      |   |                            | 81     |   |   |   | (1,002 | ) |
|                        |   |                            |   |   |   |   |   |   |
| +200 basis point ramp       |   |                            | 712    |   |   |   | 136 |   |
| -200 basis point ramp       |   |                            | 665    |   |   |   | 44 |   |

| Net Economic Value of Equity |   |                                             |   |
|------------------------------|--------|--------------------------------------------------|--------|
|                    |   | Estimated Exposure to                  |   |
| (dollars in thousands)  |   | Net Economic Value of Equity |   |
| Rate Change                  |   | 2010                                             |   |   | 2009 |   |
|                         |   |                                             |   |   |   |   |
| +100 basis point shock       |   | $                                                | 994    |   |   | $ | (6,268 | ) |
| -100 basis point shock       |   |                                             | (272   | ) |   |   | 6,108 |   |
|                         |   |                                             |   |   |   |   |   |   |
| +200 basis point shock       |   |                                             | (1,598 | ) |   |   | (20,293 | ) |
| -200 basis point shock       |   |                                             | 2,351  |   |   |   | 10,077 |   |

----

|                                                                                          |   | Terms to Repricing at December 31, 2010 |     |
|-----------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|----------|
|                                                                                     |   |                                                                  |     |   | More Than |   |   | More Than |   |   |   |   |   |   |   |
|                                                                                     |   | 1 Year                                                           |     |   | 1 Year to |   |   | 3 Years to |   |   | More Than |   |   |   |   |
|                                                                                     |   | or Less                                                          |     |   | 3 Years |   |   | 5 Years |   |   | 5 Years |   |   | Total |   |
|                                                                                     |   | (Dollars in thousands)                                      |     |
| INTEREST-EARNING ASSETS:                                                                 |   |                                                                  |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable:                                                                             |   |                                                                  |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial mortgage loans                                                                     |   | $                                                                     | 71,436   |   |   | $ | 183,080 |   |   | $ | 67,653 |   |   | $ | 23,733 |   |   | $ | 345,902 |   |
| Residential mortgage loans                                                                    |   |                                                                  | 29,049   |   |   |   | 32,060 |   |   |   | 4,949 |   |   |   | 15,587 |   |   |   | 81,645 |   |
| Construction and development                                                                  |   |                                                                  | 95,643   |   |   |   | 33,999 |   |   |   | 10,564 |   |   |   | 643 |   |   |   | 140,849 |   |
| Commercial and industrial loans                                                               |   |                                                                  | 29,627   |   |   |   | 14,628 |   |   |   | 2,499 |   |   |   | 1,390 |   |   |   | 48,144 |   |
| Home equity lines and loans                                                                   |   |                                                                  | 4,812    |   |   |   | 3,291 |   |   |   | 2,242 |   |   |   | 46,780 |   |   |   | 57,125 |   |
| Loans to individuals                                                                          |   |                                                                  | 1,569    |   |   |   | 1,564 |   |   |   | 627 |   |   |   | 78 |   |   |   | 3,838 |   |
| Interest-earning deposits with banks                                                          |   |                                                                  | 2,663    |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,663 |   |
| Fed funds sold                                                                                |   |                                                                  | 38,070   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 38,070 |   |
| Investment securities available for sale                                                      |   |                                                                  | 29,410   |   |   |   | 59,045 |   |   |   | 38,903 |   |   |   | 54,558 |   |   |   | 181,916 |   |
| Federal Home Loan Bank stock                                                                  |   |                                                                  | 10,522   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 10,522 |   |
|                                                                                          |   |                                                                  |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total interest-earning assets                                                                 |   | $                                                                     | 312,801  |   |   | $ | 327,667 |   |   | $ | 127,437 |   |   | $ | 142,769 |   |   | $ | 910,674 |   |
|                                                                                          |   |                                                                  |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| INTEREST-BEARING LIABILITIES:                                                                 |   |                                                                  |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                     |   |                                                                  |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Money market, NOW and savings                                                                 |   | $                                                                     | 285,521  |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 285,521 |   |
| Time                                                                                          |   |                                                                  | 186,517  |   |   |   | 117,941 |   |   |   | 66,360 |   |   |   | 6,000 |   |   |   | 376,818 |   |
| Short-term borrowings                                                                         |   |                                                                  | 7,000    |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 7,000 |   |
| Long-term borrowings                                                                          |   |                                                                  | -        |   |   |   | 34,000 |   |   |   | 41,000 |   |   |   | 82,748 |   |   |   | 157,748 |   |
|                                                                                          |   |                                                                  |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total interest-bearing liabilities                                                            |   | $                                                                     | 479,038  |   |   | $ | 151,941 |   |   | $ | 107,360 |   |   | $ | 88,748 |   |   | $ | 827,087 |   |
|                                                                                          |   |                                                                  |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| INTEREST SENSITIVITY GAP PER PERIOD                                                           |   | $                                                                     | (166,237 | ) |   | $ | 175,726 |   |   | $ | 20,077 |   |   | $ | 54,021 |   |   | $ | 83,587 |   |
|                                                                                          |   |                                                                  |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| CUMULATIVE INTEREST SENSITIVITY GAP                                                           |   | $                                                                     | (166,237 | ) |   | $ | 9,489 |   |   | $ | 29,566 |   |   | $ | 83,587 |   |   | $ | 83,587 |   |
|                                                                                          |   |                                                                  |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| CUMULATIVE GAP AS A PERCENTAGE OF TOTAL INTEREST-EARNING ASSETS                               |   |                                                                  | -18.25   | % |   |   | 1.04 | % |   |   | 3.25 | % |   |   | 9.18 | % |   |   | 9.18 | % |
|                                                                                          |   |                                                                  |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| CUMULATIVE INTEREST-EARNING ASSETS AS A PERCENTAGE OF CUMULATIVE INTEREST-BEARING LIABILITIES |   |                                                                  | 65.30    | % |   |   | 101.50 | % |   |   | 104.00 | % |   |   | 110.11 | % |   |   | 110.11 | % |

----

|                                 |   | Year Ended December 31, 2010 |   |   | Year Ended December 31, 2009 |   |
|--------------------------------------|--------|--------------------------------------------------|--------|--------|--------------------------------------------------|--------|
|                            |   | Fourth                                           |   |   | Third                                            |   |   | Second |   |   | First |   |   | Fourth |   |   | Third |   |   | Second |   |   | First |   |
|                            |   | Quarter                                          |   |   | Quarter                                          |   |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Quarter |   |
| Operating Data:                      |   |                                             |   |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total interest income                |   | $                                                | 11,717 |   |                                             | $      | 12,277 |   |   | $ | 13,361 |   |   | $ | 13,425 |   |   | $ | 13,975 |   |   | $ | 14,069 |   |   | $ | 14,084 |   |   | $ | 14,078 |   |
| Total interest expense               |   |                                             | 5,069  |   |                                             |   | 5,466 |   |   |   | 5,823 |   |   |   | 5,964 |   |   |   | 6,301 |   |   |   | 6,657 |   |   |   | 6,816 |   |   |   | 6,847 |   |
| Net interest income                  |   |                                             | 6,648  |   |                                             |   | 6,811 |   |   |   | 7,538 |   |   |   | 7,461 |   |   |   | 7,674 |   |   |   | 7,412 |   |   |   | 7,268 |   |   |   | 7,231 |   |
| Provision for loan losses            |   |                                             | 5,209  |   |                                             |   | 4,948 |   |   |   | 8,389 |   |   |   | 1,801 |   |   |   | 6,740 |   |   |   | 1,958 |   |   |   | 1,132 |   |   |   | 1,696 |   |
| Net interest income after provision  |   |                                             | 1,439  |   |                                             |   | 1,863 |   |   |   | (851 | ) |   |   | 5,660 |   |   |   | 934 |   |   |   | 5,454 |   |   |   | 6,136 |   |   |   | 5,535 |   |
| Non-interest income                  |   |                                             | 1,464  |   |                                             |   | 1,315 |   |   |   | 1,090 |   |   |   | 1,045 |   |   |   | 1,659 |   |   |   | 1,128 |   |   |   | 752 |   |   |   | 789 |   |
| Non-interest expense                 |   |                                             | 6,993  |   |                                             |   | 6,636 |   |   |   | 7,155 |   |   |   | 6,186 |   |   |   | 36,142 |   |   |   | 5,887 |   |   |   | 6,295 |   |   |   | 5,619 |   |
| Income (loss) before income taxes    |   |                                             | (4,090 | )      |                                             |   | (3,458 | ) |   |   | (6,916 | ) |   |   | 519 |   |   |   | (33,549 | ) |   |   | 695 |   |   |   | 593 |   |   |   | 705 |   |
| Provision for income taxes           |   |                                             | 433    |   |                                             |   | (1,574 | ) |   |   | (2,906 | ) |   |   | (23 | ) |   |   | (1,500 | ) |   |   | 58 |   |   |   | 19 |   |   |   | 94 |   |
| Net income (loss)                    |   | $                                                | (4,523 | )      |                                             | $      | (1,884 | ) |   | $ | (4,010 | ) |   | $ | 542 |   |   | $ | (32,049 | ) |   | $ | 637 |   |   | $ | 574 |   |   | $ | 611 |   |
| Efective dividend on preferred stock |   |                                             | (425   | )      |                                             |   | (423 | ) |   |   | (421 | ) |   |   | (419 | ) |   |   | (604 | ) |   |   | (422 | ) |   |   | (422 | ) |   |   | (168 | ) |
| Net income (loss) for common shares  |   | $                                                | (4,948 | )      |                                             | $      | (2,307 | ) |   | $ | (4,431 | ) |   | $ | 123 |   |   | $ | (32,653 | ) |   | $ | 215 |   |   | $ | 152 |   |   | $ | 443 |   |
|                                 |   |                                             |   |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities gains/(losses)            |   | $                                                | 25     |   |                                             | $      | - |   |   | $ | - |   |   | $ | - |   |   | $ | 563 |   |   | $ | 110 |   |   | $ | (219 | ) |   | $ | (188 | ) |
|                                 |   |                                             |   |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per Share Data:                      |   |                                             |   |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per share- basic     |   | $                                                | (0.52  | )      |                                             | $      | (0.24 | ) |   | $ | (0.46 | ) |   | $ | 0.01 |   |   | $ | (3.41 | ) |   | $ | 0.02 |   |   | $ | 0.02 |   |   | $ | 0.05 |   |
| Earnings (loss) per share - diluted  |   |                                             | (0.52  | )      |                                             |   | (0.24 | ) |   |   | (0.46 | ) |   |   | 0.01 |   |   |   | (3.41 | ) |   |   | 0.02 |   |   |   | 0.02 |   |   |   | 0.05 |   |

----

----

|                                                                                                                  | Page No. |
|-----------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                  |     |
| Report of Independent Registered Public Accounting Firm                                                               | 51       |
|                                                                                                                  |     |
| Consolidated Balance Sheets as of December 31, 2010 and 2009                                                          | 52       |
|                                                                                                                  |     |
| Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008                            | 53       |
|                                                                                                                  |     |
| Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2010, 2009 and 2008           | 54       |
|                                                                                                                  |     |
| Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2010, 2009 and 2008 | 55       |
|                                                                                                                  |     |
| Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008                            | 57       |
|                                                                                                                  |     |
| Notes to Consolidated Financial Statements                                                                            | 59       |

----

| /s/ Dixon Hughes PLLC   |
|-------------------------|
|                    |
| Raleigh, North Carolina |
| March 29, 2011          |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| CONSOLIDATED BALANCE SHEETS                   |
| December 31, 2010 and 2009                    |

|                                                                                                                                                                  |   | 2010   |        |   | 2009   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| ASSETS                                                                                                                                                                |   |   |        |   |   |   |
|                                                                                                                                                                  |   |   |        |   |   |   |
| Cash and due from banks                                                                                                                                               |   | $      | 8,372,969   |   |   | $      | 9,285,386 |   |
| Interest-earning deposits with banks                                                                                                                                  |   |   | 2,663,210   |   |   |   | 4,616,722 |   |
| Federal funds sold                                                                                                                                                    |   |   | 38,070,000  |   |   |   | 17,825,000 |   |
| Investment securities available for sale, at fair value (Note C)                                                                                                      |   |   | 181,916,229 |   |   |   | 193,122,891 |   |
|                                                                                                                                                                  |   |   |        |   |   |   |   |   |
| Loans held for investment (Note D)                                                                                                                                    |   |   | 676,803,069 |   |   |   | 759,348,341 |   |
| Allowance for loan losses (Note D)                                                                                                                                    |   |   | (20,702,000 | )      |   |   | (17,567,000 | ) |
| NET LOANS HELD FOR INVESTMENT                                                                                                                                         |   |   | 656,101,069 |   |   |   | 741,781,341 |   |
|                                                                                                                                                                  |   |   |        |   |   |   |   |   |
| Mortgage loans held for sale                                                                                                                                          |   |   | 5,689,853   |   |   |   | - |   |
|                                                                                                                                                                  |   |   |        |   |   |   |   |   |
| Accrued interest receivable                                                                                                                                           |   |   | 3,995,242   |   |   |   | 4,260,258 |   |
| Federal Home Loan Bank stock, at cost                                                                                                                                 |   |   | 10,521,700  |   |   |   | 11,776,500 |   |
| Bank premises and equipment (Note E)                                                                                                                                  |   |   | 11,585,920  |   |   |   | 11,861,158 |   |
| Investment in life insurance                                                                                                                                          |   |   | 18,482,993  |   |   |   | 17,658,386 |   |
| Foreclosed assets                                                                                                                                                     |   |   | 15,523,592  |   |   |   | 6,305,617 |   |
| Other assets                                                                                                                                                          |   |   | 20,095,741  |   |   |   | 14,311,750 |   |
|                                                                                                                                                                  |   |   |        |   |   |   |   |   |
| TOTAL ASSETS                                                                                                                                                          |   | $      | 973,018,518 |   |   | $      | 1,032,805,009 |   |
|                                                                                                                                                                  |   |   |        |   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                            |   |   |        |   |   |   |   |   |
|                                                                                                                                                                  |   |   |        |   |   |   |   |   |
| Deposits:                                                                                                                                                             |   |   |        |   |   |   |   |   |
| Demand                                                                                                                                                                |   | $      | 62,043,933  |   |   | $      | 61,041,955 |   |
| Savings                                                                                                                                                               |   |   | 64,772,708  |   |   |   | 58,086,102 |   |
| Money market and NOW                                                                                                                                                  |   |   | 220,749,043 |   |   |   | 165,994,207 |   |
| Time (Note G)                                                                                                                                                         |   |   | 376,817,639 |   |   |   | 437,512,354 |   |
|                                                                                                                                                                  |   |   |        |   |   |   |   |   |
| TOTAL DEPOSITS                                                                                                                                                        |   |   | 724,383,323 |   |   |   | 722,634,618 |   |
|                                                                                                                                                                  |   |   |        |   |   |   |   |   |
| Short-term borrowings (Note H)                                                                                                                                        |   |   | 7,000,000   |   |   |   | 74,000,000 |   |
| Long-term debt (Note H)                                                                                                                                               |   |   | 157,748,000 |   |   |   | 142,748,000 |   |
| Accrued expenses and other liabilities                                                                                                                                |   |   | 4,871,837   |   |   |   | 3,902,185 |   |
| TOTAL LIABILITIES                                                                                                                                                     |   |   | 894,003,160 |   |   |   | 943,284,803 |   |
| Commitments (Notes D, I and O)                                                                                                                                        |   |   |        |   |   |   |   |   |
|                                                                                                                                                                  |   |   |        |   |   |   |   |   |
| Stockholders’ Equity (Note Q)                                                                                                                                   |   |   |        |   |   |   |   |   |
| Preferred stock, no par value, 5,000,000 shares authorized, 24,900 shares issued and outstanding on December 31, 2010                                            |   |   | 23,379,651  |   |   |   | 22,935,514 |   |
| Common stock, $1 par value, 20,000,000 shares authorized; 9,664,059 and 9,626,559 shares issued and outstanding at December 31, 2010 and 2009, respectively |   |   | 9,664,059   |   |   |   | 9,626,559 |   |
| Common stock warrant                                                                                                                                                  |   |   | 2,367,368   |   |   |   | 2,367,368 |   |
| Additional paid-in capital                                                                                                                                            |   |   | 74,634,362  |   |   |   | 74,529,894 |   |
| Accumulated deficit                                                                                                                                                   |   |   | (32,917,437 | )      |   |   | (21,354,080 | ) |
| Accumulated other comprehensive income                                                                                                                                |   |   | 1,887,355   |   |   |   | 1,414,951 |   |
|                                                                                                                                                                  |   |   |        |   |   |   |   |   |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                                                      |   |   | 79,015,358  |   |   |   | 89,520,206 |   |
|                                                                                                                                                                  |   |   |        |   |   |   |   |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                      |   | $      | 973,018,518 |   |   | $      | 1,032,805,009 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| CONSOLIDATED STATEMENTS OF OPERATIONS         |
| Years Ended December 31, 2010, 2009 and 2008  |

|                                                               |   | 2010   |        |   | 2009   |   |        | 2008   |   |
|--------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|-------------|--------|--------|
| INTEREST AND FEE INCOME                                            |   |   |        |   |   |   |        |   |   |
| Loans held for investment                                          |   | $      | 43,420,274  |   |   | $      | 47,989,636  |   |   | $ | 49,478,663 |   |
| Investment securities available for sale                           |   |   | 7,326,013   |   |   |   | 8,202,708   |   |   |   | 4,842,624 |   |
| Interest-earning deposits with banks                               |   |   | 3,435       |   |   |   | 8,227       |   |   |   | 10,653 |   |
| Federal funds sold                                                 |   |   | 30,931      |   |   |   | 5,827       |   |   |   | 72,878 |   |
| TOTAL INTEREST AND FEE INCOME                                      |   |   | 50,780,653  |   |   |   | 56,206,398  |   |   |   | 54,404,818 |   |
| INTEREST EXPENSE                                                   |   |   |        |   |   |   |        |   |   |   |   |   |
| Money market, NOW and savings deposits                             |   |   | 4,563,840   |   |   |   | 2,900,719   |   |   |   | 4,059,475 |   |
| Time deposits                                                      |   |   | 11,621,285  |   |   |   | 16,969,642  |   |   |   | 19,002,942 |   |
| Short-term borrowings                                              |   |   | 418,583     |   |   |   | 1,704,511   |   |   |   | 656,549 |   |
| Long-term debt                                                     |   |   | 5,718,644   |   |   |   | 5,045,638   |   |   |   | 5,351,459 |   |
| TOTAL INTEREST EXPENSE                                             |   |   | 22,322,352  |   |   |   | 26,620,510  |   |   |   | 29,070,425 |   |
| NET INTEREST INCOME                                                |   |   | 28,458,301  |   |   |   | 29,585,888  |   |   |   | 25,334,393 |   |
| PROVISION FOR LOAN LOSSES (Note D)                                 |   |   | 20,347,277  |   |   |   | 11,526,066  |   |   |   | 6,484,543 |   |
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                |   |   | 8,111,024   |   |   |   | 18,059,822  |   |   |   | 18,849,850 |   |
| NON-INTEREST INCOME                                                |   |   |        |   |   |   |        |   |   |   |   |   |
| Mortgage origination revenue                                       |   |   | 478,718     |   |   |   | 922,615     |   |   |   | 718,433 |   |
| Fees on deposit accounts                                           |   |   | 1,833,805   |   |   |   | 1,662,949   |   |   |   | 1,606,062 |   |
| Earnings on life insurance                                         |   |   | 883,688     |   |   |   | 885,858     |   |   |   | 735,770 |   |
| Gain on sale of available for sale securities                      |   |   | 25,421      |   |   |   | 870,072     |   |   |   | 15,535 |   |
| Gain on sale of loans                                              |   |   | 1,091,952   |   |   |   | 74,595      |   |   |   | - |   |
| Loss on sale or disposal of assets                                 |   |   | (11,401     | )      |   |   | (3,024      | )      |   |   | (1,346 | ) |
| Impairment of marketable equity security                           |   |   | -           |   |   |   | (197,575    | )      |   |   | - |   |
| Impairment of nonmarketable equity security                        |   |   | -           |   |   |   | (406,802    | )      |   |   | - |   |
| Other (Note K)                                                     |   |   | 607,736     |   |   |   | 519,474     |   |   |   | 730,219 |   |
| TOTAL NON-INTEREST INCOME                                          |   |   | 4,909,919   |   |   |   | 4,328,162   |   |   |   | 3,804,673 |   |
| NON-INTEREST EXPENSE                                               |   |   |        |   |   |   |        |   |   |   |   |   |
| Salaries and employee benefits                                     |   |   | 12,763,483  |   |   |   | 11,834,747  |   |   |   | 11,110,281 |   |
| Occupancy and equipment                                            |   |   | 3,988,617   |   |   |   | 3,542,206   |   |   |   | 2,726,669 |   |
| Foreclosed asset related expenses, net                             |   |   | 2,252,046   |   |   |   | 498,572     |   |   |   | 148,150 |   |
| Data processing                                                    |   |   | 1,581,565   |   |   |   | 1,418,308   |   |   |   | 1,081,290 |   |
| FDIC insurance premiums                                            |   |   | 1,513,111   |   |   |   | 1,918,712   |   |   |   | 402,158 |   |
| Goodwill impairment                                                |   |   | -           |   |   |   | 30,233,049  |   |   |   | - |   |
| Other (Note K)                                                     |   |   | 4,865,977   |   |   |   | 4,497,041   |   |   |   | 4,576,456 |   |
| TOTAL NON-INTEREST EXPENSE                                         |   |   | 26,964,799  |   |   |   | 53,942,635  |   |   |   | 20,045,004 |   |
| INCOME (LOSS) BEFORE INCOME TAXES                                  |   |   | (13,943,856 | )      |   |   | (31,554,651 | )      |   |   | 2,609,519 |   |
| INCOME TAX EXPENSE (BENEFIT) (Note J)                              |   |   | (4,069,636  | )      |   |   | (1,328,700  | )      |   |   | 598,700 |   |
| NET INCOME (LOSS)                                                  |   |   | (9,874,220  | )      |   |   | (30,225,951 | )      |   |   | 2,010,819 |   |
| Effective dividend on preferred stock (Note R)                     |   |   | 1,689,137   |   |   |   | 1,616,757   |   |   |   | - |   |
| Net income available (loss attributed) to common shareholders |   | $      | (11,563,357 | )      |   | $      | (31,842,708 | )      |   | $ | 2,010,819 |   |
| NET INCOME (LOSS) PER COMMON SHARE                                 |   |   |        |   |   |   |        |   |   |   |   |   |
| Basic                                                              |   | $      | (1.21       | )      |   | $      | (3.33       | )      |   | $ | 0.21 |   |
| Diluted                                                            |   | $      | (1.21       | )      |   | $      | (3.33       | )      |   | $ | 0.21 |   |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                    |   |   |        |   |   |   |        |   |   |   |   |   |
| Basic                                                              |   |   | 9,579,633   |   |   |   | 9,569,290   |   |   |   | 9,500,103 |   |
| Diluted                                                            |   |   | 9,579,633   |   |   |   | 9,569,290   |   |   |   | 9,680,484 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY          |
|--------------------------------------------------------|
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
| Years Ended December 31, 2010, 2009 and 2008           |

|                                                                     |   | 2010   |       |   | 2009   |   |        | 2008   |   |
|--------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|-------------|--------|--------|
|                                                                     |   |   |       |   |   |   |        |   |   |
| Net (loss) income                                                        |   | $      | (9,874,220 | )      |   | $      | (30,225,951 | )      |   | $ | 2,010,819 |   |
|                                                                     |   |   |       |   |   |   |        |   |   |   |   |   |
| Other comprehensive income:                                              |   |   |       |   |   |   |        |   |   |   |   |   |
| Securities available for sale:                                           |   |   |       |   |   |   |        |   |   |   |   |   |
| Unrealized holding gains on available for sale securities           |   |   | 1,078,284  |   |   |   | 2,249,496   |   |   |   | 973,930 |   |
| Tax effect                                                               |   |   | (415,679   | )      |   |   | (867,181    | )      |   |   | (375,451 | ) |
| Reclassification of losses recognized due to impairment in net loss |   |   | -          |   |   |   | 197,575     |   |   |   | - |   |
| Tax effect                                                               |   |   | -          |   |   |   | (76,165     | )      |   |   | - |   |
| Reclassification of gains recognized in net income (loss)           |   |   | (25,421    | )      |   |   | (870,072    | )      |   |   | (15,535 | ) |
| Tax effect                                                               |   |   | 9,801      |   |   |   | 335,413     |   |   |   | 5,989 |   |
| Net of tax amount                                                        |   |   | 646,985    |   |   |   | 969,066     |   |   |   | 588,933 |   |
| Cash flow hedging activities:                                            |   |   |       |   |   |   |        |   |   |   |   |   |
| Unrealized holding loss on cash flow hedging activities             |   |   | (284,094   | )      |   |   | (294,934    | )      |   |   | - |   |
| Tax effect                                                               |   |   | 109,513    |   |   |   | 113,697     |   |   |   | - |   |
| Net of tax amount                                                        |   |   | (174,581   | )      |   |   | (181,237    | )      |   |   | - |   |
|                                                                     |   |   |       |   |   |   |        |   |   |   |   |   |
| Total other comprehensive income                                         |   |   | 472,404    |   |   |   | 787,829     |   |   |   | 588,933 |   |
|                                                                     |   |   |       |   |   |   |        |   |   |   |   |   |
| COMPREHENSIVE INCOME (LOSS)                                              |   | $      | (9,401,816 | )      |   | $      | (29,438,122 | )      |   | $ | 2,599,752 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY                    |
|------------------------------------------------------------------|
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY |
| Years Ended December 31, 2010, 2009 and 2008                     |

|                                                                      |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   | Accumulated   |   |      |                |   |
|--------------------------------------------------------------------------------|--------|-----------------|--------|--------|--------------|--------|------------|--------|--------|--------|------------|--------|--------|----------|-----------|--------|---------------|--------|-----------|---------------------|--------|
|                                                                           |   |            |   |   |         |   |       | Common |   |   | Additional |   |   | Retained |      |   | other         |   |      | Total               |   |
|                                                                           |   | Preferred stock |   |   | Common stock |   |       | stock  |   |   | paid-in    |   |   | earnings |      |   | comprehensive |   |      | stockholders’ |   |
|                                                                           |   | Shares          |   |   | Amount       |   |       | Shares |   |   | Amount     |   |   | warrants |      |   | capital       |   |      | (deficit)           |   |   | income |   |   | equity |   |
|                                                                           |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2007                                                   |   |            | -      |   |         | $      | -          |   |   |   | 9,404,579  |   |   | $        | 9,404,579 |   |          | $      | -         |                |   | $ | 73,596,427 |   |   | $ | 8,619,617 |   |   | $ | 38,189 |   |   | $ | 91,658,812 |   |
| Cumulative adjustment for split dollar pursuant to adoption of EITF 06-04 |   |            | -      |   |         |   | -          |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | - |   |   |   | (141,808 | ) |   |   | - |   |   |   | (141,808 | ) |
| Net income                                                                     |   |            | -      |   |         |   | -          |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | - |   |   |   | 2,010,819 |   |   |   | - |   |   |   | 2,010,819 |   |
|                                                                           |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income                                                     |   |            | -      |   |         |   | -          |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | - |   |   |   | - |   |   |   | 588,933 |   |   |   | 588,933 |   |
|                                                                           |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock issued pursuant to:                                               |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock options exercised                                                        |   |            | -      |   |         |   | -          |   |   |   | 186,480    |   |   |     | 186,480   |   |          |   | -         |                |   |   | 483,774 |   |   |   | - |   |   |   | - |   |   |   | 670,254 |   |
| Stock option related tax benefits                                              |   |            | -      |   |         |   | -          |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | 95,500 |   |   |   | - |   |   |   | - |   |   |   | 95,500 |   |
| Expense recognized in connection with stock options and restricted stock       |   |            | -      |   |         |   | -          |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | 209,098 |   |   |   | - |   |   |   | - |   |   |   | 209,098 |   |
| Issuance of restricted stock, net of deferred compensation                     |   |            | -      |   |         |   | -          |   |   |   | 35,500     |   |   |     | 35,500    |   |          |   | -         |                |   |   | (35,500 | ) |   |   | - |   |   |   | - |   |   |   | - |   |
| Balance at December 31, 2008                                                   |   |            | -      |   |         |   | -          |   |   |   | 9,626,559  |   |   |     | 9,626,559 |   |          |   | -         |                |   |   | 74,349,299 |   |   |   | 10,488,628 |   |   |   | 627,122 |   |   |   | 95,091,608 |   |
|                                                                           |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                       |   |            | -      |   |         |   | -          |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | - |   |   |   | (30,225,951 | ) |   |   | - |   |   |   | (30,225,951 | ) |
|                                                                           |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income                                                     |   |            | -      |   |         |   | -          |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | - |   |   |   | - |   |   |   | 787,829 |   |   |   | 787,829 |   |
|                                                                           |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Expense recognized in connection with stock options and restricted stock       |   |            | -      |   |         |   | -          |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | 180,595 |   |   |   | - |   |   |   | - |   |   |   | 180,595 |   |
|                                                                           |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred stock transaction:                                                   |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of preferred stock                                                    |   |            | 24,900 |   |         |   | 24,900,000 |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 24,900,000 |   |
| Issuance of warrant                                                            |   |            | -      |   |         |   | (2,367,368 | )      |   |   | -          |   |   |     | -         |   |          |   | 2,367,368 |                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                                           |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accretion of discount on warrant                                               |   |            | -      |   |         |   | 402,882    |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | - |   |   |   | (402,882 | ) |   |   | - |   |   |   | - |   |
|                                                                           |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred stock dividend                                                       |   |            | -      |   |         |   | -          |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | - |   |   |   | (1,213,875 | ) |   |   | - |   |   |   | (1,213,875 | ) |
| Balance at December 31, 2009                                                   |   |            | 24,900 |   |         |   | 22,935,514 |   |   |   | 9,626,559  |   |   |     | 9,626,559 |   |          |   | 2,367,368 |                |   |   | 74,529,894 |   |   |   | (21,354,080 | ) |   |   | 1,414,951 |   |   |   | 89,520,206 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY                                |
|------------------------------------------------------------------------------|
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Continued) |
| Years Ended December 31, 2010, 2009 and 2008                                 |

|                                                                     |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   | Accumulated   |   |      |                |   |
|--------------------------------------------------------------------------|--------|-----------------|--------|--------|--------------|--------|------------|--------|--------|--------|------------|--------|--------|----------|-----------|--------|---------------|--------|-----------|---------------------|--------|
|                                                                     |   |            |   |   |         |   |       | Common |   |   | Additional |   |   | Retained |      |   | other         |   |      | Total               |   |
|                                                                     |   | Preferred stock |   |   | Common stock |   |       | stock  |   |   | paid-in    |   |   | earnings |      |   | comprehensive |   |      | stockholders’ |   |
|                                                                     |   | Shares          |   |   | Amount       |   |       | Shares |   |   | Amount     |   |   | warrant  |      |   | capital       |   |      | (deficit)           |   |   | income |   |   | equity |   |
|                                                                     |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |
| Balance at December 31, 2009                                             |   |            | 24,900 |   |         | $      | 22,935,514 |   |   |   | 9,626,559  |   |   | $        | 9,626,559 |   |          | $      | 2,367,368 |                |   | $ | 74,529,894 |   |   | $ | (21,354,080 | ) |   | $ | 1,414,951 |   |   | $ | 89,520,206 |   |
|                                                                     |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                 |   |            | -      |   |         |   | -          |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | - |   |   |   | (9,874,220 | ) |   |   | - |   |   |   | (9,874,220 | ) |
|                                                                     |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income                                               |   |            | -      |   |         |   | -          |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | - |   |   |   | - |   |   |   | 472,404 |   |   |   | 472,404 |   |
|                                                                     |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Expense recognized in connection with stock options and restricted stock |   |            | -      |   |         |   | -          |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | 141,968 |   |   |   | - |   |   |   | - |   |   |   | 141,968 |   |
|                                                                     |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of restricted stock, net of deferred compensation               |   |            | -      |   |         |   | -          |   |   |   | 37,500     |   |   |     | 37,500    |   |          |   | -         |                |   |   | (37,500 | ) |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                                     |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accretion of discount on warrant                                         |   |            | -      |   |         |   | 444,137    |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | - |   |   |   | (444,137 | ) |   |   | - |   |   |   | - |   |
|                                                                     |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred stock dividend                                                 |   |            | -      |   |         |   | -          |   |   |   | -          |   |   |     | -         |   |          |   | -         |                |   |   | - |   |   |   | (1,245,000 | ) |   |   | - |   |   |   | (1,245,000 | ) |
|                                                                     |   |            |   |   |         |   |       |   |   |   |       |   |   |     |      |   |          |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2010                                             |   |            | 24,900 |   |         | $      | 23,379,651 |   |   |   | 9,664,059  |   |   | $        | 9,664,059 |   |          | $      | 2,367,368 |                |   | $ | 74,634,362 |   |   | $ | (32,917,437 | ) |   | $ | 1,887,355 |   |   | $ | 79,015,358 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| CONSOLIDATED STATEMENTS OF CASH FLOWS         |
| Years Ended December 31, 2010, 2009 and 2008  |

|                                                                                        |   | 2010   |        |   | 2009   |   |         | 2008   |   |
|---------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|--------------|--------|--------|
|                                                                                        |   |   |        |   |   |   |         |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                        |   |   |        |   |   |   |         |   |   |
| Net income (loss)                                                                           |   | $      | (9,874,220  | )      |   | $      | (30,225,951  | )      |   | $ | 2,010,819 |   |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities:    |   |   |        |   |   |   |         |   |   |   |   |   |
| Depreciation                                                                                |   |   | 1,000,544   |   |   |   | 938,178      |   |   |   | 786,668 |   |
| Provision for loan losses                                                                   |   |   | 20,347,277  |   |   |   | 11,526,066   |   |   |   | 6,484,543 |   |
| Gain on mortgage loan commitments                                                           |   |   | (56,400     | )      |   |   | -            |   |   |   | - |   |
| Net gain on sales of mortgage loans                                                         |   |   | (1,035,552  | )      |   |   | -            |   |   |   | - |   |
| Originations of mortgage loans held-for-sale                                                |   |   | (73,011,585 | )      |   |   | -            |   |   |   | - |   |
| Proceeds from sales of mortgage loans                                                       |   |   | 68,357,284  |   |   |   | -            |   |   |   | - |   |
| Amortization of core deposit intangible                                                     |   |   | 133,349     |   |   |   | 133,349      |   |   |   | 133,349 |   |
| Accretion of fair value discount on loans                                                   |   |   | (958,343    | )      |   |   | (285,593     | )      |   |   | (439,820 | ) |
| Amortization of fair value premium on deposits                                              |   |   | 40,431      |   |   |   | 109,730      |   |   |   | 185,550 |   |
| Deferred income taxes                                                                       |   |   | (3,834,125  | )      |   |   | (2,077,407   | )      |   |   | (1,788,197 | ) |
| Change in deferred tax asset valuation allowance                                            |   |   | 2,104,000   |   |   |   | -            |   |   |   | - |   |
| Loss on impairment of marketable equity security                                            |   |   | -           |   |   |   | 197,575      |   |   |   | - |   |
| Loss on impairment of nonmarketable equity security                                         |   |   | -           |   |   |   | 406,802      |   |   |   | - |   |
| Loss on impairment of goodwill                                                              |   |   | -           |   |   |   | 30,233,049   |   |   |   | - |   |
| Loss on disposition of assets                                                               |   |   | 11,401      |   |   |   | 3,024        |   |   |   | 74,032 |   |
| Gain on sale of available for sale securities                                               |   |   | (25,421     | )      |   |   | (870,072     | )      |   |   | (15,535 | ) |
| Net (gain) loss on disposal of foreclosed assets                                            |   |   | (64,272     | )      |   |   | (3,741       | )      |   |   | - |   |
| Valuation adjustments related to foreclosed assets                                          |   |   | 942,600     |   |   |   | 48,349       |   |   |   | - |   |
| Net (accretion of discounts) amortization of premiums on available for sale securities |   |   | 1,477,580   |   |   |   | 970,221      |   |   |   | (80,314 | ) |
| Net increase in cash surrender value life insurance                                         |   |   | (824,607    | )      |   |   | (846,468     | )      |   |   | (689,221 | ) |
| Stock based compensation                                                                    |   |   | 141,968     |   |   |   | 180,595      |   |   |   | 209,098 |   |
| Purchase of loan to be held for sale                                                        |   |   | -           |   |   |   | (3,651,505   | )      |   |   | - |   |
| Proceeds from sale of loan held for sale                                                    |   |   | -           |   |   |   | 3,726,100    |   |   |   | - |   |
| Gain on sale of loan                                                                        |   |   | -           |   |   |   | (74,595      | )      |   |   | - |   |
| Change in assets and liabilities:                                                           |   |   |        |   |   |   |         |   |   |   |   |   |
| (Increase) decrease in accrued interest receivable                                          |   |   | 265,016     |   |   |   | (919,000     | )      |   |   | 420,342 |   |
| Increase in other assets                                                                    |   |   | (4,537,339  | )      |   |   | (4,006,862   | )      |   |   | (1,621,319 | ) |
| Increase (decrease) in accrued interest payable                                             |   |   | (124,802    | )      |   |   | (483,216     | )      |   |   | 275,916 |   |
| Increase in accrued expenses and                                                            |   |   |        |   |   |   |         |   |   |   |   |   |
| other liabilities                                                                           |   |   | 919,875     |   |   |   | 166,153      |   |   |   | 17,730 |   |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                                   |   |   | 1,394,659   |   |   |   | 5,194,781    |   |   |   | 5,963,641 |   |
|                                                                                        |   |   |        |   |   |   |         |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                        |   |   |        |   |   |   |         |   |   |   |   |   |
| Purchase of investment securities available for sale                                        |   |   | (21,232,508 | )      |   |   | (167,674,519 | )      |   |   | (28,064,996 | ) |
| Proceeds from maturities and repayments of investment securities available for sale         |   |   | 28,142,899  |   |   |   | 38,659,372   |   |   |   | 12,685,891 |   |
| Proceeds from sale of securities available for sale                                         |   |   | 3,896,986   |   |   |   | 42,820,152   |   |   |   | 1,543,197 |   |
| Loan originations and principal collections, net                                            |   |   | 39,864,623  |   |   |   | 9,964,259    |   |   |   | (113,399,801 | ) |
| Purchases of premises and equipment                                                         |   |   | (725,306    | )      |   |   | (1,957,311   | )      |   |   | (3,538,541 | ) |
| Proceeds from disposals of other assets                                                     |   |   | 59,365      |   |   |   | -            |   |   |   | - |   |
| Proceeds from sale of foreclosed assets                                                     |   |   | 8,649,950   |   |   |   | 5,172,202    |   |   |   | 727,648 |   |
| Cost to complete foreclosed assets                                                          |   |   | (200,229    | )      |   |   | -            |   |   |   | - |   |
| Proceeds from sale of loans                                                                 |   |   | 7,810,558   |   |   |   | -            |   |   |   | - |   |
| Purchases of Federal Home Loan Bank stock                                                   |   |   | 1,254,800   |   |   |   | (4,512,500   | )      |   |   | (473,300 | ) |
| Investment in life insurance                                                                |   |   | -           |   |   |   | -            |   |   |   | (7,000,000 | ) |
| NET CASH USED BY INVESTING ACTIVITIES                                                       |   |   | 67,521,138  |   |   |   | (77,528,345  | )      |   |   | (137,519,902 | ) |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY     |
|---------------------------------------------------|
| CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) |
| Years Ended December 31, 2010, 2009 and 2008      |

|                                                               |   | 2010   |        |   | 2009   |   |       | 2008   |   |
|--------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|------------|--------|--------|
|                                                               |   |   |        |   |   |   |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                               |   |   |        |   |   |   |       |   |   |
| Net increase in deposits accounts                                  |   | $      | 1,708,274   |   |   | $      | 7,642,133  |   |   | $ | 109,265,892 |   |
| Net increase (decrease) in short-term borrowings                   |   |   | (67,000,000 | )      |   |   | 36,294,000 |   |   |   | 23,951,000 |   |
| Net increase (decrease) in long-term debt                          |   |   | 15,000,000  |   |   |   | 26,000,000 |   |   |   | (4,500,000 | ) |
| Proceeds from stock options exercised                              |   |   | -           |   |   |   | -          |   |   |   | 670,254 |   |
| Proceeds from issuance of preferred stock and common stock warrant |   |   | -           |   |   |   | 24,900,000 |   |   |   | - |   |
| Dividends paid on preferred stock                                  |   |   | (1,245,000  | )      |   |   | (1,058,250 | )      |   |   | - |   |
| Excess tax benefits from stock options exercised                   |   |   | -           |   |   |   | -          |   |   |   | 95,500 |   |
|                                                               |   |   |        |   |   |   |       |   |   |   |   |   |
| NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES              |   |   | (51,536,726 | )      |   |   | 93,777,883 |   |   |   | 129,482,646 |   |
|                                                               |   |   |        |   |   |   |       |   |   |   |   |   |
| NET INCERASE (DECREASE) IN CASH AND CASH EQUIVALENTS               |   |   | 17,379,071  |   |   |   | 21,444,319 |   |   |   | (2,073,615 | ) |
|                                                               |   |   |        |   |   |   |       |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, BEGINNING                               |   |   | 31,727,108  |   |   |   | 10,282,789 |   |   |   | 12,356,404 |   |
|                                                               |   |   |        |   |   |   |       |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, ENDING                                  |   | $      | 49,106,179  |   |   | $      | 31,727,108 |   |   | $ | 10,282,789 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                                                                                                                                    |   | 2010   |      |   | 2009   |   |      | 2008   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|
|                                                                                                                                    |   |   |      |   |   |   |      |   |   |   |   |   |
| Weighted average number of common shares used in computing basic net income per share                                                   |   |   | 9,579,633 |   |   |   | 9,569,290 |   |   |   | 9,500,103 |   |
|                                                                                                                                    |   |   |      |   |   |   |      |   |   |   |   |   |
| Effect of dilutive stock options                                                                                                        |   |   | -         |   |   |   | -         |   |   |   | 174,540 |   |
|                                                                                                                                    |   |   |      |   |   |   |      |   |   |   |   |   |
| Effects of restricted stock                                                                                                             |   |   | -         |   |   |   | -         |   |   |   | 5,841 |   |
|                                                                                                                                    |   |   |      |   |   |   |      |   |   |   |   |   |
| Weighted average number of common shares and dilutive potential common shares used in computing  diluted net income per share |   |   | 9,579,633 |   |   |   | 9,569,290 |   |   |   | 9,680,484 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|   | · | For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The nature of credit risk inherent in the entity’s portfolio of financing receivables; |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | · | How that risk is analyzed and assessed in arriving at the allowance for credit losses; and |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | The changes and reasons for those changes in the allowance for credit losses. |
|--------|--------|-------------------------------------------------------------------------------|

|   | · | A roll forward of the allowance for credit losses related to financing receivables from the beginning to the end of the reporting period by portfolio segment; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Credit quality indicators of financing receivables at the end of the reporting period by class of financing receivables; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | · | The aging of past due financing receivables at the end of the reporting period by class of financing receivables; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                                                                             |   | December 31, 2010 |        |
|----------------------------------------------------------------------------------|--------|-------------------|-------------|
|                                                                             |   |              |        |   | Gross |   |   | Gross |   |   |   |   |
|                                                                             |   | Amortized         |        |   | unrealized |   |   | unrealized |   |   | Fair |   |
|                                                                             |   | cost              |        |   | gains |   |   | losses |   |   | value |   |
| Securities available for sale:                                                   |   |              |        |   |   |   |   |   |   |   |   |   |
| U.S. government securities and obligations of U.S. government agencies |   | $                 | 9,346,395   |   |   | $ | 492,005 |   |   | $ | - |   |   | $ | 9,838,400 |   |
| Mortgage-backed securities                                                       |   |              | 38,079,632  |   |   |   | 1,667,631 |   |   |   | 22,418 |   |   |   | 39,724,845 |   |
| Collateralized mortgage obligations                                              |   |              | 76,553,621  |   |   |   | 2,022,287 |   |   |   | 126,224 |   |   |   | 78,449,684 |   |
| Municipals                                                                       |   |              | 51,067,962  |   |   |   | 442,604 |   |   |   | 892,203 |   |   |   | 50,618,363 |   |
| Corporate bonds                                                                  |   |              | 2,777,457   |   |   |   | 15,665 |   |   |   | 24,322 |   |   |   | 2,768,800 |   |
| Marketable equity                                                                |   |              | 440,757     |   |   |   | 121,082 |   |   |   | 45,702 |   |   |   | 516,137 |   |
|                                                                             |   |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                             |   | $                 | 178,265,824 |   |   | $ | 4,761,274 |   |   | $ | 1,110,869 |   |   | $ | 181,916,229 |   |
|                                                                             |   |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                             |   | December 31, 2009 |        |
|                                                                             |   |              |        |   |   | Gross |   |   | Gross |   |   |   |   |   |
|                                                                             |   | Amortized         |        |   | unrealized |   |   | unrealized |   |   | Fair |   |
|                                                                             |   | cost              |        |   | gains |   |   | losses |   |   | value |   |
| Securities available for sale:                                                   |   |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. government securities and obligations of U.S. government agencies |   | $                 | 12,235,041  |   |   | $ | 448,086 |   |   | $ | - |   |   | $ | 12,683,127 |   |
| Mortgage-backed securities                                                       |   |              | 58,766,929  |   |   |   | 1,562,514 |   |   |   | 126,356 |   |   |   | 60,203,087 |   |
| Collateralized mortgage obligations                                              |   |              | 70,300,750  |   |   |   | 948,641 |   |   |   | 386,219 |   |   |   | 70,863,172 |   |
| Municipals                                                                       |   |              | 48,820,579  |   |   |   | 673,223 |   |   |   | 465,397 |   |   |   | 49,028,405 |   |
| Marketable equity                                                                |   |              | 402,050     |   |   |   | - |   |   |   | 56,950 |   |   |   | 345,100 |   |
|                                                                             |   |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                             |   | $                 | 190,525,349 |   |   | $ | 3,632,464 |   |   | $ | 1,034,922 |   |   | $ | 193,122,891 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                                       |   | December 31, 2010   |       |
|--------------------------------------------|--------|---------------------|------------|
|                                       |   | Less Than 12 Months |       |   | 12 Months or More |   |   | Total |   |
|                                       |   | Fair                |       |   | Unrealized |   |   | Fair |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                       |   | value               |       |   | losses |   |   | value |   |   | losses |   |   | value |   |   | losses |   |
| Securities available for sale:             |   |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       |   |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed                            |   | $                   | 984,306    |   |   | $ | 22,418 |   |   | $ | - |   |   | $ | - |   |   | $ | 984,306 |   |   | $ | 22,418 |   |
| Collateralized mortgage obligations        |   |                | 7,274,222  |   |   |   | 126,224 |   |   |   | - |   |   |   | - |   |   |   | 7,274,222 |   |   |   | 126,224 |   |
| Municipals                                 |   |                | 27,738,632 |   |   |   | 823,580 |   |   |   | 1,006,202 |   |   |   | 68,623 |   |   |   | 28,744,834 |   |   |   | 892,203 |   |
| Corporate bonds                            |   |                | 1,831,230  |   |   |   | 24,322 |   |   |   | - |   |   |   | - |   |   |   | 1,831,230 |   |   |   | 24,322 |   |
| Marketable equity                          |   |                | -          |   |   |   | - |   |   |   | 36,122 |   |   |   | 45,702 |   |   |   | 36,122 |   |   |   | 45,702 |   |
|                                       |   |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total temporarily impaired securities |   | $                   | 37,828,390 |   |   | $ | 996,544 |   |   | $ | 1,042,324 |   |   | $ | 114,325 |   |   | $ | 38,870,714 |   |   | $ | 1,110,869 |   |
|                                       |   |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       |   | December 31, 2009   |       |
|                                       |   | Less Than 12 Months |       |   | 12 Months or More |   |   | Total |   |
|                                       |   | Fair                |       |   | Unrealized |   |   | Fair |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                       |   | value               |       |   | losses |   |   | value |   |   | losses |   |   | value |   |   | losses |   |
| Securities available for sale:             |   |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       |   |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed                            |   | $                   | 10,253,608 |   |   | $ | 126,356 |   |   | $ | - |   |   | $ | - |   |   | $ | 10,253,608 |   |   | $ | 126,356 |   |
| Collateralized mortgage obligations   |   |                | 26,940,754 |   |   |   | 386,219 |   |   |   | - |   |   |   | - |   |   |   | 26,940,754 |   |   |   | 386,219 |   |
| Municipals                                 |   |                | 17,081,421 |   |   |   | 244,125 |   |   |   | 2,858,321 |   |   |   | 221,272 |   |   |   | 19,939,742 |   |   |   | 465,397 |   |
| Marketable equity                          |   |                | -          |   |   |   | - |   |   |   | 345,100 |   |   |   | 56,950 |   |   |   | 345,100 |   |   |   | 56,950 |   |
|                                       |   |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total temporarily impaired securities |   | $                   | 54,275,783 |   |   | $ | 756,700 |   |   | $ | 3,203,421 |   |   | $ | 278,222 |   |   | $ | 57,479,204 |   |   | $ | 1,034,922 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                                   |   | Amortized |        |   | Fair   |   |
|----------------------------------------|--------|-----------|-------------|--------|--------|--------|
|                                   |   | cost      |        |   | value  |   |
|                                   |   |      |        |   |   |   |
| Due within one year                    |   | $         | 28,461,320  |   |   | $      | 29,410,121 |   |
| Due after one year through five years  |   |      | 95,148,863  |   |   |   | 97,948,337 |   |
| Due after five years through ten years |   |      | 30,067,925  |   |   |   | 30,080,276 |   |
| Due after ten years                    |   |      | 24,146,959  |   |   |   | 23,961,358 |   |
| Other equity securities                |   |      | 440,757     |   |   |   | 516,137 |   |
|                                   |   | $         | 178,265,824 |   |   | $      | 181,916,229 |   |

|                                |   | Repricing or Maturing  |   |
|-------------------------------------|--------|------------------------|--------|
|                                |   | Less than         |   |   | One to |   |   | Five to |   |   | Over ten |   |   |   |   |
|                                |   | one year               |   |   | five years |   |   | ten years |   |   | years |   |   | Total |   |
|                                |   | (Dollars in thousands) |   |
| Securities available for sale:      |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U. S. government agencies           |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                             |   | $                      | -      |   |   | $ | 9,346 |   |   | $ | - |   |   | $ | - |   |   | $ | 9,346 |   |
| Weighted average yield              |   |                   | -      | % |   |   | 4.61 | % |   |   | - | % |   |   | - | % |   |   | - | % |
| Mortgage-backed securities          |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                             |   | $                      | 13,761 |   |   | $ | 20,381 |   |   | $ | 2,367 |   |   | $ | 1,571 |   |   | $ | 38,080 |   |
| Weighted average yield              |   |                   | 4.10   | % |   |   | 4.13 | % |   |   | 4.45 | % |   |   | 4.07 | % |   |   | 4.14 | % |
| Collateralized mortgage obligations |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                             |   | $                      | 14,100 |   |   | $ | 56,532 |   |   | $ | 5,811 |   |   | $ | 111 |   |   | $ | 76,554 |   |
| Weighted average yield              |   |                   | 3.28   | % |   |   | 3.41 | % |   |   | 3.52 | % |   |   | 2.74 | % |   |   | 3.39 | % |
| Municipal securities                |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                             |   | $                      | 600    |   |   | $ | 7,967 |   |   | $ | 20,035 |   |   | $ | 22,466 |   |   | $ | 51,068 |   |
| Weighted average yield              |   |                   | -      | % |   |   | 6.40 | % |   |   | 6.82 | % |   |   | 7.29 | % |   |   | 6.88 | % |
| Corporate bonds                     |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                             |   | $                      | -      |   |   | $ | 922 |   |   | $ | 1,855 |   |   | $ | - |   |   | $ | 2,777 |   |
| Weighted average yield              |   |                   | -      | % |   |   | 2.48 | % |   |   | 2.01 | % |   |   | - | % |   |   | 2.17 | % |
| Marketable equity                   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                             |   | $                      | -      |   |   | $ | - |   |   | $ | - |   |   | $ | 441 |   |   | $ | 441 |   |
| Weighted average yield              |   |                   | -      | % |   |   | - | % |   |   | - | % |   |   | 12.16 | % |   |   | 12.16 | % |
| FHLB Stock                          |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                             |   | $                      | -      |   |   | $ | - |   |   | $ | - |   |   | $ | 10,522 |   |   | $ | 10,522 |   |
| Weighted average yield              |   |                   | -      | % |   |   | - | % |   |   | - | % |   |   | 0.35 | % |   |   | 0.35 | % |
| Total                               |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                             |   | $                      | 28,461 |   |   | $ | 95,148 |   |   | $ | 30,068 |   |   | $ | 35,111 |   |   | $ | 188,788 |   |
| Weighted average yield              |   |                   | 3.62   | % |   |   | 3.92 | % |   |   | 5.70 | % |   |   | 5.11 | % |   |   | 4.38 | % |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                                  |   | 2010   |        |   | 2009   |   |
|---------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                  |   |   |        |   |   |   |   |   |
| Real estate - commercial              |   | $      | 345,902,319 |   |   | $      | 359,450,529 |   |
|                                  |   |   |        |   |   |   |   |   |
| Real estate - residential             |   |   | 81,644,508  |   |   |   | 96,730,537 |   |
|                                  |   |   |        |   |   |   |   |   |
| Construction loans                    |   |   | 140,848,750 |   |   |   | 179,227,518 |   |
|                                  |   |   |        |   |   |   |   |   |
| Commercial and industrial loans       |   |   | 48,144,401  |   |   |   | 55,360,111 |   |
|                                  |   |   |        |   |   |   |   |   |
| Home equity loans and lines of credit |   |   | 57,125,274  |   |   |   | 64,484,524 |   |
|                                  |   |   |        |   |   |   |   |   |
| Loans to individuals                  |   |   | 3,838,154   |   |   |   | 4,965,873 |   |
|                                  |   |   |        |   |   |   |   |   |
| Total loans                           |   |   | 677,503,406 |   |   |   | 760,219,092 |   |
|                                  |   |   |        |   |   |   |   |   |
| Less:                                 |   |   |        |   |   |   |   |   |
| Deferred loan fees                    |   |   | (700,337    | )      |   |   | (870,751 | ) |
|                                  |   |   |        |   |   |   |   |   |
| Allowance for loan losses             |   |   | (20,702,000 | )      |   |   | (17,567,000 | ) |
|                                  |   |   |        |   |   |   |   |   |
| Total                                 |   | $      | 656,101,069 |   |   | $      | 741,781,341 |   |

| Loans to directors and officers as a group at December 31, 2009 |   | $      | 42,791,649 |   |
|-----------------------------------------------------------------|--------|--------|------------|--------|
| Net payments during the year-ended December 31, 2010            |   |   | (5,102,328 | )      |
| Loans to directors and officers as a group at December 31, 2010 |   | $      | 37,689,321 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                         |   | 2010   |        |   | 2009   |   |
|------------------------------|--------|--------|-------------|--------|--------|--------|
|                         |   |   |        |   |   |   |
| Balance at beginning of year |   | $      | 17,567,000  |   |   | $      | 12,585,000 |   |
|                         |   |   |        |   |   |   |   |   |
| Provision for loan losses    |   |   | 20,347,277  |   |   |   | 11,526,066 |   |
|                         |   |   |        |   |   |   |   |   |
| Charge-offs                  |   |   | (18,062,217 | )      |   |   | (6,940,583 | ) |
|                         |   |   |        |   |   |   |   |   |
| Recoveries                   |   |   | 849,940     |   |   |   | 396,517 |   |
|                         |   |   |        |   |   |   |   |   |
| Net charge-offs              |   |   | (17,212,277 | )      |   |   | (6,544,066 | ) |
|                         |   |   |        |   |   |   |   |   |
| Balance at end of year       |   | $      | 20,702,000  |   |   | $      | 17,567,000 |   |

|                                  |   | Commercial       |   |   | Commercial  |   |    | Residential |   |   |     |   |   |   |   |
|---------------------------------------|--------|------------------|--------|--------|-------------|--------|---------|-------------|--------|--------|----------|--------|--------|--------|--------|
|                                  |   | & Industrial |   |   | Real Estate |   |    | Real Estate |   |   | Consumer |   |   | Total  |   |
| Allowance for loan losses:            |   |             |   |   |        |   |    |        |   |   |     |   |   |   |   |
| Beginning balance                     |   | $                | 2,856  |   |        | $      | 11,841  |        |   | $      | 2,616    |   |   | $      | 254    |   |   | $ | 17,567 |   |
| Charge-offs                           |   |             | (1,999 | )      |        |   | (9,481  | )           |   |   | (6,514   | )      |   |   | (68    | ) |   |   | (18,062 | ) |
| Recoveries                            |   |             | 242    |   |        |   | 447     |        |   |   | 158      |   |   |   | 3      |   |   |   | 850 |   |
| Provision                             |   |             | 1,590  |   |        |   | 12,149  |        |   |   | 6,717    |   |   |   | (109   | ) |   |   | 20,347 |   |
| Ending balance                        |   |             | 2,689  |   |        |   | 14,956  |        |   |   | 2,977    |   |   |   | 80     |   |   |   | 20,702 |   |
| Ending balance:                       |   |             |   |   |        |   |    |        |   |   |     |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment |   |             | 1,094  |   |        |   | 9,052   |        |   |   | 882      |   |   |   | 10     |   |   |   | 11,038 |   |
| Collectively evaluated for impairment |   |             | 1,595  |   |        |   | 5,904   |        |   |   | 2,095    |   |   |   | 70     |   |   |   | 9,664 |   |
|                                  |   |             |   |   |        |   |    |        |   |   |     |   |   |   |   |   |   |   |   |   |
| Loans:                                |   |             |   |   |        |   |    |        |   |   |     |   |   |   |   |   |   |   |   |   |
| Ending balance                        |   | $                | 48,144 |   |        | $      | 477,421 |        |   | $      | 148,100  |   |   | $      | 3,838  |   |   |   | 677,503 |   |
| Ending balance:                       |   |             |   |   |        |   |    |        |   |   |     |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment |   |             | 2,471  |   |        |   | 42,427  |        |   |   | 9,531    |   |   |   | 13     |   |   |   | 54,442 |   |
| Collectively evaluated for impairment |   |             | 45,673 |   |        |   | 434,994 |        |   |   | 138,569  |   |   |   | 3,825  |   |   |   | 623,061 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|   | · | Risk Grade 1 - Minimal credit risk - A loan to a borrower of unquestionable  financial strength. Financial information  exhibits superior earnings, leverage and liquidity positions, which firmly establish a repayment source that is substantial in relation to debt. These borrowers would generally have access to national credit and equity markets. Also includes a loan fully protected by cash equivalents or high grade, readily marketable securities. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Risk Grade 2 – Modest credit risk - Loans to borrowers of better than average financial strength.  Earnings performance is consistent and primary and secondary sources of repayment are well established.  Borrower exhibits very good asset quality and liquidity with strong debt servicing capacity.  Company management has depth, is experienced and well regarded in the industry.  This risk grade is reserved for loans secured by readily marketable collateral or is a loan made within guidelines to borrowers with liquid financial statements. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Risk Grade 3 – Average credit risk - Loans to borrowers involving satisfactory financial strength.  Earnings performance is consistent with primary and secondary sources of repayment well defined and adequate to retire the debt in a timely and orderly fashion.   These businesses would generally exhibit satisfactory asset quality and liquidity with moderate leverage, average performance to their peer group and experienced management in key positions.  This risk grade is reserved for the Bank’s top quality loans. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Risk Grade 4 – Acceptable credit risk - Loans to borrowers with more than average risk but with little risk of ultimate collection. The loan may contain certain characteristics that require some supervision and attention by the lender.  Asset quality is acceptable, but debt capacity is modest and little excess liquidity is available.  The borrower may be fully leveraged, and unable to overcome major setbacks.  Covenants are structured to ensure adequate protection.  Management may have limited experience and depth.  Includes loans, which are highly leveraged transactions due to regulatory constraints.  Also includes loans involving reasonable exceptions to policy.  This grade is given to acceptable loans. These loans have adequate sources of repayment, with little identifiable risk of collection. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Risk Grade 5 – Acceptable credit risk - A loan that is sound yet ultimate collectability may depend on guarantor support or tertiary repayment sources.  Although asset quality remains acceptable, the borrower has a smaller and/or less diverse asset base, very little liquidity and limited debt capacity.  Earnings performance is inconsistent and the borrower may be highly leveraged and below average size or lower-tier competitor.  Limited management experience and depth.  May be well-conceived start-up venture, but repayment is still dependent upon a successful operation.  Includes loans with significant documentation or policy exceptions, improper loan structure or inadequate loan servicing procedures.  May also include a loan in which strong reliance for a secondary repayment source is placed on a guarantor who exhibits the ability and willingness to repay.  These credits require significant supervision by the lender and covenants structured to ensure adequate protection.  Loans which are highly leveraged transactions due to the obligor's financial status.  This grade is given to acceptable loans that show signs of weakness in either sources of repayment or collateral, but have demonstrated mitigating factors that minimize the risk of delinquency or loss. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|   | · | Risk Grade 6 – Special mention - Criticized Exposure.  A loan which still has the capacity to perform but contains certain characteristics that require continual supervision and attention from the lender. These characteristics may include but are not limited to (1) adverse trends in financial condition or key operating, liquidity, trading asset turn, or leverage ratios; (2) inconsistent repayment performance; or (3) fatal documentation errors that would prevent the Bank from enforcing its note or security instruments. Material adverse trends have not yet been developed. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Risk Grade 7 – Substandard - A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. A loan classified as Substandard must have a well-defined weakness or weaknesses that jeopardize the collection of all payments contractually due the Bank upon liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Risk Grade 8 – Doubtful - Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Risk Grade 9 – Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that is not practical or desirable to defer writing off this worthless loan even though partial recovery may be effected in the future.  Probable Loss portions of Doubtful assets are charged against the Allowance for Loan Losses. Loans may reside in this classification for administrative purposes for a period not to exceed the earlier of thirty (30) days or calendar quarter end. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Other – Ungraded loans.  Overdraft protection accounts are typically not graded at origination, but are assigned a risk grade when credit deterioration is detected. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                     |   |             |   |   | Commercial  |   |    |         |   |   |       |   |   |   |   |
|--------------------------|--------|------------------|--------|--------|-------------|--------|---------|--------------|--------|--------|------------|--------|--------|--------|--------|
|                     |   | Commercial       |   |   | Real Estate |   |    | Commercial   |   |   | Commercial |   |   |   |   |
|                     |   | & Industrial |   |   | Other       |   |    | Construction |   |   | LOC        |   |   | Total  |   |
|                     |   |             |   |   |        |   |    |         |   |   |       |   |   |   |   |   |   |   |   |   |
| 1-Minimal Credit Risk    |   | $                | 3,704  |   |        | $      | -       |         |   | $      | -          |   |   | $      | -      |   |   | $ | 3,704 |   |
| 2-Modest Credit Risk     |   |             | 276    |   |        |   | -       |         |   |   | -          |   |   |   | -      |   |   |   | 276 |   |
| 3-Average Credit Risk    |   |             | 638    |   |        |   | 11,177  |         |   |   | 1,850      |   |   |   | -      |   |   |   | 13,665 |   |
| 4-Acceptable Credit Risk |   |             | 13,125 |   |        |   | 164,402 |         |   |   | 22,265     |   |   |   | 173    |   |   |   | 199,965 |   |
| 5-Acceptable Credit Risk |   |             | 24,025 |   |        |   | 144,810 |         |   |   | 51,069     |   |   |   | 87     |   |   |   | 219,991 |   |
| 6-Special Mention        |   |             | 3,595  |   |        |   | 15,419  |         |   |   | 24,150     |   |   |   | 5      |   |   |   | 43,169 |   |
| 7-Substandard            |   |             | 2,044  |   |        |   | 8,456   |         |   |   | 29,911     |   |   |   | -      |   |   |   | 40,411 |   |
| 8-Doubtful               |   |             | 132    |   |        |   | 1,568   |         |   |   | 2,225      |   |   |   | -      |   |   |   | 3,925 |   |
| 9-Loss                   |   |             | -      |   |        |   | -       |         |   |   | -          |   |   |   | -      |   |   |   | - |   |
| Other                    |   |             | 67     |   |        |   | 70      |         |   |   | 49         |   |   |   | 273    |   |   |   | 459 |   |
|                     |   |             |   |   |        |   |    |         |   |   |       |   |   |   |   |   |   |   |   |   |
| Total                    |   | $                | 47,606 |   |        | $      | 345,902 |         |   | $      | 131,519    |   |   | $      | 538    |   |   | $ | 525,565 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                     |   | Residential |   |   |         |   |   |             |   |   |     |   |   |   |   |
|--------------------------|--------|-------------|--------|--------|--------------|--------|--------|------------------|--------|--------|----------|--------|--------|--------|--------|
|                     |   | Real Estate |   |   | Consumer     |   |   |             |   |   |     |   |   |   |   |
|                     |   | Other       |   |   | Construction |   |   | Home Equity |   |   | Consumer |   |   | Total  |   |
|                     |   |        |   |   |         |   |   |             |   |   |     |   |   |   |   |   |   |   |   |   |
| 1-Minimal Credit Risk    |   | $           | -      |   |         | $      | -      |             |   | $      | -        |   |   | $      | 421    |   |   | $ | 421 |   |
| 2-Modest Credit Risk     |   |        | -      |   |         |   | -      |             |   |   | 78       |   |   |   | -      |   |   |   | 78 |   |
| 3-Average Credit Risk    |   |        | 9,707  |   |         |   | 2,275  |             |   |   | 6,440    |   |   |   | 597    |   |   |   | 19,019 |   |
| 4-Acceptable Credit Risk |   |        | 34,191 |   |         |   | 5,297  |             |   |   | 35,153   |   |   |   | 1,041  |   |   |   | 44,682 |   |
| 5-Acceptable Credit Risk |   |        | 24,648 |   |         |   | 704    |             |   |   | 10,392   |   |   |   | 736    |   |   |   | 36,480 |   |
| 6-Special Mention        |   |        | 6,808  |   |         |   | 788    |             |   |   | 1,463    |   |   |   | 377    |   |   |   | 9,436 |   |
| 7-Substandard            |   |        | 5,996  |   |         |   | 221    |             |   |   | 3,368    |   |   |   | 13     |   |   |   | 9,598 |   |
| 8-Doubtful               |   |        | 295    |   |         |   | 45     |             |   |   | 167      |   |   |   | -      |   |   |   | 507 |   |
| 9-Loss                   |   |        | -      |   |         |   | -      |             |   |   | -        |   |   |   | -      |   |   |   | - |   |
| Other                    |   |        | -      |   |         |   | -      |             |   |   | 64       |   |   |   | 653    |   |   |   | 717 |   |
|                     |   |        |   |   |         |   |   |             |   |   |     |   |   |   |   |   |   |   |   |   |
| Total                    |   | $           | 81,645 |   |         | $      | 9,330  |             |   | $      | 57,125   |   |   | $      | 3,838  |   |   | $ | 151,938 |   |

|                            |   |            |   |   |              |   |   |     |   |   |    |   |   |   |    |   | Recorded              |   |
|---------------------------------|--------|-----------------|--------|--------|-------------------|--------|--------|----------|--------|--------|---------|--------|--------|--------|---------|--------|-----------------------|--------|
|                            |   |            |   |   | Greater than |   |   |     |   |   |    |   |   |   |    |   | Investment >       |   |
|                            |   | 30-89 Days |   |   | 90 Days           |   |   | Total    |   |   |    |   |   | Total  |    |   | 90 Days and |   |
|                            |   | Past Due(1)     |   |   | Past Due(2)       |   |   | Past Due |   |   | Current |   |   | Loans  |    |   | Accruing              |   |
|                            |   |            |   |   |              |   |   |     |   |   |    |   |   |   |    |   |                  |   |   |   |   |   |   |   |
| Commercial & Industrial     |   | $               | 469    |   |              | $      | 167    |     |   | $      | 636     |   |   | $      | 46,970  |   |                  | $      | 47,606 |   |   | $ | - |   |
| Commercial – Construction |   |            | 6,118  |   |              |   | 8,649  |     |   |   | 14,767  |   |   |   | 116,752 |   |                  |   | 131,519 |   |   |   | - |   |
| Commercial - Real Estate        |   |            | 3,943  |   |              |   | 7,301  |     |   |   | 11,244  |   |   |   | 334,658 |   |                  |   | 345,902 |   |   |   | - |   |
| Commercial - Lines of Credit    |   |            | -      |   |              |   | -      |     |   |   | -       |   |   |   | 538     |   |                  |   | 538 |   |   |   | - |   |
| Commercial – Other        |   |            | -      |   |              |   | -      |     |   |   | -       |   |   |   | -       |   |                  |   | - |   |   |   | - |   |
| Consumer                        |   |            | -      |   |              |   | 5      |     |   |   | 5       |   |   |   | 3,833   |   |                  |   | 3,838 |   |   |   | - |   |
| Consumer – Construction   |   |            | 221    |   |              |   | 45     |     |   |   | 266     |   |   |   | 9,064   |   |                  |   | 9,330 |   |   |   | - |   |
| Consumer – Other          |   |            | -      |   |              |   | -      |     |   |   | -       |   |   |   | -       |   |                  |   | - |   |   |   | - |   |
| Home Equity                     |   |            | 350    |   |              |   | 881    |     |   |   | 1,231   |   |   |   | 55,894  |   |                  |   | 57,125 |   |   |   | - |   |
| Residential Real Estate         |   |            | 3,601  |   |              |   | 2,093  |     |   |   | 5,694   |   |   |   | 75,951  |   |                  |   | 81,645 |   |   |   | - |   |
|                            |   |            |   |   |              |   |   |     |   |   |    |   |   |   |    |   |                  |   |   |   |   |   |   |   |
| Total                           |   | $               | 14,702 |   |              | $      | 19,141 |     |   | $      | 33,843  |   |   | $      | 643,660 |   |                  | $      | 677,503 |   |   | $ | - |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                                 |   |       |   |   | Unpaid    |   |   |      |   |   | Average    |   |   | Interest   |   |
|--------------------------------------|--------|------------|--------|--------|-----------|--------|--------|-----------|--------|--------|------------|--------|--------|------------|--------|
|                                 |   | Recorded   |   |   | Principal |   |   | Related   |   |   | Recorded   |   |   | Income     |   |
|                                 |   | Investment |   |   | Balance   |   |   | Allowance |   |   | Investment |   |   | Recognized |   |
|                                 |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |
| With no related allowance recorded:  |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |
| Consumer                             |   | $          | -      |   |      | $      | -      |      |   | $      | -          |   |   | $          | 49     |   |   | $ | 1 |   |
| Commercial & industrial          |   |       | 83     |   |      |   | 92     |      |   |   | -          |   |   |       | 1,200  |   |   |   | 3 |   |
| Commercial construction              |   |       | 2,649  |   |      |   | 4,475  |      |   |   | -          |   |   |       | 11,132 |   |   |   | 354 |   |
| Commercial real estate - other       |   |       | 3,366  |   |      |   | 3,366  |      |   |   | -          |   |   |       | 6,154  |   |   |   | 226 |   |
| Consumer construction                |   |       | 45     |   |      |   | 133    |      |   |   | -          |   |   |       | 258    |   |   |   | 15 |   |
| Home equity lines/loans              |   |       | 1,883  |   |      |   | 2,032  |      |   |   | -          |   |   |       | 1,780  |   |   |   | 74 |   |
| Residential real estate - other      |   |       | 2,820  |   |      |   | 2,820  |      |   |   | -          |   |   |       | 1,894  |   |   |   | 58 |   |
|                                 |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |   |   |   |   |   |
| Sub-Total                            |   |       | 10,846 |   |      |   | 12,918 |      |   |   | -          |   |   |       | 22,467 |   |   |   | 731 |   |
|                                 |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |   |   |   |   |   |
| With an allowance recorded:          |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |   |   |   |   |   |
| Consumer                             |   |       | 13     |   |      |   | 13     |      |   |   | 10         |   |   |       | 220    |   |   |   | 8 |   |
| Commercial & industrial          |   |       | 2,093  |   |      |   | 2,093  |      |   |   | 984        |   |   |       | 2,261  |   |   |   | 96 |   |
| Commercial construction              |   |       | 29,488 |   |      |   | 30,529 |      |   |   | 7,251      |   |   |       | 17,409 |   |   |   | 677 |   |
| Commercial real estate – other |   |       | 6,658  |   |      |   | 7,328  |      |   |   | 1,780      |   |   |       | 9,730  |   |   |   | 230 |   |
| Consumer construction                |   |       | 221    |   |      |   | 221    |      |   |   | 20         |   |   |       | 367    |   |   |   | 9 |   |
| Home equity lines/loans              |   |       | 1,652  |   |      |   | 1,879  |      |   |   | 547        |   |   |       | 1,099  |   |   |   | 14 |   |
| Residential real estate - other      |   |       | 3,471  |   |      |   | 5,197  |      |   |   | 446        |   |   |       | 6,107  |   |   |   | 223 |   |
|                                 |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |   |   |   |   |   |
| Sub-Total                            |   |       | 43,596 |   |      |   | 47,260 |      |   |   | 11,038     |   |   |       | 37,193 |   |   |   | 1,257 |   |
|                                 |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |   |   |   |   |   |
| Totals:                              |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |   |   |   |   |   |
| Commercial                           |   |       | 2,471  |   |      |   | 2,185  |      |   |   | 984        |   |   |       | 3,461  |   |   |   | 99 |   |
| Commercial real estate               |   |       | 42,427 |   |      |   | 45,698 |      |   |   | 9,032      |   |   |       | 44,425 |   |   |   | 1,487 |   |
| Consumer                             |   |       | 13     |   |      |   | 13     |      |   |   | 10         |   |   |       | 269    |   |   |   | 9 |   |
| Residential real estate              |   |       | 9,531  |   |      |   | 12,282 |      |   |   | 1,012      |   |   |       | 11,505 |   |   |   | 393 |   |
|                                 |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |   |   |   |   |   |
| Grand Total                          |   | $          | 54,442 |   |      | $      | 60,178 |      |   | $      | 11,038     |   |   | $          | 59,660 |   |   | $ | 1,988 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

| Commercial                            |   |   |   |
|---------------------------------------|--------|--------|--------|
| Commercial & industrial           |   | $      | 616    |   |
| Commercial LOC                        |   |   | -      |   |
| Commercial other                      |   |   | -      |   |
| Commercial real estate                |   |   |   |   |
| Commercial construction               |   |   | 16,614 |   |
| Commercial real estate – other  |   |   | 7,633  |   |
| Consumer                              |   |   |   |   |
| Consumer LOC                          |   |   | 5      |   |
| Consumer other                        |   |   | -      |   |
| Residential real estate               |   |   |   |   |
| Consumer construction                 |   |   | 221    |   |
| Home equity loans/lines               |   |   | 1,314  |   |
| Residential real estate – other |   |   | 4,166  |   |
|                                  |   |   |   |   |
| Total                                 |   | $      | 30,569 |   |

|                                 |   | 2010   |       |   | 2009   |   |
|--------------------------------------|--------|--------|------------|--------|--------|--------|
|                                 |   |   |       |   |   |   |
| Land                                 |   | $      | 4,280,213  |   |   | $      | 4,280,213 |   |
| Buildings and leasehold improvements |   |   | 7,161,858  |   |   |   | 7,014,872 |   |
| Furniture and equipment              |   |   | 5,165,685  |   |   |   | 5,155,849 |   |
| Less accumulated depreciation        |   |   | (5,021,836 | )      |   |   | (4,589,776 | ) |
|                                 |   |   |       |   |   |   |   |   |
| Total                                |   | $      | 11,585,920 |   |   | $      | 11,861,158 |   |

|                            |   | 2010   |      |   | 2009   |   |
|---------------------------------|--------|--------|-----------|--------|--------|--------|
|                            |   |   |      |   |   |   |
| Goodwill, beginning of year     |   | $      | -         |   |   | $      | 30,233,049 |   |
| Goodwill impairment write-off   |   |   | -         |   |   |   | 30,233,049 |   |
| Goodwill, end of year           |   | $      | -         |   |   | $      | - |   |
|                            |   |   |      |   |   |   |   |   |
| Other intangibles – gross |   | $      | 1,333,493 |   |   | $      | 1,333,493 |   |
| Less accumulated amortization   |   |   | 640,550   |   |   |   | 507,201 |   |
| Other intangibles – net   |   | $      | 692,943   |   |   | $      | 826,292 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

| 2011       |   | $       | 133,349             |   |
|------------|--------|---------|---------------------|--------|
| 2012       |   |    | 133,349             |   |
| 2013       |   |    | 126,383             |   |
| 2014       |   |    | 112,448             |   |
| 2015       |   |    | 112,448             |   |
| Thereafter |   |    | 74,966              |   |
|       |   |    |                |   |
|       |   | $  |   692,943 |   |

|                               |   | Less than |       |   | $100,000 |   |        |   |   |
|------------------------------------|--------|-----------|------------|--------|----------|--------|-------------|--------|--------|
|                               |   | $100,000  |       |   | or more  |   |        | Total  |   |
|                               |   |      |       |   |     |   |        |   |   |   |   |
| Three months or less               |   | $         | 12,214,309 |   |     | $      | 45,597,269  |   |   | $ | 57,811,578 |   |
| Over three months through one year |   |      | 29,222,852 |   |     |   | 99,482,513  |   |   |   | 128,705,365 |   |
| Over one year through three years  |   |      | 22,168,178 |   |     |   | 95,772,503  |   |   |   | 117,940,681 |   |
| Over three years to five years     |   |      | 10,286,729 |   |     |   | 56,073,286  |   |   |   | 66,360,015 |   |
| Over five years                    |   |      | -          |   |     |   | 6,000,000   |   |   |   | 6,000,000 |   |
| Total                              |   | $         | 73,892,068 |   |     | $      | 302,925,571 |   |   | $ | 376,817,639 |   |

|                                                     |   | 2010   |      |   | 2009   |   |
|----------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Short-term borrowings:                                   |   |   |      |   |   |   |
| Federal Reserve Bank discount window                     |   | $      | -         |   |   | $      | 50,000,000 |   |
| Federal Home Loan Bank advances maturing within one year |   |   | 7,000,000 |   |   |   | 24,000,000 |   |
|                                                     |   |   |      |   |   |   |   |   |
| Total short-term borrowings                              |   | $      | 7,000,000 |   |   | $      | 74,000,000 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

| Federal Home Loan Bank advances maturing beyond one year |   | $      | 142,000,000 |   |   | $      | 127,000,000 |   |
|----------------------------------------------------------|--------|--------|-------------|--------|--------|--------|-------------|--------|
|                                                     |   |   |        |   |   |   |        |   |
| Junior subordinated debentures                           |   |   | 8,248,000   |   |   |   | 8,248,000   |   |
|                                                     |   |   |        |   |   |   |        |   |
| Subordinated term loan                                   |   |   | 7,500,000   |   |   |   | 7,500,000   |   |
|                                                     |   |   |        |   |   |   |        |   |
| Total long-term debt                                     |   | $      | 157,748,000 |   |   | $      | 142,748,000 |   |

|                                                        |   | For the Year Ended December 31, |   |
|-------------------------------------------------------------|--------|----------------------------------------------------------|--------|
|                                                        |   | 2010                                                     |   |   | 2009 |   |
|                                                        |   | (Dollars in thousands)                                   |   |
| Short-term borrowings:                                      |   |                                                     |   |   |   |   |
| Federal funds purchased:                                    |   |                                                     |   |   |   |   |
| Balance outstanding at end of year                          |   | $                                                        | -      |   |   | $ | - |   |
| Maximum amount outstanding at any month end during the year |   |                                                     | -      |   |   |   | 101,222 |   |
| Average balance outstanding during the year                 |   |                                                     | 13     |   |   |   | 16,037 |   |
| Weighted-average interest rate during the year              |   |                                                     | 0.75   | % |   |   | 0.61 | % |
| Weighted-average interest rate at end of year               |   |                                                     | 0      | % |   |   | 0 | % |
| Federal Reserve Bank discount window:                       |   |                                                     |   |   |   |   |   |   |
| Balance outstanding at end of year                          |   | $                                                        | -      |   |   | $ | 50,000 |   |
| Maximum amount outstanding at any month end during the year |   |                                                     | 50,000 |   |   |   | 75,000 |   |
| Average balance outstanding during the year                 |   |                                                     | 11,984 |   |   |   | 48,039 |   |
| Weighted-average interest rate during the year              |   |                                                     | 0.31   | % |   |   | 0.42 | % |
| Weighted-average interest rate at end of year               |   |                                                     | 0      | % |   |   | 0.25 | % |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

| Maturity          |   | Interest Rate |   |   | Rate Type |        | 2010   |   |        | 2009   |   |
|-------------------|--------|--------------------|--------|--------|----------------|-------------|--------|--------|-------------|--------|--------|
|              |   |               |   |   |           |        |   |   |        |   |   |   |   |   |
| January 7, 2010   |   |               | 1.11   | %      |           | Fixed       |   | $      | -           |   |   | $ | 10,000,000 |   |
| April 12, 2010    |   |               | 4.58   | %      |           | Fixed       |   |   | -           |   |   |   | 7,000,000 |   |
| June 9, 2010      |   |               | 3.58   | %      |           | Fixed       |   |   | -           |   |   |   | 7,000,000 |   |
| January 12, 2011  |   |               | 1.75   | %      |           | Fixed       |   |   | 7,000,000   |   |   |   | 7,000,000 |   |
| June 9, 2011      |   |               | 3.94   | %      |           | Fixed       |   |   | -           |   |   |   | 8,000,000 |   |
| February 10, 2012 |   |               | 1.68   | %      |           | Fixed       |   |   | 5,000,000   |   |   |   | 5,000,000 |   |
| March 9, 2012     |   |               | 4.29   | %      |           | Convertible |   |   | -           |   |   |   | 10,000,000 |   |
| May 18, 2012      |   |               | 4.49   | %      |           | Convertible |   |   | -           |   |   |   | 20,000,000 |   |
| July 16, 2012     |   |               | 3.84   | %      |           | Convertible |   |   | -           |   |   |   | 5,000,000 |   |
| August 29, 2012   |   |               | 4.00   | %      |           | Convertible |   |   | -           |   |   |   | 15,000,000 |   |
| October 29, 2012  |   |               | 0.92   | %      |           | Fixed       |   |   | 8,000,000   |   |   |   | - |   |
| December 6, 2012  |   |               | 4.22   | %      |           | Fixed       |   |   | -           |   |   |   | 5,000,000 |   |
| February 11, 2013 |   |               | 2.29   | %      |           | Fixed       |   |   | 5,000,000   |   |   |   | 5,000,000 |   |
| April 22, 2013    |   |               | 2.55   | %      |           | Fixed       |   |   | 6,000,000   |   |   |   | 6,000,000 |   |
| November 7, 2013  |   |               | 2.48   | %      |           | Fixed       |   |   | 10,000,000  |   |   |   | - |   |
| March 21, 2014    |   |               | 2.76   | %      |           | Fixed       |   |   | 5,000,000   |   |   |   | 5,000,000 |   |
| August 21, 2014   |   |               | 2.90   | %      |           | Fixed       |   |   | 5,000,000   |   |   |   | 5,000,000 |   |
| October 21, 2014  |   |               | 2.91   | %      |           | Fixed       |   |   | 9,000,000   |   |   |   | 9,000,000 |   |
| February 2, 2015  |   |               | 3.39   | %      |           | Fixed       |   |   | 5,000,000   |   |   |   | - |   |
| April 13, 2015    |   |               | 2.98   | %      |           | Fixed       |   |   | 7,000,000   |   |   |   | - |   |
| June 9, 2015      |   |               | 2.56   | %      |           | Fixed       |   |   | 5,000,000   |   |   |   | - |   |
| August 3, 2015    |   |               | 3.46   | %      |           | Fixed       |   |   | 5,000,000   |   |   |   | - |   |
| February 2, 2016  |   |               | 3.49   | %      |           | Fixed       |   |   | 15,000,000  |   |   |   | - |   |
| November 2, 2016  |   |               | 3.57   | %      |           | Fixed       |   |   | 10,000,000  |   |   |   | - |   |
| February 2, 2017  |   |               | 3.75   | %      |           | Fixed       |   |   | 5,000,000   |   |   |   | - |   |
| May 2, 2017       |   |               | 3.65   | %      |           | Fixed       |   |   | 5,000,000   |   |   |   | - |   |
| August 2, 2017    |   |               | 3.84   | %      |           | Fixed       |   |   | 5,000,000   |   |   |   | - |   |
| October 30, 2017  |   |               | 2.98   | %      |           | Fixed       |   |   | 5,000,000   |   |   |   | - |   |
| January 28, 2019  |   |               | 3.90   | %      |           | Fixed       |   |   | 12,000,000  |   |   |   | 12,000,000 |   |
| March 25, 2019    |   |               | 4.26   | %      |           | Fixed       |   |   | 10,000,000  |   |   |   | 10,000,000 |   |
|              |   |               |   |   |           |        |   |   |        |   |   |   |   |   |
| Totals            |   |               |   |   |           |        |   | $      | 149,000,000 |   |   | $ | 151,000,000 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

| 2011       |   | $      | 1,999,000  |   |
|------------|--------|--------|------------|--------|
| 2012       |   |   | 1,869,000  |   |
| 2013       |   |   | 1,775,000  |   |
| 2014       |   |   | 1,711,000  |   |
| 2015       |   |   | 1,222,000  |   |
| Thereafter |   |   | 7,103,000  |   |
|       |   |   |       |   |
| Total      |   | $      | 15,679,000 |   |

|                                                                                             |   | 2010   |       |   | 2009   |   |       | 2008   |   |
|--------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
| Current tax provision:                                                                           |   |   |       |   |   |   |       |   |   |
| Federal                                                                                          |   | $      | (2,384,393 | )      |   | $      | 499,168    |   |   | $ | 1,910,369 |   |
| State                                                                                            |   |   | 44,882     |   |   |   | 249,539    |   |   |   | 476,528 |   |
|                                                                                             |   |   | (2,339,511 | )      |   |   | 748,707    |   |   |   | 2,386,897 |   |
| Deferred tax provision (benefit):                                                                |   |   |       |   |   |   |       |   |   |   |   |   |
| Federal                                                                                          |   |   | (2,882,893 | )      |   |   | (1,717,793 | )      |   |   | (1,473,490 | ) |
| State                                                                                            |   |   | (951,232   | )      |   |   | (359,614   | )      |   |   | (314,707 | ) |
|                                                                                             |   |   | (3,834,125 | )      |   |   | (2,077,407 | )      |   |   | (1,788,197 | ) |
| Provision for income tax expense (benefit) before adjustment to deferred tax valuation allowance |   |   | (6,173,636 | )      |   |   | (1,328,700 | )      |   |   | 598,700 |   |
|                                                                                             |   |   |       |   |   |   |       |   |   |   |   |   |
| Deferred tax asset valuation allowance                                                           |   |   | 2,104,000  |   |   |   | -          |   |   |   | - |   |
|                                                                                             |   |   |       |   |   |   |       |   |   |   |   |   |
| Net provision for income taxes                                                                   |   | $      | (4,069,636 | )      |   | $      | (1,328,700 | )      |   | $ | 598,700 |   |

|                                  |   | 2010   |       |   | 2009   |   |        | 2008   |   |
|---------------------------------------|--------|--------|------------|--------|--------|--------|-------------|--------|--------|
|                                  |   |   |       |   |   |   |        |   |   |
| Tax computed at statutory rate of 34% |   | $      | (4,740,911 | )      |   | $      | (10,728,581 | )      |   | $ | 887,237 |   |
| Effect of state income taxes          |   |   | (598,191   | )      |   |   | (72,649     | )      |   |   | 106,802 |   |
| Non-taxable interest income           |   |   | (667,295   | )      |   |   | (510,847    | )      |   |   | (279,751 | ) |
| Non-taxable bank owned life insurance |   |   | (280,366   | )      |   |   | (287,799    | )      |   |   | (234,335 | ) |
| Goodwill impairment                   |   |   | -          |   |   |   | 10,279,235  |   |   |   | - |   |
| Valuation allowance                   |   |   | 2,104,000  |   |   |   | -           |   |   |   | - |   |
| Other                                 |   |   | 113,127    |   |   |   | (17,059     | )      |   |   | 118,747 |   |
|                                  |   |   |       |   |   |   |        |   |   |   |   |   |
|                                  |   | $      | (4,069,636 | )      |   | $      | (1,328,700  | )      |   | $ | 598,700 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                                            |   | 2010   |       |   | 2009   |   |
|-------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Deferred tax assets:                            |   |   |       |   |   |   |
| Allowance for loan losses                       |   | $      | 7,981,449  |   |   | $      | 6,522,001 |   |
| Net operating loss carryforward                 |   |   | 1,922,812  |   |   |   | - |   |
| Premises and equipment                          |   |   | 39,247     |   |   |   | 41,051 |   |
| Fair value adjustments                          |   |   | 28,089     |   |   |   | 54,425 |   |
| Unrealized loss on hedges                       |   |   | 223,219    |   |   |   | 113,697 |   |
| Deferred compensation                           |   |   | 807,627    |   |   |   | 632,559 |   |
| Other                                           |   |   | 666,525    |   |   |   | 418,835 |   |
|                                            |   |   |       |   |   |   |   |   |
| Total deferred tax assets                       |   |   | 11,668,968 |   |   |   | 7,782,568 |   |
| Valuation allowance                             |   |   | (2,104,000 | )      |   |   | - |   |
|                                            |   |   |       |   |   |   |   |   |
| Net deferred tax assets                         |   |   | 9,564,968  |   |   |   | 7,782,568 |   |
| Deferred tax liabilities:                       |   |   |       |   |   |   |   |   |
| Intangible assets                               |   |   | (267,157   | )      |   |   | (318,568 | ) |
| Unrealized gain on securities                   |   |   | (1,407,377 | )      |   |   | (1,001,457 | ) |
| Prepaid expenses                                |   |   | (158,201   | )      |   |   | (164,037 | ) |
|                                            |   |   |       |   |   |   |   |   |
| Total deferred tax liabilities                  |   |   | (1,832,735 | )      |   |   | (1,484,062 | ) |
|                                            |   |   |       |   |   |   |   |   |
| Net deferred tax asset included in other assets |   | $      | 7,732,232  |   |   | $      | 6,298,506 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                    |   | 2010   |    |   | 2009   |   |    | 2008   |   |
|-------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                    |   |   |    |   |   |   |    |   |   |   |   |   |
| Brokerage referral fees |   | $      | 221,881 |   |   | $      | 163,858 |   |   | $ | 172,159 |   |
| Loan Related fees       |   |   | 226,042 |   |   |   | 243,331 |   |   |   | 137,229 |   |
| Other                   |   |   | 159,813 |   |   |   | 112,285 |   |   |   | 420,831 |   |
|                    |   |   |    |   |   |   |    |   |   |   |   |   |
| Total                   |   | $      | 607,736 |   |   | $      | 519,474 |   |   | $ | 730,219 |   |

|                                            |   | 2010   |      |   | 2009   |   |      | 2008   |   |
|-------------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|
|                                            |   |   |      |   |   |   |      |   |   |   |   |   |
| Postage, printing and office supplies           |   | $      | 466,589   |   |   | $      | 620,467   |   |   | $ | 560,192 |   |
| Advertising, marketing and business development |   |   | 629,274   |   |   |   | 613,456   |   |   |   | 639,129 |   |
| Professional fees and services                  |   |   | 1,836,598 |   |   |   | 1,465,114 |   |   |   | 1,620,339 |   |
| Loan servicing and collection expenses          |   |   | 333,176   |   |   |   | 226,490   |   |   |   | 255,105 |   |
| Other                                           |   |   | 1,603,435 |   |   |   | 1,571,514 |   |   |   | 1,501,691 |   |
|                                            |   |   |      |   |   |   |      |   |   |   |   |   |
| Total                                           |   | $      | 4,869,072 |   |   | $      | 4,497,041 |   |   | $ | 4,576,456 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                                     |   |                   |    |   |                          |   |   | Minimum to be well      |   |
|------------------------------------------|--------|------------------------|---------|--------|-------------------------------|--------|--------|----------------------------------------|--------|
|                                |   |                   |    |   | Minimum for capital |   |   | capitalized under prompt     |   |
|                                |   | Actual                 |    |   | adequacy purposes        |   |   | corrective action provisions |   |
|                                     |   | Amount                 |    |   | Ratio                         |   |   | Amount                                 |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
|                                     |   | (Dollars in thousands) |    |
| Crescent State Bank                      |   |                   |    |   |                          |   |   |                                   |   |   |   |   |   |   |   |   |   |   |
| As of December 31, 2010:                 |   |                   |    |   |                          |   |   |                                   |   |   |   |   |   |   |   |   |   |   |
|                                     |   |                   |    |   |                          |   |   |                                   |   |   |   |   |   |   |   |   |   |   |
| Total Capital (to Risk-Weighted Assets)  |   | $                      | 95,019  |   |                          |   | 12.27  | %                                      |   | $ | 61,952 |   |   |   | 8.00 | % |   | $ | 77,440 |   |   |   | 10.00 | % |
| Tier I Capital (to Risk-Weighted Assets) |   |                   | 77,750  |   |                          |   | 10.04  | %                                      |   |   | 30,976 |   |   |   | 4.00 | % |   |   | 46,464 |   |   |   | 6.00 | % |
| Tier I Capital (to Average Assets)       |   |                   | 77,689  |   |                          |   | 8.11   | %                                      |   |   | 38,317 |   |   |   | 4.00 | % |   |   | 47,897 |   |   |   | 5.00 | % |
|                                     |   |                   |    |   |                          |   |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| As of December 31, 2009:                 |   |                   |    |   |                          |   |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   |                   |    |   |                          |   |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Capital (to Risk-Weighted Assets)  |   | $                      | 111,463 |   |                          |   | 13.32  | %                                      |   | $ | 66,945 |   |   |   | 8.00 | % |   | $ | 83,682 |   |   |   | 10.00 | % |
| Tier I Capital (to Risk-Weighted Assets) |   |                   | 93,415  |   |                          |   | 11.16  | %                                      |   |   | 33,473 |   |   |   | 4.00 | % |   |   | 50,209 |   |   |   | 6.00 | % |
| Tier I Capital (to Average Assets)       |   |                   | 93,415  |   |                          |   | 8.86   | %                                      |   |   | 42,170 |   |   |   | 4.00 | % |   |   | 52,712 |   |   |   | 5.00 | % |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                               |   | December 31,  |   |
|------------------------------------|--------|--------------------|--------|
|                          |   |          |   |   |   |   | 2010 |   |   | 2009 |   |
|                          |   |          |   |   |   |   | Estimated Fair |   |   | Estimated Fair |   |
|                          |   | Balance Sheet |   | Notional |   |   | Value of |   |   | Value of |   |
|                          |   | Location           |   | Asset(Liability) |   |   | Amount |   |   | Amount |   |
|                               |   |               |   |                                           |   |   |   |   |   |   |   |
| Trust preferred securities:        |   |               |   |   |   |   |   |   |   |   |   |
| Interest rate swap                 |   | Other liabilities  |   | $ | 4,000,000 |   |   | $ | (111,444 | ) |   | $ | (67,847 | ) |
| Interest rate swap                 |   | Other liabilities  |   |   | 4,000,000 |   |   |   | (188,166 | ) |   |   | (83,652 | ) |
|                               |   |               |   |   |   |   |   |   |   |   |   |   |   |   |
| Subordinated term loan agreements: |   |               |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate swap                 |   | Other liabilities  |   |   | 3,750,000 |   |   |   | (103,529 | ) |   |   | (64,216 | ) |
| Interest rate swap                 |   | Other liabilities  |   |   | 3,750,000 |   |   |   | (175,899 | ) |   |   | (79,219 | ) |
|                               |   |               |   | $ | 15,500,000 |   |   | $ | (579,038 | ) |   | $ | (294,934 | ) |

|                                                                                      |   | 2010   |     |   | 2009   |   |
|-------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|--------|
| Accumulated OCI resulting from  interest rate swaps as of January 1, net of tax |   | $      | (181,237 | )      |   | $      | - |   |
|                                                                                      |   |   |     |   |   |   |   |   |
| Other comprehensive loss recognized, net of tax                                           |   |   | (174,581 | )      |   |   | (181,237 | ) |
|                                                                                      |   |   |     |   |   |   |   |   |
| Accumulated OCI resulting from interest rate swaps as of December 31, net of tax     |   | $      | (355,818 | )      |   | $      | (181,237 | ) |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

| Financial instruments whose contract amounts represent credit risk: |   |   |   |
|---------------------------------------------------------------------|--------|--------|--------|
| Commitments to extend credit                                        |   | $      | 86,646 |   |
| Undisbursed equity lines of credit                                  |   |   | 32,957 |   |
| Financial standby letters of credit                                 |   |   | 4,019  |   |
| Commitment to invest in Small Business Investment Corporation       |   |   | 363    |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                                   |   |                                                                                                                                                                                                                                                   |       |   | Fair Value Measurements at |   |
|----------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------|-------------------------------------------|--------|
|                              |   |                                                                                                                                                                                                                                                   |       |   | December 31, 2010, Using   |   |
|                              |   |                                                                                                                                                                                                                                                   |       |   | Quoted Prices                        |   |   | Significant |   |   |   |   |
|                              |   | Assets/(Liabilities)                                                                                                                                                                                                                                   |       |   | in Active                            |   |   | Other |   |   | Significant |   |
|                              |   | Measured at                                                                                                                                                                                                                                       |       |   | Markets for                          |   |   | Observable |   |   | Unobservable |   |
|                              |   | Fair Value                                                                                                                                                                                                                                        |       |   | Identical Assets                     |   |   | Inputs |   |   | Inputs |   |
| Description                            |   | 12/31/2010                                                                                                                                                                                                                                             |       |   | (Level 1)                                 |   |   | (Level 2) |   |   | (Level 3) |   |
|                                   |   |                                           |       |   |                                      |   |   |   |   |   |   |   |
| Securities available for sale:         |   |                                                                                                                                                                                                                                                   |       |   |                                      |   |   |   |   |   |   |   |
| U.S. Government obligations and agency |   | $                                                                                                                                                                                                                                                      | 9,838,400  |   |                                      | $      | - |   |   | $ | 9,838,400 |   |   | $ | - |   |
| Mortgage-backed                        |   |                                                                                                                                                                                                                                                   | 39,724,845 |   |                                      |   | - |   |   |   | 39,724,845 |   |   |   | - |   |
| Collateralized mortgage obligations    |   |                                                                                                                                                                                                                                                   | 78,449,684 |   |                                      |   | - |   |   |   | 78,449,684 |   |   |   | - |   |
| Municipals                             |   |                                                                                                                                                                                                                                                   | 50,618,363 |   |                                      |   | - |   |   |   | 50,618,363 |   |   |   | - |   |
| Corporate Bonds                        |   |                                                                                                                                                                                                                                                   | 2,768,800  |   |                                      |   |   |   |   |   | 2,768,800 |   |   |   |   |   |
| Marketable equity                      |   |                                                                                                                                                                                                                                                   | 516,137    |   |                                      |   | 516,137 |   |   |   | - |   |   |   | - |   |
|                                   |   |                                                                                                                                                                                                                                                   |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Foreclosed assets                      |   |                                                                                                                                                                                                                                                   | 15,523,592 |   |                                      |   | - |   |   |   | - |   |   |   | 15,523,592 |   |
| Impaired loans                         |   |                                                                                                                                                                                                                                                   | 43,404,439 |   |                                      |   | - |   |   |   | - |   |   |   | 43,404,439 |   |
| Interest rate lock commitments         |   |                                                                                                                                                                                                                                                   | 53,185     |   |                                      |   | - |   |   |   | - |   |   |   | 53,185 |   |
| Derivative liabilities                 |   |                                                                                                                                                                                                                                                   | (579,038   | )      |                                      |   | - |   |   |   | (579,038 | ) |   |   | - |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                                   |   |                                                                                                                                                                                                                                                   |       |   | Fair Value Measurements at |   |
|----------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------|-------------------------------------------|--------|
|                              |   |                                                                                                                                                                                                                                                   |       |   | December 31, 2009, Using   |   |
|                              |   |                                                                                                                                                                                                                                                   |       |   | Quoted Prices                        |   |   | Significant |   |   |   |   |
|                              |   | Assets/(Liabilities)                                                                                                                                                                                                                                   |       |   | in Active                            |   |   | Other |   |   | Significant |   |
|                              |   | Measured at                                                                                                                                                                                                                                       |       |   | Markets for                          |   |   | Observable |   |   | Unobservable |   |
|                              |   | Fair Value                                                                                                                                                                                                                                        |       |   | Identical Assets                     |   |   | Inputs |   |   | Inputs |   |
| Description                            |   | 12/31/2009                                                                                                                                                                                                                                             |       |   | (Level 1)                            |   |   | (Level 2) |   |   | (Level 3) |   |
|                                   |   |                                           |       |   |                                      |   |   |   |   |   |   |   |
| Securities available for sale:         |   |                                                                                                                                                                                                                                                   |       |   |                                      |   |   |   |   |   |   |   |
| U.S. Government obligations and agency |   | $                                                                                                                                                                                                                                                      | 12,683,127 |   |                                      | $      | - |   |   | $ | 12,683,127 |   |   | $ | - |   |
| Mortgage-backed                        |   |                                                                                                                                                                                                                                                   | 60,203,087 |   |                                      |   | - |   |   |   | 60,203,087 |   |   |   | - |   |
| Collateralized mortgage obligations    |   |                                                                                                                                                                                                                                                   | 70,863,172 |   |                                      |   | - |   |   |   | 70,863,172 |   |   |   | - |   |
| Municipals                             |   |                                                                                                                                                                                                                                                   | 49,028,405 |   |                                      |   | - |   |   |   | 49,028,405 |   |   |   | - |   |
| Marketable equity                      |   |                                                                                                                                                                                                                                                   | 345,100    |   |                                      |   | 345,100 |   |   |   | - |   |   |   | - |   |
|                                   |   |                                                                                                                                                                                                                                                   |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Foreclosed assets                      |   |                                                                                                                                                                                                                                                   | 6,305,617  |   |                                      |   | - |   |   |   | - |   |   |   | 6,305,617 |   |
| Impaired loans*                        |   |                                                                                                                                                                                                                                                   | 26,258,018 |   |                                      |   | - |   |   |   | - |   |   |   | 26,258,018 |   |
| Derivative liabilities                 |   |                                                                                                                                                                                                                                                   | (294,934   | )      |                                      |   | - |   |   |   | (294,934 | ) |   |   | - |   |

| * | Impaired loans secured by Real Estate were classified at fair value hierarchy Level 2 at December 31, 2009.  However, at December 31, 2010, based on additional review by management, it has been deemed more appropriate to classify these loans at fair value hierarchy Level 3.  Accordingly, $23,434,441 of impaired loans, classified at Level 2 as of December 31, 2009, are now included with the $2,823,577 previous reported in the total at fair value hierarchy Level 3. |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                           |   | 2010     |        |   | 2009       |   |
|--------------------------------|--------|----------|-------------|--------|------------|--------|
|                           |   | Carrying |        |   | Estimated  |   |   | Carrying |   |   | Estimated |   |
|                           |   | amount   |        |   | fair value |   |   | amount |   |   | fair value |   |
| Financial assets:              |   |     |        |   |       |   |   |   |   |   |   |   |
| Cash and cash equivalents      |   | $        | 49,106,179  |   |       | $      | 49,106,179 |   |   | $ | 13,902,108 |   |   | $ | 13,902,108 |   |
| Investment securities          |   |     | 184,455,418 |   |       |   | 184,455,418 |   |   |   | 193,122,891 |   |   |   | 193,122,891 |   |
| Federal Home Loan Bank stock   |   |     | 10,521,700  |   |       |   | 10,521,700 |   |   |   | 11,776,500 |   |   |   | 11,776,500 |   |
| Loans held for sale            |   |     | 5,689,853   |   |       |   | 5,689,853 |   |   |   | - |   |   |   | - |   |
| Loans held for investment, net |   |     | 656,101,069 |   |       |   | 621,983,795 |   |   |   | 741,781,341 |   |   |   | 701,738,000 |   |
| Investment in life insurance   |   |     | 18,482,993  |   |       |   | 18,482,993 |   |   |   | 17,658,386 |   |   |   | 17,658,386 |   |
| Accrued interest receivable    |   |     | 3,995,242   |   |       |   | 3,995,242 |   |   |   | 4,260,258 |   |   |   | 4,260,258 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

| Financial liabilities:   |   |   |        |   |   |   |        |   |   |   |        |   |
|--------------------------|--------|--------|-------------|--------|--------|--------|-------------|--------|--------|--------|-------------|--------|
| Deposits                 |   |   | 724,383,323 |   |   |   | 742,610,196 |   |   |   | 722,634,618 |   |   |   | 742,001,000 |   |
| Short-term borrowings    |   |   | 7,000,000   |   |   |   | 7,232,221   |   |   |   | 74,000,000  |   |   |   | 74,260,000 |   |
| Long-term borrowings     |   |   | 157,748,000 |   |   |   | 158,661,779 |   |   |   | 142,748,000 |   |   |   | 139,457,000 |   |
| Interest rate swaps      |   |   | 579,038     |   |   |   | 579,038     |   |   |   | 294,934     |   |   |   | 294,934 |   |
| Accrued interest payable |   |   | 1,350,326   |   |   |   | 1,350,326   |   |   |   | 1,475,128   |   |   |   | 1,475,128 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                                   |   | Outstanding Options |    |   | Exercisable Options |   |
|----------------------------------------|--------|--------------------------|---------|--------|--------------------------|--------|
|                                   |   |                     |    |   | Weighted                 |   |   |   |   |   | Weighted |   |
|                                   |   |                     |    |   | Average                  |   |   |   |   |   | Average |   |
|                                   |   |                     |    |   | Option                   |   |   |   |   |   | Option |   |
|                                   |   | Number                   |    |   | Price                    |   |   | Number |   |   | Price |   |
|                                   |   |                     |    |   |                     |   |   |   |   |   |   |   |
| Options outstanding, beginning of year |   |                     | 430,118 |   |                     | $      | 5.90 |   |   |   | 405,712 |   |   | $ | 5.91 |   |
| Granted/vested                         |   |                     | 3,000   |   |                     |   | 2.11 |   |   |   | 750 |   |   |   | 2.11 |   |
| Exercised                              |   |                     | -       |   |                     |   | - |   |   |   | - |   |   |   | - |   |
| Expired                                |   |                     | 127,499 |   |                     |   | 5.38 |   |   |   | 117,593 |   |   |   | 5.47 |   |
| Forfeited                              |   |                     | 6,008   |   |                     |   | 8.69 |   |   |   | 5,008 |   |   |   | 3.23 |   |
|                                   |   |                     |    |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Options outstanding, end of year       |   |                     | 299,611 |   |                     | $      | 6.03 |   |   |   | 283,861 |   |   | $ | 6.12 |   |

|   Range of Exercise Prices |   | Stock Options Outstanding |    |   | Stock Options Exercisable |   |
|-----------------------------------------------------|--------|-------------------------------------|---------|--------|-------------------------------------|--------|
|                                                |   |                                |    |   |                                |   |
| $  2.11 - $   3.93         |   |                                | 3,000   |   |                                |   | 750 |   |
| $  3.94 - $   6.13         |   |                                | 215,338 |   |                                |   | 203,338 |   |
| $  6.14 - $   8.32         |   |                                | 26,570  |   |                                |   | 25,070 |   |
| $  8.33 - $ 10.51                         |   |                                | 8,001   |   |                                |   | 8,001 |   |
| $10.52 - $ 12.71                                    |   |                                | 46,702  |   |                                |   | 46,702 |   |
|                                                |   |                                |    |   |                                |   |   |   |
|                                                |   |                                | 299,611 |   |                                |   | 283,861 |   |

|                                                  |   | 2010         |   |   | 2009         |   |   | 2008         |   |
|-------------------------------------------------------|--------|--------------|--------|--------|--------------|--------|--------|--------------|--------|
| Assumptions in estimating option values:              |   |         |   |   |         |   |   |         |   |
| Risk-free interest rate                               |   |         | 2.71   | %      |         |   | 2.50   | %            |   |   | 3.12 | % |
|                                                  |   |         |   |   |         |   |   |         |   |   |   |   |
| Dividend yield                                        |   |         | 0      | %      |         |   | 0      | %            |   |   | 0 | % |
|                                                  |   |         |   |   |         |   |   |         |   |   |   |   |
| Volatility                                            |   |         | 39.51  | %      |         |   | 37.23  | %            |   |   | 26.80 | % |
|                                                  |   |         |   |   |         |   |   |         |   |   |   |   |
| Expected life                                         |   | 7 years |   |   | 7 years |   |   | 7 years |   |
|                                                  |   |         |   |   |         |   |   |         |   |   |   |   |
| The weighted average grant date fair value of options |   | $            | 0.96   |   |         | $      | 1.90   |         |   | $ | 2.44 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                                 |   |   |   |   | Weighted                  |   |
|--------------------------------------|--------|--------|--------|--------|---------------------------|--------|
|                                 |   |   |   |   | average grant             |   |
|                                 |   | Shares |   |   | date fair value |   |
| Non-vested – December 31, 2007 |   |   | 21,769 |   |                      | $      | 12.54 |   |
| Granted                              |   |   | 35,500 |   |                      |   | 8.75 |   |
| Vested                               |   |   | -      |   |                      |   | - |   |
| Forfeited                            |   |   | -      |   |                      |   | - |   |
|                                 |   |   |   |   |                      |   |   |   |
| Non-vested – December 31, 2008 |   |   | 57,269 |   |                      | $      | 10.19 |   |
|                                 |   |   |   |   |                      |   |   |   |
| Granted                              |   |   | -      |   |                      |   | - |   |
| Vested                               |   |   | -      |   |                      |   | - |   |
| Forfeited                            |   |   | -      |   |                      |   | - |   |
|                                 |   |   |   |   |                      |   |   |   |
| Non-vested – December 31, 2009 |   |   | 57,269 |   |                      | $      | 10.19 |   |
|                                 |   |   |   |   |                      |   |   |   |
| Granted                              |   |   | 37,500 |   |                      |   | 3.19 |   |
| Vested                               |   |   | 12,100 |   |                      |   | 12.64 |   |
| Forfeited                            |   |   | -      |   |                      |   | - |   |
|                                 |   |   |   |   |                      |   |   |   |
| Non-vested – December 31, 2010 |   |   | 82,669 |   |                      | $      | 6.98 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

| Risk-free interest rate   |   |          | 2.49   | % |
|---------------------------|--------|---------------|--------|---|
| Expected life of warrants |   | 10 years |   |
| Expected dividend yield   |   |          | 0.00   | % |
| Expected volatility       |   |          | 37.27  | % |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                                             |   | 2010   |        |   | 2009   |   |
|--------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| ASSETS                                           |   |   |        |   |   |   |
| Cash and due from banks                          |   | $      | 2,597,914   |   |   | $      | 2,052,005 |   |
| Investment in subsidiaries                       |   |   | 85,098,885  |   |   |   | 96,054,355 |   |
| Other assets                                     |   |   | 133,307     |   |   |   | 79,208 |   |
|                                             |   |   |        |   |   |   |   |   |
| TOTAL ASSETS                                     |   | $      | 87,830,106  |   |   | $      | 98,185,568 |   |
|                                             |   |   |        |   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY             |   |   |        |   |   |   |   |   |
| Liabilities:                                     |   |   |        |   |   |   |   |   |
| Accrued interest payable                         |   | $      | 111,515     |   |   | $      | 110,238 |   |
| Accrued expenses and other liabilities           |   |   | 455,234     |   |   |   | 307,124 |   |
| Subordinated debentures                          |   |   | 8,248,000   |   |   |   | 8,248,000 |   |
|                                             |   |   |        |   |   |   |   |   |
| TOTAL LIABILITIES                                |   |   | 8,814,749   |   |   |   | 8,665,362 |   |
|                                             |   |   |        |   |   |   |   |   |
| Stockholders' equity:                            |   |   |        |   |   |   |   |   |
| Preferred stock                                  |   |   | 23,379,651  |   |   |   | 22,935,514 |   |
| Common stock                                     |   |   | 9,664,059   |   |   |   | 9,626,559 |   |
| Warrant                                          |   |   | 2,367,368   |   |   |   | 2,367,368 |   |
| Additional paid-in capital                       |   |   | 74,634,361  |   |   |   | 74,529,894 |   |
| Accumulated deficit                              |   |   | (32,917,437 | )      |   |   | (21,354,080 | ) |
| Accumulated other comprehensive income           |   |   | 1,887,355   |   |   |   | 1,414,951 |   |
|                                             |   |   |        |   |   |   |   |   |
| TOTAL STOCKHOLDERS’ EQUITY                 |   |   | 79,015,357  |   |   |   | 89,520,206 |   |
|                                             |   |   |        |   |   |   |   |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |   | $      | 87,830,106  |   |   | $      | 98,185,568 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                                      |   | 2010   |       |   | 2009   |   |        | 2008   |   |
|-------------------------------------------|--------|--------|------------|--------|--------|--------|-------------|--------|--------|
|                                      |   |   |       |   |   |   |        |   |   |
| Equity in earnings (loss) of subsidiaries |   | $      | (9,546,703 | )      |   | $      | (30,205,191 | )      |   | $ | 2,467,201 |   |
| Interest income                           |   |   | 85,504     |   |   |   | 498,375     |   |   |   | 39,808 |   |
| Dividend income                           |   |   | 8,657      |   |   |   | 9,873       |   |   |   | 17,026 |   |
| Other miscellaneous income                |   |   | -          |   |   |   | 13          |   |   |   | 5,024 |   |
| Interest expense                          |   |   | (474,703   | )      |   |   | (416,833    | )      |   |   | (623,487 | ) |
| Other operating expenses                  |   |   | (111,475   | )      |   |   | (114,288    | )      |   |   | (132,853 | ) |
| Income tax benefit                        |   |   | 164,500    |   |   |   | 2,100       |   |   |   | 238,100 |   |
|                                      |   |   |       |   |   |   |        |   |   |   |   |   |
| Net income (loss)                         |   | $      | (9,874,220 | )      |   | $      | (30,225,951 | )      |   | $ | 2,010,819 |   |

|                                                                                            |   | 2010   |       |   | 2009   |   |        | 2008   |   |
|-------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|-------------|--------|--------|
|                                                                                            |   |   |       |   |   |   |        |   |   |
| Cash flows from operating activities:                                                           |   |   |       |   |   |   |        |   |   |
| Net income (loss)                                                                               |   | $      | (9,874,220 | )      |   | $      | (30,225,951 | )      |   | $ | 2,010,819 |   |
| Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: |   |   |       |   |   |   |        |   |   |   |   |   |
| Amortization                                                                                    |   |   | -          |   |   |   | -           |   |   |   | 22,266 |   |
| Stock based compensation                                                                        |   |   | 141,968    |   |   |   | 180,595     |   |   |   | 209,098 |   |
| Equity in earnings of Crescent State Bank                                                       |   |   | 9,546,703  |   |   |   | 30,205,191  |   |   |   | (2,467,201 | ) |
| Changes in assets and liabilities:                                                              |   |   |       |   |   |   |        |   |   |   |   |   |
| (Increase) decrease in other assets                                                             |   |   | (54,099    | )      |   |   | 45,350      |   |   |   | (50,779 | ) |
| Increase (decrease) in accrued interest payable                                                 |   |   | 1,276      |   |   |   | (60,734     | )      |   |   | 6,595 |   |
| Increase (decrease) in accrued expenses and other liabilities                                   |   |   | 148,110    |   |   |   | (1,853,594  | )      |   |   | 1,989,619 |   |
|                                                                                            |   |   |       |   |   |   |        |   |   |   |   |   |
| Net cash provided (used) by operating activities                                                |   |   | (90,262    | )      |   |   | (1,709,143  | )      |   |   | 1,720,418 |   |
|                                                                                            |   |   |       |   |   |   |        |   |   |   |   |   |
| Cash flows from investing activities:                                                           |   |   |       |   |   |   |        |   |   |   |   |   |
| Investment in Subsidiaries                                                                      |   |   | (118,829   | )      |   |   | (20,630,728 | )      |   |   | (3,411,798 | ) |
|                                                                                            |   |   |       |   |   |   |        |   |   |   |   |   |
| Cash flows from financing activities:                                                           |   |   |       |   |   |   |        |   |   |   |   |   |
| Proceeds from issuance of preferred stock and common stock warrant                              |   |   | -          |   |   |   | 24,900,000  |   |   |   | - |   |
| Dividends paid on preferred stock                                                               |   |   | (1,245,000 | )      |   |   | (1,058,250  | )      |   |   | - |   |
| Dividends received from Crescent State Bank                                                     |   |   | 2,000,000  |   |   |   | -           |   |   |   | - |   |
| Proceeds from exercise of stock options                                                         |   |   | -          |   |   |   | -           |   |   |   | 670,254 |   |
| Excess tax benefits from stock options exercised                                                |   |   | -          |   |   |   | -           |   |   |   | 95,500 |   |
|                                                                                            |   |   |       |   |   |   |        |   |   |   |   |   |
| Net cash provided by financing activities                                                       |   |   | 755,000    |   |   |   | 23,841,750  |   |   |   | 765,754 |   |
|                                                                                            |   |   |       |   |   |   |        |   |   |   |   |   |
| Net increase (decrease) in cash and cash equivalents                                            |   |   | 545,909    |   |   |   | 1,501,879   |   |   |   | (925,627 | ) |
|                                                                                            |   |   |       |   |   |   |        |   |   |   |   |   |
| Cash and cash equivalents, beginning                                                            |   |   | 2,052,005  |   |   |   | 550,126     |   |   |   | 1,475,753 |   |
|                                                                                            |   |   |       |   |   |   |        |   |   |   |   |   |
| Cash and cash equivalents, ending                                                               |   | $      | 2,597,914  |   |   | $      | 2,052,005   |   |   | $ | 550,126 |   |

----

| CRESCENT FINANCIAL CORPORATION AND SUBSIDIARY |
|-----------------------------------------------|
| Notes to Consolidated Financial Statements    |
| December 31, 2010, 2009 and 2008              |

|                                                                |   | 2010   |       |   | 2009   |   |       | 2008   |   |
|---------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
|                                                                |   |   |       |   |   |   |       |   |   |
| Supplemental Disclosure of Cash Flow Information:                   |   |   |       |   |   |   |       |   |   |
| Cash paid during the year for:                                      |   |   |       |   |   |   |       |   |   |
| Interest                                                            |   | $      | 22,447,154 |   |   | $      | 27,103,726 |   |   | $ | 28,794,509 |   |
| Income taxes                                                        |   | $      | -          |   |   | $      | 923,000    |   |   | $ | 2,559,000 |   |
|                                                                |   |   |       |   |   |   |       |   |   |   |   |   |
| Supplemental Disclosure of Noncash Investing Activities:            |   |   |       |   |   |   |       |   |   |   |   |   |
| Transfer of loans to foreclosed assets                              |   | $      | 18,559,015 |   |   | $      | 9,806,211  |   |   | $ | 2,206,023 |   |
| Increase in fair value of securities available for sale, net of tax |   | $      | 646,985    |   |   | $      | 969,066    |   |   | $ | 588,933 |   |
| Decrease in fair value of cash flow hedge, net of tax               |   | $      | (174,581   | )      |   | $      | (181,237   | )      |   | $ | - |   |

|                                                     |   | 2010   |    |   | 2009   |   |    | 2008   |   |
|----------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                                                     |   |   |    |   |   |   |    |   |   |
| Supplemental Disclosure of Noncash Investing Activities: |   |   |    |   |   |   |    |   |   |
| Decrease in fair value of cash flow hedge, net of tax    |   | $      | (91,014 | )      |   | $      | (93,096 | )      |   | $ | - |   |

----

|   | · | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | provide reasonable assurance that receipts and expenditures are being made only in accordance with management and director authorization; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  Name and Age   |    | Director Since(1)          |    | Term Expires |    | Principal Occupation and BusinessExperience During the Past Five Years                                                                                                                                                                                                                        |
|--------------------------------|--------------|---------------------------------|--------------|-------------------|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                           |         |                            |         |              |         |                                                                                                                                                                                                                                                                                                                                  |
| Brent D. Barringer(52)    |         | 1998                            |         | 2012              |         | Attorney and Partner, Barringer Law Firm, LLP, Cary, NC                                                                                                                                                                                                                                                                               |
| William H. Cameron(57)         |         |     2002(2) |         | 2011              |         | President, Cameron Management, Inc., Principal, Cameron Company, Wilmington, NC (real estate, equity investments and management)                                                                                                                                                                                                 |
| Michael G. Carlton(49)    |         | 1998                       |         | 2011              |         | President and Chief Executive Officer, Crescent Financial Corporation and Crescent State Bank, Cary, NC, 1998-Present                                                                                                                                                                                                            |
| James A. Lucas, Jr.(59)   |         | 1998                            |         | 2011              |         | Partner, James A. Lucas and Company, LLP, Certified Public Accountants, Raleigh, NC                                                                                                                                                                                                                                              |
| Kenneth A. Lucas(56)      |         | 1998                            |         | 2012              |         | President and Chief Executive Officer, The Tar Heel Companies of North Carolina, Inc., Raleigh, NC (real estate property management and development); Secretary-Treasurer, Carolina Janitorial and Maintenance Supply, Inc., 1995-Present; President and Chief Executive Officer, Tar Heel Commercial Realty, Inc., Raleigh, NC  |
| Charles A. Paul, III(45)  |         |     2002(2) |         | 2012              |         | Managing Partner, Harbor Island Partners, LLC, Wilmington, NC (private equity)                                                                                                                                                                                                                                                   |
| Francis R. Quis, Jr.(61)       |         |     2000(3) |         | 2012              |         | Owner and President, Quis Machinery, Inc., Southern Pines, NC (industrial machinery distributor)                                                                                                                                                                                                                                 |
| Jon S. Rufty(56)               |         | 1998                            |         | 2013              |         | Owner and President, Rufty Homes, Inc., Cary, NC (residential construction company)                                                                                                                                                                                                                                              |

----

|  Name and Age |    | DirectorSince(1) |    | TermExpires |    | Principal Occupation and Business Experience During the Past Five Years |
|------------------------------|--------------|------------------|--------------|-------------|--------------|----------------------------------------------------------------------------------------------------------------------|
|                         |         |             |         |        |         |                                                                                                                 |
| Stephen K. Zaytoun(53)       |         | 1998             |         | 2013        |         | Owner and President, Zaytoun & Associates, Inc., Cary, NC (insurance agency)                                     |

| (1) | Includes service as a director of Crescent State Bank which reorganized into the bank holding company form of organization in 2001.  Each director also serves as a director of Crescent State Bank. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Includes former service as a director of Port City Capital Bank, Wilmington, North Carolina.  The Company acquired Port City Capital Bank on August 31, 2006. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Includes former service as a director of Centennial Bank, Southern Pines, North Carolina. The Company acquired Centennial Bank on August 29, 2003. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

|  NAME            |    |  AGE |    | POSITION WITHCOMPANY                                                                                            |    |  BUSINESS EXPERIENCE                                                                                                                                                                                                                                    |
|-----------------------|--------------|-----------|--------------|----------------------------------------------------------------------------------------------------------------------|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |         |      |         |                                                                                                                 |         |                                                                                                                                                                                                                                                              |
| Michael G. Carlton    |         | 49        |         | President, Chief Executive Officer, and Director of Company and Crescent State Bank                                  |         | President and Chief Executive Officer, Crescent Financial Corporation and Crescent State Bank, Cary, NC, 1998-Present.                                                                                                                                            |
|                  |         |      |         |                                                                                                                 |         |                                                                                                                                                                                                                                                              |
| Bruce W. Elder        |         | 48        |         | Vice President and Secretary of Company and Senior Vice President and Chief Financial Officer of Crescent State Bank |         | Vice President and Secretary, Crescent Financial Corporation and Senior Vice President and Chief Financial Officer, Crescent State Bank, Cary, NC, 1998-Present.                                                                                                  |
|                  |         |      |         |                                                                                                                 |         |                                                                                                                                                                                                                                                              |
| Thomas E. Holder, Jr. |         | 51        |         | Senior Vice President and Senior Credit Officer of Crescent State Bank                                               |         | Senior Vice President and Senior Credit Officer, Crescent State Bank, Cary, NC, 1998-Present.                                                                                                                                                                |
|                  |         |      |         |                                                                                                                 |         |                                                                                                                                                                                                                                                              |
| W. Keith Betts        |         | 54        |         | Executive Vice President and Market President of Crescent State Bank                                                 |         | Executive Vice President and Market President, Crescent State Bank, 2007 – Present; President and Chief Executive Officer, Port City Capital Bank, Wilmington, NC, 2002 – 2007.                                                                       |
|                  |         |      |         |                                                                                                                 |         |                                                                                                                                                                                                                                                              |
| Ray D. Vaughn         |         | 58        |         | Senior Vice President and Chief Operating Officer of Crescent State Bank                                             |         | Senior Vice President and Chief Operating Officer, Crescent State Bank, Cary, NC, 2005-Present; Senior Vice President/Senior Banking Executive, Bank of America, 2002-2005; Senior Vice President/Regional Managing Director, Wachovia Bank, NA, 1976-2002.  |

----

|  Name andPrincipal Position         |   | Year   |   | Salary |    | Bonus  |   | StockAwards(1) |   | OptionAwards(1) |    | Non-EquityIncentive PlanCompensation |   | Change inPension ValueandNonqualifiedDeferredCompensationEarnings |   |   | All OtherCompensation |   |   | Total   |   |
|----------------------------------------------------|--------|--------|--------|--------|---------|--------|--------|----------------|--------|-----------------|---------|-------------------------------------------|--------|-----------------------------------------------------------------------------|--------|--------|----------------------------|--------|--------|---------|--------|
|                                               |   |   |   |   |    |   |   |           |   |            |    |                                      |   |                                                                        |   |   |                       |   |   |    |   |
| Michael G. Carlton                                 |   | 2010   |   | $      | 320,000 |   |   | —        |   | $               | 58,650  |                                      |   | —                                                                     |   |   | —                    |   | $      | 241,806 |   |   | $ | 51,634 | (2) (4) |   | $ | 672,090 |   |
| President and CEO                                  |   | 2009   |   |   | 320,000 |   |   | —        |   |            | — |                                      |   | —                                                                     |   |   | —                    |   |   | 193,327 |   |   |   | 57,078 | (2) (3) |   |   | 570,405 |   |
|                                               |   |   |   |   |    |   |   |           |   |            |    |                                      |   |                                                                        |   |   |                       |   |   |    |   |   |   |   |   |   |   |   |   |
| W. Keith Betts                                     |   | 2010   |   | $      | 189,875 |   |   | —        |   | $               | 7,820   |                                      |   | —                                                                     |   |   | —                    |   | $      | 41,672  |   |   | $ | 21,185 | (2)(6) |   | $ | 260,552 |   |
| Market President and Executive Vice President      |   | 2009   |   |   | 189,875 |   |   | —        |   |            | — |                                      |   | —                                                                     |   |   | —                    |   |   | 37,800  |   |   |   | 20,970 | (2)(6) |   |   | 248,645 |   |
|                                               |   |   |   |   |    |   |   |           |   |            |    |                                      |   |                                                                        |   |   |                       |   |   |    |   |   |   |   |   |   |   |   |   |
| Ray D. Vaughn                                      |   | 2010   |   | $      | 184,000 |   |   | —        |   | $               | 7,820   |                                      |   | —                                                                     |   |   | —                    |   | $      | 71,155  |   |   | $ | 25,818 | (2)(6) |   | $ | 288,793 |   |
| Chief Operations Officer and Senior Vice President |   | 2009   |   |   | 184,000 |   |   | —        |   |            | — |                                      |   | —                                                                     |   |   | —                    |   |   | 64,852  |   |   |   | 30,630 | (2)(5) |   |   | 279,482 |   |

| (1) | Calculated in accordance with FASB ASC Topic 718 and represents the fair value of each restricted stock or stock option award based on the market price of the Company’s common stock on the date of grant of such award; the values do not represent actual cash compensation earned. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Includes 401(k) matching contributions, director fees, where applicable, and premiums paid on the executive’s behalf for medical, disability, dental and life insurance. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Total perquisites for 2009 exceeded $10,000 and were comprised of a car allowance of $17,211 and club dues of $4,367. |
|-----|-----------------------------------------------------------------------------------------------------------------------|

| (4) | Total perquisites for 2010 exceeded $10,000 and were comprised of a car allowance of $14,258 and club dues of $4,935. |
|-----|-----------------------------------------------------------------------------------------------------------------------|

| (5) | Total perquisites for 2009 exceeded $10,000 and were comprised of club dues of $14,425. |
|-----|-----------------------------------------------------------------------------------------|

| (6) | Total perquisites did not exceed $10,000. |
|-----|-------------------------------------------|

----

----

----

| Name               |   | Plan Name      |   | Number of YearsCredited Service |   |   | Present Value ofAccumulatedBenefit |    |   | Payments DuringLast Fiscal Year |   |
|--------------------|--------|---------------------|--------|------------------------------------------------|--------|--------|----------------------------------------------|---------|--------|------------------------------------------------|--------|
|               |   |                |   |                                           |   |   |                                         |    |   |                                           |   |
| Michael G. Carlton |   | Salary Continuation |   | 8                                              |   |   | $                                            | 794,192 |   |                                           | $      | 0 |   |
| W. Keith Betts     |   | Salary Continuation |   | 4                                              |   |   |                                         | 133,835 |   |                                           |   | 0 |   |
| Ray D. Vaughn      |   | Salary Continuation |   | 4                                              |   |   |                                         | 228,637 |   |                                           |   | 0 |   |

----

|               | Option Awards |                                                               | Stock Awards |                                                |
|--------------------|--------------------|--------------------------------------------------------------------|-------------------|-----------------------------------------------------|
| Name               |               | No. of SecuritiesUnderlyingUnexercisedOptionsExercisable |              | No. ofSecuritiesUnderlyingOptionsUnexercisable |   | Equity IncentivePlan Awards: No. of SecuritiesUnderlyingUnexercisedUnearned Options |   | Option Exercise Price |   |   | OptionExpirationDate |   | No. ofShares orUnits ofStockThatHave NotVested |   |   | MarketValue ofShares orUnits ofStock ThatHave NotVested(1) |   | EquityIncentivePlanAwards: No.of UnearnedShares,Units orOtherRights ThatHave NotVested |   | EquityIncentivePlanAwards:Market orPayoutValue ofUnearnedShares,Units orOtherRights ThatHave NotVested |   |
|               |               |                                                               |              |                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Michael G. Carlton |               |                                                               | —           |                                                |   | — |   |   | — |   |   | — |   |   | — |   |   | 5,000 |   |   | $ | 11,200 |   |   | — |   |   | — |   |
|               |               |                                                               | —           |                                                |   | — |   |   | — |   |   | — |   |   | — |   |   | 15,000 |   |   |   | 33,600 |   |   | — |   |   | — |   |
|               |               |                                                               |              |                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| W. Keith Betts     |               |                                                               | 2,877             |                                                |   | -0- |   |   | — |   | $ | 3.98 |   |   | 1/19/15 |   |   | — |   |   |   | — |   |   | — |   |   | — |   |
|               |               |                                                               | 12,440            |                                                |   | -0- |   |   | — |   | $ | 5.61 |   |   | 11/16/15 |   |   | — |   |   |   | — |   |   | — |   |   | — |   |
|               |               |                                                               | —           |                                                |   | — |   |   | — |   |   | — |   |   | — |   |   | 4,062 | (2)   |   | $ | 9,099 |   |   | — |   |   | — |   |
|               |               |                                                               | —           |                                                |   | — |   |   | — |   |   | — |   |   | — |   |   | 5,000 |   |   |   | 11,200 |   |   | — |   |   | — |   |
|               |               |                                                               | —           |                                                |   | — |   |   | — |   |   | — |   |   | — |   |   | 2,000 |   |   |   | 4,480 |   |   | — |   |   | — |   |
|               |               |                                                               |              |                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ray D. Vaughn      |               |                                                               | 12,650            |                                                |   | -0- |   |   | — |   | $ | 11.85 |   |   | 11/15/15 |   |   | — |   |   |   | — |   |   | — |   |   | — |   |
|               |               |                                                               | —           |                                                |   | — |   |   | — |   |   | — |   |   | — |   |   | 5,000 |   |   | $ | 11,200 |   |   | — |   |   | — |   |
|               |               |                                                               | —           |                                                |   | — |   |   | — |   |   | — |   |   | — |   |   | 2,000 |   |   |   | 4,480 |   |   | — |   |   | — |   |

| (1) | Market value based on the per share price of the Company’s stock on December 31, 2010 of $2.24. |
|-----|-------------------------------------------------------------------------------------------------------|

| (2) | Adjusted for a stock split effected as a 10% stock dividend in May 2007. |
|-----|--------------------------------------------------------------------------|

----

|          |   | Option Awards                                 |    |   | Stock Awards                   |   |
|--------------------|--------|----------------------------------------------------|---------|--------|-------------------------------------|--------|
| Name               |   | Number of SharesAcquired onExercise |    |   | Value Realized onExercise |   |   | Number of SharesAcquired on Vesting |   |   | Value Realized onVesting(1) |   |
| Michael G. Carlton |   |                                               | — |   |                                |   | — |   |   |   | 5,500 |   |   | $ | 18,425 |   |
|               |   |                                               |    |   |                                |   |   |   |   |   |   |   |   |   |   |   |
| W. Keith Betts     |   |                                               | — |   |                                |   | — |   |   |   | — |   |   |   | — |   |
|               |   |                                               |    |   |                                |   |   |   |   |   |   |   |   |   |   |   |
| Ray D. Vaughn      |   |                                               | — |   |                                |   | — |   |   |   | 2,200 |   |   | $ | 7,370 |   |

| (1) | Value realized based on the per share price of the Company’s stock on January 22, 2010 of $3.35. |
|-----|--------------------------------------------------------------------------------------------------------|

----

| Name                 |   | FeesEarned orPaid inCash |   |   | StockAwards |   |    | OptionAwards |   |   | All OtherCompensation(1) |   |   | Total  |    |
|----------------------|--------|------------------------------------|--------|--------|-------------|--------|---------|--------------|--------|--------|-------------------------------|--------|--------|--------|---------|
|            |   |                               |   |   |        |   |    |         |   |   |                          |   |   |   |    |
| Brent D. Barringer   |   | $                                  | 17,000 |   |        |   | — |         |   |   | —                       |   |   | $      | 6,800   |   |   | $ | 23,800 |   |
| William H. Cameron   |   |                               | 17,600 |   |        |   | — |         |   |   | —                       |   |   |   | 7,040   |   |   |   | 24,640 |   |
| Michael G. Carlton   |   |                               | 12,000 |   |        |   | — |         |   |   | —                       |   |   |   | — |   |   |   | 12,000 |   |
| Bruce I. Howell(2)   |   |                               | 28,800 |   |        |   | — |         |   |   | —                       |   |   |   | 11,520  |   |   |   | 40,320 |   |
| James A. Lucas, Jr.  |   |                               | 17,400 |   |        |   | — |         |   |   | —                       |   |   |   | 6,960   |   |   |   | 24,360 |   |
| Kenneth A. Lucas     |   |                               | 34,450 |   |        |   | — |         |   |   | —                       |   |   |   | 13,780  |   |   |   | 48,230 |   |
| Sheila Hale Ogle(3)  |   |                               | 6,800  |   |        |   | — |         |   |   | —                       |   |   |   | 2,720   |   |   |   | 9,520 |   |
| Charles A. Paul, III |   |                               | 22,100 |   |        |   | — |         |   |   | —                       |   |   |   | 8,840   |   |   |   | 30,940 |   |
| Francis R. Quis, Jr. |   |                               | 29,400 |   |        |   | — |         |   |   | —                       |   |   |   | 11,760  |   |   |   | 41,160 |   |
| Jon S. Rufty         |   |                               | 23,800 |   |        |   | — |         |   |   | —                       |   |   |   | 9,520   |   |   |   | 33,320 |   |
| Stephen K. Zaytoun   |   |                               | 15,650 |   |        |   | — |         |   |   | —                       |   |   |   | — |   |   |   | 15,650 |   |

| (1) | Consists of a 40% premium paid in connection with the individual director’s participation in the Directors Compensation Plan. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Mr. Howell retired from the Board of Directors effective February 21, 2011. |
|-----|-----------------------------------------------------------------------------|

| (3) | Ms. Ogle retired from the Board of Directors effective May 25, 2010. |
|-----|----------------------------------------------------------------------|

| NAME AND ADDRESS OFBENEFICIAL OWNER                                                        |   | AMOUNT AND NATURE OFBENEFICIAL OWNERSHIP |    |   | PERCENTOF CLASS(3) |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|---------|--------|-------------------------|--------|
|                                                                                                           |   |                                                         |    |   |                    |   |
| James A. Lucas, Jr.4909 Western Blvd., Suite 200Raleigh, NC 27606 |   |                                                         | 555,676 | (9)    |                    |   | 5.77 |   |
|                                                                                                           |   |                                                         |    |   |                    |   |   |   |
| Kenneth A. Lucas7424 Chapel Hill RoadRaleigh, NC  27607                |   |                                                         | 484,158 | (10)   |                    |   | 5.03 |   |

----

| NAME AND ADDRESS OFBENEFICIAL OWNER      |   | AMOUNT AND NATURE OFBENEFICIAL OWNERSHIP(1)(2) |      |      | PERCENTOF CLASS(3) |   |
|--------------------------------------------------------------|--------|--------------------------------------------------------------------|-----------|-----------|-------------------------|--------|
|                                                         |   |                                                               |      |      |                    |   |
| Brent D. BarringerCary, NC                                   |   |                                                               | 132,526   | (4)       |                    |   | 1.38 |   |
|                                                         |   |                                                               |      |      |                    |   |   |   |
| W. Keith BettsWilmington, NC                                 |   |                                                               | 56,983    |      |                    |   | 0.59 |   |
|                                                         |   |                                                               |      |      |                    |   |   |   |
| William H. CameronWilmington, NC                             |   |                                                               | 76,823    | (5)       |                    |   | 0.80 |   |
|                                                         |   |                                                               |      |      |                    |   |   |   |
| Michael G. CarltonCary, NC                                   |   |                                                               | 113,116   | (6)       |                    |   | 1.18 |   |
|                                                         |   |                                                               |      |      |                    |   |   |   |
| Bruce W. ElderCary, NC                                       |   |                                                               | 29,802    |      |                    |   | 0.31 |   |
|                                                         |   |                                                               |      |      |                    |   |   |   |
| Thomas E. Holder, Jr.Cary, NC                                |   |                                                               | 30,755    | (7)  |                    |   | 0.32 |   |
|                                                         |   |                                                               |      |      |                    |   |   |   |
| James A. Lucas, Jr.Raleigh, NC                               |   |                                                               | 555,676   | (8)       |                    |   | 5.77 |   |
|                                                         |   |                                                               |      |      |                    |   |   |   |
| Kenneth A. LucasGarner, NC                                   |   |                                                               | 484,158   | (9)       |                    |   | 5.03 |   |
|                                                         |   |                                                               |      |      |                    |   |   |   |
| Charles A. Paul, IIIWilmington, NC                           |   |                                                               | 137,627   | (10)      |                    |   | 1.42 |   |
|                                                         |   |                                                               |      |      |                    |   |   |   |
| Francis R. Quis, Jr.Cary, NC                                 |   |                                                               | 84,997    | (11)      |                    |   | 0.88 |   |
|                                                         |   |                                                               |      |      |                    |   |   |   |
| Jon S. RuftyCary, NC                                         |   |                                                               | 77,694    | (12)      |                    |   | 0.81 |   |
|                                                         |   |                                                               |      |      |                    |   |   |   |
| Ray D. VaughnRaleigh, NC                                     |   |                                                               | 25,680    |      |                    |   | 0.27 |   |
|                                                         |   |                                                               |      |      |                    |   |   |   |
| Stephen K. ZaytounRaleigh, NC                                |   |                                                               | 36,110    |      |                    |   | 0.38 |   |
|                                                         |   |                                                               |      |      |                    |   |   |   |
| All Directors and Executive Officers as a Group (13 persons) |   |                                                               | 1,841,947 |      |                    |   | 18.92 |   |

| (1) | Except as otherwise noted, to the best knowledge of the Company’s management, the above individuals and group exercise sole voting and investment power with respect to all shares shown as beneficially owned other than the following shares as to which such powers are shared jointly with the individual’s spouse: Mr. Barringer – 119,473 shares; Mr. Carlton – 45,674 shares; and Mr. Elder – 19,802 shares. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Included in the beneficial ownership tabulations are the following options to purchase shares of common stock of the Company exercisable within 60 days of March 1, 2011: Mr. Betts – 15,317 shares; Mr. Cameron – 4,461 shares; Mr. Paul – 37,106 shares; Mr. Quis – 13,019 shares; and Mr. Vaughn – 12,650 shares. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | The calculation of the percentage of class beneficially owned by each individual and the group is based on the sum of (i) a total of 9,664,059 shares of common stock outstanding as of March 1, 2011, and (ii) options to purchase shares of common stock which are exercisable within 60 days of March 1, 2011. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Includes 13,053 shares held in Mr. Barringer’s spouse’s SEP/IRA account. Includes 67,541 shares pledged as collateral. |
|-----|------------------------------------------------------------------------------------------------------------------------------------|

----

| (5) | Includes 14,112 shares held by Mr. Cameron as trustee for his children’s trust. |
|-----|---------------------------------------------------------------------------------------|

| (6) | Includes 2,532 shares held by Mr. Carlton’s spouse individually. |
|-----|------------------------------------------------------------------------|

| (7) | Includes 834 shares held by Mr. Holder as custodian for minor children. |
|-----|-------------------------------------------------------------------------|

| (8) | Includes 148,887 shares held indirectly through a limited liability company of which Mr. James Lucas has a 33.33% membership interest, 80,600 shares held indirectly through a limited liability company of which Mr. James Lucas has a 50% membership interest membership interest and 1,689 shares held indirectly through a corporation of which Mr. James Lucas has a 29% interest. Such shares are also attributed to Mr. Kenneth Lucas as set forth in footnote 9 below. The combined voting power of Messrs. James and Kenneth Lucas is actually 8.35%, inclusive of all stock options exercisable within 60 days of March 1, 2011.  Also includes 7,060 shares held indirectly through an investment club of which Mr. James Lucas has a 5.88% interest. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9) | Includes 148,887 shares held indirectly through a limited liability company of which Mr. Kenneth Lucas has a 33.33% membership interest, 80,600 shares held indirectly through a limited liability company of which Mr. Kenneth Lucas has a 50% membership interest and 3,498 shares held indirectly through a corporation for which Mr. Kenneth Lucas serves as President. Such shares are also attributed to Mr. James Lucas as set forth in footnote 8 above. The combined voting power of Messrs. James and Kenneth Lucas is actually 8.35%, inclusive of all stock options exercisable within 60 days of March 1, 2011.  Includes 232,985 shares pledged as collateral. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (10) | Includes 2,922 shares owned individually by Mr. Paul’s spouse and 51,008 shares owned by a business Mr. Paul controls. |
|------|------------------------------------------------------------------------------------------------------------------------------|

| (11)  | Includes 1,842 shares held individually by Mr. Quis’ spouse. |
|------------|--------------------------------------------------------------------|

| (12) | Includes 8,716 shares held individually by Mr. Rufty’s spouse. |
|------|----------------------------------------------------------------------|

| EQUITY COMPENSATION PLAN INFORMATION         |   |
|-------------------------------------------------------------|--------|
| Plan Category                                          |   | Number of securities to beissued upon exercise ofoutstanding options,warrants, and rights (a) |   |   | Weighted-average exerciseprice of outstandingoptions, warrants, andrights (b) |   |   | Number of securitiesremaining available forfuture issuance underequity compensation plans(excluding securitiesreflected in column (a)) (c) |   |
| Equity compensation plans approved by security holders |   |   | 299,611 |   |   | $ | 6.03 |   |   |   | 195,879 |   |
| Equity compensation plans not approved by security holders  |   | None |   |   | None |   |   | None |   |
| Total                                                       |   |   | 299,611 |   |   | $ | 6.03 |   |   |   | 195,879 |   |

----

| Category               |   | AmountPaid 2010 |    |   | AmountPaid 2009 |   |
|------------------------|--------|----------------------|---------|--------|----------------------|--------|
|                   |   |                 |    |   |                 |   |
| Audit Fees (1):        |   | $                    | 174,928 |   |                 | $      | 138,695 |   |
| Audit-Related Fees(2): |   |                 | 22,220  |   |                 |   | 20,975 |   |
| Tax Fees:              |   |                 | 14,800  |   |                 |   | 12,000 |   |
| All Other Fees:        |   |                 | -0-     |   |                 |   | -0- |   |
| Total Fees Paid:       |   | $                    | 211,948 |   |                 | $      | 171,670 |   |

|   | _______________ |
|--------|-----------------|

| (1) | Fees billed or expected to be billed for professional services rendered for the audit of the Company’s annual consolidated financial statements and for reviews of the consolidated financial statements included in the Company’s quarterly reports on Form 10-Q. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Audit related fees paid during 2010 include professional services rendered to provide accounting consultations as well as an audit of the 2009 employee benefit plan. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Consolidated Balance Sheets as of December 31, 2010 and December 31, 2009 |
|--------|--------|---------------------------------------------------------------------------|

|   | · | Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008 |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2010, 2009 and 2008 |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | · | Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2010, 2009 and 2008 |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

|   | · | Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008 |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | Notes to Consolidated Financial Statements |
|--------|--------|--------------------------------------------|

|   | · | Report of Independent Registered Public Accounting Firm |
|--------|--------|---------------------------------------------------------|

----

|   | · | 1999 Incentive Stock Option Plan |
|--------|--------|----------------------------------|

|   | · | 1999 Nonqualified Stock Option Plan for Directors |
|--------|--------|---------------------------------------------------|

|   | · | Form of Employment Agreement between the Registrant and Michael G. Carlton |
|--------|--------|----------------------------------------------------------------------------|

|   | · | Form of Employment Agreement between the Registrant and Bruce W. Elder |
|--------|--------|------------------------------------------------------------------------|

|   | · | Form of Employment Agreement between the Registrant and Thomas E. Holder, Jr. |
|--------|--------|-------------------------------------------------------------------------------|

|   | · | Form of Employment Agreement between the Registrant and Ray D. Vaughn |
|--------|--------|-----------------------------------------------------------------------|

|   | · | Form of Employment Agreement between the Registrant and W. Keith Betts |
|--------|--------|------------------------------------------------------------------------|

|   | · | Form of Amendment to Employment Agreement between the Registrant and Michael G. Carlton |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | · | Form of Amendment to Employment Agreement between the Registrant and Bruce W. Elder |
|--------|--------|-------------------------------------------------------------------------------------|

|   | · | Form of Amendment to Employment Agreement between the Registrant and Thomas E. Holder, Jr. |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | Form of Amendment to Employment Agreement between the Registrant and Ray D. Vaughn |
|--------|--------|------------------------------------------------------------------------------------|

|   | · | Form of Amendment to Employment Agreement between the Registrant and W. Keith Betts |
|--------|--------|-------------------------------------------------------------------------------------|

|   | · | Form of Salary Continuation Agreement with Michael G. Carlton |
|--------|--------|---------------------------------------------------------------|

|   | · | Salary Continuation Agreement with Bruce W. Elder |
|--------|--------|---------------------------------------------------|

|   | · | Salary Continuation Agreement with Thomas E. Holder, Jr. |
|--------|--------|----------------------------------------------------------|

|   | · | Form of Salary Continuation Agreement with Ray D. Vaughn |
|--------|--------|----------------------------------------------------------|

|   | · | Salary Continuation Agreement with W. Keith Betts |
|--------|--------|---------------------------------------------------|

|   | · | Form of Amendment to Salary Continuation Agreement with Michael G. Carlton |
|--------|--------|----------------------------------------------------------------------------|

|   | · | Form of Amendment to Salary Continuation Agreement with Bruce W. Elder |
|--------|--------|------------------------------------------------------------------------|

|   | · | Form of Amendment to Salary Continuation Agreement with Thomas E. Holder, Jr. |
|--------|--------|-------------------------------------------------------------------------------|

|   | · | Form of Amendment to Salary Continuation Agreement with Ray D. Vaughn |
|--------|--------|-----------------------------------------------------------------------|

|   | · | Form of Amendment to Salary Continuation Agreement with W. Keith Betts |
|--------|--------|------------------------------------------------------------------------|

|   | · | Endorsement Split Dollar Agreement with Michael G. Carlton |
|--------|--------|------------------------------------------------------------|

|   | · | Endorsement Split Dollar Agreement with Bruce W. Elder |
|--------|--------|--------------------------------------------------------|

|   | · | Endorsement Split Dollar Agreement with Thomas E. Holder, Jr. |
|--------|--------|---------------------------------------------------------------|

|   | · | Endorsement Split Dollar Agreement with Ray D. Vaughn |
|--------|--------|-------------------------------------------------------|

|   | · | Endorsement Split Dollar Agreement with W. Keith Betts |
|--------|--------|--------------------------------------------------------|

|   | · | Crescent State Bank Directors’ Compensation Plan |
|--------|--------|--------------------------------------------------------|

|   | · | 2006 Omnibus Stock Ownership and Long Term Incentive Plan |
|--------|--------|-----------------------------------------------------------|

|   | · | Employment Agreement with Michael G. Carlton contingent upon closing of the transactions contemplated by the Investment Agreement filed as Exhibit 2 to this Annual Report on Form 10-K |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Employment Agreement with W. Keith Betts contingent upon closing of the transactions contemplated by the Investment Agreement filed as Exhibit 2 to this Annual Report on Form 10-K |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Employment Agreement with Ray D. Vaughn contingent upon closing of the transactions contemplated by the Investment Agreement filed as Exhibit 2 to this Annual Report on Form 10-K |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Form of Executive Compensation Modification Agreement |
|--------|--------|-------------------------------------------------------|

|   | · | Indemnification Agreement |
|--------|--------|---------------------------|

----

|                 | CRESCENT FINANCIAL CORPORATION |
|----------------------|--------------------------------|
|                 | Registrant                     |   |
|                 |                           |   |   |
|                 | By:                            | /s/ Michael G. Carlton |
|                 |                           | Michael G. Carlton |
| Date: March 29, 2011 |                           | President and Chief Executive Officer |

| /s/ Michael G. Carlton                                                                           |   |   | March 29, 2011 |
|--------------------------------------------------------------------------------------------------|--------|--------|----------------|
| Michael G. Carlton, President and Chief Executive Officer,Director (Principle Executive Officer) |   |   |
|                                                                                             |   |   |           |
| /s/  Bruce W. Elder                                                                    |   |   | March 29, 2011 |
| Bruce W. Elder, Vice President                                                                   |   |   |
| (Principal Financial Officer and Principle Accounting Officer)                                   |   |   |
|                                                                                             |   |   |           |
| /s/ Brent D. Barringer                                                                           |   |   | March 29, 2011 |
| Brent D. Barringer, Director                                                                     |   |   |
|                                                                                             |   |   |           |
| /s/ William H. Cameron                                                                           |   |   | March 29, 2011 |
| William H. Cameron, Director                                                                     |   |   |
|                                                                                             |   |   |           |
| /s/ James A. Lucas                                                                               |   |   | March 29, 2011 |
| James A. Lucas, Director                                                                         |   |   |
|                                                                                             |   |   |           |
| /s/ Kenneth A. Lucas                                                                             |   |   | March 29, 2011 |
| Kenneth A. Lucas, Director                                                                       |   |   |
|                                                                                             |   |   |           |
| /s/ Charles A. Paul                                                                              |   |   | March 29, 2011 |
| Charles A. Paul, Director                                                                        |   |   |
|                                                                                             |   |   |           |
| /s/ Francis R. Quis, Jr.                                                                         |   |   | March 29, 2011 |
| Francis R. Quis, Jr., Director                                                                   |   |   |
|                                                                                             |   |   |           |
| /s/ Jon S. Rufty                                                                                 |   |   | March 29, 2011 |
| Jon S. Rufty, Director                                                                           |   |   |
|                                                                                             |   |   |           |
| /s/ Stephen K. Zaytoun                                                                           |   |   | March 29, 2011 |
| Stephen K. Zaytoun, Director                                                                     |   |   |

----

| Exhibit Number |   | Exhibit                                                                       |
|---------------------|--------|-------------------------------------------------------------------------------|
|                |   |                                                                          |
| 3(i)                |   | Articles of Incorporation, as amended(11)                                     |
|                |   |                                                                          |
| 3(ii)               |   | Bylaws(1)                                                                     |
|                |   |                                                                          |
| 4                   |   | Form of Common Stock Certificate(1)                                           |
|                |   |                                                                          |
| 4(ii)               |   | Form of Stock Certificate for Series A Preferred Stock(11)                    |
|                |   |                                                                          |
| 4(iii)              |   | Warrant to Purchase Common Stock(11)                                          |
|                |   |                                                                          |
| 10(i)               |   | 1999 Incentive Stock Option Plan(2)                                           |
|                |   |                                                                          |
| 10(ii)              |   | 1999 Nonqualified Stock Option Plan(2)                                        |
|                |   |                                                                          |
| 10(iii)             |   | Employment Agreement Michael G. Carlton(10)                                   |
|                |   |                                                                          |
| 10(iv)              |   | Employment Agreement of Bruce W. Elder (10)                                   |
|                |   |                                                                          |
| 10(v)               |   | Employment Agreement of Thomas E. Holder, Jr. (10)                            |
|                |   |                                                                          |
| 10(vi)              |   | Amended and Restated Trust Agreement of Crescent Financial Capital Trust I(3) |
|                |   |                                                                          |
| 10(vii)             |   | Indenture(3)                                                                  |
|                |   |                                                                          |
| 10(viii)            |   | Junior Subordinated Debenture(3)                                              |
|                |   |                                                                          |
| 10(ix)              |   | Guarantee Agreement(3)                                                        |
|                |   |                                                                          |
| 10(x)               |   | Salary Continuation Agreement with Michael G. Carlton (10)                    |
|                |   |                                                                          |
| 10(xi)              |   | Salary Continuation Agreement with Bruce W. Elder(6)                          |
|                |   |                                                                          |
| 10(xii)             |   | Salary Continuation Agreement with Thomas E. Holder, Jr.(6)                   |
|                |   |                                                                          |
| 10(xiii)            |   | Endorsement Split Dollar Agreement with Michael G. Carlton(3)                 |
|                |   |                                                                          |
| 10(xiv)             |   | Endorsement Split Dollar Agreement with Bruce W. Elder(3)                     |
|                |   |                                                                          |
| 10(xv)              |   | Endorsement Split Dollar Agreement with Thomas E. Holder, Jr.(3)              |
|                |   |                                                                          |
| 10(xvi)             |   | Crescent State Bank Directors’ Compensation Plan(4)                     |
|                |   |                                                                          |
| 10(xvii)            |   | Salary Continuation Agreement with Ray D. Vaughn (10)                         |
|                |   |                                                                          |
| 10(xviii)           |   | Salary Continuation Agreement with W. Keith Betts(7)                          |
|                |   |                                                                          |
| 10(xix)             |   | Employment Agreement with Ray D. Vaughn (10)                                  |
|                |   |                                                                          |
| 10(xx)              |   | Employment Agreement of W. Keith Betts(7)                                     |
|                |   |                                                                          |
| 10(xxi)             |   | Endorsement Split Dollar Agreement with Ray D. Vaughn(6)                      |

----

| 10(xxii)    |   | Endorsement Split Dollar Agreement with W. Keith Betts(6)                                                                                                                                                |
|-------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                     |
| 10(xxiii)   |   | Subordinated Term Loan Agreement dated September 26, 2008, by and between Crescent State Bank and United Community Bank(8)                                                                               |
|        |   |                                                                                                                                                                                                     |
| 10(xxiv)    |   | 2006 Omnibus Stock Ownership and Long Term Incentive Plan(9)                                                                                                                                        |
| 10(xxv)     |   | Form of Executive Compensation Modification Agreement(11)                                                                                                                                                |
|        |   |                                                                                                                                                                                                     |
| 10(xxvi)    |   | Form of Amendment to Employment Agreement between Registrant and Michael G. Carlton (Filed herewith)                                                                                                |
| 10(xxvii)   |   | Form of Amendment to Employment Agreement between Registrant and Bruce W. Elder (Filed herewith)                                                                                                    |
| 10(xxviii)  |   | Form of Amendment to Employment Agreement between Registrant and Thomas E. Holder, Jr. (Filed herewith)                                                                                             |
| 10(xxix)    |   | Form of Amendment to Employment Agreement between Registrant and Ray D. Vaughn (Filed herewith)                                                                                                     |
| 10(xxx)     |   | Form of Amendment to Employment Agreement between Registrant and W. Keith Betts (Filed herewith)                                                                                                    |
| 10(xxxi)    |   | Form of Amendment to Salary Continuation Agreement with Michael G. Carlton (Filed herewith)                                                                                                              |
|        |   |                                                                                                                                                                                                     |
| 10(xxxii)   |   | Form of Amendment to Salary Continuation Agreement with Bruce W. Elder (Filed herewith)                                                                                                                  |
|        |   |                                                                                                                                                                                                     |
| 10(xxxiii)  |   | Form of Amendment to Salary Continuation Agreement with Thomas E. Holder, Jr. (Filed herewith)                                                                                                           |
|        |   |                                                                                                                                                                                                     |
| 10(xxxiv)   |   | Form of Amendment to Salary Continuation Agreement with Ray D. Vaughn (Filed herewith)                                                                                                                   |
|        |   |                                                                                                                                                                                                     |
| 10(xxxv)    |   | Form of Amendment to Salary Continuation Agreement with W. Keith Betts (Filed herewith)                                                                                                                  |
|        |   |                                                                                                                                                                                                     |
| 10(xxxvi)   |   | Employment Agreement with Michael G. Carlton contingent upon closing of the transactions contemplated by the Investment Agreement filed as Exhibit 2 to this Annual Report on Form 10-K (Filed herewith) |
|        |   |                                                                                                                                                                                                     |
| 10(xxxvii)  |   | Employment Agreement with W. Keith Betts contingent upon closing of the transactions contemplated by the Investment Agreement filed as Exhibit 2 to this Annual Report on Form 10-K (Filed herewith)     |
|        |   |                                                                                                                                                                                                     |
| 10(xxxviii) |   | Employment Agreement with Ray D. Vaughn contingent upon closing of the transactions contemplated by the Investment Agreement filed as Exhibit 2 to this Annual Report on Form 10-K (Filed herewith)      |
|        |   |                                                                                                                                                                                                     |
| 10(xxxix)   |   | Investment Agreement dated February 23, 2011 (Filed herewith)                                                                                                                                            |
|        |   |                                                                                                                                                                                                     |
| 10(xxxx)    |   | Indemnification Agreement (Filed herewith)                                                                                                                                                               |
|        |   |                                                                                                                                                                                                     |
| 21          |   | Subsidiaries (Filed herewith)                                                                                                                                                                            |

----

| 23      |   | Consent of Dixon Hughes PLLC (Filed herewith)                                                                    |
|---------|--------|------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                             |
| 31(i)   |   | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act (Filed herewith)  |
|    |   |                                                                                                             |
| 31(ii)  |   | Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes Oxley Act (Filed herewith) |
|    |   |                                                                                                             |
| 32(i)   |   | Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes Oxley Act (Filed herewith)  |
|    |   |                                                                                                             |
| 32(ii)  |   | Certification of Principal Accounting Officer Pursuant to Section 906 of the Sarbanes Oxley Act (Filed herewith) |
|    |   |                                                                                                             |
| 99(ii)  |   | Certification pursuant to Emergency Economic Stabilization Act of 2008, as amended (Filed herewith)              |
|    |   |                                                                                                             |
| 99(iii) |   | Certification pursuant to Emergency Economic Stabilization Act of 2008, as amended (Filed herewith)              |

|   | 1. | Incorporated by reference to the Registrant’s 10-KSB for the year ended December 31, 2001, as filed with the Securities and Exchange Commission on March 27, 2002. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Incorporated by reference to the Registrant’s Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on September 5, 2001. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Incorporated by reference from Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 30, 2004. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | Incorporated by reference from Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 2006. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------|

|   | 5. | Filed with the Securities and Exchange Commission pursuant to Rule 14a-6. |
|--------|----|---------------------------------------------------------------------------|

|   | 6. | Incorporated by reference from Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 11, 2008. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------|

|   | 7. | Incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 31, 2008. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 8. | Incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 30, 2008. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 9. | Incorporated by reference from Exhibit 99.1 to the Registration Statement on Form S-8, filed with the Securities and Exchange Commission on August 11, 2006. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10. | Incorporated by reference from Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 27, 2009. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------|

|   | 11. | Incorporated by reference from Current Report on Form 8-K filed with the Securities and Exchange Commission on January 14, 2009. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------|

----