----

----

| T | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|------------------------------------------------------------------------------------------|

| £ | TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|----------------------------------------------------------------------------------|

| TOWER FINANCIAL CORPORATION                            |
|--------------------------------------------------------|
| (Exact name of Registrant as specified in its charter) |

| INDIANA                                                        | 35-2051170                           |
|----------------------------------------------------------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |

| (260) 427-7000                        |
|---------------------------------------|
| (Registrant’s telephone number) |

|   | Large accelerated filer £ | Accelerated filer £    |
|--------|--------------------------------|-----------------------------|
|   | Non-accelerated filer £   | Smaller reporting company T |

----

----

----

|   | · | Changes in banking regulation; |
|--------|--------|--------------------------------|

|   | · | Governmental economic and regulatory policy changes and restrictions; |
|--------|--------|-----------------------------------------------------------------------|

|   | · | Changes in the national and local economy; |
|--------|--------|--------------------------------------------|

|   | · | Trends in customer behavior, their ability to repay loans, and risk of losses due to loan defaults; |
|--------|--------|-----------------------------------------------------------------------------------------------------|

|   | · | Outcomes of contingencies, including loan loss reserves; |
|--------|--------|----------------------------------------------------------|

|   | · | Changes in local real estate and other collateral values; |
|--------|--------|-----------------------------------------------------------|

|   | · | Changes in interest rates and interest rate relationships; |
|--------|--------|------------------------------------------------------------|

|   | · | Demand for our products and services; |
|--------|--------|---------------------------------------|

|   | · | The degree of competition by traditional and non-traditional competitors; |
|--------|--------|---------------------------------------------------------------------------|

|   | · | Changes in tax laws; |
|--------|--------|----------------------|

|   | · | Changes in prices; |
|--------|--------|--------------------|

|   | · | The impact of technological advances; and |
|--------|--------|-------------------------------------------|

|   | · | Changes in local real estate and other collateral values. |
|--------|--------|-----------------------------------------------------------|

----

INDEX

| PART I.     FINANCIAL INFORMATION |                             |
|-------------------------------------------------------|----------------------------------|
|                                                  |                             |   |   |
|                                                  | Item 1.                          | Financial Statements | page no. |
|                                                  |                             |   |   |
|                                                  |                             | Consolidated Condensed Balance Sheets at September 30, 2010 (unaudited) and December 31, 2009 | 4 |
|                                                  |                             |   |   |
|                                                  |                             | Consolidated Condensed Statements of Operations for the three and nine months ended September 30, 2010 and September 30, 2009 (unaudited) | 5 |
|                                                  |                             |   |   |
|                                                  |                             | Consolidated Condensed Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2010 and September 30, 2009 (unaudited) | 7 |
|                                                  |                             |   |   |
|                                                  |                             | Consolidated Condensed Statements of Cash Flows for the nine months September 30, 2010 and September 30, 2009 (unaudited) | 8 |
|                                                  |                             |   |   |
|                                                  |                             | Notes to Consolidated Condensed Financial Statements (unaudited) | 9 |
|                                                  |                             |   |   |
|                                                  | Item 2.                          | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 |
|                                                  |                             |   |   |
|                                                  | Item 4.                          | Controls and Procedures | 33 |
|                                                  |                             |   |   |
| PART II.   OTHER INFORMATION                |                             |
|                                                  |                             |   |   |
|                                                  | Item 1.                          | Legal Proceedings | 34 |
|                                                  |                             |   |   |
|                                                  | Item 1a.     | Risk Factors | 34 |
|                                                  |                             |   |   |
|                                                  | Item 2.                          | Unregistered Sale of Equity Securities and Use of Proceeds | 34 |
|                                                  |                             |   |   |
|                                                  | Item 6.                          | Exhibits | 35 |
|                                                  |                             |   |   |
| SIGNATURES                                            | 35                               |

----

Index

Tow

|                                                                                                                                                                                                               |   | September 30, |        |   | December 31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-------------|--------|-------------------|--------|
|                                                                                                                                                                                                               |   | 2010               |        |   | 2009              |   |
| ASSETS                                                                                                                                                                                                             |   |               |        |   |              |   |
| Cash and due from banks                                                                                                                                                                                            |   | $                  | 18,401,341  |   |              | $      | 19,861,434 |   |
| Short-term investments and interest-earning deposits                                                                                                                                                               |   |               | 3,364,081   |   |              |   | 1,259,197 |   |
| Federal funds sold                                                                                                                                                                                                 |   |               | 1,486,203   |   |              |   | 3,543,678 |   |
| Total cash and cash equivalents                                                                                                                                                                                    |   |               | 23,251,625  |   |              |   | 24,664,309 |   |
|                                                                                                                                                                                                               |   |               |        |   |              |   |   |   |
| Securities held to maturity, at cost (fair value of $0 and $4,635,616 in 2010 and 2009, respectively)                                                                                                              |   |               | -           |   |              |   | 4,495,977 |   |
| Securities available for sale, at fair value                                                                                                                                                                       |   |               | 106,761,555 |   |              |   | 85,179,160 |   |
| FHLB and FRB stock                                                                                                                                                                                                 |   |               | 4,325,800   |   |              |   | 4,250,800 |   |
| Loans held for sale                                                                                                                                                                                                |   |               | 2,530,330   |   |              |   | 3,842,089 |   |
|                                                                                                                                                                                                               |   |               |        |   |              |   |   |   |
| Loans                                                                                                                                                                                                              |   |               | 494,818,488 |   |              |   | 527,333,461 |   |
| Allowance for loan losses                                                                                                                                                                                          |   |               | (12,016,000 | )      |              |   | (11,598,389 | ) |
| Net loans                                                                                                                                                                                                          |   |               | 482,802,488 |   |              |   | 515,735,072 |   |
|                                                                                                                                                                                                               |   |               | -           |   |              |   | - |   |
| Premises and equipment, net                                                                                                                                                                                        |   |               | 8,507,253   |   |              |   | 8,011,574 |   |
| Accrued interest receivable                                                                                                                                                                                        |   |               | 2,428,990   |   |              |   | 2,439,859 |   |
| Bank owned life insurance                                                                                                                                                                                          |   |               | 13,399,388  |   |              |   | 13,046,573 |   |
| Other real estate owned (OREO)                                                                                                                                                                                     |   |               | 3,842,666   |   |              |   | 4,634,089 |   |
| Prepaid FDIC Insurance                                                                                                                                                                                             |   |               | 3,365,102   |   |              |   | 4,777,797 |   |
| Other assets                                                                                                                                                                                                       |   |               | 8,925,391   |   |              |   | 9,081,759 |   |
|                                                                                                                                                                                                               |   |               |        |   |              |   |   |   |
| Total assets                                                                                                                                                                                                       |   | $                  | 660,140,588 |   |              | $      | 680,159,058 |   |
|                                                                                                                                                                                                               |   |               |        |   |              |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                                               |   |               |        |   |              |   |   |   |
| LIABILITIES                                                                                                                                                                                                        |   |               |        |   |              |   |   |   |
| Deposits:                                                                                                                                                                                                          |   |               |        |   |              |   |   |   |
| Noninterest-bearing                                                                                                                                                                                                |   | $                  | 88,111,660  |   |              | $      | 95,027,233 |   |
| Interest-bearing                                                                                                                                                                                                   |   |               | 488,981,841 |   |              |   | 473,353,118 |   |
| Total deposits                                                                                                                                                                                                     |   |               | 577,093,501 |   |              |   | 568,380,351 |   |
|                                                                                                                                                                                                               |   |               | -           |   |              |   | - |   |
| Federal Home Loan Bank (FHLB) advances                                                                                                                                                                             |   |               | 7,500,000   |   |              |   | 43,200,000 |   |
| Junior subordinated debt                                                                                                                                                                                           |   |               | 17,527,000  |   |              |   | 17,527,000 |   |
| Accrued interest payable                                                                                                                                                                                           |   |               | 1,144,716   |   |              |   | 480,885 |   |
| Other liabilities                                                                                                                                                                                                  |   |               | 3,493,859   |   |              |   | 3,634,713 |   |
| Total liabilities                                                                                                                                                                                                  |   |               | 606,759,076 |   |              |   | 633,222,949 |   |
|                                                                                                                                                                                                               |   |               |        |   |              |   |   |   |
| STOCKHOLDERS' EQUITY                                                                                                                                                                                               |   |               |        |   |              |   |   |   |
| Preferred stock, no par value, 4,000,000 shares authorized; 8,300 shares and 18,300 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively                                        |   |               | 810,951     |   |              |   | 1,788,000 |   |
| Common stock and paid-in-capital, no par value, 6,000,000 shares authorized; 4,779,887 and 4,155,432 issued; and  4,714,887 and 4,090,432 shares outstanding at September 30, 2010 and December 31, 2009 |   |               | 43,674,689  |   |              |   | 39,835,648 |   |
| Treasury stock, at cost, 65,000 shares at September 30, 2010 and December 31, 2009                                                                                                                                 |   |               | (884,376    | )      |              |   | (884,376 | ) |
| Retained earnings                                                                                                                                                                                                  |   |               | 7,567,000   |   |              |   | 5,286,808 |   |
| Accumulated other comprehensive income, net of tax of $1,140,158 at September 30, 2010 and $468,803 at December 31, 2009                                                                                           |   |               | 2,213,248   |   |              |   | 910,029 |   |
| Total stockholders' equity                                                                                                                                                                                         |   |               | 53,381,512  |   |              |   | 46,936,109 |   |
|                                                                                                                                                                                                               |   |               |        |   |              |   |   |   |
| Total liabilities and stockholders' equity                                                                                                                                                                         |   | $                  | 660,140,588 |   |              | $      | 680,159,058 |   |

----

Index

Tow

|                                                |   | (unaudited)                  |      |   | (unaudited)                 |   |
|-----------------------------------------------------|--------|------------------------------|-----------|--------|-----------------------------|--------|
|                                                |   | Three Months Ended |      |   | Nine Months Ended |   |
|                                                |   | September 30                 |      |   | September 30                |   |
|                                                |   | 2010                         |      |   | 2009                        |   |   | 2010 |   |   | 2009 |   |
| Interest income:                                    |   |                         |      |   |                        |   |   |   |   |   |   |   |
| Loans, including fees                               |   | $                            | 6,670,537 |   |                        | $      | 6,959,860 |   |   | $ | 20,380,441 |   |   | $ | 21,107,524 |   |
| Securities - taxable                                |   |                         | 593,720   |   |                        |   | 824,234 |   |   |   | 1,895,634 |   |   |   | 2,240,516 |   |
| Securities - tax exempt                             |   |                         | 270,444   |   |                        |   | 242,924 |   |   |   | 770,218 |   |   |   | 710,768 |   |
| Other interest income                               |   |                         | 6,183     |   |                        |   | 1,951 |   |   |   | 18,553 |   |   |   | 11,504 |   |
| Total interest income                               |   |                         | 7,540,884 |   |                        |   | 8,028,969 |   |   |   | 23,064,846 |   |   |   | 24,070,312 |   |
| Interest expense:                                   |   |                         |      |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                            |   |                         | 1,577,115 |   |                        |   | 2,491,713 |   |   |   | 5,064,385 |   |   |   | 8,138,297 |   |
| Short-term borrowings                               |   |                         | 19        |   |                        |   | 583 |   |   |   | 130 |   |   |   | 1,573 |   |
| FHLB advances                                       |   |                         | 84,142    |   |                        |   | 176,749 |   |   |   | 396,854 |   |   |   | 643,777 |   |
| Junior subordinated debt                            |   |                         | 299,310   |   |                        |   | 283,072 |   |   |   | 862,607 |   |   |   | 846,369 |   |
| Total interest expense                              |   |                         | 1,960,586 |   |                        |   | 2,952,117 |   |   |   | 6,323,976 |   |   |   | 9,630,016 |   |
| Net interest income                                 |   |                         | 5,580,298 |   |                        |   | 5,076,852 |   |   |   | 16,740,870 |   |   |   | 14,440,296 |   |
| Provision for loan losses                           |   |                         | 1,500,000 |   |                        |   | 1,995,000 |   |   |   | 3,940,000 |   |   |   | 9,505,000 |   |
| Net interest income after provision for loan losses |   |                         | 4,080,298 |   |                        |   | 3,081,852 |   |   |   | 12,800,870 |   |   |   | 4,935,296 |   |
| Noninterest income:                                 |   |                         |      |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Trust and brokerage fees                            |   |                         | 892,396   |   |                        |   | 818,838 |   |   |   | 2,665,043 |   |   |   | 2,492,794 |   |
| Service charges                                     |   |                         | 274,165   |   |                        |   | 285,662 |   |   |   | 844,604 |   |   |   | 826,978 |   |
| Loan broker fees                                    |   |                         | 254,673   |   |                        |   | 218,870 |   |   |   | 539,242 |   |   |   | 552,551 |   |
| Gain on sale/calls of securities                    |   |                         | 892,059   |   |                        |   | 14,880 |   |   |   | 934,607 |   |   |   | 209,892 |   |
| Other-than-temporary loss:                          |   |                         |      |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Total impairment loss                               |   |                         | (32,326   | )      |                        |   | (477,344 | ) |   |   | (30,134 | ) |   |   | (525,000 | ) |
| Loss recognized in other comprehensive income       |   |                         | 27,060    |   |                        |   | - |   |   |   | - |   |   |   | - |   |
| Net impairment loss recognized in earnings          |   |                         | (5,266    | )      |                        |   | (477,344 | ) |   |   | (30,134 | ) |   |   | (525,000 | ) |
| Other income                                        |   |                         | 348,873   |   |                        |   | 348,939 |   |   |   | 1,035,381 |   |   |   | 1,040,881 |   |
| Total noninterest income                            |   |                         | 2,656,900 |   |                        |   | 1,209,845 |   |   |   | 5,988,743 |   |   |   | 4,598,096 |   |
| Noninterest expense:                                |   |                         |      |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Salaries and benefits                               |   |                         | 2,408,059 |   |                        |   | 2,651,713 |   |   |   | 7,069,110 |   |   |   | 8,019,122 |   |
| Occupancy and equipment                             |   |                         | 630,149   |   |                        |   | 779,044 |   |   |   | 1,889,651 |   |   |   | 2,170,446 |   |
| Marketing                                           |   |                         | 126,087   |   |                        |   | 87,660 |   |   |   | 367,754 |   |   |   | 366,532 |   |
| Data processing                                     |   |                         | 333,215   |   |                        |   | 257,974 |   |   |   | 758,427 |   |   |   | 879,426 |   |
| Loan and professional costs                         |   |                         | 358,444   |   |                        |   | 445,546 |   |   |   | 1,217,881 |   |   |   | 1,140,686 |   |
| Office supplies and postage                         |   |                         | 58,456    |   |                        |   | 87,003 |   |   |   | 192,748 |   |   |   | 257,549 |   |
| Courier services                                    |   |                         | 55,410    |   |                        |   | 58,048 |   |   |   | 166,534 |   |   |   | 177,955 |   |
| Business development                                |   |                         | 99,240    |   |                        |   | 87,842 |   |   |   | 278,080 |   |   |   | 354,604 |   |
| Communication                                       |   |                         | 45,236    |   |                        |   | 43,219 |   |   |   | 140,097 |   |   |   | 131,458 |   |
| FDIC insurance premiums                             |   |                         | 540,974   |   |                        |   | 357,138 |   |   |   | 1,533,646 |   |   |   | 1,315,936 |   |
| OREO Expenses                                       |   |                         | 409,254   |   |                        |   | 60,174 |   |   |   | 1,410,570 |   |   |   | 1,115,344 |   |
| Other expense                                       |   |                         | 285,585   |   |                        |   | 552,526 |   |   |   | 873,113 |   |   |   | 989,981 |   |
| Total noninterest expense                           |   |                         | 5,350,109 |   |                        |   | 5,467,887 |   |   |   | 15,897,611 |   |   |   | 16,919,039 |   |
| Income (loss) before income taxes                   |   |                         | 1,387,089 |   |                        |   | (1,176,190 | ) |   |   | 2,892,002 |   |   |   | (7,385,647 | ) |
| Income taxes expense (benefit)                      |   |                         | 342,023   |   |                        |   | (455,615 | ) |   |   | 611,810 |   |   |   | (2,979,817 | ) |
|                                                |   |                         |      |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                   |   | $                            | 1,045,066 |   |                        | $      | (720,575 | ) |   | $ | 2,280,192 |   |   | $ | (4,405,830 | ) |
| Less: Preferred stock dividends                     |   | $                            | -         |   |                        | $      | 1,579 |   |   | $ | - |   |   | $ | 1,579 |   |
| Net income (loss) available to common shareholders  |   | $                            | 1,045,066 |   |                        | $      | (722,154 | ) |   | $ | 2,280,192 |   |   | $ | (4,407,409 | ) |

----

Index

|                                                                                    |   | (unaudited)                  |      |   | (unaudited)                 |   |
|-----------------------------------------------------------------------------------------|--------|------------------------------|-----------|--------|-----------------------------|--------|
|                                                                                    |   | Three Months Ended |      |   | Nine Months Ended |   |
|                                                                                    |   | September 30                 |      |   | September 30                |   |
|                                                                                    |   | 2010                         |      |   | 2009                        |   |   | 2010 |   |   | 2009 |   |
|                                                                                    |   |                         |      |   |                        |   |   |   |   |   |   |   |
| Net income (loss):                                                                      |   | $                            | 1,045,066 |   |                        | $      | (720,575 | ) |   | $ | 2,280,192 |   |   | $ | (4,405,830 | ) |
|                                                                                    |   |                         |      |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income (loss) net of tax:                                           |   |                         |      |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized appreciation (depreciation) on available for sale securities                 |   |                         | 346,899   |   |                        |   | 1,530,454 |   |   |   | 1,101,840 |   |   |   | 1,700,096 |   |
| Unrealized gain (loss) on held to maturity securities transferred to available for sale |   |                         | 201,379   |   |                        |   | - |   |   |   | 201,379 |   |   |   | - |   |
| Unrealized gain (loss) on cash flow hedge                                               |   |                         | -         |   |                        |   | (27,232 | ) |   |   | - |   |   |   | (204,360 | ) |
| Total comprehensive income (loss)                                                       |   | $                            | 1,593,344 |   |                        | $      | 782,647 |   |   | $ | 3,583,411 |   |   | $ | (2,910,094 | ) |
|                                                                                    |   |                         |      |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings (loss) per common share                                                  |   | $                            | 0.24      |   |                        | $      | (0.18 | ) |   | $ | 0.54 |   |   | $ | (1.08 | ) |
| Diluted earnings (loss) per common share                                                |   | $                            | 0.23      |   |                        | $      | (0.18 | ) |   | $ | 0.51 |   |   | $ | (1.08 | ) |
| Average common shares outstanding                                                       |   |                         | 4,427,370 |   |                        |   | 4,090,432 |   |   |   | 4,203,979 |   |   |   | 4,090,410 |   |
| Average common shares and dilutive potential common shares outstanding                  |   |                         | 4,588,714 |   |                        |   | 4,090,432 |   |   |   | 4,459,894 |   |   |   | 4,090,410 |   |
|                                                                                    |   |                         |      |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Dividends declared per share                                                            |   | $                            | -         |   |                        | $      | - |   |   | $ | - |   |   | $ | - |   |

----

Index

Tow

|                                                                   |   | Preferred Stock |      |   | Common Stock and Paid-in Capital |   |       | Retained Earnings |   |   | Accumulated Other Comprehensive Income (Loss) |   |   | Treasury Stock |      |   | Total  |   |
|------------------------------------------------------------------------|--------|-----------------|-----------|--------|----------------------------------|--------|------------|-------------------|--------|--------|-----------------------------------------------|--------|--------|----------------|-----------|--------|--------|--------|
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |
| Balance, January 1, 2009                                               |   | $               | -         |   |                             | $      | 39,766,742 |              |   | $      | 10,895,724                                    |   |   | $              | (159,950  | )      |   | $      | (884,376 | ) |   | $ | 49,618,140 |   |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
| Net income (loss) for 2009                                             |   |            |      |   |                             |   |       |              |   |   | (4,405,830                                    | )      |   |           |      |   |   |   |   |   |   |   | (4,405,830 | ) |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
| Other Comprehensive Income (See Note 4)                           |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           | 1,495,736 |   |   |   |   |   |   |   | 1,495,736 |   |
| Total Comprehensive Loss                                               |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   | (2,910,094 | ) |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
| Issuance of Convertible Series A Preferred Stock (18,300 Shares)       |   | $               | 1,780,000 |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   | 1,780,000 |   |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
| Stock based compensation expense                                       |   |            |      |   |                             |   | 55,028     |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   | 55,028 |   |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
| Preferred Stock Dividends Paid                                         |   |            |      |   |                             |   |       |              |   |   | (1,579                                        | )      |   |           |      |   |   |   |   |   |   |   | (1,579 | ) |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
| Balance, September 30, 2009                                            |   | $               | 1,780,000 |   |                             | $      | 39,821,770 |              |   | $      | 6,488,315                                     |   |   | $              | 1,335,786 |   |   | $      | (884,376 | ) |   | $ | 48,541,495 |   |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
| Balance, January 1, 2010                                               |   | $               | 1,788,000 |   |                             | $      | 39,835,648 |              |   | $      | 5,286,808                                     |   |   | $              | 910,029   |   |   | $      | (884,376 | ) |   | $ | 46,936,109 |   |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
| Net income for 2010                                                    |   |            |      |   |                             |   |       |              |   |   | 2,280,192                                     |   |   |           |      |   |   |   |   |   |   |   | 2,280,192 |   |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
| Other Comprehensive Income (See Note 4)                           |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           | 1,303,219 |   |   |   |   |   |   |   | 1,303,219 |   |
| Total Comprehensive Income                                             |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   | 3,583,411 |   |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
| Stock based compensation expense                                       |   |            |      |   |                             |   | 35,182     |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   | 35,182 |   |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
| Issuance of 458,342 common shares, net of offering expenses of $78,912 |   |            |      |   |                             |   | 2,826,810  |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   | 2,826,810 |   |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
| Conversion of 10,000 preferred shares into 166,113 common shares       |   |            | (977,049  | )      |                             |   | 977,049    |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   | - |   |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
|                                                                   |   |            |      |   |                             |   |       |              |   |   |                                          |   |   |           |      |   |   |   |   |   |   |   |   |   |
| Balance, September 30, 2010                                            |   | $               | 810,951   |   |                             | $      | 43,674,689 |              |   | $      | 7,567,000                                     |   |   | $              | 2,213,248 |   |   | $      | (884,376 | ) |   | $ | 53,381,512 |   |

----

Index

Tow

|                                                                              |   | (unaudited)                  |        |   | (unaudited)                  |   |
|-----------------------------------------------------------------------------------|--------|------------------------------|-------------|--------|------------------------------|--------|
|                                                                              |   | Nine Months ended  |        |   | Nine Months ended  |   |
|                                                                              |   | September 30, 2010 |        |   | September 30, 2009 |   |
| Cash flows from operating activities:                                             |   |                         |        |   |                         |   |
| Net income (loss)                                                                 |   | $                            | 2,280,192   |   |                         | $      | (4,405,830 | ) |
| Adjustments to reconcile net income (loss) to net cash from operating activities: |   |                         |        |   |                         |   |   |   |
| Depreciation and amortization                                                     |   |                         | 1,202,701   |   |                         |   | 1,012,154 |   |
| Provision for loan losses                                                         |   |                         | 3,940,000   |   |                         |   | 9,505,000 |   |
| Stock based compensation expense                                                  |   |                         | 35,182      |   |                         |   | 55,028 |   |
| Earnings on life insurance                                                        |   |                         | (352,815    | )      |                         |   | (337,576 | ) |
| Gain on sale of securities AFS                                                    |   |                         | (46,548     | )      |                         |   | (209,892 | ) |
| Gain on sale of securities HTM                                                    |   |                         | (888,059    | )      |                         |   | - |   |
| Gain on settlement of interest rate floor                                         |   |                         | -           |   |                         |   | (364,766 | ) |
| Loss on disposal of premises and equipment                                        |   |                         | 678         |   |                         |   | 231 |   |
| Impairment on AFS securities                                                      |   |                         | 30,134      |   |                         |   | 525,000 |   |
| Loans originated for sale                                                         |   |                         | (19,762,272 | )      |                         |   | (26,308,704 | ) |
| (Gain)Loss on sale of other real estate owned                                     |   |                         | 52,641      |   |                         |   | 68,970 |   |
| Proceeds from sale of loans                                                       |   |                         | 21,074,031  |   |                         |   | 25,072,360 |   |
| Write-down on OREO                                                                |   |                         | 1,098,356   |   |                         |   | 950,000 |   |
| Change in accrued interest receivable                                             |   |                         | 10,869      |   |                         |   | 103,525 |   |
| Change in other assets                                                            |   |                         | 897,709     |   |                         |   | (3,492,536 | ) |
| Change in accrued interest payable                                                |   |                         | 663,831     |   |                         |   | (157,628 | ) |
| Change in other liabilities                                                       |   |                         | (140,854    | )      |                         |   | 498,965 |   |
| Net cash from operating activities                                                |   |                         | 10,095,776  |   |                         |   | 2,514,301 |   |
| Cash flows from investing activities:                                             |   |                         |        |   |                         |   |   |   |
| Net change in loans                                                               |   |                         | 24,820,153  |   |                         |   | 16,623,666 |   |
| Purchase of securities AFS                                                        |   |                         | (35,270,602 | )      |                         |   | (20,093,141 | ) |
| Proceeds from calls and maturities of securities AFS                              |   |                         | 17,487,717  |   |                         |   | 12,021,820 |   |
| Purchase of securities HTM                                                        |   |                         | (1,721,320  | )      |                         |   | (4,720,914 | ) |
| Proceeds from calls and maturities of securities HTM                              |   |                         | 802,365     |   |                         |   | 92,041 |   |
| Proceeds from sale of securities HTM                                              |   |                         | 900,784     |   |                         |   | - |   |
| Proceeds from sale of securities AFS                                              |   |                         | 3,002,143   |   |                         |   | 6,738,302 |   |
| Proceeds from sale of OREO                                                        |   |                         | 3,812,857   |   |                         |   | 702,317 |   |
| Purchase of FHLB stock                                                            |   |                         | (75,000     | )      |                         |   | - |   |
| Purchase of premises and equipment                                                |   |                         | (1,107,517  | )      |                         |   | (838,456 | ) |
| Net cash from investing activities                                                |   |                         | 12,651,580  |   |                         |   | 10,525,635 |   |
| Cash flows from financing activities:                                             |   |                         |        |   |                         |   |   |   |
| Net change in deposits                                                            |   |                         | 8,713,150   |   |                         |   | 6,493,508 |   |
| Proceeds from issuance of common stock                                            |   |                         | 2,826,810   |   |                         |   | - |   |
| Proceeds from issuance of preferred stock                                         |   |                         | -           |   |                         |   | 1,830,000 |   |
| Repayment of long-term FHLB advances                                              |   |                         | (8,700,000  | )      |                         |   | (9,000,000 | ) |
| Repayment of short-term FHLB advances                                             |   |                         | (27,000,000 | )      |                         |   | (14,000,000 | ) |
| Net cash from (used in) financing activities                                      |   |                         | (24,160,040 | )      |                         |   | (14,676,492 | ) |
| Net change in cash and cash equivalents                                           |   |                         | (1,412,684  | )      |                         |   | (1,636,556 | ) |
| Cash and cash equivalents, beginning of period                                    |   |                         | 24,664,309  |   |                         |   | 31,576,373 |   |
| Cash and cash equivalents, end of period                                          |   | $                            | 23,251,625  |   |                         | $      | 29,939,817 |   |
|                                                                              |   |                         |        |   |                         |   |   |   |
| Supplemental disclosures of cash flow information                                 |   |                         |        |   |                         |   |   |   |
| Cash paid during the year for:                                                    |   |                         |        |   |                         |   |   |   |
| Interest                                                                          |   | $                            | 5,660,145   |   |                         | $      | 9,787,644 |   |
| Income taxes                                                                      |   |                         | 1,540,000   |   |                         |   | 1,265,000 |   |
| Noncash items:                                                                    |   |                         |        |   |                         |   |   |   |
| Transfer of loans to other real estate owned                                      |   |                         | 4,172,431   |   |                         |   | 3,059,655 |   |
| Transfer from securities held to maturity to securities available for sale        |   |                         | 5,470,254   |   |                         |   | - |   |

----

Index

Towe

----

Index

|                                             |   | September 30, 2010 |        |   |                   |   |
|--------------------------------------------------|--------|--------------------|-------------|--------|------------------------|--------|
|                                             |   | Amortized Cost     |        |   | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | Fair Value |   |
|                                             |   |               |        |   |                   |   |   |   |   |   |   |   |
| Available for sale securities:                   |   |               |        |   |                   |   |   |   |   |   |   |   |
| U.S. Government agency debt obligations          |   | $                  | 4,732,710   |   |                   | $      | 87,267 |   |   | $ | - |   |   | $ | 4,819,977 |   |
| Obligations of states and political subdivisions |   |               | 33,147,620  |   |                   |   | 1,673,159 |   |   |   | (96,105 | ) |   |   | 34,724,674 |   |
| Mortgage-backed securities (residential)         |   |               | 60,807,278  |   |                   |   | 1,988,612 |   |   |   | (366,778 | ) |   |   | 62,429,112 |   |
| Mortgage-backed securities (commercial)          |   |               | 4,489,199   |   |                   |   | 288,593 |   |   |   | - |   |   |   | 4,777,792 |   |
| Collateralized debt obligations                  |   |               | 231,342     |   |                   |   | - |   |   |   | (221,342 | ) |   |   | 10,000 |   |
|                                             |   |               |        |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Total Securities                                 |   | $                  | 103,408,149 |   |                   | $      | 4,037,631 |   |   | $ | (684,225 | ) |   | $ | 106,761,555 |   |

|                                             |   | December 31, 2009 |       |   |                   |   |
|--------------------------------------------------|--------|-------------------|------------|--------|------------------------|--------|
|                                             |   | Amortized Cost    |       |   | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | Fair Value |   |
|                                             |   |              |       |   |                   |   |   |   |   |   |   |   |
| Available for sale securities:                   |   |              |       |   |                   |   |   |   |   |   |   |   |
| U.S. Government agency debt obligations          |   | $                 | 8,241,408  |   |                   | $      | 114,962 |   |   | $ | (68,987 | ) |   | $ | 8,287,383 |   |
| Obligations of states and political subdivisions |   |              | 26,707,619 |   |                   |   | 644,961 |   |   |   | (150,035 | ) |   |   | 27,202,545 |   |
| Mortgage-backed securities (residential)         |   |              | 43,664,429 |   |                   |   | 1,288,946 |   |   |   | (296,377 | ) |   |   | 44,656,998 |   |
| Mortgage-backed securities (commercial)          |   |              | 4,955,530  |   |                   |   | 71,629 |   |   |   | (4,925 | ) |   |   | 5,022,234 |   |
| Collateralized debt obligations                  |   |              | 231,342    |   |                   |   | - |   |   |   | (221,342 | ) |   |   | 10,000 |   |
| Total available for sale securities              |   | $                 | 83,800,328 |   |                   | $      | 2,120,498 |   |   | $ | (741,666 | ) |   | $ | 85,179,160 |   |
|                                             |   |              |       |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Held to maturity securities:                     |   |              |       |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities (residential)         |   |              | 4,495,977  |   |                   |   | 139,639 |   |   |   | - |   |   |   | 4,635,616 |   |
| Total held to maturity securities                |   |              | 4,495,977  |   |                   |   | 139,639 |   |   |   | - |   |   |   | 4,635,616 |   |
|                                             |   |              |       |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Total Securities                                 |   | $                 | 88,296,305 |   |                   | $      | 2,260,137 |   |   | $ | (741,666 | ) |   | $ | 89,814,776 |   |

----

Index

|                                                  |   | 9/30/2010              |   |
|-------------------------------------------------------|--------|------------------------|--------|
|                                                  |   | Weighted Average Yield |   |   | Amortized Cost |   |   | Fair Value |   |
| Available for sale securities:                        |   |                   |   |   |   |   |   |   |   |
| Agencies:                                             |   |                   |   |   |   |   |   |   |   |
| Due in one year or less                               |   |                   | 3.25%  |   |   | $ | 700,000 |   |   | $ | 709,408 |   |
| Due after one to five years                           |   |                   | 2.84%  |   |   |   | 1,398,441 |   |   | $ | 1,432,548 |   |
| Due after five to ten years                           |   |                   | 2.58%  |   |   |   | 2,634,269 |   |   |   | 2,678,021 |   |
| Due after ten years                                   |   |                   | 0.00%  |   |   |   | - |   |   |   | - |   |
| Total Agencies                                        |   |                   | 2.76%  |   |   | $ | 4,732,710 |   |   | $ | 4,819,977 |   |
|                                                  |   |                   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities:                           |   |                   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities (residential)              |   |                   | 3.72%  |   |   | $ | 60,807,278 |   |   | $ | 62,429,112 |   |
| Mortgage-backed securities (commercial)               |   |                   | 3.65%  |   |   |   | 4,489,199 |   |   |   | 4,777,792 |   |
|                                                  |   |                   | 3.72%  |   |   | $ | 65,296,477 |   |   | $ | 67,206,904 |   |
| Obligations of state and political subdivisions:      |   |                   |   |   |   |   |   |   |   |   |   |   |
| Due in one year or less                               |   |                   | 4.99%  |   |   | $ | 260,670 |   |   | $ | 264,611 |   |
| Due after one to five years                           |   |                   | 4.98%  |   |   |   | 2,321,253 |   |   |   | 2,422,974 |   |
| Due after five to ten years                           |   |                   | 5.43%  |   |   |   | 10,914,066 |   |   |   | 11,537,158 |   |
| Due after ten years                                   |   |                   | 5.95%  |   |   |   | 19,651,631 |   |   |   | 20,499,931 |   |
| Total Obligations of state and political subdivisions |   |                   | 5.70%  |   |   | $ | 33,147,620 |   |   | $ | 34,724,674 |   |
|                                                  |   |                   |   |   |   |   |   |   |   |   |   |   |
| Collateralized debt obligations                       |   |                   |   |   |   |   |   |   |   |   |   |   |
| Due after ten years                                   |   |                   | 1.14%  |   |   | $ | 231,342 |   |   | $ | 10,000 |   |

|                                                  |   | 12/31/2009             |   |
|-------------------------------------------------------|--------|------------------------|--------|
|                                                  |   | Weighted Average Yield |   |   | Amortized Cost |   |   | Fair Value |   |
| Available for sale securities:                        |   |                   |   |   |   |   |   |   |   |
| Agencies:                                             |   |                   |   |   |   |   |   |   |   |
| Due after one to five years                           |   |                   | 3.53%  |   |   | $ | 4,786,251 |   |   | $ | 4,840,794 |   |
| Due after five to ten years                           |   |                   | 3.44%  |   |   |   | 2,393,069 |   |   |   | 2,416,589 |   |
| Due after ten years                                   |   |                   | 2.55%  |   |   |   | 1,062,088 |   |   |   | 1,030,000 |   |
| Total Agencies                                        |   |                   | 3.38%  |   |   | $ | 8,241,408 |   |   | $ | 8,287,383 |   |
|                                                  |   |                   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities:                           |   |                   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities (residential)              |   |                   | 4.14%  |   |   | $ | 43,664,429 |   |   | $ | 44,656,998 |   |
| Mortgage-backed securities (commercial)               |   |                   | 3.65%  |   |   |   | 4,955,530 |   |   |   | 5,022,234 |   |
|                                                  |   |                   | 4.09%  |   |   | $ | 48,619,959 |   |   | $ | 49,679,232 |   |
| Obligations of state and political subdivisions:      |   |                   |   |   |   |   |   |   |   |   |   |   |
| Due in one year or less                               |   |                   | 3.40%  |   |   | $ | 190,000 |   |   | $ | 191,449 |   |
| Due after one to five years                           |   |                   | 3.65%  |   |   |   | 1,935,646 |   |   |   | 1,982,218 |   |
| Due after five to ten years                           |   |                   | 4.23%  |   |   |   | 7,804,309 |   |   |   | 7,984,641 |   |
| Due after ten years                                   |   |                   | 4.27%  |   |   |   | 16,777,664 |   |   |   | 17,044,237 |   |
| Total Obligations of state and political subdivisions |   |                   | 4.21%  |   |   | $ | 26,707,619 |   |   | $ | 27,202,545 |   |
|                                                  |   |                   |   |   |   |   |   |   |   |   |   |   |
| Collateralized debt obligations                       |   |                   |   |   |   |   |   |   |   |   |   |   |
| Due after ten years                                   |   |                   | 1.10%  |   |   | $ | 231,342 |   |   | $ | 10,000 |   |
|                                                  |   |                   |   |   |   |   |   |   |   |   |   |   |
| Held to maturity securities:                          |   |                   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities:                           |   |                   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities (residential)              |   |                   | 4.89%  |   |   |   | 4,495,977 |   |   |   | 4,635,616 |   |

----

Index

|                                             |   | Continuing Unrealized |       |   | Continuing Unrealized |   |     |       |   |   |                    |   |
|--------------------------------------------------|--------|----------------------------|------------|--------|----------------------------|--------|----------|------------|--------|--------|-------------------------|--------|
|                                             |   | Losses for                 |       |   | Losses for                 |   |     |       |   |   |                    |   |
|                                             |   | Less than 12 months        |       |   | More than 12 months        |   |     | Total      |   |
|                                             |   |                       |       |   |                       |   |     |       |   |   |                    |   |   |   |   |   |   |   |
|                                             |   | Fair Value                 |       |   | Gross Unrealized Losses    |   |     | Fair Value |   |   | Gross Unrealized Losses |   |   | Fair Value |   |   | Gross Unrealized Losses |   |
|                                             |   |                       |       |   |                       |   |     |       |   |   |                    |   |   |   |   |   |   |   |
| Available for sale securities:                   |   |                       |       |   |                       |   |     |       |   |   |                    |   |   |   |   |   |   |   |
| U.S. Government agency debt obligations          |   | $                          | -          |   |                       | $      | -        |       |   | $      | -                       |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Obligations of states and political subdivisions |   |                       | 1,324,398  |   |                       |   | (73,500  | )          |   |   | 1,459,237               |   |   |   | (22,605 | ) |   |   | 2,783,635 |   |   |   | (96,105 | ) |
| Mortgage-backed securities (residential)         |   |                       | 11,744,359 |   |                       |   | (183,021 | )          |   |   | 427,407                 |   |   |   | (183,757 | ) |   |   | 12,171,766 |   |   |   | (366,778 | ) |
| Mortgage-backed securities (commercial)          |   |                       | -          |   |                       |   | -        |       |   |   | -                       |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Collateralized debt obligations                  |   |                       | -          |   |                       |   | -        |       |   |   | 10,000                  |   |   |   | (221,342 | ) |   |   | 10,000 |   |   |   | (221,342 | ) |
| Total temporarily impaired securities            |   | $                          | 13,068,757 |   |                       | $      | (256,521 | )          |   | $      | 1,896,644               |   |   | $ | (427,704 | ) |   | $ | 14,965,401 |   |   | $ | (684,225 | ) |

|                                             |   | Continuing Unrealized |       |   | Continuing Unrealized |   |     |       |   |   |                    |   |
|--------------------------------------------------|--------|----------------------------|------------|--------|----------------------------|--------|----------|------------|--------|--------|-------------------------|--------|
|                                             |   | Losses for                 |       |   | Losses for                 |   |     |       |   |   |                    |   |
|                                             |   | Less than 12 months        |       |   | More than 12 months        |   |     | Total      |   |
|                                             |   |                       |       |   |                       |   |     |       |   |   |                    |   |   |   |   |   |   |   |
|                                             |   | Fair Value                 |       |   | Gross Unrealized Losses    |   |     | Fair Value |   |   | Gross Unrealized Losses |   |   | Fair Value |   |   | Gross Unrealized Losses |   |
|                                             |   |                       |       |   |                       |   |     |       |   |   |                    |   |   |   |   |   |   |   |
| Available for sale securities:                   |   |                       |       |   |                       |   |     |       |   |   |                    |   |   |   |   |   |   |   |
| U.S. Government agency debt obligations          |   | $                          | 2,656,626  |   |                       | $      | (68,987  | )          |   | $      | -                       |   |   | $ | - |   |   | $ | 2,656,626 |   |   | $ | (68,987 | ) |
| Obligations of states and political subdivisions |   |                       | 2,450,819  |   |                       |   | (25,413  | )          |   |   | 2,899,366               |   |   |   | (124,622 | ) |   |   | 5,350,185 |   |   |   | (150,035 | ) |
| Mortgage-backed securities (residential)         |   |                       | 7,225,027  |   |                       |   | (64,868  | )          |   |   | 468,665                 |   |   |   | (231,509 | ) |   |   | 7,693,692 |   |   |   | (296,377 | ) |
| Mortgage-backed securities (commercial)          |   |                       | 1,497,108  |   |                       |   | (4,925   | )          |   |   | -                       |   |   |   | - |   |   |   | 1,497,108 |   |   |   | (4,925 | ) |
| Collateralized debt obligations                  |   |                       | -          |   |                       |   | -        |       |   |   | 10,000                  |   |   |   | (221,342 | ) |   |   | 10,000 |   |   |   | (221,342 | ) |
| Total temporarily impaired securities            |   | $                          | 13,829,580 |   |                       | $      | (164,193 | )          |   | $      | 3,378,031               |   |   | $ | (577,473 | ) |   | $ | 17,207,611 |   |   | $ | (741,666 | ) |

----

Index

|                    |   |   | September 30 |   |   | June 30 |   |   | March 31 |   |   | December 31 |   |   | September 30 |   |   | June 30 |   |   | March 31 |   |
|-------------------------|--------|--------|-------------------|--------|--------|--------------|--------|--------|---------------|--------|--------|------------------|--------|--------|-------------------|--------|--------|--------------|--------|--------|---------------|--------|
|                    |   |   | 2010              |   |   | 2010         |   |   | 2010          |   |   | 2009             |   |   | 2009              |   |   | 2009         |   |   | 2009          |   |
| Delinquency 60+         |   |   |              | 16.67  | %      |         |   | 19.13  | %             |   |   | 20.50            | %      |   |              | 20.30  | %      |         |   | 18.03  | %             |   |   | 16.76 | % |   |   | 14.38 | % |
| Delinquency 90+         |   |   |              | 14.33  | %      |         |   | 17.38  | %             |   |   | 18.20            | %      |   |              | 17.65  | %      |         |   | 14.82  | %             |   |   | 13.68 | % |   |   | 11.39 | % |
| Other Real Estate Owned |   |   |              | 0.20   | %      |         |   | 0.17   | %             |   |   | 1.27             | %      |   |              | 1.32   | %      |         |   | 0.84   | %             |   |   | 1.51 | % |   |   | 0.32 | % |
| Foreclosure             |   |   |              | 9.11   | %      |         |   | 10.79  | %             |   |   | 11.43            | %      |   |              | 11.38  | %      |         |   | 10.64  | %             |   |   | 7.77 | % |   |   | 6.85 | % |
| Bankruptcy              |   |   |              | 4.09   | %      |         |   | 3.35   | %             |   |   | 3.87             | %      |   |              | 3.36   | %      |         |   | 2.60   | %             |   |   | 0.31 | % |   |   | 0.31 | % |

----

Index

| For the three months ended September 30, 2010                                                               |   |   |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Beginning Balance, July 1, 2010                                                                             |   | $      | 45,638 |   |
| Additions for amounts related to credit loss for which an OTTI was not previously recognized                |   |   | -      |   |
| Increases to the amount related to the credit loss for which other-than-temporary was previously recognized |   |   | 5,266  |   |
| Ending Balance, September 30, 2010                                                                          |   | $      | 50,904 |   |

| For the nine months ended September 30, 2010                                                                |   |   |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Beginning Balance, January 1, 2010                                                                          |   | $      | 20,770 |   |
| Additions for amounts related to credit loss for which an OTTI was not previously recognized                |   |   | -      |   |
| Increases to the amount related to the credit loss for which other-than-temporary was previously recognized |   |   | 30,134 |   |
| Ending Balance, September 30, 2010                                                                          |   | $      | 50,904 |   |

|               |   | Deferral |       |   | Default |   |
|--------------------|--------|----------|------------|--------|---------|--------|
| March 31, 2008     |   | $        | -          |   |    | $      | 25,000,000 |   |
| September 30, 2008 |   |     | 20,000,000 |   |    |   | - |   |
| December 31, 2008  |   |     | 15,000,000 |   |    |   | 35,000,000 |   |
| March 31, 2009     |   |     | 22,500,000 |   |    |   | - |   |
| June 30, 2009      |   |     | 35,600,000 |   |    |   | 25,000,000 |   |
| September 30, 2009 |   |     | 86,000,000 |   |    |   | - |   |
| December 31, 2009* |   |     | 7,500,000  |   |    |   | 25,000,000 |   |
| March 31, 2010     |   |     | -          |   |    |   | - |   |
| June 30, 2010      |   |     | -          |   |    |   | - |   |
| September 30, 2010 |   |     | 14,000,000 |   |    |   | - |   |

----

Index

|                                                                                                              |   | Three months ended September |      |
|-------------------------------------------------------------------------------------------------------------------|--------|------------------------------|-----------|
|                                                                                                              |   | 2010                         |      |   | 2009 |   |
| Net Income (Loss)                                                                                                 |   | $                            | 1,045,066 |   |   | $ | (720,575 | ) |
| Change in securities available for sale:                                                                          |   |                         |      |   |   |   |   |   |
| Unrealized holding gains (losses) on securities for which other-than-temporary impairment has been recorded       |   |                         | (32,326   | ) |   |   | 4,425 |   |
| Other-than-temporary impairment on available for sale securities associated with credit losses realized in income |   |                         | 5,266     |   |   |   | 477,344 |   |
| Unrealized holding gains (losses) recorded in other comprehensive income                                          |   |                         | (27,060   | ) |   |   | 481,769 |   |
|                                                                                                              |   |                         |      |   |   |   |   |   |
| Unrealized gains (losses) on interest rate floor                                                                  |   |                         | -         |   |   |   | 41,260 |   |
| Unrealized appreciation (depreciation) on transfers from held to maturity to available for sale securities        |   |                         | 305,119   |   |   |   | - |   |
| Unrealized holding gains (losses) on available for sale securities arising during the period                      |   |                         | 1,444,724 |   |   |   | 1,810,720 |   |
| Reclassification adjustment for (gains) losses realized in income on interest rate floor                          |   |                         | -         |   |   |   | (41,260 | ) |
| Reclassification adjustment for (gains) losses realized in income on held to maturity securities                  |   |                         | (888,059  | ) |   |   | - |   |
| Reclassification adjustment for (gains) losses realized in income on available for sale securities                |   |                         | (4,000    | ) |   |   | (14,880 | ) |
| Net unrealized gains (losses)                                                                                     |   |                         | 857,784   |   |   |   | 1,795,840 |   |
| Income tax expense (benefit)                                                                                      |   |                         | 282,446   |   |   |   | 774,387 |   |
| Total other comprehensive income (loss)                                                                           |   |                         | 548,278   |   |   |   | 1,503,222 |   |
| Comprehensive Income (Loss)                                                                                       |   | $                            | 1,593,344 |   |   | $ | 782,647 |   |

----

Index

|                                                                                                              |   | Nine months ended September |      |
|-------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|
|                                                                                                              |   | 2010                        |      |   | 2009 |   |
| Net Income (Loss)                                                                                                 |   | $                           | 2,280,192 |   |   | $ | (4,405,830 | ) |
| Change in securities available for sale:                                                                          |   |                        |      |   |   |   |   |   |
| Unrealized holding gains (losses) on securities for which other-than-temporary impairment has been recorded       |   |                        | 17,618    |   |   |   | (165,474 | ) |
| Other-than-temporary impairment on available for sale securities associated with credit losses realized in income |   |                        | 30,134    |   |   |   | 525,000 |   |
| Unrealized holding gains (losses) recorded in other comprehensive income                                          |   |                        | 47,752    |   |   |   | 359,526 |   |
|                                                                                                              |   |                        |      |   |   |   |   |   |
| Unrealized gains (losses) on interest rate floor                                                                  |   |                        | -         |   |   |   | 309,637 |   |
| Unrealized appreciation (depreciation) on transfers from held to maturity to available for sale securities        |   |                        | 305,119   |   |   |   | - |   |
| Unrealized holding gains (losses) on available for sale securities arising during the period                      |   |                        | 2,556,310 |   |   |   | 2,116,633 |   |
| Reclassification adjustment for (gains) losses realized in income on interest rate floor                          |   |                        | -         |   |   |   | (309,637 | ) |
| Reclassification adjustment for (gains) losses realized in income on held to maturity securities                  |   |                        | (888,059  | ) |   |   | - |   |
| Reclassification adjustment for (gains) losses realized in income on available for sale securities                |   |                        | (46,548   | ) |   |   | (209,892 | ) |
| Net unrealized gains (losses)                                                                                     |   |                        | 1,926,822 |   |   |   | 1,906,741 |   |
| Income tax expense (benefit)                                                                                      |   |                        | 671,355   |   |   |   | 770,531 |   |
| Total other comprehensive income (loss)                                                                           |   |                        | 1,303,219 |   |   |   | 1,495,736 |   |
| Comprehensive Income (Loss)                                                                                       |   | $                           | 3,583,411 |   |   | $ | (2,910,094 | ) |

|                                                                                                           |   | Three Months Ended |      |
|----------------------------------------------------------------------------------------------------------------|--------|------------------------------|-----------|
|                                                                                                           |   | September 30, 2010 |      |
|                                                                                                           |   | 2010                         |      |   | 2009 |   |
| Basic                                                                                                          |   |                         |      |   |   |   |
| Net income (loss)                                                                                              |   | $                            | 1,045,066 |   |   | $ | (720,575 | ) |
| Less: Preferred stock dividends                                                                                |   |                         | -         |   |   |   | 1,579 |   |
| Net income (loss) available to common stockholders                                                             |   | $                            | 1,045,066 |   |   | $ | (722,154 | ) |
| Weighted average common shares outstanding                                                                     |   |                         | 4,427,370 |   |   |   | 4,090,432 |   |
| Basic earnings (loss) per common share                                                                         |   | $                            | 0.24      |   |   | $ | (0.18 | ) |
|                                                                                                           |   |                         |      |   |   |   |   |   |
| Diluted                                                                                                        |   |                         |      |   |   |   |   |   |
| Net income (loss)                                                                                              |   | $                            | 1,045,066 |   |   | $ | (720,575 | ) |
| Less: Preferred stock dividends                                                                                |   |                         | -         |   |   |   | 1,579 |   |
| Net income (loss) available to common stockholders                                                             |   | $                            | 1,045,066 |   |   | $ | (722,154 | ) |
| Weighted average common shares outstanding                                                                     |   |                         | 4,427,370 |   |   |   | 4,090,432 |   |
| Add:  dilutive effect of assumed preferred stock conversion                                          |   |                         | 161,344   |   |   |   | - |   |
| Weighted average common shares and dilutive potential common shares outstanding and preferred stock conversion |   |                         | 4,588,714 |   |   |   | 4,090,432 |   |
| Diluted earnings (loss) per common share                                                                       |   | $                            | 0.23      |   |   | $ | (0.18 | ) |

----

Index

|                                                                                                           |   | Nine Months Ended  |      |
|----------------------------------------------------------------------------------------------------------------|--------|------------------------------|-----------|
|                                                                                                           |   | September 30, 2010 |      |
|                                                                                                           |   | 2010                         |      |   | 2009 |   |
| Basic                                                                                                          |   |                         |      |   |   |   |
| Net income (loss)                                                                                              |   | $                            | 2,280,192 |   |   | $ | (4,405,830 | ) |
| Less: Preferred stock dividends                                                                                |   |                         | -         |   |   |   | 1,579 |   |
| Net income (loss) available to common stockholders                                                             |   | $                            | 2,280,192 |   |   | $ | (4,407,409 | ) |
| Weighted average common shares outstanding                                                                     |   |                         | 4,203,979 |   |   |   | 4,090,410 |   |
| Basic earnings (loss) per common share                                                                         |   | $                            | 0.54      |   |   | $ | (1.08 | ) |
|                                                                                                           |   |                         |      |   |   |   |   |   |
| Diluted                                                                                                        |   |                         |      |   |   |   |   |   |
| Net income (loss)                                                                                              |   | $                            | 2,280,192 |   |   | $ | (4,405,830 | ) |
| Less: Preferred stock dividends                                                                                |   |                         | -         |   |   |   | 1,579 |   |
| Net income (loss) available to common stockholders                                                             |   | $                            | 2,280,192 |   |   | $ | (4,407,409 | ) |
| Weighted average common shares outstanding                                                                     |   |                         | 4,203,979 |   |   |   | 4,090,410 |   |
| Add:  dilutive effect of assumed preferred stock conversion                                          |   |                         | 255,915   |   |   |   | - |   |
| Weighted average common shares and dilutive potential common shares outstanding and preferred stock conversion |   |                         | 4,459,894 |   |   |   | 4,090,410 |   |
| Diluted earnings (loss) per common share                                                                       |   | $                            | 0.51      |   |   | $ | (1.08 | ) |

| Options                                          |   | Shares |    |   | Weighted- Average Aggregate Exercise Price |   |   | Weighted- Average Remaining Contractual Term |   |   | Instrinsic Value |   |
|--------------------------------------------------|--------|--------|---------|--------|--------------------------------------------|--------|--------|----------------------------------------------|--------|--------|------------------|--------|
|                                             |   |   |    |   |                                       |   |   |                                         |   |   |             |   |
| Outstanding at January 1, 2010                   |   |   | 91,404  |   |                                       | $      | 13.31  |                                         |   |   | 3.49             |   |   |   |   |
|                                             |   |   |    |   |                                       |   |   |                                         |   |   |             |   |   |   |   |
| Granted                                          |   |   | -       |   |                                       |   |   |                                         |   |   |             |   |   |   |   |
|                                             |   |   |    |   |                                       |   |   |                                         |   |   |             |   |   |   |   |
| Exercised                                        |   |   | -       |   |                                       |   |   |                                         |   |   |             |   |   |   |   |
|                                             |   |   |    |   |                                       |   |   |                                         |   |   |             |   |   |   |   |
| Forfeited or expired                             |   |   | (12,500 | )      |                                       |   | 13.29  |                                         |   |   |             |   |   |   |   |
|                                             |   |   |    |   |                                       |   |   |                                         |   |   |             |   |   |   |   |
| Outstanding at September 30, 2010                |   |   | 78,904  |   |                                       |   | 13.31  |                                         |   |   | 2.91             |   |   |   | - |   |
|                                             |   |   |    |   |                                       |   |   |                                         |   |   |             |   |   |   |   |   |
| Vested or expected to vest at September 30, 2010 |   |   | 78,904  |   |                                       |   |   |                                         |   |   |             |   |   |   | - |   |
|                                             |   |   |    |   |                                       |   |   |                                         |   |   |             |   |   |   |   |   |
| Exercisable at September 30, 2010                |   |   | 78,904  |   |                                       |   |   |                                         |   |   |             |   |   |   | - |   |

----

Index

|                         |   | As of and for the three months ending September 30, 2010 |        |
|------------------------------|--------|----------------------------------------------------------|-------------|
|                         |   | Bank                                                     |        |   | Wealth Management |   |   | Corporate & Intercompany |   |   | Eliminations |   |   | Total |   |
| Income Statement Information |   |                                                     |        |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income          |   | $                                                        | 5,862,831   |   |   | $ | 16,777 |   |   | $ | (299,310 | ) |   | $ | - |   |   | $ | 5,580,298 |   |
|                         |   |                                                     |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest income          |   |                                                     | 863,431     |   |   |   | 897,567 |   |   |   | 1,642,235 |   |   |   | (746,333 | ) |   |   | 2,656,900 |   |
|                         |   |                                                     |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest expense         |   |                                                     | 4,566,138   |   |   |   | 640,004 |   |   |   | 143,967 |   |   |   | - |   |   |   | 5,350,109 |   |
|                         |   |                                                     |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noncash items                |   |                                                     |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses    |   |                                                     | 1,500,000   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,500,000 |   |
| Depreciation/Amortization    |   |                                                     | 455,450     |   |   |   | 8,850 |   |   |   | - |   |   |   | - |   |   |   | 464,300 |   |
|                         |   |                                                     |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense(benefit)  |   |                                                     | 91,914      |   |   |   | 96,217 |   |   |   | 153,892 |   |   |   | - |   |   |   | 342,023 |   |
|                         |   |                                                     |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Profit               |   |                                                     | 568,210     |   |   |   | 178,123 |   |   |   | 1,045,066 |   |   |   | (746,333 | ) |   |   | 1,045,066 |   |
|                         |   |                                                     |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet Information    |   |                                                     |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Assets               |   |                                                     | 655,607,618 |   |   |   | 6,297,950 |   |   |   | 76,451,157 |   |   |   | (78,216,137 | ) |   |   | 660,140,588 |   |

----

Index

|                         |   | As of and for the nine months ending September 30, 2010 |        |
|------------------------------|--------|---------------------------------------------------------|-------------|
|                         |   | Bank                                                    |        |   | Wealth Management |   |   | Corporate & Intercompany |   |   | Eliminations |   |   | Total |   |
| Income Statement Information |   |                                                    |        |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income          |   | $                                                       | 17,554,763  |   |   | $ | 48,714 |   |   | $ | (862,607 | ) |   | $ | - |   |   | $ | 16,740,870 |   |
|                         |   |                                                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest income          |   |                                                    | 2,397,636   |   |   |   | 2,677,062 |   |   |   | 3,463,533 |   |   |   | (2,549,488 | ) |   |   | 5,988,743 |   |
|                         |   |                                                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest expense         |   |                                                    | 13,542,690  |   |   |   | 1,895,461 |   |   |   | 459,460 |   |   |   | - |   |   |   | 15,897,611 |   |
|                         |   |                                                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noncash items                |   |                                                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses    |   |                                                    | 3,940,000   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 3,940,000 |   |
| Depreciation/Amortization    |   |                                                    | 1,176,207   |   |   |   | 26,494 |   |   |   | - |   |   |   | - |   |   |   | 1,202,701 |   |
|                         |   |                                                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense(benefit)  |   |                                                    | 460,229     |   |   |   | 290,309 |   |   |   | (138,728 | ) |   |   | - |   |   |   | 611,810 |   |
|                         |   |                                                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Profit               |   |                                                    | 2,009,480   |   |   |   | 540,006 |   |   |   | 2,280,194 |   |   |   | (2,549,488 | ) |   |   | 2,280,192 |   |
|                         |   |                                                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet Information    |   |                                                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Assets               |   |                                                    | 655,607,618 |   |   |   | 6,297,950 |   |   |   | 76,451,157 |   |   |   | (78,216,137 | ) |   |   | 660,140,588 |   |

|                         |   | As of for the three months ending September 30, 2009 |        |
|------------------------------|--------|------------------------------------------------------|-------------|
|                         |   | Bank                                                 |        |   | Wealth Management |   |   | Corporate & Intercompany |   |   | Eliminations |   |   | Total |   |
| Income Statement Information |   |                                                 |        |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income          |   | $                                                    | 5,339,196   |   |   | $ | 20,327 |   |   | $ | (282,671 | ) |   | $ | - |   |   | $ | 5,076,852 |   |
|                         |   |                                                 |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest income          |   |                                                 | 383,845     |   |   |   | 822,210 |   |   |   | (372,816 | ) |   |   | 376,606 |   |   |   | 1,209,845 |   |
|                         |   |                                                 |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest expense         |   |                                                 | 4,663,443   |   |   |   | 545,423 |   |   |   | 259,021 |   |   |   |   |   |   |   | 5,467,887 |   |
|                         |   |                                                 |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noncash items                |   |                                                 |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses    |   |                                                 | 1,995,000   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,995,000 |   |
| Depreciation/Amortization    |   |                                                 | 314,880     |   |   |   | 9,927 |   |   |   |   |   |   |   |   |   |   |   | 324,807 |   |
|                         |   |                                                 |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense(benefit)  |   |                                                 | (367,687    | ) |   |   | 106,006 |   |   |   | (193,934 | ) |   |   |   |   |   |   | (455,615 | ) |
|                         |   |                                                 |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Profit               |   |                                                 | (567,715    | ) |   |   | 191,108 |   |   |   | (720,574 | ) |   |   | 376,606 |   |   |   | (720,575 | ) |
|                         |   |                                                 |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet Information    |   |                                                 |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Assets               |   |                                                 | 673,570,332 |   |   |   | 6,163,095 |   |   |   | 70,585,692 |   |   |   | (70,925,217 | ) |   |   | 679,393,902 |   |

----

Index

|                         |   | As of for the nine months ending September 30, 2009 |        |
|------------------------------|--------|-----------------------------------------------------|-------------|
|                         |   | Bank                                                |        |   | Wealth Management |   |   | Corporate & Intercompany |   |   | Eliminations |   |   | Total |   |
| Income Statement Information |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income          |   | $                                                   | 15,218,010  |   |   | $ | 68,254 |   |   | $ | (845,968 | ) |   | $ | - |   |   | $ | 14,440,296 |   |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest income          |   |                                                | 2,121,771   |   |   |   | 2,508,007 |   |   |   | (3,335,220 | ) |   |   | 3,303,538 |   |   |   | 4,598,096 |   |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest expense         |   |                                                | 14,348,587  |   |   |   | 1,737,687 |   |   |   | 832,765 |   |   |   | - |   |   |   | 16,919,039 |   |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noncash items                |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses    |   |                                                | 9,505,000   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 9,505,000 |   |
| Depreciation/Amortization    |   |                                                | 982,354     |   |   |   | 29,800 |   |   |   | - |   |   |   | - |   |   |   | 1,012,154 |   |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense(benefit)  |   |                                                | (2,669,222  | ) |   |   | 297,529 |   |   |   | (608,124 | ) |   |   | - |   |   |   | (2,979,817 | ) |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Profit               |   |                                                | (3,844,584  | ) |   |   | 541,045 |   |   |   | (4,405,829 | ) |   |   | 3,303,538 |   |   |   | (4,405,830 | ) |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet Information    |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Assets               |   |                                                | 673,570,332 |   |   |   | 6,163,095 |   |   |   | 70,585,692 |   |   |   | (70,925,217 | ) |   |   | 679,393,902 |   |

|                           |   | September 30, 2010 |        |   | December 31, 2009 |   |
|--------------------------------|--------|------------------------------|-------------|--------|-----------------------------|--------|
|                           |   | Balance                      |        |   | %                           |   |   | Balance |   |   | % |   |
|                           |   |                         |        |   |                        |   |   |   |   |   |   |   |
| Commercial                     |   | $                            | 235,028,593 |   |                        |   | 47.5 | % |   | $ | 251,773,047 |   |   |   | 47.7 | % |
| Commercial real estate         |   |                         | 128,339,135 |   |                        |   | 25.9 | % |   |   | 132,355,208 |   |   |   | 25.1 | % |
| Residential real estate        |   |                         | 76,878,690  |   |                        |   | 15.5 | % |   |   | 86,679,947 |   |   |   | 16.4 | % |
| Home equity                    |   |                         | 39,267,814  |   |                        |   | 8.0 | % |   |   | 40,042,804 |   |   |   | 7.6 | % |
| Consumer                       |   |                         | 15,367,615  |   |                        |   | 3.1 | % |   |   | 16,648,679 |   |   |   | 3.2 | % |
| Total loans                    |   |                         | 494,881,847 |   |                        |   | 100.0 | % |   |   | 527,499,685 |   |   |   | 100.0 | % |
| Net deferred loan costs (fees) |   |                         | (63,359     | )      |                        |   |   |   |   |   | (166,224 | ) |   |   |   |   |
| Allowance for loan losses      |   |                         | (12,016,000 | )      |                        |   |   |   |   |   | (11,598,389 | ) |   |   |   |   |
|                           |   |                         |        |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Net loans                      |   | $                            | 482,802,488 |   |                        |   |   |   |   | $ | 515,735,072 |   |   |   |   |   |

|                                          |   | 2010   |       |   | 2009   |   |
|-----------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                          |   |   |       |   |   |   |
| Beginning balance, January 1                  |   | $      | 11,598,389 |   |   | $      | 10,654,879 |   |
| Provision expense                             |   |   | 3,940,000  |   |   |   | 9,505,000 |   |
| Charge-offs                                   |   |   | (3,798,337 | )      |   |   | (5,694,033 | ) |
| Recoveries                                    |   |   | 275,948    |   |   |   | 439,547 |   |
|                                          |   |   |       |   |   |   |   |   |
| Ending balance, September 30                  |   | $      | 12,016,000 |   |   | $      | 14,905,393 |   |
|                                          |   |   |       |   |   |   |   |   |
| Net charge-offs to average loans (annualized) |   |   | 0.91       | %      |   |   | 1.29 | % |

----

Index

|                             |   | September 30, 2010 |       |   | December 31, 2009 |   |
|----------------------------------|--------|------------------------------|------------|--------|-----------------------------|--------|
|                             |   |                         |       |   |                        |   |
| Specific allocations             |   | $                            | 2,800,000  |   |                        | $      | 3,825,000 |   |
| Loan pool percentage allocations |   |                         | 9,133,000  |   |                        |   | 7,721,000 |   |
| Unallocated                      |   |                         | 83,000     |   |                        |   | 52,389 |   |
|                             |   |                         |       |   |                        |   |   |   |
| Total allowance for loan losses  |   | $                            | 12,016,000 |   |                        | $      | 11,598,389 |   |

|                                           |   | September 30, 2010 |       |   | December 31, 2009 |   |
|------------------------------------------------|--------|------------------------------|------------|--------|-----------------------------|--------|
|                                           |   |                         |       |   |                        |   |
| Loans past due over 90 days and still accruing |   | $                            | 3,175,022  |   |                        | $      | 561,136 |   |
| Restructured loans                             |   |                         | 1,760,887  |   |                        |   | 1,915,127 |   |
| Nonaccrual loans                               |   |                         | 10,768,542 |   |                        |   | 13,466,165 |   |
| Total nonperforming loans                      |   | $                            | 15,704,451 |   |                        | $      | 15,942,428 |   |
| Other real estate owned                        |   |                         | 3,842,666  |   |                        |   | 4,634,089 |   |
| Impaired Securities                            |   |                         | 437,407    |   |                        |   | 478,665 |   |
| Total nonperforming assets                     |   | $                            | 19,984,524 |   |                        | $      | 21,055,182 |   |
|                                           |   |                         |       |   |                        |   |   |   |
| Nonperforming assets to total assets           |   |                         | 3.03       | %      |                        |   | 3.10 | % |
|                                           |   |                         |       |   |                        |   |   |   |
| Nonperforming loans to total loans             |   |                         | 3.17       | %      |                        |   | 3.02 | % |

|                                              |   | September 30, 2010 |       |   | December 31, 2009 |   |
|---------------------------------------------------|--------|------------------------------|------------|--------|-----------------------------|--------|
|                                              |   |                         |       |   |                        |   |
| Loans with no allocated allowance for loan losses |   | $                            | 15,459,862 |   |                        | $      | 9,776,211 |   |
| Loans with allocated allowance for loan losses    |   |                         | 11,247,605 |   |                        |   | 13,674,754 |   |
| Total Impaired Loans                              |   | $                            | 26,707,467 |   |                        | $      | 23,450,965 |   |
|                                              |   |                         |       |   |                        |   |   |   |
| Amount of allowance for loan losses allocated     |   | $                            | 2,800,000  |   |                        | $      | 3,825,000 |   |

| For the three months ended               |   | September 30, 2010 |       |   | September 30, 2009 |   |
|------------------------------------------|--------|------------------------------|------------|--------|------------------------------|--------|
|                                     |   |                         |       |   |                         |   |
| Average impaired loans during the period |   | $                            | 25,335,662 |   |                         | $      | 28,517,204 |   |
|                                     |   |                         |       |   |                         |   |   |   |
| Interest recognized on impaired loans    |   |                         | 141,822    |   |                         |   | 225,045 |   |
|                                     |   |                         |       |   |                         |   |   |   |
| Cash-basis interest income recognized    |   |                         | 141,822    |   |                         |   | 225,045 |   |

| For the nine months ended                |   | September 30, 2010 |       |   | September 30, 2009 |   |
|------------------------------------------|--------|------------------------------|------------|--------|------------------------------|--------|
|                                     |   |                         |       |   |                         |   |
| Average impaired loans during the period |   | $                            | 25,366,002 |   |                         | $      | 25,639,937 |   |
|                                     |   |                         |       |   |                         |   |   |   |
| Interest recognized on impaired loans    |   |                         | 420,753    |   |                         |   | 661,848 |   |
|                                     |   |                         |       |   |                         |   |   |   |
| Cash-basis interest income recognized    |   |                         | 407,648    |   |                         |   | 661,848 |   |

----

Index

|                                                                 |   | September 30, 2010 |      |   | December 31, 2009 |   |
|----------------------------------------------------------------------|--------|------------------------------|-----------|--------|-----------------------------|--------|
|                                                                 |   |                         |      |   |                        |   |
| 2.29% bullet advance, principal due at maturity March 22, 2010       |   | $                            | -         |   |                        | $      | 2,000,000 |   |
| 3.26% bullet advance, principal due at maturity April 28, 2010       |   |                         | -         |   |                        |   | 1,500,000 |   |
| 0.47% variable rate advance, principal due at maturity May 24, 2010  |   |                         | -         |   |                        |   | 15,000,000 |   |
| 0.47% variable rate advance, principal due at maturity June 16, 2010 |   |                         | -         |   |                        |   | 12,000,000 |   |
| 3.63% bullet advance, principal due at maturity June 28, 2010        |   |                         | -         |   |                        |   | 4,000,000 |   |
| 4.32% bullet advance, principal due at maturity June 29, 2010        |   |                         | -         |   |                        |   | 1,200,000 |   |
| 3.19% bullet advance, principal due at maturity March 28, 2011       |   |                         | 2,000,000 |   |                        |   | 2,000,000 |   |
| 3.60% bullet advance, principal due at maturity April 28, 2011       |   |                         | 1,500,000 |   |                        |   | 1,500,000 |   |
| 3.55% bullet advance, principal due at maturity March 26, 2012       |   |                         | 2,000,000 |   |                        |   | 2,000,000 |   |
| 3.81% bullet advance, principal due at maturity March 26, 2013       |   |                         | 2,000,000 |   |                        |   | 2,000,000 |   |
|                                                                 |   |                         |      |   |                        |   |   |   |
|                                                                 |   | $                            | 7,500,000 |   |                        | $      | 43,200,000 |   |

|     Year |   | Advances |      |
|------------------------------|--------|----------|-----------|
| 2010                         |   | $        | -         |   |
| 2011                         |   |     | 3,500,000 |   |
| 2012                         |   |     | 2,000,000 |   |
| 2013                         |   |     | 2,000,000 |   |
| 2014                         |   |     | -         |   |
|                         |   | $        | 7,500,000 |   |

----

Index

|                                             |   | September 30, 2010 |       |
|--------------------------------------------------|--------|--------------------|------------|
|                                             |   | Level 1            |       |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Available for sale securities:                   |   |               |       |   |   |   |   |   |   |   |   |   |
| U.S. Government agency debt obligations          |   | $                  | 4,819,977  |   |   | $ | - |   |   | $ | - |   |   | $ | 4,819,977 |   |
| Obligations of states and political subdivisions |   |               | -          |   |   |   | 34,724,674 |   |   |   | - |   |   |   | 34,724,674 |   |
| Mortgage-backed securities (residential)         |   |               | 57,814,274 |   |   |   | 4,187,431 |   |   |   | 427,407 |   |   |   | 62,429,112 |   |
| Mortgage-backed securities (commercial)          |   |               | 2,676,812  |   |   |   | 2,100,980 |   |   |   | - |   |   |   | 4,777,792 |   |
| Collateralized debt obligations                  |   |               | -          |   |   |   | - |   |   |   | 10,000 |   |   |   | 10,000 |   |
| Total                                            |   | $                  | 65,311,063 |   |   | $ | 41,013,085 |   |   | $ | 437,407 |   |   | $ | 106,761,555 |   |

|                                             |   | December 31, 2009 |       |
|--------------------------------------------------|--------|-------------------|------------|
|                                             |   | Level 1           |       |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Available for sale securities:                   |   |              |       |   |   |   |   |   |   |   |   |   |
| U.S. Government agency debt obligations          |   | $                 | 8,287,383  |   |   | $ | - |   |   | $ | - |   |   | $ | 8,287,383 |   |
| Obligations of states and political subdivisions |   |              | -          |   |   |   | 27,202,545 |   |   |   | - |   |   |   | 27,202,545 |   |
| Mortgage-backed securities (residential)         |   |              | 44,188,333 |   |   |   | - |   |   |   | 468,665 |   |   |   | 44,656,998 |   |
| Mortgage-backed securities (commercial)          |   |              | 2,932,234  |   |   |   | 2,090,000 |   |   |   | - |   |   |   | 5,022,234 |   |
| Collateralized debt obligations                  |   |              | -          |   |   |   | - |   |   |   | 10,000 |   |   |   | 10,000 |   |
| Total                                            |   | $                 | 55,407,950 |   |   | $ | 29,292,545 |   |   | $ | 478,665 |   |   | $ | 85,179,160 |   |

|                                   |   | Available-for-sale securities  |   |   | Available-for-sale securities            |   |
|----------------------------------------|--------|--------------------------------|--------|--------|------------------------------------------|--------|
|                                   |   | September 30, 2010             |   |   | September 30, 2009                       |   |
|                                   |   |                           |   |   |                                     |   |
| For the three months ended             |   | Collateralized Debt Obligation |   |   | Mortgage Backed Securities (residential) |   |   | Collateralized Debt Obligation |   |   | Mortgage Backed Securities (residential) |   |
|                                   |   |                           |   |   |                                     |   |   |   |   |   |   |   |
| Beginning Balance, July 1              |   | $                              | 10,000 |   |                                     | $      | 479,529 |   |   | $ | 74,053 |   |   | $ | - |   |
| Principal paydowns                     |   |                           | -      |   |                                     |   | (19,796 | ) |   |   | - |   |   |   |   |   |
| Net realized/unrealized gains (losses) |   |                           |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Included in earnings:                  |   |                           |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Interest income on securities          |   |                           | -      |   |                                     |   | - |   |   |   | - |   |   |   | - |   |
| Credit loss recognized in earnings     |   |                           | -      |   |                                     |   | (5,266 | ) |   |   | (477,344 | ) |   |   | - |   |
| Included in other comprehensive income |   |                           | -      |   |                                     |   | (27,060 | ) |   |   | 481,769 |   |   |   | - |   |
| Ending Balance, September 30           |   | $                              | 10,000 |   |                                     | $      | 427,407 |   |   | $ | 78,478 |   |   | $ | - |   |

----

Index

|                                   |   | Available-for-sale securities  |   |   | Available-for-sale securities |   |
|----------------------------------------|--------|--------------------------------|--------|--------|-------------------------------|--------|
|                                   |   | September 30, 2010             |   |   | September 30, 2009            |   |
|                                   |   |                           |   |   |                          |   |
| For the nine months ended              |   | Collateralized Debt Obligation |   |   | Mortgage Backed Securities    |   |   | Collateralized Debt Obligation |   |   | Mortgage Backed Securities |   |
|                                   |   |                           |   |   |                          |   |   |   |   |   |   |   |
| Beginning Balance, January 1           |   | $                              | 10,000 |   |                          | $      | 468,665 |   |   | $ | 74,053 |   |   | $ | - |   |
| Principal paydowns                     |   |                           | -      |   |                          |   | (58,876 | ) |   |   | - |   |   |   |   |   |
| Net realized/unrealized gains (losses) |   |                           |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Included in earnings:                  |   |                           |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Interest income on securities          |   |                           | -      |   |                          |   | - |   |   |   | - |   |   |   | - |   |
| Credit loss recognized in earnings     |   |                           | -      |   |                          |   | (30,134 | ) |   |   | (477,344 | ) |   |   | - |   |
| Included in other comprehensive income |   |                           | -      |   |                          |   | 47,752 |   |   |   | 481,769 |   |   |   | - |   |
| Ending Balance, September 30           |   | $                              | 10,000 |   |                          | $      | 427,407 |   |   | $ | 78,478 |   |   | $ | - |   |

|                    |   | September 30, 2010 |   |
|-------------------------|--------|--------------------|--------|
|                    |   | Level 1            |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Impaired loans          |   |               | -      |   |   |   | - |   |   |   | 6,115,950 |   |   |   | 6,115,950 |   |
| Other real estate owned |   |               | -      |   |   |   | - |   |   |   | 1,625,500 |   |   |   | 1,625,500 |   |

|                    |   | December 31, 2009 |   |
|-------------------------|--------|-------------------|--------|
|                    |   | Level 1           |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Impaired loans          |   |              | -      |   |   |   | - |   |   |   | 6,095,793 |   |   |   | 6,095,793 |   |
| Other real estate owned |   |              | -      |   |   |   | - |   |   |   | 1,932,200 |   |   |   | 1,932,200 |   |

----

Index

|                          |   | September 30, 2010 |         |   | December 31, 2009 |   |
|-------------------------------|--------|------------------------------|--------------|--------|-----------------------------|--------|
|                          |   | Carrying Value               |         |   | Fair Value                  |   |   | Carrying Value |   |   | Fair Value |   |
| Financial assets:             |   |                         |         |   |                        |   |   |   |   |   |   |   |
| Cash and cash equivalents     |   | $                            | 23,251,625   |   |                        | $      | 23,251,625 |   |   | $ | 24,664,309 |   |   | $ | 24,664,309 |   |
| Securities held to maturity   |   |                         | -            |   |                        |   | - |   |   |   | 4,495,977 |   |   |   | 4,635,616 |   |
| Securities available for sale |   |                         | 106,751,555  |   |                        |   | 106,751,555 |   |   |   | 85,179,160 |   |   |   | 85,179,160 |   |
| FHLBI and FRB stock           |   |                         | 4,325,800    |   |                        |   | N/A |   |   |   | 4,250,800 |   |   |   | N/A |   |
| Loans held for sale           |   |                         | 2,530,330    |   |                        |   | 2,530,330 |   |   |   | 3,842,089 |   |   |   | 3,842,089 |   |
| Loans, net                    |   |                         | 482,802,488  |   |                        |   | 490,350,551 |   |   |   | 515,735,072 |   |   |   | 518,357,191 |   |
| Accrued interest receivable   |   |                         | 2,428,990    |   |                        |   | 2,428,990 |   |   |   | 2,439,859 |   |   |   | 2,439,859 |   |
| Financial liabilities:        |   |                         |         |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                      |   | $                            | (577,093,501 | )      |                        | $      | (581,501,134 | ) |   | $ | (568,380,351 | ) |   | $ | (571,401,464 | ) |
| FHLB advances                 |   |                         | (7,500,000   | )      |                        |   | (7,777,600 | ) |   |   | (43,200,000 | ) |   |   | (43,578,410 | ) |
| Junior subordinated debt      |   |                         | (17,527,000  | )      |                        |   | (15,865,685 | ) |   |   | (17,527,000 | ) |   |   | (17,147,380 | ) |
| Accrued interest payable      |   |                         | (1,144,716   | )      |                        |   | (1,144,716 | ) |   |   | (480,885 | ) |   |   | (480,885 | ) |

----

Index

Item 2.  

----

Index

----

Index

|                             |   | September 30, 2010 |        |   | December 31, 2009 |   |
|----------------------------------|--------|------------------------------|-------------|--------|-----------------------------|--------|
|                             |   | Balance                      |        |   | %                           |   |   | Balance |   |   | % |   |
| Core deposits:                   |   |                         |        |   |                        |   |   |   |   |   |   |   |
| Noninterest-bearing demand       |   | $                            | 88,111,661  |   |                        |   | 15.3 | % |   | $ | 95,027,233 |   |   |   | 16.7 | % |
| Interest-bearing checking        |   |                         | 100,269,832 |   |                        |   | 17.4 | % |   |   | 89,734,976 |   |   |   | 15.8 | % |
| Money market                     |   |                         | 147,926,969 |   |                        |   | 25.6 | % |   |   | 152,091,793 |   |   |   | 26.8 | % |
| Savings                          |   |                         | 21,533,293  |   |                        |   | 3.7 | % |   |   | 18,264,036 |   |   |   | 3.2 | % |
| Time, under $100,000             |   |                         | 59,074,290  |   |                        |   | 10.2 | % |   |   | 77,202,688 |   |   |   | 13.6 | % |
| Total core deposits              |   |                         | 416,916,045 |   |                        |   | 72.2 | % |   |   | 432,320,726 |   |   |   | 76.1 | % |
| Non-core deposits:               |   |                         |        |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| In-market non-core deposits:     |   |                         |        |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Time, $100,000 and over          |   |                         | 44,567,830  |   |                        |   | 7.7 | % |   |   | 67,389,262 |   |   |   | 11.9 | % |
| Out-of-market non-core deposits: |   |                         |        |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Money market                     |   |                         | 12,009,623  |   |                        |   | 2.1 | % |   |   | - |   |   |   | 0.0 | % |
| Brokered certificate of deposits |   |                         | 103,600,003 |   |                        |   | 18.0 | % |   |   | 68,670,363 |   |   |   | 12.1 | % |
| Total out-of-market deposits     |   |                         | 115,609,626 |   |                        |   | 20.1 | % |   |   | 68,670,363 |   |   |   | 12.1 | % |
| Total non-core deposits          |   |                         | 160,177,456 |   |                        |   | 27.8 | % |   |   | 136,059,625 |   |   |   | 23.9 | % |
|                             |   |                         |        |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Total deposits                   |   | $                            | 577,093,501 |   |                        |   | 100.0 | % |   | $ | 568,380,351 |   |   |   | 100.0 | % |

| Performance Ratios          |   | September 30 |   |
|-----------------------------|--------|-------------------|--------|
|                        |   | 2010              |   |   | 2009 |   |
|                        |   |              |   |   |   |   |
| Return on average assets *  |   |              | 0.63   | % |   |   | -0.42 | % |
| Return on average equity *  |   |              | 8.17   | % |   |   | -6.12 | % |
| Net interest margin (TEY) * |   |              | 3.69   | % |   |   | 3.23 | % |
| Efficiency ratio            |   |              | 64.95  | % |   |   | 86.98 | % |
|                        |   |              |   |   |   |   |   |   |
| * annualized                |   |              |   |   |   |   |   |   |

----

Index

|                                                       |   | As of and For The Three Month Period Ended |    |
|------------------------------------------------------------|--------|--------------------------------------------|---------|
|                                                       |   | September 30, 2010               |    |   | September 30, 2009 |   |
| ($ in thousands)                                           |   | Average Balance                            |    |   | Interest Earned or Paid |   |   | Annualized Yield or Cost |   |   | Average Balance |   |   | Interest Earned or Paid |   |   | Annualized Yield or Cost |   |
| Assets                                                     |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term investments and interest-earning deposits       |   | $                                          | 2,392   |   |   | $ | 5 |   |   |   | 0.83 | % |   | $ | 1,772 |   |   | $ | - |   |   |   | 0.00 | % |
| Federal funds sold                                         |   |                                       | 1,930   |   |   |   | 1 |   |   |   | 0.21 | % |   |   | 3,846 |   |   |   | 2 |   |   |   | 0.21 | % |
| Securities - taxable                                       |   |                                       | 76,394  |   |   |   | 594 |   |   |   | 3.08 | % |   |   | 63,430 |   |   |   | 824 |   |   |   | 5.15 | % |
| Securities - tax exempt (1)                                |   |                                       | 28,325  |   |   |   | 409 |   |   |   | 5.73 | % |   |   | 23,534 |   |   |   | 368 |   |   |   | 6.20 | % |
| Loans held for sale                                        |   |                                       | 2,367   |   |   |   | - |   |   |   | 0.00 | % |   |   | 3,598 |   |   |   | - |   |   |   | 0.00 | % |
| Loans                                                      |   |                                       | 503,334 |   |   |   | 6,671 |   |   |   | 5.26 | % |   |   | 542,921 |   |   |   | 6,960 |   |   |   | 5.09 | % |
| Total interest-earning assets                              |   |                                       | 614,742 |   |   |   | 7,680 |   |   |   | 4.96 | % |   |   | 639,101 |   |   |   | 8,154 |   |   |   | 5.06 | % |
| Allowance for loan losses                                  |   |                                       | (13,074 | ) |   |   |   |   |   |   |   |   |   |   | (14,403 | ) |   |   |   |   |   |   |   |   |
| Cash and due from banks                                    |   |                                       | 16,255  |   |   |   |   |   |   |   |   |   |   |   | 25,759 |   |   |   |   |   |   |   |   |   |
| Other assets                                               |   |                                       | 40,975  |   |   |   |   |   |   |   |   |   |   |   | 36,295 |   |   |   |   |   |   |   |   |   |
| Total assets                                               |   | $                                          | 658,898 |   |   |   |   |   |   |   |   |   |   | $ | 686,752 |   |   |   |   |   |   |   |   |   |
| Liabilities and Stockholders' Equity                       |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing checking                                  |   | $                                          | 100,764 |   |   | $ | 71 |   |   |   | 0.28 | % |   | $ | 81,165 |   |   | $ | 124 |   |   |   | 0.61 | % |
| Savings                                                    |   |                                       | 21,357  |   |   |   | 21 |   |   |   | 0.39 | % |   |   | 17,200 |   |   |   | 17 |   |   |   | 0.39 | % |
| Money market                                               |   |                                       | 154,377 |   |   |   | 277 |   |   |   | 0.71 | % |   |   | 167,038 |   |   |   | 393 |   |   |   | 0.93 | % |
| Certificates of deposit                                    |   |                                       | 202,198 |   |   |   | 1,209 |   |   |   | 2.37 | % |   |   | 235,843 |   |   |   | 1,957 |   |   |   | 3.29 | % |
| Short-term borrowings                                      |   |                                       | 4       |   |   |   | - |   |   |   | 0.00 | % |   |   | 426 |   |   |   | 1 |   |   |   | 0.93 | % |
| FHLB advances                                              |   |                                       | 24,105  |   |   |   | 84 |   |   |   | 1.38 | % |   |   | 19,877 |   |   |   | 177 |   |   |   | 3.53 | % |
| Junior subordinated debt                                   |   |                                       | 17,527  |   |   |   | 299 |   |   |   | 6.77 | % |   |   | 17,527 |   |   |   | 283 |   |   |   | 6.41 | % |
| Total interest-bearing liabilities                         |   |                                       | 520,332 |   |   |   | 1,961 |   |   |   | 1.50 | % |   |   | 539,076 |   |   |   | 2,952 |   |   |   | 2.17 | % |
| Noninterest-bearing checking                               |   |                                       | 83,270  |   |   |   |   |   |   |   |   |   |   |   | 96,546 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                          |   |                                       | 4,552   |   |   |   |   |   |   |   |   |   |   |   | 4,452 |   |   |   |   |   |   |   |   |   |
| Stockholders' equity                                       |   |                                       | 50,744  |   |   |   |   |   |   |   |   |   |   |   | 46,678 |   |   |   |   |   |   |   |   |   |
| Total liabilities and stockholders' equity                 |   | $                                          | 658,898 |   |   |   |   |   |   |   |   |   |   | $ | 686,752 |   |   |   |   |   |   |   |   |   |
| Net interest income                                        |   |                                       |    |   |   | $ | 5,719 |   |   |   |   |   |   |   |   |   |   | $ | 5,202 |   |   |   |   |   |
| Rate spread                                                |   |                                       |    |   |   |   |   |   |   |   | 3.46 | % |   |   |   |   |   |   |   |   |   |   | 2.89 | % |
| Net interest income as a percent of average earning assets |   |                                       |    |   |   |   |   |   |   |   | 3.69 | % |   |   |   |   |   |   |   |   |   |   | 3.23 | % |

----

Index

| Performance Ratios          |   | September 30 |   |
|-----------------------------|--------|-------------------|--------|
|                        |   | 2010              |   |   | 2009 |   |
|                        |   |              |   |   |   |   |
| Return on average assets *  |   |              | 0.46   | % |   |   | -0.85 | % |
| Return on average equity *  |   |              | 6.24   | % |   |   | -12.03 | % |
| Net interest margin (TEY) * |   |              | 3.69   | % |   |   | 3.03 | % |
| Efficiency ratio            |   |              | 69.94  | % |   |   | 88.87 | % |
|                        |   |              |   |   |   |   |   |   |
| * annualized                |   |              |   |   |   |   |   |   |

----

Index

|                                                       |   | As of and For The Nine Month Period Ended |    |
|------------------------------------------------------------|--------|-------------------------------------------|---------|
|                                                       |   | September 30, 2010              |    |   | September 30, 2009 |   |
| ($ in thousands)                                           |   | Average Balance                           |    |   | Interest Earned or Paid |   |   | Annualized Yield or Cost |   |   | Average Balance |   |   | Interest Earned or Paid |   |   | Annualized Yield or Cost |   |
| Assets                                                     |   |                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term investments and interest-earning deposits       |   | $                                         | 2,313   |   |   | $ | 15 |   |   |   | 0.87 | % |   | $ | 1,922 |   |   | $ | 1 |   |   |   | 0.07 | % |
| Federal funds sold                                         |   |                                      | 2,552   |   |   |   | 4 |   |   |   | 0.21 | % |   |   | 9,352 |   |   |   | 11 |   |   |   | 0.16 | % |
| Securities - taxable                                       |   |                                      | 72,831  |   |   |   | 1,896 |   |   |   | 3.48 | % |   |   | 61,947 |   |   |   | 2,240 |   |   |   | 4.83 | % |
| Securities - tax exempt (1)                                |   |                                      | 26,122  |   |   |   | 1,167 |   |   |   | 5.97 | % |   |   | 22,898 |   |   |   | 1,077 |   |   |   | 6.29 | % |
| Loans held for sale                                        |   |                                      | 1,606   |   |   |   | - |   |   |   | 0.00 | % |   |   | 2,217 |   |   |   | - |   |   |   | 0.00 | % |
| Loans                                                      |   |                                      | 515,037 |   |   |   | 20,380 |   |   |   | 5.29 | % |   |   | 554,781 |   |   |   | 21,108 |   |   |   | 5.09 | % |
| Total interest-earning assets                              |   |                                      | 620,461 |   |   |   | 23,462 |   |   |   | 5.06 | % |   |   | 653,117 |   |   |   | 24,437 |   |   |   | 5.00 | % |
| Allowance for loan losses                                  |   |                                      | (12,573 | ) |   |   |   |   |   |   |   |   |   |   | (12,215 | ) |   |   |   |   |   |   |   |   |
| Cash and due from banks                                    |   |                                      | 17,198  |   |   |   |   |   |   |   |   |   |   |   | 21,226 |   |   |   |   |   |   |   |   |   |
| Other assets                                               |   |                                      | 41,810  |   |   |   |   |   |   |   |   |   |   |   | 35,027 |   |   |   |   |   |   |   |   |   |
| Total assets                                               |   | $                                         | 666,896 |   |   |   |   |   |   |   |   |   |   | $ | 697,155 |   |   |   |   |   |   |   |   |   |
| Liabilities and Stockholders' Equity                       |   |                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing checking                                  |   | $                                         | 104,343 |   |   | $ | 265 |   |   |   | 0.34 | % |   | $ | 83,128 |   |   | $ | 472 |   |   |   | 0.76 | % |
| Savings                                                    |   |                                      | 20,127  |   |   |   | 59 |   |   |   | 0.39 | % |   |   | 17,180 |   |   |   | 55 |   |   |   | 0.43 | % |
| Money market                                               |   |                                      | 151,026 |   |   |   | 920 |   |   |   | 0.81 | % |   |   | 159,061 |   |   |   | 1,310 |   |   |   | 1.10 | % |
| Certificates of deposit                                    |   |                                      | 204,940 |   |   |   | 3,820 |   |   |   | 2.49 | % |   |   | 257,549 |   |   |   | 6,301 |   |   |   | 3.27 | % |
| Short-term borrowings                                      |   |                                      | 13      |   |   |   | - |   |   |   | 0.00 | % |   |   | 293 |   |   |   | 2 |   |   |   | 0.91 | % |
| FHLB advances                                              |   |                                      | 30,983  |   |   |   | 397 |   |   |   | 1.71 | % |   |   | 23,056 |   |   |   | 644 |   |   |   | 3.73 | % |
| Junior subordinated debt                                   |   |                                      | 17,527  |   |   |   | 863 |   |   |   | 6.58 | % |   |   | 17,527 |   |   |   | 846 |   |   |   | 6.45 | % |
| Total interest-bearing liabilities                         |   |                                      | 528,959 |   |   |   | 6,324 |   |   |   | 1.60 | % |   |   | 557,794 |   |   |   | 9,630 |   |   |   | 2.31 | % |
| Noninterest-bearing checking                               |   |                                      | 84,885  |   |   |   |   |   |   |   |   |   |   |   | 86,164 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                          |   |                                      | 4,196   |   |   |   |   |   |   |   |   |   |   |   | 4,223 |   |   |   |   |   |   |   |   |   |
| Stockholders' equity                                       |   |                                      | 48,856  |   |   |   |   |   |   |   |   |   |   |   | 48,974 |   |   |   |   |   |   |   |   |   |
| Total liabilities and stockholders' equity                 |   | $                                         | 666,896 |   |   |   |   |   |   |   |   |   |   | $ | 697,155 |   |   |   |   |   |   |   |   |   |
| Net interest income                                        |   |                                      |    |   |   | $ | 17,138 |   |   |   |   |   |   |   |   |   |   | $ | 14,807 |   |   |   |   |   |
| Rate spread                                                |   |                                      |    |   |   |   |   |   |   |   | 3.46 | % |   |   |   |   |   |   |   |   |   |   | 2.69 | % |
| Net interest income as a percent of average earning assets |   |                                      |    |   |   |   |   |   |   |   | 3.69 | % |   |   |   |   |   |   |   |   |   |   | 3.03 | % |

----

Index

|              |   | September 30, 2010 |   |   | December 31, 2009 |   |
|-------------------|--------|------------------------------|--------|--------|-----------------------------|--------|
|              |   | Actual                       |   |   | Well- Capitalized           |   |   | Minimum Required |   |   | Actual |   |   | Well- Capitalized |   |   | Minimum Required |   |
|              |   |                         |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The Company       |   |                         |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Leverage capital  |   |                         | 10.35  | %      |                        |   | 5.00 | % |   |   | 4.00 | % |   |   | 9.05 | % |   |   | 5.00 | % |   |   | 4.00 | % |
| Tier 1 risk-based |   |                         | 12.73  | %      |                        |   | 6.00 | % |   |   | 4.00 | % |   |   | 10.90 | % |   |   | 6.00 | % |   |   | 4.00 | % |
| Total risk-based  |   |                         | 13.98  | %      |                        |   | 10.00 | % |   |   | 8.00 | % |   |   | 12.45 | % |   |   | 10.00 | % |   |   | 8.00 | % |
|              |   |                         |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The Bank          |   |                         |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Leverage capital  |   |                         | 9.89   | %      |                        |   | 5.00 | % |   |   | 4.00 | % |   |   | 9.30 | % |   |   | 5.00 | % |   |   | 4.00 | % |
| Tier 1 risk-based |   |                         | 12.09  | %      |                        |   | 6.00 | % |   |   | 4.00 | % |   |   | 11.06 | % |   |   | 6.00 | % |   |   | 4.00 | % |
| Total risk-based  |   |                         | 13.35  | %      |                        |   | 10.00 | % |   |   | 8.00 | % |   |   | 12.32 | % |   |   | 10.00 | % |   |   | 8.00 | % |

----

Index

 4.

----

Index

 1.  

 1a.

 2.

----

Index

 6. 

|   | (a) | Exhibits. |
|--------|-----|-----------|

| 10.24 | Form of Subscription Agreement (incorporated by reference to Exhibit 10.24 to our form 8.K filed on July 19, 2010) |
|-------|--------------------------------------------------------------------------------------------------------------------|

| 10.25† | Employment Agreement of Michael D. Cahill (incorporated by reference to Exhibit 99.1 to our Form 8.K/A filed September 8, 2010. |
|--------------|---------------------------------------------------------------------------------------------------------------------------------|

| 31.1 | Certification of Chief Executive Officer required by Item 307 of Regulation S-K as promulgated by the Securities and Exchange Commission and Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 31.2 | Certification of Chief Financial Officer required by Item 307 of Regulation S-K as promulgated by the Securities and Exchange Commission and Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

| 32.2. | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

SIGN

|                               | TOWER FINANCIAL CORPORATION  |
|------------------------------------|------------------------------|
|                               |                         |   |
|                               |                         |   |
| Dated:  November 5, 2010 |                         | / s /  Michael D. Cahill |
|                               | Michael D. Cahill, President |
|                               | and Chief Executive Officer  |
|                               |                         |   |
|                               |                         |   |
| Dated:  November 5, 2010 |                         | / s /  Richard R. Sawyer |
|                               | Richard R. Sawyer            |
|                               | Chief Financial Officer      |

----