----

----

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

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

|                                      |   |                                 |
|-------------------------------------------|--------|--------------------------------------|
| Georgia                                   |   | 58-1485511                           |
| (State of Incorporation)                  |   | (I.R.S. Employer Identification No.) |
|                                      |   |                                 |
| 4806 N. Henry Blvd., Stockbridge, Georgia |   | 30281                                |
| Address of Principal Executive Offices    |   | (Zip Code)                           |

|                                 |   |                           |   |                               |   |                                        |
|--------------------------------------|--------|--------------------------------|--------|------------------------------------|--------|---------------------------------------------|
| Large accelerated filer  o |   | Accelerated filer  o |   | Non-accelerated filer  o |   | Smaller Reporting Company  þ |

----

----

|                         |                                                                                                          | Page   |
|------------------------------|---------------------------------------------------------------------------------------------------------------|--------|
| PART I.                      | FINANCIAL INFORMATION                                                                                         |   |
|                         |                                                                                                          |   |
| Item 1.                      | Financial Statements                                                                                          |   |
|                         |                                                                                                          |   |
|                         | Consolidated Balance Sheets- September 30, 2010 and December 31, 2009                                         | 3      |
|                         |                                                                                                          |   |
|                         | Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2010 and 2009         | 4      |
|                         |                                                                                                          |   |
|                         | Consolidated Statements of Comprehensive Loss – Three and Nine Months Ended September 30, 2010 and 2009 | 5      |
|                         |                                                                                                          |   |
|                         | Consolidated Statements of Stockholders’ Equity- Nine Months Ended September 30, 2010                   | 6      |
|                         |                                                                                                          |   |
|                         | Consolidated Statements of Cash Flows –Nine Months Ended September 30, 2010 and 2009                    | 7-8    |
|                         |                                                                                                          |   |
|                         | Notes to Consolidated Financial Statements                                                                    | 9-29   |
|                         |                                                                                                          |   |
| Item 2.                      | Management's Discussion and Analysis ofFinancial Condition and Results of Operations                          | 30-50  |
|                         |                                                                                                          |   |
| Item 3.                      | Quantitative and Qualitative Disclosures About Market Risk                                                    | 51     |
|                         |                                                                                                          |   |
| Item 4.                      | Controls and Procedures                                                                                       | 51     |
|                         |                                                                                                          |   |
| PART II.                     | OTHER INFORMATION                                                                                             |   |
|                         |                                                                                                          |   |
| Item 5.                      | Other Information                                                                                             | 52     |
|                         |                                                                                                          |   |
| Item 6.                      | Exhibits and Reports on Form 8-K                                                                              | 53     |
|                         |                                                                                                          |   |
| Signatures    |                                                                                                          | 54     |

----

Index

| ITEM 1. | Financial Statements |
|---------|----------------------|

|                                                                     |   | September 30, |    |   | December 31, |   |
|--------------------------------------------------------------------------|--------|---------------|---------|--------|--------------|--------|
| (in thousands, except share and per share amounts)                       |   | 2010          |    |   | 2009         |   |
|                                                                     |   |          |    |   |         |   |
| Assets                                                                   |   |          |    |   |         |   |
|                                                                     |   |          |    |   |         |   |
| Cash and due from banks                                                  |   | $             | 10,442  |   |         | $      | 11,887 |   |
| Interest-bearing excess Federal Reserve balances                         |   |          | 13,600  |   |         |   | 25,700 |   |
| Interest-bearing deposits in banks                                       |   |          | 3,852   |   |         |   | 635 |   |
| Securities available for sale, at fair value                             |   |          | 64,463  |   |         |   | 72,177 |   |
| Securities held to maturity (fair value approximates $652 and $705)      |   |          | 645     |   |         |   | 695 |   |
| Restricted equity securities, at cost                                    |   |          | 1,194   |   |         |   | 1,266 |   |
| Loans held for sale                                                      |   |          | -       |   |         |   | 499 |   |
|                                                                     |   |          |    |   |         |   |   |   |
| Loans                                                                    |   |          | 406,731 |   |         |   | 434,891 |   |
| Less allowance for loan losses                                           |   |          | 12,439  |   |         |   | 13,324 |   |
| Loans, net                                                               |   |          | 394,292 |   |         |   | 421,567 |   |
|                                                                     |   |          |    |   |         |   |   |   |
| Premises and equipment                                                   |   |          | 9,121   |   |         |   | 9,481 |   |
| Foreclosed properties                                                    |   |          | 62,493  |   |         |   | 49,732 |   |
| Income taxes receivable                                                  |   |          | 534     |   |         |   | 17,457 |   |
| Other assets                                                             |   |          | 2,921   |   |         |   | 3,552 |   |
| Total assets                                                             |   | $             | 563,557 |   |         | $      | 614,648 |   |
|                                                                     |   |          |    |   |         |   |   |   |
|                                                                     |   |          |    |   |         |   |   |   |
| Liabilities and Stockholders' Equity                                     |   |          |    |   |         |   |   |   |
|                                                                     |   |          |    |   |         |   |   |   |
| Deposits                                                                 |   |          |    |   |         |   |   |   |
| Noninterest-bearing                                                      |   | $             | 64,691  |   |         | $      | 59,831 |   |
| Interest-bearing                                                         |   |          | 476,512 |   |         |   | 526,270 |   |
| Total deposits                                                           |   |          | 541,203 |   |         |   | 586,101 |   |
|                                                                     |   |          |    |   |         |   |   |   |
| Other borrowings                                                         |   |          | 123     |   |         |   | 1,436 |   |
| Other liabilities                                                        |   |          | 3,000   |   |         |   | 3,784 |   |
| Total liabilities                                                        |   |          | 544,326 |   |         |   | 591,321 |   |
|                                                                     |   |          |    |   |         |   |   |   |
| Commitments and contingencies (Note 8)                                   |   |          |    |   |         |   |   |   |
|                                                                     |   |          |    |   |         |   |   |   |
| Stockholders' equity                                                     |   |          |    |   |         |   |   |   |
| Preferred stock, no par value; 10,000,000 shares authorized; none issued |   |          |    |   |         |   |   |   |
| Common stock, par value $.10 and $2.50, respectively; 50,000,000 shares  |   |          |    |   |         |   |   |   |
| authorized; 14,388,749.6 shares issued                                   |   |          | 1,439   |   |         |   | 35,972 |   |
| Capital surplus                                                          |   |          | 35,273  |   |         |   | 740 |   |
| Accumulated deficit                                                      |   |          | (16,204 | )      |         |   | (12,491 | ) |
| Accumulated other comprehensive income                                   |   |          | 1,042   |   |         |   | 1,425 |   |
| Less cost of treasury stock, 143,060 shares                              |   |          | (2,319  | )      |         |   | (2,319 | ) |
| Total stockholders' equity                                               |   |          | 19,231  |   |         |   | 23,327 |   |
| Total liabilities and stockholders' equity                               |   | $             | 563,557 |   |         | $      | 614,648 |   |
|                                                                     |   |          |    |   |         |   |   |   |
| See accompanying notes to consolidated financial statements.             |   |          |    |   |         |   |   |   |

----

Index

|                                                         |   | Three Months Ended |       |   | Nine Months Ended |   |
|--------------------------------------------------------------|--------|--------------------|------------|--------|-------------------|--------|
|                                                         |   | September 30,      |       |   | September 30,     |   |
| (in thousands, except share and per share amounts)           |   | 2010               |       |   | 2009              |   |   | 2010 |   |   | 2009 |   |
|                                                         |   |               |       |   |              |   |   |   |   |   |   |   |
| Interest income                                              |   |               |       |   |              |   |   |   |   |   |   |   |
| Loans                                                        |   | $                  | 4,124      |   |              | $      | 5,084 |   |   | $ | 13,952 |   |   | $ | 14,278 |   |
| Taxable securities                                           |   |               | 478        |   |              |   | 603 |   |   |   | 1,422 |   |   |   | 1,796 |   |
| Nontaxable securities                                        |   |               | 41         |   |              |   | 74 |   |   |   | 132 |   |   |   | 207 |   |
| Deposits in banks                                            |   |               | 7          |   |              |   | 25 |   |   |   | 26 |   |   |   | 39 |   |
| Federal Reserve balances                                     |   |               | 20         |   |              |   | - |   |   |   | 57 |   |   |   | - |   |
| Federal funds sold                                           |   |               | -          |   |              |   | 10 |   |   |   | - |   |   |   | 20 |   |
| Total interest income                                        |   |               | 4,670      |   |              |   | 5,796 |   |   |   | 15,589 |   |   |   | 16,340 |   |
|                                                         |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                             |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                     |   |               | 2,365      |   |              |   | 3,728 |   |   |   | 7,695 |   |   |   | 11,354 |   |
| Other borrowings                                             |   |               | -          |   |              |   | 13 |   |   |   | 13 |   |   |   | 41 |   |
| Total interest expense                                       |   |               | 2,365      |   |              |   | 3,741 |   |   |   | 7,708 |   |   |   | 11,395 |   |
|                                                         |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                          |   |               | 2,305      |   |              |   | 2,055 |   |   |   | 7,881 |   |   |   | 4,945 |   |
| Provision for loan losses                                    |   |               | 1,175      |   |              |   | 378 |   |   |   | 479 |   |   |   | 14,319 |   |
| Net interest income (loss) after                             |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| provision for loan losses                                    |   |               | 1,130      |   |              |   | 1,677 |   |   |   | 7,402 |   |   |   | (9,374 | ) |
|                                                         |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Other operating income                                       |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Service charges on deposit accounts                          |   |               | 455        |   |              |   | 457 |   |   |   | 1,361 |   |   |   | 1,116 |   |
| Other service charges and fees                               |   |               | 335        |   |              |   | 255 |   |   |   | 849 |   |   |   | 656 |   |
| Securities gains (losses), net                               |   |               | -          |   |              |   | - |   |   |   | 987 |   |   |   | (275 | ) |
| Mortgage banking income                                      |   |               | -          |   |              |   | 120 |   |   |   | 13 |   |   |   | 374 |   |
| Total other operating income                                 |   |               | 790        |   |              |   | 832 |   |   |   | 3,210 |   |   |   | 1,871 |   |
|                                                         |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Other expenses                                               |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                               |   |               | 1,279      |   |              |   | 1,670 |   |   |   | 3,930 |   |   |   | 5,112 |   |
| Occupancy and equipment expenses                             |   |               | 396        |   |              |   | 447 |   |   |   | 1,131 |   |   |   | 1,308 |   |
| Foreclosed properties, net                                   |   |               | 1,378      |   |              |   | 340 |   |   |   | 6,107 |   |   |   | 2,864 |   |
| FDIC and regulatory                                          |   |               | 797        |   |              |   | 456 |   |   |   | 1,766 |   |   |   | 1,168 |   |
| Other operating expenses                                     |   |               | 407        |   |              |   | 638 |   |   |   | 1,391 |   |   |   | 1,815 |   |
| Total other expenses                                         |   |               | 4,257      |   |              |   | 3,551 |   |   |   | 14,325 |   |   |   | 12,267 |   |
|                                                         |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Loss before income taxes                                     |   |               | (2,337     | )      |              |   | (1,042 | ) |   |   | (3,713 | ) |   |   | (19,770 | ) |
|                                                         |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense (benefit)                                 |   |               | -          |   |              |   | - |   |   |   | - |   |   |   | - |   |
|                                                         |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                     |   | $                  | (2,337     | )      |              | $      | (1,042 | ) |   | $ | (3,713 | ) |   | $ | (19,770 | ) |
|                                                         |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Loss per share                                               |   | $                  | (0.16      | )      |              | $      | (0.07 | ) |   | $ | (0.26 | ) |   | $ | (1.39 | ) |
|                                                         |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average shares outstanding                          |   |               | 14,245,690 |   |              |   | 14,245,690 |   |   |   | 14,245,690 |   |   |   | 14,245,690 |   |
|                                                         |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| See accompanying notes to consolidated financial statements. |   |               |       |   |              |   |   |   |   |   |   |   |   |

----

Index

|                                                                                                |   | Three Months Ended |   |   | Nine Months Ended |   |
|-----------------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
|                                                                                                |   | September 30,      |   |   | September 30,     |   |
| (in thousands)                                                                                      |   | 2010               |   |   | 2009              |   |   | 2010 |   |   | 2009 |   |
|                                                                                                |   |               |   |   |              |   |   |   |   |   |   |   |
| Net loss                                                                                            |   | $                  | (2,337 | )      |              | $      | (1,042 | ) |   | $ | (3,713 | ) |   | $ | (19,770 | ) |
|                                                                                                |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income (loss), net of tax                                                       |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding gains on investment securities available for sale arising during period          |   |               | 305    |   |              |   | 624 |   |   |   | 604 |   |   |   | 312 |   |
|                                                                                                |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Reclassification adjustment for gains on sale of securities available for sale realized in net loss |   |               | -      |   |              |   | - |   |   |   | (987 | ) |   |   | - |   |
|                                                                                                |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Associated income taxes                                                                             |   |               | -      |   |              |   | (212 | ) |   |   | - |   |   |   | (106 | ) |
|                                                                                                |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Total other comprehensive (loss) income, net of tax                                                 |   |               | 305    |   |              |   | 412 |   |   |   | (383 | ) |   |   | 206 |   |
|                                                                                                |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive loss                                                                            |   | $                  | (2,032 | )      |              | $      | (630 | ) |   | $ | (4,096 | ) |   | $ | (19,564 | ) |
|                                                                                                |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| See accompanying notes to consolidated financial statements.                                        |   |               |   |   |              |   |   |   |   |   |   |   |   |

----

Index

|                                                         |   |   |    |   |    |   |   |        |   |   | Accumulated   |   |   |     |   |   |          |   |
|--------------------------------------------------------------|--------|--------|---------|--------|---------|--------|--------|-------------|--------|--------|---------------|--------|--------|----------|--------|--------|---------------|--------|
|                                                         |   |   |    |   |    |   |   |        |   |   | Other         |   |   |     |   |   | Total         |   |
|                                                         |   | Common |    |   |    |   |   | Accumulated |   |   | Comprehensive |   |   | Treasury |   |   | Stockholders' |   |
| (in thousands)                                               |   | Stock  |    |   | Surplus |   |   | Deficit     |   |   | Income        |   |   | Stock    |   |   | Equity        |   |
|                                                         |   |   |    |   |    |   |   |        |   |   |          |   |   |     |   |   |          |   |
| Balance, December 31, 2009                                   |   | $      | 35,972  |   |    | $      | 740    |        |   | $      | (12,491       | )      |   | $        | 1,425  |   |          | $      | (2,319 | ) |   | $ | 23,327 |   |
| Net loss                                                     |   |   | -       |   |    |   | -      |        |   |   | (3,713        | )      |   |     | -      |   |          |   | - |   |   |   | (3,713 | ) |
| Change in par value of common stock                          |   |   |    |   |    |   |   |        |   |   |          |   |   |     |   |   |          |   |   |   |   |   |   |   |
| from $2.50 per share to $.10 per share                       |   |   | (34,533 | )      |    |   | 34,533 |        |   |   | -             |   |   |     | -      |   |          |   | - |   |   |   | - |   |
| Other comprehensive loss                                     |   |   | -       |   |    |   | -      |        |   |   | -             |   |   |     | (383   | )      |          |   | - |   |   |   | (383 | ) |
| Balance, September 30, 2010                                  |   | $      | 1,439   |   |    | $      | 35,273 |        |   | $      | (16,204       | )      |   | $        | 1,042  |   |          | $      | (2,319 | ) |   | $ | 19,231 |   |
|                                                         |   |   |    |   |    |   |   |        |   |   |          |   |   |     |   |   |          |   |   |   |   |   |   |   |
| See accompanying notes to consolidated financial statements. |   |   |    |   |    |   |   |        |   |   |          |   |   |     |   |   |          |   |   |   |   |

----

Index

| (in thousands)                                                   |   | 2010   |    |   | 2009   |   |
|------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                                             |   |   |    |   |   |   |
| Operating Activities                                             |   |   |    |   |   |   |
| Net loss                                                         |   | $      | (3,713  | )      |   | $      | (19,770 | ) |
| Adjustments to reconcile net loss to net cash                    |   |   |    |   |   |   |   |   |
| provided by operating activities:                                |   |   |    |   |   |   |   |   |
| Depreciation                                                     |   |   | 355     |   |   |   | 397 |   |
| Decrease (increase) in loans held for sale                       |   |   | 499     |   |   |   | (237 | ) |
| Provision for loan losses                                        |   |   | 479     |   |   |   | 14,319 |   |
| Impairment losses on foreclosed properties                       |   |   | 3,654   |   |   |   | 1,558 |   |
| Gains on sale of securities available for sale                   |   |   | (987    | )      |   |   | - |   |
| Impairment losses on restricted equity securities                |   |   | -       |   |   |   | 275 |   |
| Net losses on sale of foreclosed properties                      |   |   | 190     |   |   |   | 642 |   |
| Gain on the sale of premises and equipment                       |   |   | (99     | )      |   |   | - |   |
| Decrease in interest receivable                                  |   |   | 421     |   |   |   | 575 |   |
| Decrease in interest payable                                     |   |   | (761    | )      |   |   | (693 | ) |
| Decrease in income taxes receivable                              |   |   | 16,923  |   |   |   | 6,122 |   |
| Net other operating activities                                   |   |   | 187     |   |   |   | (161 | ) |
| Net cash provided by operating activities                        |   |   | 17,148  |   |   |   | 3,027 |   |
|                                                             |   |   |    |   |   |   |   |   |
| Investing Activities                                             |   |   |    |   |   |   |   |   |
| Purchases of securities available for sale                       |   |   | (52,308 | )      |   |   | (46,433 | ) |
| Proceeds from maturities of securities available for sale        |   |   | 37,186  |   |   |   | 35,139 |   |
| Proceeds from sale of securities available for sale              |   |   | 23,440  |   |   |   | - |   |
| Proceeds from maturities of securities held to maturity          |   |   | 50      |   |   |   | 2,666 |   |
| Retirement of restricted equity securities                       |   |   | 72      |   |   |   | 102 |   |
| Net decrease in interest-bearing excess Federal Reserve balances |   |   | 12,100  |   |   |   | - |   |
| Net decrease in federal funds sold                               |   |   | -       |   |   |   | 14,300 |   |
| Net increase in interest-bearing deposits in banks               |   |   | (3,217  | )      |   |   | (41,877 | ) |
| Net decrease in loans                                            |   |   | 7,366   |   |   |   | 8,224 |   |
| Additions to foreclosed properties                               |   |   | (407    | )      |   |   | (100 | ) |
| Proceeds from sale of foreclosed properties                      |   |   | 3,232   |   |   |   | 5,517 |   |
| Proceeds from sale of premises and equipment                     |   |   | 104     |   |   |   | - |   |
| Purchase of premises and equipment                               |   |   | -       |   |   |   | (242 | ) |
| Net cash provided by (used in) investing activities              |   |   | 27,618  |   |   |   | (22,704 | ) |
|                                                             |   |   |    |   |   |   |   |   |
| Financing Activities                                             |   |   |    |   |   |   |   |   |
| Net increase (decrease) in deposits                              |   |   | (44,898 | )      |   |   | 17,855 |   |
| Net repayments of other borrowings                               |   |   | (1,313  | )      |   |   | (1,186 | ) |
| Net cash provided by (used in) financing activities              |   |   | (46,211 | )      |   |   | 16,669 |   |
|                                                             |   |   |    |   |   |   |   |   |
| Net decrease in cash and due from banks                          |   |   | (1,445  | )      |   |   | (3,008 | ) |
|                                                             |   |   |    |   |   |   |   |   |
| Cash and due from banks, beginning of period                     |   |   | 11,887  |   |   |   | 14,039 |   |
|                                                             |   |   |    |   |   |   |   |   |
| Cash and due from banks, end of period                           |   | $      | 10,442  |   |   | $      | 11,031 |   |
|                                                             |   |   |    |   |   |   |   |   |
| See accompanying notes to consolidated financial statements.     |   |   |    |   |   |   |   |   |

----

Index

| (in thousands)                                               |   | 2010   |    |   | 2009   |   |
|--------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                                         |   |   |    |   |   |   |
| Supplemental Disclosures of Cash Flow Information            |   |   |    |   |   |   |
|                                                         |   |   |    |   |   |   |
| Cash paid (received) for:                                    |   |   |    |   |   |   |
| Interest                                                     |   | $      | 8,469   |   |   | $      | 12,088 |   |
|                                                         |   |   |    |   |   |   |   |   |
| Income taxes                                                 |   | $      | (16,923 | )      |   | $      | (6,122 | ) |
|                                                         |   |   |    |   |   |   |   |   |
| Noncash transactions                                         |   |   |    |   |   |   |   |   |
| Other real estate acquired in settlement of loans            |   | $      | 20,991  |   |   | $      | 25,370 |   |
|                                                         |   |   |    |   |   |   |   |   |
| Financed sales of foreclosed properties                      |   | $      | 1,561   |   |   | $      | 248 |   |
|                                                         |   |   |    |   |   |   |   |   |
| See accompanying notes to consolidated financial statements. |   |   |    |   |   |   |   |   |

----

Index

   

| 1) | BASIS OF PRESENTATION |
|----|-----------------------|

| 2) | COMMON STOCK |
|----|--------------|

| 3) | RECENT OPERATING LOSSES AND IMPACT ON CAPITAL |
|----|-----------------------------------------------|

----

Index

| 3) | RECENT OPERATING LOSSES AND IMPACT ON CAPITAL, continued |
|----|----------------------------------------------------------|

| 4) | ACCOUNTING STANDARDS UPDATES |
|----|------------------------------|

----

Index

| 5) | SECURITIES |
|----|------------|

| Securities Available for Sale      |   |      |   |   | Gross      |   |   | Gross      |   |   | Estimated |   |
|------------------------------------|--------|-----------|--------|--------|------------|--------|--------|------------|--------|--------|-----------|--------|
|                               |   | Amortized |   |   | Unrealized |   |   | Unrealized |   |   | Fair      |   |
| (in thousands)                     |   | Cost      |   |   | Gains      |   |   | Losses     |   |   | Value     |   |
|                               |   |      |   |   |       |   |   |       |   |   |      |   |
| September 30, 2010:                |   |      |   |   |       |   |   |       |   |   |      |   |
| U.S. Government sponsored agencies |   | $         | 11,285 |   |       | $      | 189    |       |   | $      | -         |   |   | $ | 11,474 |   |
| State and municipal securities     |   |      | 15,200 |   |       |   | 369    |       |   |   | -         |   |   |   | 15,569 |   |
| Mortgage-backed securities         |   |      | 36,936 |   |       |   | 673    |       |   |   | (189      | )      |   |   | 37,420 |   |
|                               |   | $         | 63,421 |   |       | $      | 1,231  |       |   | $      | (189      | )      |   | $ | 64,463 |   |
| December 31, 2009:                 |   |      |   |   |       |   |   |       |   |   |      |   |   |   |   |   |
| U.S. Government sponsored agencies |   | $         | 29,581 |   |       | $      | 216    |       |   | $      | (108      | )      |   | $ | 29,689 |   |
| State and municipal securities     |   |      | 10,461 |   |       |   | 169    |       |   |   | (85       | )      |   |   | 10,545 |   |
| Mortgage-backed securities         |   |      | 30,710 |   |       |   | 1,284  |       |   |   | (51       | )      |   |   | 31,943 |   |
|                               |   | $         | 70,752 |   |       | $      | 1,669  |       |   | $      | (244      | )      |   | $ | 72,177 |   |

| Securities Held to Maturity    |   |      |   |   | Gross      |   |   | Gross      |   |   | Estimated |   |
|--------------------------------|--------|-----------|--------|--------|------------|--------|--------|------------|--------|--------|-----------|--------|
|                           |   | Amortized |   |   | Unrealized |   |   | Unrealized |   |   | Fair      |   |
| (in thousands)                 |   | Cost      |   |   | Gains      |   |   | Losses     |   |   | Value     |   |
|                           |   |      |   |   |       |   |   |       |   |   |      |   |
| September 30, 2010:            |   |      |   |   |       |   |   |       |   |   |      |   |
| State and municipal securities |   | $         | 645    |   |       | $      | 7      |       |   | $      | -         |   |   | $ | 652 |   |
|                           |   |      |   |   |       |   |   |       |   |   |      |   |   |   |   |   |
| December 31, 2009:             |   |      |   |   |       |   |   |       |   |   |      |   |   |   |   |   |
| State and municipal securities |   | $         | 695    |   |       | $      | 11     |       |   | $      | (1        | )      |   | $ | 705 |   |

|                         |   | September 30, |   |   | December 31, |   |
|------------------------------|--------|---------------|--------|--------|--------------|--------|
| (in thousands)               |   | 2010          |   |   | 2009         |   |
|                         |   |          |   |   |         |   |
| Federal Home Loan Bank stock |   | $             | 1,194  |   |         | $      | 1,266 |   |

----

Index

| 5) | SECURITIES, continued |
|----|-----------------------|

|                                              |   | Three months ended |   |   | Nine months ended |   |
|---------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
|                                              |   | September 30,      |   |   | September 30,     |   |
| (in thousands)                                    |   | 2010               |   |   | 2009              |   |   | 2010 |   |   | 2009 |   |
|                                              |   |               |   |   |              |   |   |   |   |   |   |   |
| Proceeds from sales                               |   | $                  | -      |   |              | $      | - |   |   | $ | 23,440 |   |   | $ | - |   |
|                                              |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Gross gains on sale                               |   |               | -      |   |              |   | - |   |   |   | 987 |   |   |   | - |   |
| Impairment losses on restricted equity securities |   |               | -      |   |              |   | - |   |   |   | - |   |   |   | (275 | ) |
| Net gains (losses)                                |   | $                  | -      |   |              | $      | - |   |   | $ | 987 |   |   | $ | (275 | ) |

|                                   |   | Securities Available for |   |   | Securities Held to |   |
|----------------------------------------|--------|--------------------------|--------|--------|--------------------|--------|
|                                   |   | Sale                     |   |   | Maturity           |   |
|                                   |   | Amortized                |   |   | Estimated          |   |   | Amortized |   |   | Estimated |   |
| (in thousands)                         |   | Cost                     |   |   | Fair Value         |   |   | Cost |   |   | Fair Value |   |
|                                   |   |                     |   |   |               |   |   |   |   |   |   |   |
| Due in one year or less                |   | $                        | 2,524  |   |               | $      | 2,545 |   |   | $ | 170 |   |   | $ | 170 |   |
| Due after one year through five years  |   |                     | 2,555  |   |               |   | 2,657 |   |   |   | 475 |   |   |   | 482 |   |
| Due after five years through ten years |   |                     | 16,426 |   |               |   | 16,689 |   |   |   | - |   |   |   | - |   |
| After ten years                        |   |                     | 4,980  |   |               |   | 5,152 |   |   |   | - |   |   |   | - |   |
| Mortgage-backed securities             |   |                     | 36,936 |   |               |   | 37,420 |   |   |   | - |   |   |   | - |   |
|                                   |   | $                        | 63,421 |   |               | $      | 64,463 |   |   | $ | 645 |   |   | $ | 652 |   |

----

Index

| 5) | SECURITIES, continued |
|----|-----------------------|

| Securities Available for Sale         |   | Less Than 12 Months |   |   | 12 Months or More |   |
|---------------------------------------|--------|---------------------|--------|--------|-------------------|--------|
|                                  |   | Fair                |   |   | Unrealized        |   |   | Fair |   |   | Unrealized |   |
| (in thousands)                        |   | Value               |   |   | Losses            |   |   | Value |   |   | Losses |   |
|                                  |   |                |   |   |              |   |   |   |   |   |   |   |
| September 30, 2010                    |   |                |   |   |              |   |   |   |   |   |   |   |
| U. S. Government sponsored agencies   |   | $                   | -      |   |              | $      | - |   |   | $ | - |   |   | $ | - |   |
| State and municipal securities        |   |                | -      |   |              |   | - |   |   |   | - |   |   |   | - |   |
| Mortgage-backed securities            |   |                | 12,058 |   |              |   | 189 |   |   |   | - |   |   |   | - |   |
| Total temporarily impaired securities |   | $                   | 12,058 |   |              | $      | 189 |   |   | $ | - |   |   | $ | - |   |
|                                  |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009                     |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| U. S. Government sponsored agencies   |   | $                   | 5,888  |   |              | $      | 108 |   |   | $ | - |   |   | $ | - |   |
| State and municipal securities        |   |                | 2,923  |   |              |   | 85 |   |   |   | - |   |   |   | - |   |
| Mortgage-backed securities            |   |                | 2,019  |   |              |   | 51 |   |   |   | - |   |   |   | - |   |
| Total temporarily impaired securities |   | $                   | 10,830 |   |              | $      | 244 |   |   | $ | - |   |   | $ | - |   |

----

Index

| 5) | SECURITIES, continued |
|----|-----------------------|

| Securities Held to Maturity           |   | Less Than 12 Months |   |   | 12 Months or More |   |
|---------------------------------------|--------|---------------------|--------|--------|-------------------|--------|
|                                  |   | Fair                |   |   | Unrealized        |   |   | Fair |   |   | Unrealized |   |
| (in thousands)                        |   | Value               |   |   | Losses            |   |   | Value |   |   | Losses |   |
|                                  |   |                |   |   |              |   |   |   |   |   |   |   |
| September 30, 2010                    |   |                |   |   |              |   |   |   |   |   |   |   |
| U. S. Government sponsored agencies   |   | $                   | -      |   |              | $      | - |   |   | $ | - |   |   | $ | - |   |
| State and municipal securities        |   |                | -      |   |              |   | - |   |   |   | - |   |   |   | - |   |
| Mortgage-backed securities            |   |                | -      |   |              |   | - |   |   |   | - |   |   |   | - |   |
| Total temporarily impaired securities |   | $                   | -      |   |              | $      | - |   |   | $ | - |   |   | $ | - |   |
|                                  |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009                     |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| U. S. Government sponsored agencies   |   | $                   | -      |   |              | $      | - |   |   | $ | - |   |   | $ | - |   |
| State and municipal securities        |   |                | -      |   |              |   | - |   |   |   | 249 |   |   |   | 1 |   |
| Mortgage-backed securities            |   |                | -      |   |              |   | - |   |   |   | - |   |   |   | - |   |
| Total temporarily impaired securities |   | $                   | -      |   |              | $      | - |   |   | $ | 249 |   |   | $ | 1 |   |

----

Index

| 6) | LOANS |
|----|-------|

|                            |   | September 30, |          |    | December 31, |    |
|---------------------------------|--------|---------------|---------------|---------|--------------|---------|
| (in thousands)                  |   | 2010          |          |    | 2009         |    |
|                            |   |          |          |    |         |    |
| Real estate-commercial          |   |          |          |    |         |    |   |   |
| Owner occupied                  |   | $             | 162,041       |    |         | $       | 170,410 |   |
| Non-owner occupied              |   |          | 16,096        |    |         |    | 14,793 |   |
| Real estate-construction   |   |          | 156,110       |    |         |    | 175,527 |   |
| Real estate- 1-4 family    |   |          |  52,505  |    |         |    | 54,332 |   |
| Commercial                 |   |          |  14,775  |    |         |    |  14,396 |   |
| Consumer                   |   |          |  5,222   |    |         |    |  5,468 |   |
|                            |   |          | 406,749       |    |         |    |  434,926 |   |
|                            |   |          |          |    |         |    |   |   |
|                            |   |          |          |    |         |    |   |   |
| Deferred loan fees              |   |          |  (18     | )  |         |    |  (35 | )  |
| Allowance for loan losses  |   |          |  (12,439 | )  |         |    |  (13,324 | )  |
| Loans, net                 |   | $        |  394,292 |    |         | $  | 421,567 |   |

|                                       |   | Nine months ended September 30, |   |
|--------------------------------------------|--------|---------------------------------|--------|
| (amounts in thousands)                     |   | 2010                            |   |   | 2009 |   |
|                                       |   |                            |   |   |   |   |
|                                       |   |                            |   |   |   |   |
| Balance, beginning of period               |   | $                               | 13,324 |   |   | $ | 17,730 |   |
|                                       |   |                            |   |   |   |   |   |   |
| Provision for loan losses                  |   |                            | 479    |   |   |   | 14,319 |   |
|                                       |   |                            |   |   |   |   |   |   |
| Loans charged off                          |   |                            | (4,844 | ) |   |   | (17,582 | ) |
|                                       |   |                            |   |   |   |   |   |   |
| Recoveries of loans previously charged off |   |                            | 3,480  |   |   |   | 104 |   |
|                                       |   |                            |   |   |   |   |   |   |
| Balance, end of period                     |   | $                               | 12,439 |   |   | $ | 14,571 |   |

----

Index

| 6) | LOANS, continued |
|----|------------------|

|                                            |   | Three months ended September 30, |    |   | Nine months ended September 30, |   |
|-------------------------------------------------|--------|----------------------------------|---------|--------|---------------------------------|--------|
| (in thousands)                                  |   | 2010                             |    |   | 2009                            |   |   | 2010 |   |   | 2009 |   |
|                                            |   |                             |    |   |                            |   |   |   |   |   |   |   |
| Charge offs related to impaired loans           |   | $                                | 106     |   |                            | $      | 2,395 |   |   | $ | 4,513 |   |   | $ | 16,619 |   |
| Interest collected on impaired loans            |   |                             | 56      |   |                            |   | 133 |   |   |   | 623 |   |   |   | 339 |   |
| Interest reversed on loans placed on nonaccrual |   |                             | 160     |   |                            |   | - |   |   |   | 454 |   |   |   | 2,195 |   |
| Average investment in impaired loans            |   |                             | 135,574 |   |                            |   | 115,489 |   |   |   | 123,779 |   |   |   | 103,778 |   |

----

Index

| 6) | LOANS, continued |
|----|------------------|

|                                                           |   | September |    |   | December 31, |   |
|----------------------------------------------------------------|--------|-----------|---------|--------|--------------|--------|
| (amounts in thousands)                                         |   | 2010      |    |   | 2009         |   |
|                                                           |   |      |    |   |         |   |
| Impaired loans without a valuation reserve                     |   | $         | 75,691  |   |         | $      | 94,382 |   |
| Impaired loans with a valuation reserve                        |   |      | 58,504  |   |         |   | 20,334 |   |
| Total impaired loans                                           |   | $         | 134,195 |   |         | $      | 114,716 |   |
|                                                           |   |      |    |   |         |   |   |   |
| Valuation allowance related to impaired loans                  |   | $         | 6,685   |   |         | $      | 5,284 |   |
| Nonaccrual loans                                               |   |      | 99,314  |   |         |   | 101,558 |   |
| Loans past due ninety days or more and still accruing interest |   |      | 7,365   |   |         |   | 471 |   |

| 7) | FORECLOSED PROPERTIES |
|----|-----------------------|

|                                       |   | Nine Months Ended September 30, |   |
|--------------------------------------------|--------|---------------------------------|--------|
| (in thousands)                             |   | 2010                            |   |   | 2009 |   |
|                                       |   |                            |   |   |   |   |
| Balance, beginning of period               |   | $                               | 49,732 |   |   |   | 18,398 |   |
| Loans transferred to foreclosed properties |   |                            | 20,991 |   |   |   | 25,370 |   |
| Capitalized costs to properties            |   |                            | 407    |   |   |   | 100 |   |
| Cash sales proceeds                        |   |                            | (3,232 | ) |   |   | (5,517 | ) |
| Financed sales                             |   |                            | (1,561 | ) |   |   | (248 | ) |
| Loss on sale of properties                 |   |                            | (190   | ) |   |   | (642 | ) |
| Impairment losses                          |   |                            | (3,654 | ) |   |   | (1,558 | ) |
| Balance, end of period                     |   | $                               | 62,493 |   |   | $ | 35,903 |   |

----

Index

| 7) | FORECLOSED PROPERTIES, continued |
|----|----------------------------------|

|                                           |   | Three months ended September 30, |   |   | Nine months ended September 30, |   |
|------------------------------------------------|--------|----------------------------------|--------|--------|---------------------------------|--------|
| (in thousands)                                 |   | 2010                             |   |   | 2009                            |   |   | 2010 |   |   | 2009 |   |
|                                           |   |                             |   |   |                            |   |   |   |   |   |   |   |
| Net loss on sales of other real estate         |   | $                                | 39     |   |                            | $      | 106 |   |   | $ | 190 |   |   | $ | 642 |   |
| Fair value adjustment to foreclosed properties |   |                             | 616    |   |                            |   | 102 |   |   |   | 3,654 |   |   |   | 1,558 |   |
| Operating expenses, net of rental income       |   |                             | 723    |   |                            |   | 132 |   |   |   | 2,263 |   |   |   | 664 |   |
|                                           |   | $                                | 1,378  |   |                            | $      | 340 |   |   | $ | 6,107 |   |   | $ | 2,864 |   |

| 8) | COMMITMENTS AND CONTINGENCIES |
|----|-------------------------------|

|                         |   | September 30, |   |   | December 31, |   |
|------------------------------|--------|---------------|--------|--------|--------------|--------|
| (in thousands)               |   | 2010          |   |   | 2009         |   |
|                         |   |          |   |   |         |   |
| Standby letters of credit    |   | $             | 2,285  |   |         | $      | 2,671 |   |
|                         |   |          |   |   |         |   |   |   |
| Commitments to extend credit |   |          | 22,113 |   |         |   | 36,236 |   |
|                         |   |          |   |   |         |   |   |   |
|                         |   | $             | 24,398 |   |         | $      | 38,907 |   |

----

Index

| 8) | COMMITMENTS AND CONTINGENCIES, continued |
|----|------------------------------------------|

| 9) | CONCENTRATIONS OF CREDIT RISK |
|----|-------------------------------|

----

Index

| 10) | REGULATORY MATTERS |
|-----|--------------------|

----

Index

| 10) | REGULATORY MATTERS, continued |
|-----|-------------------------------|

|                       |   |         |   |   | Well Capitalized |   |
|----------------------------|--------|--------------|--------|--------|------------------|--------|
|                       |   |         |   |   |             |   |   | Regulatory |   |
|                       |   | Consolidated |   |   | Bank             |   |   | Requirement |   |
|                       |   |         |   |   |             |   |   |   |   |
| Leverage Capital Ratios    |   |         | 3.16   | %      |             |   | 3.13 | % |   |   | 5.00 | % |
|                       |   |         |   |   |             |   |   |   |   |   |   |   |
| Risk Based Capital Ratios: |   |         |   |   |             |   |   |   |   |   |   |   |
| Tier 1                     |   |         | 3.73   | %      |             |   | 3.70 | % |   |   | 6.00 | % |
| Total                      |   |         | 4.99   | %      |             |   | 4.95 | % |   |   | 10.00 | % |

----

Index

| 11) | FAIR VALUE OF ASSETS AND LIABILITIES |
|-----|--------------------------------------|

----

Index

| 11) | FAIR VALUE OF ASSETS AND LIABILITIES, continued |
|-----|-------------------------------------------------|

----

Index

| 11) | FAIR VALUE OF ASSETS AND LIABILITIES, continued |
|-----|-------------------------------------------------|

----

Index

| 11) | FAIR VALUE OF ASSETS AND LIABILITIES, continued |
|-----|-------------------------------------------------|

|                          |   | Fair Value Measurements at September 30, 2010 Using           |   |
|-------------------------------|--------|---------------------------------------------------------------|--------|
| (in thousands)                |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |   |   | Significant Other Observable Inputs(Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |   | Total Carrying Value |   |
|                          |   |                                                          |   |   |   |   |   |   |   |   |   |   |
| Assets                        |   |                                                          |   |   |   |   |   |   |   |   |   |   |
| Securities available for sale |   | $                                                             | 2,814  |   |   | $ | 61,649 |   |   | $ | - |   |   | $ | 64,463 |   |
| Total assets at fair value    |   | $                                                             | 2,814  |   |   | $ | 61,649 |   |   | $ | - |   |   | $ | 64,463 |   |
|                          |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                          |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                          |   | Fair Value Measurements at December 31, 2009 Using            |   |
| (in thousands)                |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |   |   | Significant Other Observable Inputs(Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |   | Total Carrying Value |   |
|                          |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Assets                        |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities available for sale |   | $                                                             | 1,211  |   |   | $ | 70,966 |   |   | $ | - |   |   | $ | 72,177 |   |
| Loans held for sale           |   |                                                          | -      |   |   |   | 499 |   |   |   | - |   |   |   | 499 |   |
| Total assets at fair value    |   | $                                                             | 1,211  |   |   | $ | 71,465 |   |   | $ | - |   |   | $ | 72,676 |   |

----

Index

| 11) | FAIR VALUE OF ASSETS AND LIABILITIES, continued |
|-----|-------------------------------------------------|

|              |   | For the Nine Months Ended September 30, 2010                  |   |
|-------------------|--------|---------------------------------------------------------------|--------|
|              |   |                                                          |   |   |   |   |
|              |   | 2010 Fair Value Changes Based On:                             |   |
| (in thousands)    |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |   |   | Significant Other Observable Inputs(Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |   | Total Losses |   |
|              |   |                                                          |   |   |   |   |   |   |   |   |   |   |
| Impaired loans    |   | $                                                             | -      |   |   | $ | 2,345 |   |   | $ | 3,569 |   |   | $ | 5,914 |   |
| Foreclosed assets |   |                                                          | -      |   |   |   | 581 |   |   |   | 3,073 |   |   |   | 3,654 |   |
| Total             |   | $                                                             | -      |   |   | $ | 2,926 |   |   | $ | 6,642 |   |   | $ | 9,568 |   |

|              |   | For the Three Months Ended September 30, 2010                 |   |
|-------------------|--------|---------------------------------------------------------------|--------|
|              |   |                                                          |   |   |   |   |   |   |   |   |   |   |
|              |   | 2010 Fair Value Changes Based On:                             |   |
| (in thousands)    |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |   |   | Significant Other Observable Inputs(Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |   | Total Losses |   |
|              |   |                                                          |   |   |   |   |   |   |   |   |   |   |
| Impaired loans    |   | $                                                             | -      |   |   | $ | 1,033 |   |   | $ | 893 |   |   | $ | 1,926 |   |
| Foreclosed assets |   |                                                          | -      |   |   |   | 160 |   |   |   | 456 |   |   |   | 616 |   |
| Total             |   | $                                                             | -      |   |   | $ | 1,193 |   |   | $ | 1,349 |   |   | $ | 2,542 |   |

----

Index

| 11) | FAIR VALUE OF ASSETS AND LIABILITIES, continued |
|-----|-------------------------------------------------|

|              |   | For the Nine Months Ended September 30, 2009                  |   |
|-------------------|--------|---------------------------------------------------------------|--------|
|              |   |                                                          |   |   |   |   |
|              |   | 2009 Fair Value Changes Based On:                             |   |
| (in thousands)    |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |   |   | Significant Other Observable Inputs(Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |   | Total Losses |   |
|              |   |                                                          |   |   |   |   |   |   |   |   |   |   |
| Impaired loans    |   | $                                                             | -      |   |   | $ | - |   |   | $ | 18,086 |   |   | $ | 18,086 |   |
| Foreclosed assets |   |                                                          | -      |   |   |   | - |   |   |   | 1,558 |   |   |   | 1,558 |   |
| Total             |   | $                                                             | -      |   |   | $ | - |   |   | $ | 19,644 |   |   | $ | 19,644 |   |
|              |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|              |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|              |   | For the Three Months Ended September 30, 2009                 |   |
|              |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|              |   | 2009 Fair Value Changes Based On:                             |   |
| (in thousands)    |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |   |   | Significant Other Observable Inputs(Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |   | Total Losses |   |
|              |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Impaired loans    |   | $                                                             | -      |   |   | $ | - |   |   | $ | 3,952 |   |   | $ | 3,952 |   |
| Foreclosed assets |   |                                                          | -      |   |   |   | - |   |   |   | 102 |   |   |   | 102 |   |
| Total             |   | $                                                             | -      |   |   | $ | - |   |   | $ | 4,054 |   |   | $ | 4,054 |   |

----

Index

| 11) | FAIR VALUE OF ASSETS AND LIABILITIES, continued |
|-----|-------------------------------------------------|

|                                      |   | September 30, 2010 |    |   | December 31, 2009 |   |
|-------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
|                                      |   | Carrying           |    |   | Fair              |   |   | Carrying |   |   | Fair |   |
| (in thousands)                            |   | Amount             |    |   | Value             |   |   | Amount |   |   | Value |   |
|                                      |   |               |    |   |              |   |   |   |   |   |   |   |
| Financial assets:                         |   |               |    |   |              |   |   |   |   |   |   |   |
| Cash, interest-bearing deposits in banks, |   |               |    |   |              |   |   |   |   |   |   |   |
| and excess Federal Reserve balances       |   | $                  | 27,894  |   |              | $      | 27,894 |   |   | $ | 38,222 |   |   | $ | 38,222 |   |
| Securities available for sale             |   |               | 64,463  |   |              |   | 64,463 |   |   |   | 72,177 |   |   |   | 72,177 |   |
| Securities held to maturity               |   |               | 645     |   |              |   | 652 |   |   |   | 695 |   |   |   | 705 |   |
| Restricted equity securities              |   |               | 1,194   |   |              |   | 1,194 |   |   |   | 1,266 |   |   |   | 1,266 |   |
| Loans held for sale                       |   |               | -       |   |              |   | - |   |   |   | 499 |   |   |   | 499 |   |
| Loans, net                                |   |               | 394,292 |   |              |   | 393,972 |   |   |   | 421,567 |   |   |   | 425,531 |   |
| Accrued interest receivable               |   |               | 1,801   |   |              |   | 1,801 |   |   |   | 2,222 |   |   |   | 2,222 |   |
|                                      |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:                    |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                  |   | $                  | 541,203 |   |              | $      | 546,734 |   |   | $ | 586,101 |   |   | $ | 595,438 |   |
| Other borrowings                          |   |               | 123     |   |              |   | 123 |   |   |   | 1,436 |   |   |   | 1,478 |   |
| Accrued interest payable                  |   |               | 1,355   |   |              |   | 1,355 |   |   |   | 2,116 |   |   |   | 2,116 |   |

----

Index

| 12) | SUBSEQUENT EVENTS |
|-----|-------------------|

----

Index

| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|---------|---------------------------------------------------------------------------------------------|

|   | · | The Dodd-Frank Wall Street Reform and Consumer Protection Act became law on July 21, 2010, and a number of legislative, regulatory and tax proposals remain pending. Additionally, the U.S. Treasury and federal banking regulators continue to implement, but are also beginning to wind down, a number of programs to address capital and liquidity in the banking system. All of the foregoing may have a significant impact on the Company and the financial services industry, the exact nature and extent of which cannot be determined at this time. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | our ability to meet the conditions outlined in the Consent Order (further described in Item 5. Other Information in this report on form 10-Q) including our ability to raise capital consistent with our capital plan; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | difficult market conditions and economic trends; |
|--------|--------|--------------------------------------------------|

|   | · | our concentrations of residential and commercial construction and development loans; |
|--------|--------|--------------------------------------------------------------------------------------|

----

Index

|   | · | continued deterioration in the metro Atlanta real estate markets; |
|--------|--------|-------------------------------------------------------------------|

|   | · | our allowance for loan losses may not be sufficient to cover actual loan losses that could be incurred; |
|--------|--------|---------------------------------------------------------------------------------------------------------|

|   | · | increased carrying costs and the probability of additional impairment charges associated with our foreclosed properties |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|

|   | · | extended holding periods that may be required before we can liquidate our foreclosed properties |
|--------|--------|-------------------------------------------------------------------------------------------------|

|   | · | our ability to maintain liquidity or access other sources of funding; |
|--------|--------|-----------------------------------------------------------------------|

|   | · | changes in the cost and availability of funding; |
|--------|--------|--------------------------------------------------|

|   | · | changes in prevailing interest rates that may negatively affect our net income and the value of our assets; |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | · | changes in financial services laws and regulations; |
|--------|--------|-----------------------------------------------------|

|   | · | competition from financial institutions and other financial service providers; |
|--------|--------|--------------------------------------------------------------------------------|

|   | · | ability to retain key personnel; |
|--------|--------|----------------------------------|

|   | · | increasing FDIC Insurance premiums brought on by systemic industry deterioration in conjunction with a higher risk rating assigned to our Bank; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a special assessment that may be imposed by the FDIC on all FDIC-insured institutions in the future, similar to the assessment in 2009 that decreased our earnings, and; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | recently enacted financial regulations could have a negative impact on noninterest income of the Company. |
|--------|--------|-----------------------------------------------------------------------------------------------------------|

----

----

Index

----

Index

|                                                                                                                                                      |   | For the three months ended |       |   | For the nine months ended |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|------------|--------|---------------------------|--------|
|                                                                                                                                                      |   | September 30,              |       |   | June 30,                  |   |   | March 31, |   |   | December 31, |   |   | September 30, |   |   | September 30, |   |
| (in thousands, except per share and other data)                                                                                                 |   | 2010                       |       |   | 2010                      |   |   | 2010 |   |   | 2009 |   |   | 2009 |   |   | 2010 |   |   | 2009 |   |
| SUMMARY OF OPERATIONS                                                                                                                                     |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                                                                                                           |   | $                          | 4,670      |   |                      | $      | 5,237 |   |   | $ | 5,682 |   |   | $ | 5,009 |   |   | $ | 5,796 |   |   | $ | 15,589 |   |   | $ | 16,338 |   |
| Interest expense                                                                                                                                          |   |                       | 2,365      |   |                      |   | 2,484 |   |   |   | 2,860 |   |   |   | 3,357 |   |   |   | 3,741 |   |   |   | 7,708 |   |   |   | 11,396 |   |
| Net interest income                                                                                                                                       |   |                       | 2,305      |   |                      |   | 2,753 |   |   |   | 2,822 |   |   |   | 1,652 |   |   |   | 2,055 |   |   |   | 7,881 |   |   |   | 4,942 |   |
| Provision for (recovery of) loan losses                                                                                                                   |   |                       | 1,175      |   |                      |   | 2,180 |   |   |   | (2,876 | ) |   |   | 24,850 |   |   |   | 378 |   |   |   | 479 |   |   |   | 14,318 |   |
| Other operating income                                                                                                                                    |   |                       | 790        |   |                      |   | 952 |   |   |   | 1,469 |   |   |   | 724 |   |   |   | 832 |   |   |   | 3,210 |   |   |   | 2,147 |   |
| Other expenses                                                                                                                                            |   |                       | 4,257      |   |                      |   | 7,070 |   |   |   | 2,998 |   |   |   | 5,516 |   |   |   | 3,551 |   |   |   | 14,325 |   |   |   | 12,541 |   |
| Earnings (loss) before income taxes                                                                                                                       |   |                       | (2,337     | )      |                      |   | (5,545 | ) |   |   | 4,169 |   |   |   | (27,990 | ) |   |   | (1,042 | ) |   |   | (3,713 | ) |   |   | (19,770 | ) |
| Income tax expense (benefit)                                                                                                                              |   |                       | -          |   |                      |   | - |   |   |   | - |   |   |   | (11,109 | ) |   |   | - |   |   |   | - |   |   |   | - |   |
| Net earnings (losses)                                                                                                                                     |   | $                          | (2,337     | )      |                      | $      | (5,545 | ) |   | $ | 4,169 |   |   | $ | (16,881 | ) |   | $ | (1,042 | ) |   | $ | (3,713 | ) |   | $ | (19,770 | ) |
|                                                                                                                                                      |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average shares                                                                                                                                   |   |                       | 14,245,690 |   |                      |   | 14,245,690 |   |   |   | 14,245,690 |   |   |   | 14,245,690 |   |   |   | 14,245,690 |   |   |   | 14,245,690 |   |   |   | 14,245,690 |   |
|                                                                                                                                                      |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| PERFORMANCE MEASURES                                                                                                                                      |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per common share:                                                                                                                                         |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per share                                                                                                                                 |   | $                          | (0.16      | )      |                      | $      | (0.39 | ) |   | $ | 0.29 |   |   | $ | (1.18 | ) |   | $ | (0.07 | ) |   | $ | (0.26 | ) |   | $ | (1.39 | ) |
| Cash dividends per share                                                                                                                                  |   |                       | -          |   |                      |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                                                                                                                      |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profitability ratios:                                                                                                                                     |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return on average equity                                                                                                                                  |   |                       | -43.28     | %      |                      |   | -82.56 | % |   |   | 63.53 | % |   |   | -214.00 | % |   |   | -8.90 | % |   |   | -29.84 | % |   |   | -69.81 | % |
| Return on average assets                                                                                                                                  |   |                       | -1.62      | %      |                      |   | -3.77 | % |   |   | 2.75 | % |   |   | -10.66 | % |   |   | -0.62 | % |   |   | -1.26 | % |   |   | -5.89 | % |
| Net interest margin                                                                                                                                       |   |                       | 1.85       | %      |                      |   | 2.20 | % |   |   | 2.18 | % |   |   | 1.08 | % |   |   | 1.33 | % |   |   | 2.06 | % |   |   | 1.05 | % |
| Loan Quality Indicators                                                                                                                                   |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net charge-offs (recoveries)                                                                                                                              |   |                       | 166        |   |                      |   | 4,485 |   |   |   | (3,287 | ) |   |   | 26,096 |   |   |   | 978 |   |   |   | 1,364 |   |   |   | 17,478 |   |
| Net charge-offs to average loans                                                                                                                          |   |                       | 0.04       | %      |                      |   | 1.08 | % |   |   | -0.76 | % |   |   | 5.52 | % |   |   | 0.20 | % |   |   | 0.33 | % |   |   | 2.91 | % |
|                                                                                                                                                      |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| AVERAGE BALANCES                                                                                                                                          |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                                                                                                                     |   | $                          | 408,363    |   |                      | $      | 416,877 |   |   | $ | 431,729 |   |   | $ | 472,626 |   |   | $ | 496,142 |   |   | $ | 418,911 |   |   | $ | 517,177 |   |
| Investment securities                                                                                                                                     |   |                       | 61,486     |   |                      |   | 51,751 |   |   |   | 57,810 |   |   |   | 72,815 |   |   |   | 69,482 |   |   |   | 57,465 |   |   |   | 70,917 |   |
| Earning assets                                                                                                                                            |   |                       | 473,842    |   |                      |   | 507,255 |   |   |   | 523,121 |   |   |   | 610,710 |   |   |   | 618,645 |   |   |   | 480,485 |   |   |   | 627,176 |   |
| Total assets                                                                                                                                              |   |                       | 575,419    |   |                      |   | 589,063 |   |   |   | 606,236 |   |   |   | 633,543 |   |   |   | 669,044 |   |   |   | 590,133 |   |   |   | 670,768 |   |
| Deposits                                                                                                                                                  |   |                       | 549,946    |   |                      |   | 558,710 |   |   |   | 575,076 |   |   |   | 597,216 |   |   |   | 617,420 |   |   |   | 561,158 |   |   |   | 611,288 |   |
| Stockholders' equity                                                                                                                                      |   |                       | 21,598     |   |                      |   | 26,864 |   |   |   | 26,247 |   |   |   | 31,553 |   |   |   | 46,845 |   |   |   | 24,887 |   |   |   | 56,636 |   |
|                                                                                                                                                      |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| AT PERIOD END                                                                                                                                             |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                                                                                                                     |   | $                          | 406,731    |   |                      | $      | 408,207 |   |   | $ | 418,384 |   |   | $ | 434,891 |   |   | $ | 482,784 |   |   |   |   |   |   |   |   |   |
| Investment securities                                                                                                                                     |   |                       | 65,108     |   |                      |   | 56,845 |   |   |   | 53,565 |   |   |   | 72,872 |   |   |   | 72,757 |   |   |   |   |   |   |   |   |   |
| Total assets                                                                                                                                              |   |                       | 563,557    |   |                      |   | 580,294 |   |   |   | 600,269 |   |   |   | 614,648 |   |   |   | 652,438 |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                                                                                  |   |                       | 541,203    |   |                      |   | 554,283 |   |   |   | 569,457 |   |   |   | 586,101 |   |   |   | 608,331 |   |   |   |   |   |   |   |   |   |
| Stockholders' equity                                                                                                                                      |   |                       | 19,231     |   |                      |   | 21,263 |   |   |   | 26,619 |   |   |   | 23,327 |   |   |   | 39,779 |   |   |   |   |   |   |   |   |   |
| Common shares outstanding                                                                                                                                 |   |                       | 14,245,690 |   |                      |   | 14,245,690 |   |   |   | 14,245,690 |   |   |   | 14,245,690 |   |   |   | 14,245,690 |   |   |   |   |   |   |   |   |   |
| Book value                                                                                                                                                |   | $                          | 1.35       |   |                      | $      | 1.49 |   |   | $ | 1.87 |   |   | $ | 1.64 |   |   | $ | 2.79 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                      |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liquidity ratios:                                                                                                                                         |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans to total deposits                                                                                                                             |   |                       | 75.15      | %      |                      |   | 73.65 | % |   |   | 73.47 | % |   |   | 74.20 | % |   |   | 79.36 | % |   |   |   |   |   |   |   |   |
| Average loans to average earning assets                                                                                                                   |   |                       | 86.18      | %      |                      |   | 82.18 | % |   |   | 82.53 | % |   |   | 77.39 | % |   |   | 80.20 | % |   |   |   |   |   |   |   |   |
| Noninterest-bearing deposits to total                  deposits |   |                       | 12.64      | %      |                      |   | 12.93 | % |   |   | 10.51 | % |   |   | 11.57 | % |   |   | 11.24 | % |   |   |   |   |   |   |   |   |
| Capital ratios:                                                                                                                                           |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Leverage                                                                                                                                                  |   |                       | 3.16       | %      |                      |   | 3.48 | % |   |   | 4.30 | % |   |   | 3.38 | % |   |   | 5.79 | % |   |   |   |   |   |   |   |   |
| Risk-based capital                                                                                                                                        |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier 1                                                                                                                                                    |   |                       | 3.73       | %      |                      |   | 4.19 | % |   |   | 5.15 | % |   |   | 4.30 | % |   |   | 7.42 | % |   |   |   |   |   |   |   |   |
| Total                                                                                                                                                     |   |                       | 4.99       | %      |                      |   | 5.45 | % |   |   | 6.42 | % |   |   | 5.55 | % |   |   | 8.69 | % |   |   |   |   |   |   |   |   |
|                                                                                                                                                      |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ASSET QUALITY                                                                                                                                             |   |                       |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-performing loans                                                                                                                                      |   | $                          | 106,678    |   |                      | $      | 92,435 |   |   | $ | 83,580 |   |   | $ | 102,029 |   |   | $ | 94,025 |   |   |   |   |   |   |   |   |   |
| Foreclosed properties                                                                                                                                     |   |                       | 62,493     |   |                      |   | 65,336 |   |   |   | 64,469 |   |   |   | 49,732 |   |   |   | 35,903 |   |   |   |   |   |   |   |   |   |
| Total non-performing assets (NPAs)                                                                                                                        |   |                       | 169,171    |   |                      |   | 157,771 |   |   |   | 148,049 |   |   |   | 151,761 |   |   |   | 129,928 |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses                                                                                                                                 |   |                       | 12,439     |   |                      |   | 11,430 |   |   |   | 13,735 |   |   |   | 13,324 |   |   |   | 14,571 |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses to loans                                                                                                                        |   |                       | 3.06       | %      |                      |   | 2.80 | % |   |   | 3.28 | % |   |   | 3.06 | % |   |   | 3.02 | % |   |   |   |   |   |   |   |   |
| NPAs to loans and foreclosed properties                                                                                                                   |   |                       | 36.05      | %      |                      |   | 33.32 | % |   |   | 30.66 | % |   |   | 31.32 | % |   |   | 25.05 | % |   |   |   |   |   |   |   |   |
| NPAs to total assets                                                                                                                                      |   |                       | 30.02      | %      |                      |   | 27.19 | % |   |   | 24.66 | % |   |   | 24.69 | % |   |   | 19.91 | % |   |   |   |   |   |   |   |   |

----

Index

----

Index

|                                                |   | For the nine months ended September 30, |    |
|-----------------------------------------------------|--------|-----------------------------------------|---------|
|                                                |   | 2010                                    |    |   | 2009 |   |
|                                                |   | Average                                 |    |   |   |   |   | Average |   |   | Average |   |   |   |   |   | Average |   |
| (in thousands)                                      |   | Balance                                 |    |   | Interest |   |   | Rate |   |   | Balance |   |   | Interest |   |   | Rate |   |
|                                                |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amounts reflected in financial statements           |   | $                                       | 510,495 |   |   | $ | 15,589 |   |   |   | 4.08 | % |   | $ | 627,175 |   |   | $ | 16,340 |   |   |   | 3.48 | % |
|                                                |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Effect of non accrual interest (collected) reversed |   |                                    |    |   |   |   | (169 | ) |   |   |   |   |   |   |   |   |   |   | 1,856 |   |   |   |   |   |
| Effect of interest advance (collected) reversed     |   |                                    |    |   |   |   | (691 | ) |   |   |   |   |   |   |   |   |   |   | 1,472 |   |   |   |   |   |
| Total adjustments                                   |   |                                    |    |   |   |   | (860 | ) |   |   |   |   |   |   |   |   |   |   | 3,328 |   |   |   |   |   |
|                                                |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amounts excluding the effect of nonaccrual          |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   interest income/reversals               |   | $                                       | 510,495 |   |   | $ | 14,729 |   |   |   | 3.86 | % |   | $ | 627,175 |   |   | $ | 19,668 |   |   |   | 4.19 | % |
|                                                |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Adjusted net interest revenue                       |   |                                    |    |   |   | $ | 7,021 |   |   |   |   |   |   |   |   |   |   | $ | 8,270 |   |   |   |   |   |
| Adjusted net interest margin                        |   |                                    |    |   |   |   |   |   |   |   | 1.84 | % |   |   |   |   |   |   |   |   |   |   | 1.76 | % |

----

Index

|                                  |   | 2010    |    |   | 2009     |   |
|---------------------------------------|--------|---------|---------|--------|----------|--------|
|                                  |   | Average |    |   |     |   |   | Average |   |   | Average |   |   |   |   |   | Average |   |
| (in thousands)                        |   | Balance |    |   | Interest |   |   | Rate |   |   | Balance |   |   | Interest |   |   | Rate |   |
| Assets:                               |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:              |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans (1)                             |   | $       | 408,363 |   |     | $      | 4,124 |   |   |   | 4.05 | % |   | $ | 496,142 |   |   | $ | 5,084 |   |   |   | 4.11 | % |
| Taxable securities (2)(3)             |   |    | 56,658  |   |     |   | 478 |   |   |   | 3.38 | % |   |   | 69,482 |   |   |   | 603 |   |   |   | 3.48 | % |
| Tax-exempt securities (2)(4)          |   |    | 4,828   |   |     |   | 41 |   |   |   | 3.41 | % |   |   | 5,739 |   |   |   | 74 |   |   |   | 5.17 | % |
| Overnight investments and other       |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest-earning assets               |   |    | 30,089  |   |     |   | 27 |   |   |   | 0.36 | % |   |   | 47,282 |   |   |   | 35 |   |   |   | 0.30 | % |
| Total interest-earning assets         |   |    | 499,938 |   |     |   | 4,670 |   |   |   | 3.75 | % |   |   | 618,645 |   |   |   | 5,796 |   |   |   | 3.76 | % |
| Non-interest-earning assets:          |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses             |   |    | (12,396 | )      |     |   |   |   |   |   |   |   |   |   | (15,082 | ) |   |   |   |   |   |   |   |   |
| Cash and due from banks               |   |    | 9,514   |   |     |   |   |   |   |   |   |   |   |   | 13,183 |   |   |   |   |   |   |   |   |   |
| Other assets                          |   |    | 78,363  |   |     |   |   |   |   |   |   |   |   |   | 52,298 |   |   |   |   |   |   |   |   |   |
| Total assets                          |   | $       | 575,419 |   |     |   |   |   |   |   |   |   |   | $ | 669,044 |   |   |   |   |   |   |   |   |   |
|                                  |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and Stockholders' Equity: |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:         |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing deposits:            |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW                                   |   | $       | 57,326  |   |     | $      | 36 |   |   |   | 0.25 | % |   | $ | 55,992 |   |   | $ | 69 |   |   |   | 0.50 | % |
| Money market                          |   |    | 37,050  |   |     |   | 56 |   |   |   | 0.60 | % |   |   | 40,329 |   |   |   | 59 |   |   |   | 0.59 | % |
| Savings                               |   |    | 31,628  |   |     |   | 38 |   |   |   | 0.48 | % |   |   | 31,708 |   |   |   | 40 |   |   |   | 0.51 | % |
| Time deposits less than $100,000      |   |    | 195,740 |   |     |   | 1,133 |   |   |   | 2.32 | % |   |   | 213,899 |   |   |   | 1,791 |   |   |   | 3.36 | % |
| Time deposits greater than $100,000   |   |    | 120,026 |   |     |   | 793 |   |   |   | 2.65 | % |   |   | 135,514 |   |   |   | 1,257 |   |   |   | 3.72 | % |
| Brokered deposits                     |   |    | 40,331  |   |     |   | 309 |   |   |   | 3.07 | % |   |   | 70,991 |   |   |   | 512 |   |   |   | 2.89 | % |
| Total interest-bearing deposits       |   |    | 482,101 |   |     |   | 2,365 |   |   |   | 1.97 | % |   |   | 548,433 |   |   |   | 3,728 |   |   |   | 2.73 | % |
| Other borrowings                      |   |    | 433     |   |     |   | - |   |   |   | 0.00 | % |   |   | 1,750 |   |   |   | 13 |   |   |   | 2.94 | % |
| Total interest-bearing liabilities    |   |    | 482,534 |   |     |   | 2,365 |   |   |   | 1.97 | % |   |   | 550,183 |   |   |   | 3,741 |   |   |   | 2.73 | % |
| Non-interest-bearing liabilities:     |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing deposits         |   |    | 67,845  |   |     |   |   |   |   |   |   |   |   |   | 68,987 |   |   |   |   |   |   |   |   |   |
| Other liabilities                     |   |    | 3,442   |   |     |   |   |   |   |   |   |   |   |   | 3,029 |   |   |   |   |   |   |   |   |   |
| Total liabilities                     |   |    | 553,821 |   |     |   |   |   |   |   |   |   |   |   | 622,199 |   |   |   |   |   |   |   |   |   |
| Stockholders' equity                  |   |    | 21,598  |   |     |   |   |   |   |   |   |   |   |   | 46,845 |   |   |   |   |   |   |   |   |   |
| Total liabilities                     |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and stockholders' equity              |   | $       | 575,419 |   |     |   |   |   |   |   |   |   |   | $ | 669,044 |   |   |   |   |   |   |   |   |   |
| Net interest revenue                  |   |    |    |   |     | $      | 2,305 |   |   |   |   |   |   |   |   |   |   | $ | 2,055 |   |   |   |   |   |
| Net interest-rate spread              |   |    |    |   |     |   |   |   |   |   | 1.78 | % |   |   |   |   |   |   |   |   |   |   | 1.03 | % |
| Net interest margin (5)               |   |    |    |   |     |   |   |   |   |   | 1.85 | % |   |   |   |   |   |   |   |   |   |   | 1.33 | % |

| (1) | Included in the average balance of loans outstanding are loans where the accrual of interest has been discontinued.                                                                                                                                        |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Securities available for sale are shown at amortized cost.  Average pretax unrealized gains of $948,000 for the three months ended September 30, 2010 and $1,142,000 for the three months ended September 30, 2009 are included in other assets. |
| (3) | Includes restricted equity securities.                                                                                                                                                                                                                     |
| (4) | Interest income on tax-exempt securities is not stated on a tax equivalent basis.                                                                                                                                                                          |
| (5) | Net interest margin is not stated on a tax-equivalent basis.                                                                                                                                                                                               |

----

Index

|                                  |   | 2010    |    |   | 2009     |   |
|---------------------------------------|--------|---------|---------|--------|----------|--------|
|                                  |   | Average |    |   |     |   |   | Average |   |   | Average |   |   |   |   |   | Average |   |
| (in thousands)                        |   | Balance |    |   | Interest |   |   | Rate |   |   | Balance |   |   | Interest |   |   | Rate |   |
| Assets:                               |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:              |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans (1)                             |   | $       | 418,911 |   |     | $      | 13,952 |   |   |   | 4.45 | % |   | $ | 517,177 |   |   | $ | 14,278 |   |   |   | 3.69 | % |
| Taxable securities (2)(3)             |   |    | 52,614  |   |     |   | 1,422 |   |   |   | 3.61 | % |   |   | 65,497 |   |   |   | 1,796 |   |   |   | 3.67 | % |
| Tax-exempt securities (2)(4)          |   |    | 4,851   |   |     |   | 132 |   |   |   | 3.63 | % |   |   | 5,420 |   |   |   | 207 |   |   |   | 5.11 | % |
| Overnight investments and other       |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest-earning assets               |   |    | 34,119  |   |     |   | 83 |   |   |   | 0.33 | % |   |   | 39,081 |   |   |   | 59 |   |   |   | 0.20 | % |
| Total interest-earning assets         |   |    | 510,495 |   |     |   | 15,589 |   |   |   | 4.08 | % |   |   | 627,175 |   |   |   | 16,340 |   |   |   | 3.48 | % |
| Non-interest-earning assets:          |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses             |   |    | (14,494 | )      |     |   |   |   |   |   |   |   |   |   | (14,366 | ) |   |   |   |   |   |   |   |   |
| Cash and due from banks               |   |    | 10,589  |   |     |   |   |   |   |   |   |   |   |   | 12,965 |   |   |   |   |   |   |   |   |   |
| Other assets                          |   |    | 83,543  |   |     |   |   |   |   |   |   |   |   |   | 44,994 |   |   |   |   |   |   |   |   |   |
| Total assets                          |   | $       | 590,133 |   |     |   |   |   |   |   |   |   |   | $ | 670,768 |   |   |   |   |   |   |   |   |   |
|                                  |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and Stockholders' Equity: |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:         |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing deposits:            |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW                                   |   | $       | 57,401  |   |     | $      | 176 |   |   |   | 0.41 | % |   | $ | 58,212 |   |   | $ | 214 |   |   |   | 0.49 | % |
| Money market                          |   |    | 37,037  |   |     |   | 169 |   |   |   | 0.61 | % |   |   | 42,161 |   |   |   | 200 |   |   |   | 0.63 | % |
| Savings                               |   |    | 32,193  |   |     |   | 118 |   |   |   | 0.49 | % |   |   | 31,226 |   |   |   | 144 |   |   |   | 0.62 | % |
| Time deposits less than $100,000      |   |    | 200,255 |   |     |   | 4,541 |   |   |   | 3.03 | % |   |   | 216,153 |   |   |   | 6,949 |   |   |   | 4.30 | % |
| Time deposits greater than $100,000   |   |    | 122,092 |   |     |   | 1,696 |   |   |   | 1.86 | % |   |   | 135,496 |   |   |   | 2,528 |   |   |   | 2.49 | % |
| Brokered deposits                     |   |    | 44,804  |   |     |   | 995 |   |   |   | 2.97 | % |   |   | 60,182 |   |   |   | 1,319 |   |   |   | 2.93 | % |
| Total interest-bearing deposits       |   |    | 493,782 |   |     |   | 7,695 |   |   |   | 2.08 | % |   |   | 543,430 |   |   |   | 11,354 |   |   |   | 2.79 | % |
| Other borrowings                      |   |    | 817     |   |     |   | 13 |   |   |   | 2.13 | % |   |   | 1,936 |   |   |   | 41 |   |   |   | 2.81 | % |
| Total interest-bearing liabilities    |   |    | 494,599 |   |     |   | 7,708 |   |   |   | 2.08 | % |   |   | 545,366 |   |   |   | 11,395 |   |   |   | 2.79 | % |
| Non-interest-bearing liabilities:     |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing deposits         |   |    | 67,376  |   |     |   |   |   |   |   |   |   |   |   | 67,857 |   |   |   |   |   |   |   |   |   |
| Other liabilities                     |   |    | 3,272   |   |     |   |   |   |   |   |   |   |   |   | 909 |   |   |   |   |   |   |   |   |   |
| Total liabilities                     |   |    | 565,247 |   |     |   |   |   |   |   |   |   |   |   | 614,132 |   |   |   |   |   |   |   |   |   |
| Stockholders' equity                  |   |    | 24,886  |   |     |   |   |   |   |   |   |   |   |   | 56,636 |   |   |   |   |   |   |   |   |   |
| Total liabilities                     |   |    |    |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and stockholders' equity              |   | $       | 590,133 |   |     |   |   |   |   |   |   |   |   | $ | 670,768 |   |   |   |   |   |   |   |   |   |
| Net interest revenue                  |   |    |    |   |     | $      | 7,881 |   |   |   |   |   |   |   |   |   |   | $ | 4,945 |   |   |   |   |   |
| Net interest-rate spread              |   |    |    |   |     |   |   |   |   |   | 2.00 | % |   |   |   |   |   |   |   |   |   |   | 0.69 | % |
| Net interest margin (5)               |   |    |    |   |     |   |   |   |   |   | 2.06 | % |   |   |   |   |   |   |   |   |   |   | 1.05 | % |

| (1) | Included in the average balance of loans outstanding are loans where the accrual of interest has been discontinued.                                                                                                                                      |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Securities available for sale are shown at amortized cost.  Average pretax unrealized gains of $773,000 for the nine months ended September 30, 2010 and $1,263,000 for the nine months ended September 30, 2009 are included in other assets. |
| (3) | Includes restricted equity securities.                                                                                                                                                                                                                   |
| (4) | Interest income on tax-exempt securities is not stated on a tax equivalent basis.                                                                                                                                                                        |
| (5) | Net interest margin is not stated on a tax-equivalent basis.                                                                                                                                                                                             |

----

Index

|                                |   | Three Months Ended September 30, 2010 |   |   | Nine Months Ended September 30, 2010 |   |
|-------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                |   | Compared to 2009                      |   |   | Compared to 2009                     |   |
|                                |   | Increase (decrease)                   |   |   | Increase (decrease)                  |   |
|                                |   | Due to Changes in                     |   |   | Due to Changes in                    |   |
| (in thousands)                      |   | Volume                                |   |   | Rate                                 |   |   | Total |   |   | Volume |   |   | Rate |   |   | Total |   |
| Interest-earning assets:            |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                               |   | $                                     | (887   | )      |                                 | $      | (73 | ) |   | $ | (960 | ) |   | $ | (2,982 | ) |   | $ | 2,656 |   |   | $ | (326 | ) |
| Taxable securities                  |   |                                  | (109   | )      |                                 |   | (16 | ) |   |   | (125 | ) |   |   | (349 | ) |   |   | (25 | ) |   |   | (374 | ) |
| Tax-exempt securities               |   |                                  | (11    | )      |                                 |   | (22 | ) |   |   | (33 | ) |   |   | (20 | ) |   |   | (55 | ) |   |   | (75 | ) |
| Overnight investments and other     |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest-earning assets             |   |                                  | (14    | )      |                                 |   | 6 |   |   |   | (8 | ) |   |   | (8 | ) |   |   | 32 |   |   |   | 24 |   |
| Total interest-earning assets       |   |                                  | (1,021 | )      |                                 |   | (105 | ) |   |   | (1,126 | ) |   |   | (3,359 | ) |   |   | 2,608 |   |   |   | (751 | ) |
|                                |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:       |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing deposits:          |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW                                 |   |                                  | 1      |   |                                 |   | (34 | ) |   |   | (33 | ) |   |   | (2 | ) |   |   | (36 | ) |   |   | (38 | ) |
| Money market                        |   |                                  | (5     | )      |                                 |   | 2 |   |   |   | (3 | ) |   |   | (23 | ) |   |   | (8 | ) |   |   | (31 | ) |
| Savings                             |   |                                  | -      |   |                                 |   | (2 | ) |   |   | (2 | ) |   |   | 4 |   |   |   | (30 | ) |   |   | (26 | ) |
| Time deposits less than $100,000    |   |                                  | (142   | )      |                                 |   | (516 | ) |   |   | (658 | ) |   |   | (481 | ) |   |   | (1,927 | ) |   |   | (2,408 | ) |
| Time deposits greater than $100,000 |   |                                  | (132   | )      |                                 |   | (332 | ) |   |   | (464 | ) |   |   | (232 | ) |   |   | (600 | ) |   |   | (832 | ) |
| Brokered deposits                   |   |                                  | (233   | )      |                                 |   | 30 |   |   |   | (203 | ) |   |   | (341 | ) |   |   | 17 |   |   |   | (324 | ) |
| Total interest-bearing deposits     |   |                                  | (511   | )      |                                 |   | (852 | ) |   |   | (1,363 | ) |   |   | (1,075 | ) |   |   | (2,584 | ) |   |   | (3,659 | ) |
| Other borrowings                    |   |                                  | (5     | )      |                                 |   | (8 | ) |   |   | (13 | ) |   |   | (20 | ) |   |   | (8 | ) |   |   | (28 | ) |
| Total interest-bearing liabilities  |   |                                  | (516   | )      |                                 |   | (860 | ) |   |   | (1,376 | ) |   |   | (1,095 | ) |   |   | (2,592 | ) |   |   | (3,687 | ) |
|                                |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Increase (decrease)                 |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| in net interest revenue             |   | $                                     | (505   | )      |                                 | $      | 755 |   |   | $ | 250 |   |   | $ | (2,264 | ) |   | $ | 5,200 |   |   | $ | 2,936 |   |

----

Index

----

Index

----

Index

|                            |   | September 30, |          |    | December 31, |    |
|---------------------------------|--------|---------------|---------------|---------|--------------|---------|
| (in thousands)                  |   | 2010          |          |    | 2009         |    |
|                            |   |          |          |    |         |    |
| Real estate-commercial          |   |          |          |    |         |    |   |   |
| Owner occupied                  |   | $             | 162,041       |    |         | $       | 170,410 |   |
| Non-owner occupied              |   |          | 16,096        |    |         |    | 14,793 |   |
| Real estate-construction   |   |          | 156,110       |    |         |    | 175,527 |   |
| Real estate- 1-4 family    |   |          |  52,505  |    |         |    | 54,332 |   |
| Commercial                 |   |          |  14,775  |    |         |    |  14,396 |   |
| Consumer                   |   |          |  5,222   |    |         |    |  5,468 |   |
|                            |   |          | 406,749       |    |         |    |  434,926 |   |
|                            |   |          |          |    |         |    |   |   |
|                            |   |          |          |    |         |    |   |   |
| Deferred loan fees              |   |          |  (18     | )  |         |    |  (35 | )  |
| Allowance for loan losses  |   |          |  (12,439 | )  |         |    |  (13,324 | )  |
| Loans, net                 |   | $        |  394,292 |    |         | $  | 421,567 |   |

----

Index

----

Index

|                                        |   | Nine months ended September 30, |    |
|---------------------------------------------|--------|---------------------------------|---------|
| (in thousands)                              |   | 2010                            |    |   | 2009 |   |
|                                        |   |                            |    |   |   |   |
| Allowance at beginning of the period        |   | $                               | 13,324  |   |   | $ | 17,730 |   |
|                                        |   |                            |    |   |   |   |   |   |
| Loans charged off:                          |   |                            |    |   |   |   |   |   |
|     Real estate         |   |                            | (4,770  | ) |   |   | (17,535 | ) |
|     Commercial          |   |                            | (28     | ) |   |   | (19 | ) |
|     Consumer            |   |                            | (46     | ) |   |   | (28 | ) |
|                                        |   |                            | (4,844  | ) |   |   | (17,582 | ) |
| Recoveries:                                 |   |                            |    |   |   |   |   |   |
|     Real estate         |   |                            | 3,464   |   |   |   | - |   |
|     Commercial          |   |                            | -       |   |   |   | 93 |   |
|     Consumer            |   |                            | 16      |   |   |   | 11 |   |
|                                        |   |                            | 3,480   |   |   |   | 104 |   |
|                                        |   |                            |    |   |   |   |   |   |
| Net (charge-offs)                           |   |                            | (1,364  | ) |   |   | (17,478 | ) |
|                                        |   |                            |    |   |   |   |   |   |
| Provision for loan losses                   |   |                            | 479     |   |   |   | 14,319 |   |
|                                        |   |                            |    |   |   |   |   |   |
| Balance at end of the period                |   | $                               | 12,439  |   |   | $ | 14,571 |   |
|                                        |   |                            |    |   |   |   |   |   |
| Total loans:                                |   |                            |    |   |   |   |   |   |
| At period end                               |   | $                               | 406,731 |   |   | $ | 434,891 |   |
| Average                                     |   |                            | 418,911 |   |   |   | 517,177 |   |
|                                        |   |                            |    |   |   |   |   |   |
| Allowance as percentage of period end loans |   |                            | 3.06    | % |   |   | 3.35 | % |
|                                        |   |                            |    |   |   |   |   |   |
| As a percentage of average loans:           |   |                            |    |   |   |   |   |   |
| Net charge-offs                             |   |                            | 0.33    | % |   |   | 3.38 | % |
| Provision for loan losses                   |   |                            | 0.11    | % |   |   | 2.77 | % |

----

Index

----

Index

|                                                    |   | September 30, |    |   | December 31, |   |
|---------------------------------------------------------|--------|---------------|---------|--------|--------------|--------|
| (in thousands)                                          |   | 2010          |    |   | 2009         |   |
|                                                    |   |          |    |   |         |   |
| Nonaccrual loans (NPLs)                                 |   | $             | 99,313  |   |         | $      | 101,558 |   |
|                                                    |   |          |    |   |         |   |   |   |
| Loans past due 90 days or more and still accruing       |   |          | 7,365   |   |         |   | 471 |   |
|                                                    |   |          |    |   |         |   |   |   |
| Total nonperforming loans                               |   | $             | 106,678 |   |         | $      | 102,029 |   |
|                                                    |   |          |    |   |         |   |   |   |
| Foreclosed properties                                   |   |          | 62,493  |   |         |   | 49,732 |   |
|                                                    |   |          |    |   |         |   |   |   |
| Total nonperforming assets (NPAs)                       |   | $             | 169,171 |   |         | $      | 151,761 |   |
|                                                    |   |          |    |   |         |   |   |   |
| NPLs as a percentage of total loans                     |   |          | 26.23   | %      |         |   | 23.46 | % |
| NPAs as a percentage of loans and foreclosed properties |   |          | 36.05   | %      |         |   | 31.32 | % |
| NPAs as a percentage of total assets                    |   |          | 30.02   | %      |         |   | 24.69 | % |

----

Index

|                                     |   | September 30, 2010  |    |   | December 31, 2009    |   |
|------------------------------------------|--------|---------------------|---------|--------|----------------------|--------|
| Loan type                                |   | Non-PerformingLoans |    |   | ForeclosedProperties |   |   | Total |   |   | Non-PerformingLoans |   |   | ForeclosedProperties |   |   | Total |   |
|                                     |   |                |    |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real estate-commercial                   |   |                |    |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Owner occupied                           |   | $                   | 14,825  |   |                 | $      | - |   |   | $ | 14,825 |   |   | $ | 9,917 |   |   | $ | - |   |   | $ | 9,917 |   |
| Non-owner occupied                       |   | $                   | 6,375   |   |                 |   | 4,834 |   |   |   | 11,209 |   |   |   | 5,169 |   |   |   | 4,612 |   |   |   | 9,781 |   |
| Total real estate-commercial             |   |                | 21,200  |   |                 |   | 4,834 |   |   |   | 26,034 |   |   |   | 15,086 |   |   |   | 4,612 |   |   |   | 19,698 |   |
| Real estate construction and development |   |                | 78,480  |   |                 |   | 47,302 |   |   |   | 125,782 |   |   |   | 79,514 |   |   |   | 32,931 |   |   |   | 112,445 |   |
| Real estate 1-4 family                   |   |                | 3,911   |   |                 |   | 10,357 |   |   |   | 14,268 |   |   |   | 6,369 |   |   |   | 12,189 |   |   |   | 18,558 |   |
| Total real estate loans                  |   |                | 103,591 |   |                 |   | 62,493 |   |   |   | 166,084 |   |   |   | 100,969 |   |   |   | 49,732 |   |   |   | 150,701 |   |
| Commercial loans                         |   |                | 3,033   |   |                 |   | - |   |   |   | 3,033 |   |   |   | 1,014 |   |   |   | - |   |   |   | 1,014 |   |
| Consumer loans                           |   |                | 54      |   |                 |   | - |   |   |   | 54 |   |   |   | 46 |   |   |   | - |   |   |   | 46 |   |
| Total commercial and consumer loans      |   |                | 3,087   |   |                 |   | - |   |   |   | 3,087 |   |   |   | 1,060 |   |   |   | - |   |   |   | 1,060 |   |
| Total NPA's                              |   | $                   | 106,678 |   |                 | $      | 62,493 |   |   | $ | 169,171 |   |   | $ | 102,029 |   |   | $ | 49,732 |   |   | $ | 151,761 |   |

| Table 9-Composition of Foreclosed Properties |   |    |   |   |
|----------------------------------------------|--------|---------|--------|--------|
| As of September 30, 2010                     |   |    |   |   |   |   |
|                                         |   |    |   |
|                                         |   |    |   |   |   |   |
| (dollars in thousands)                       |   | Balance |   |   | Percent* |   |
|                                         |   |    |   |   |   |   |
| Developments                                 |   | $       | 14,603 |   |   |   | 23.37 |   |
| Raw Land                                     |   |    | 20,973 |   |   |   | 33.56 |   |
| Houses                                       |   |    | 10,357 |   |   |   | 16.57 |   |
| Lots                                         |   |    | 11,726 |   |   |   | 18.76 |   |
| Commercial Real Estate                       |   |    | 4,834  |   |   |   | 7.74 |   |
| Total                                        |   | $       | 62,493 |   |   |   | 100.00 |   |
|                                         |   |    |   |   |   |   |   |   |
| *Percent of total foreclosed properties      |   |    |   |   |   |   |   |   |

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Index

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Index

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Index

|                       |   |         |   |   | Well Capitalized |   |
|----------------------------|--------|--------------|--------|--------|------------------|--------|
|                       |   |         |   |   |             |   |   | Regulatory |   |
|                       |   | Consolidated |   |   | Bank             |   |   | Requirement |   |
|                       |   |         |   |   |             |   |   |   |   |
| Leverage Capital Ratios    |   |         | 3.16   | %      |             |   | 3.13 | % |   |   | 5.00 | % |
|                       |   |         |   |   |             |   |   |   |   |   |   |   |
| Risk Based Capital Ratios: |   |         |   |   |             |   |   |   |   |   |   |   |
| Tier 1                     |   |         | 3.73   | %      |             |   | 3.70 | % |   |   | 6.00 | % |
| Total                      |   |         | 4.99   | %      |             |   | 4.95 | % |   |   | 10.00 | % |

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Index

| ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk |
|---------|------------------------------------------------------------|

| ITEM 4. | Controls and Procedures |
|---------|-------------------------|

----

Index

| ITEM 5. | OTHER INFORMATION |
|---------|-------------------|

|   | · | increased involvement by the Bank’s Board of Directors; |
|--------|--------|---------------------------------------------------------------|

|   | · | an assessment of current and future management and staffing needs; |
|--------|--------|--------------------------------------------------------------------|

|   | · | reductions in adversely classified assets; |
|--------|--------|--------------------------------------------|

|   | · | improvement in the overall quality and management of the loan portfolio; |
|--------|--------|--------------------------------------------------------------------------|

|   | · | adequate allowance for loan losses; |
|--------|--------|-------------------------------------|

|   | · | a Tier I leverage capital ratio of not less than 8% and a Total Risk Based capital ratio of not less than 10%; |
|--------|--------|----------------------------------------------------------------------------------------------------------------|

|   | · | establishment of a plan to maintain adequate liquidity including a prohibition on accepting brokered deposits and a limitation on interest rates paid on all deposits; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | prior Supervisory Authority approval to pay cash dividends or Board of Director compensation; |
|--------|--------|-----------------------------------------------------------------------------------------------|

|   | · | the adoption of an annual strategic plan and budget. |
|--------|--------|------------------------------------------------------|

----

Index

| ITEM 6. | EXHIBITS |
|---------|----------|

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

|   | 31.1   | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.                                                          |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                |
|   | 31.2   | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.                                                          |
|   |   |                                                                                                                                                                                |
|   | 32     | Certification of the Chief Executive Officer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

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Index

|   |   | HENRY COUNTY BANCSHARES, INC. |
|--------|--------|-------------------------------|
|   |   | (Registrant)                  |
|   |   |                          |

| DATE:    | November 12, 2010 |   | /s/ David H. Gill                |   |
|-------------------------|-------------------|--------|----------------------------------|--------|
|                    |              |   | David H. Gill, President and CEO |   |
|                    |              |   | (Principal Executive Officer)    |   |
|                    |              |   |                             |   |

| DATE:    | November 12, 2010 |   | /s/ Charles W. Blair, Jr.                         |   |
|-------------------------|-------------------|--------|---------------------------------------------------|--------|
|                    |              |   | Charles W. Blair, Jr., EVP & CFO              |   |
|                    |              |   | (Principal Financial and Accounting Officer) |   |
|                    |              |   |                                              |   |