|   |   |   |
|--------|--------|--------|

|   |   |   |
|--------|--------|--------|

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

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

|   |   |   |
|--------|--------|--------|

|   |   |   |
|--------|--------|--------|

| Delaware                         |                                                       | 54-2069979             |
|---------------------------------------|------------------------------------------------------------|------------------------|
| (State or other jurisdiction of  |                                                       | (I.R.S. Employer       |
| incorporation or organization)        |                                                       | Identification Number) |
|                                  |  519 South New Hope Road, Gastonia, NC 28054          |                   |
|                                  | (Address of principal executive offices)                   |                   |
|                                  |                                                       |                   |
|                                  | (704) 868-5200                                             |                   |
|                                  | (Registrant’s telephone number, including area code) |                   |

----

|  Large accelerated filer [  ]                              |   |   Accelerated filer [  ]       |   |
|---------------------------------------------------------------------------|--------|---------------------------------------------------------|--------|
|                                                                      |   |                                                    |   |
|  Non-accelerated filer [  ]       |   |  Smaller Reporting Company [ x ]    |   |

----

|   | Page |
|--------|------|

PART I.  FINANCIAL INFORMATION

| Item 1.                               | Financial Statements (unaudited)                                                                                            |   |
|---------------------------------------|-----------------------------------------------------------------------------------------------------------------------------|--------|
|                                  |                                                                                                                        |   |
|                                  | Consolidated Statements of Financial Condition - September 30, 2010 and December 31, 2009                                   | 1      |
|                                  |                                                                                                                        |   |
|                                  | Consolidated Statements of Operations - Three and Nine MonthsEnded September 30, 2010 and 2009                              | 2      |
|                                  |                                                                                                                        |   |
|                                  | Consolidated Statements of Shareholders’ Equity -  Nine Months Ended September  30, 2010 and 2009 | 3      |
|                                  |                                                                                                                        |   |
|                                  | Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2010 and 2009                                       | 4      |
|                                  |                                                                                                                        |   |
|                                  | Notes to Consolidated Financial Statements                                                                                  | 5      |
|                                  |                                                                                                                        |   |
| Item 2.                               | Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations                          | 19     |
|                                  |                                                                                                                        |   |
| Item 3.                               | Quantitative and Qualitative Disclosures About Market Risk                                                        | 32     |
|                                  |                                                                                                                        |   |
| Item 4.                               | Controls and Procedures                                                                                                     | 32     |
|                                  |                                                                                                                        |   |
| PART II.  OTHER INFORMATION |                                                                                                                        |
|                                  |                                                                                                                        |   |
| Item 1.                               | Legal Proceedings                                                                                                           | 33     |
|                                  |                                                                                                                        |   |
| Item 1 A.                             | Risk Factors                                                                                                                | 33     |
|                                  |                                                                                                                        |   |
| Item 2.                               | Unregistered Sales of Equity Securities and Use of Proceeds                                                                 | 33     |
|                                  |                                                                                                                        |   |
| Item 6.                               | Exhibits                                                                                                                    | 33     |
|                                  |                                                                                                                        |   |
| Signatures                            |                                                                                                                        |   |
|                                  |                                                                                                                        |   |
| Certifications                        |                                                                                                                        |   |

----

Part 

Item 

| CITIZENS SOUTH BANKING CORPORATION                                                         |   |               |      |   |              |   |
|--------------------------------------------------------------------------------------------|--------|--------------------|-----------|--------|-------------------|--------|
| CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION                                             |   |               |      |   |              |   |
|                                                                                       |   |               |      |   |              |   |
|                                                                                       |   | September 30, 2010 |      |   | December 31, 2009 |   |
| (Dollars in thousands, except per share)                                                   |   | (unaudited)        |      |   |              |   |
|                                                                                       |   |               |      |   |              |   |
| ASSETS                                                                                     |   |               |      |   |              |   |
| Cash and cash equivalents:                                                                 |   |               |      |   |              |   |
|     Cash and due from banks                                            |   | $                  | 16,792    |   |              | $      | 8,925 |   |
|     Interest-earning bank balances                                     |   |               | 137,352   |   |              |   | 44,255 |   |
|        Cash and cash equivalents                        |   |               | 154,144   |   |              |   | 53,180 |   |
| Investment securities available for sale, at fair value                                    |   |               | 71,293    |   |              |   | 50,990 |   |
| Investment securities held to maturity, at amortized cost                                  |   |               | 15,962    |   |              |   | 32,380 |   |
| Federal Home Loan Bank stock, at cost                                                      |   |               | 5,938     |   |              |   | 4,149 |   |
| Presold loans in process of settlement                                                     |   |               | 3,100     |   |              |   | - |   |
| Loans:                                                                                     |   |               |      |   |              |   |   |   |
|     Covered by FDIC loss-share agreements                              |   |               | 160,327   |   |              |   | - |   |
|     Not covered by FDIC loss-share agreements                          |   |               | 594,413   |   |              |   | 610,201 |   |
|     Allowance for loan losses                                          |   |               | (10,752   | )      |              |   | (9,189 | ) |
|        Net loans                                        |   |               | 743,988   |   |              |   | 601,012 |   |
| Other real estate owned                                                                    |   |               | 11,740    |   |              |   | 5,067 |   |
| Premises and equipment, net                                                                |   |               | 23,972    |   |              |   | 15,436 |   |
| FDIC loss share receivable                                                                 |   |               | 30,608    |   |              |   | - |   |
| Accrued interest receivable                                                                |   |               | 3,028     |   |              |   | 2,430 |   |
| Bank-owned life insurance                                                                  |   |               | 18,107    |   |              |   | 17,522 |   |
| Intangible assets                                                                          |   |               | 1,834     |   |              |   | 570 |   |
| Other assets                                                                               |   |               | 3,844     |   |              |   | 8,796 |   |
|           Total assets                   |   | $                  | 1,087,558 |   |              | $      | 791,532 |   |
|                                                                                       |   |               |      |   |              |   |   |   |
| LIABILITIES AND SHAREHOLDERS' EQUITY                                                       |   |               |      |   |              |   |   |   |
| Deposits:                                                                                  |   |               |      |   |              |   |   |   |
|     Non-interest bearing demand                                        |   | $                  | 70,908    |   |              | $      | 45,830 |   |
|     Interest-bearing demand                                            |   |               | 162,249   |   |              |   | 113,564 |   |
|     Money market accounts                                              |   |               | 147,269   |   |              |   | 118,687 |   |
|     Savings                                                            |   |               | 17,021    |   |              |   | 10,584 |   |
|     Time deposits                                                      |   |               | 468,339   |   |              |   | 320,680 |   |
|        Total deposits                                   |   |               | 865,786   |   |              |   | 609,345 |   |
| Securities sold under repurchase agreements                                                |   |               | 9,785     |   |              |   | 8,970 |   |
| Borrowings                                                                                 |   |               | 101,236   |   |              |   | 97,629 |   |
| Other liabilities                                                                          |   |               | 15,069    |   |              |   | 3,266 |   |
|      Total liabilities                                            |   |               | 991,876   |   |              |   | 719,210 |   |
|                                                                                       |   |               |      |   |              |   |   |   |
| Commitments and contingencies                                                              |   |               |      |   |              |   |   |   |
|                                                                                       |   |               |      |   |              |   |   |   |
| Shareholders' Equity                                                                       |   |               |      |   |              |   |   |   |
| Preferred stock, $0.01 par value, Authorized: 1,000,000 shares;                            |   |               |      |   |              |   |   |   |
|    Issued and outstanding: 20,500 shares                                    |   |               | 20,651    |   |              |   | 20,589 |   |
| Common stock, $0.01 par value, Authorized: 20,000,000 shares;                              |   |               |      |   |              |   |   |   |
|    Issued: 11,011,414 and 9,062,727 shares respectively;                    |   |               |      |   |              |   |   |   |
|    Outstanding: 10,964,146 and 7,526,854 shares respectively                |   |               | 124       |   |              |   | 91 |   |
| Additional paid-in-capital                                                                 |   |               | 63,018    |   |              |   | 48,528 |   |
| Retained earnings, substantially restricted                                                |   |               | 11,791    |   |              |   | 3,411 |   |
| Accumulated other comprehensive income (loss)                                              |   |               | 98        |   |              |   | (297 | ) |
|      Total shareholders' equity                                   |   |               | 95,682    |   |              |   | 72,322 |   |
|         Total liabilities and shareholders' equity |   | $                  | 1,087,558 |   |              | $      | 791,532 |   |

----

| CITIZENS SOUTH BANKING CORPORATION                  |   |               |       |   |               |   |      |               |   |   |
|-----------------------------------------------------|--------|--------------------|------------|--------|--------------------|--------|-----------|--------------------|--------|--------|
| CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)   |   |               |       |   |               |   |      |               |   |   |
|                                                |   |               |       |   |               |   |      |               |   |   |   |   |
|                                                |   | Three Months Ended |       |   | Nine Months Ended  |
|                                                |   | September 30, 2010 |       |   | September 30, 2009 |   |      | September 30, 2010 |   |   | September 30, 2009 |   |
| (Dollars in thousands, except per share data)       |   |               |       |   |               |   |      |               |   |   |   |   |
|                                                |   |               |       |   |               |   |      |               |   |   |   |   |
| Interest Income:                                    |   |               |       |   |               |   |      |               |   |   |   |   |
| Interest and fees on loans                          |   | $                  | 10,757     |   |               | $      | 8,413     |               |   | $      | 30,243 |   |   | $ | 25,350 |   |
| Investment securities:                              |   |               |       |   |               |   |      |               |   |   |   |   |   |   |   |   |
| Taxable interest income                             |   |               | 620        |   |               |   | 775       |               |   |   | 1,914 |   |   |   | 2,703 |   |
| Tax-exempt interest income                          |   |               | 131        |   |               |   | 301       |               |   |   | 509 |   |   |   | 920 |   |
| Other interest income                               |   |               | 88         |   |               |   | 28        |               |   |   | 236 |   |   |   | 46 |   |
| Total interest income                               |   |               | 11,596     |   |               |   | 9,517     |               |   |   | 32,902 |   |   |   | 29,019 |   |
| Interest Expense:                                   |   |               |       |   |               |   |      |               |   |   |   |   |   |   |   |   |
| Demand deposits and savings                         |   |               | 684        |   |               |   | 636       |               |   |   | 2,053 |   |   |   | 2,034 |   |
| Time deposits                                       |   |               | 2,018      |   |               |   | 2,155     |               |   |   | 5,818 |   |   |   | 7,481 |   |
| Securities sold under repurchase agreements         |   |               | 27         |   |               |   | 43        |               |   |   | 83 |   |   |   | 144 |   |
| Borrowings                                          |   |               | 1,061      |   |               |   | 1,113     |               |   |   | 3,312 |   |   |   | 3,336 |   |
| Total interest expense                              |   |               | 3,790      |   |               |   | 3,947     |               |   |   | 11,266 |   |   |   | 12,995 |   |
|                                                |   |               |       |   |               |   |      |               |   |   |   |   |   |   |   |   |
| Net interest income                                 |   |               | 7,806      |   |               |   | 5,570     |               |   |   | 21,636 |   |   |   | 16,024 |   |
| Provision for loan losses                           |   |               | 3,000      |   |               |   | 3,975     |               |   |   | 9,050 |   |   |   | 6,825 |   |
| Net interest income after provision for loan losses |   |               | 4,806      |   |               |   | 1,595     |               |   |   | 12,586 |   |   |   | 9,199 |   |
| Noninterest Income:                                 |   |               |       |   |               |   |      |               |   |   |   |   |   |   |   |   |
| Service charges on deposit accounts                 |   |               | 1,132      |   |               |   | 859       |               |   |   | 2,893 |   |   |   | 2,428 |   |
| Mortgage banking income                             |   |               | 461        |   |               |   | 215       |               |   |   | 1,028 |   |   |   | 975 |   |
| Commissions on sales of financial products          |   |               | 53         |   |               |   | 43        |               |   |   | 359 |   |   |   | 137 |   |
| Income from bank-owned life insurance               |   |               | 196        |   |               |   | 202       |               |   |   | 627 |   |   |   | 570 |   |
| Gain from acquisition                               |   |               | 193        |   |               |   | -         |               |   |   | 19,531 |   |   |   | - |   |
| Gain on sale of investments, available for sale     |   |               | 305        |   |               |   | 973       |               |   |   | 349 |   |   |   | 1,281 |   |
| Loss on sale of other assets                        |   |               | (185       | )      |               |   | (21       | )                  |   |   | (451 | ) |   |   | (265 | ) |
| Other income                                        |   |               | 135        |   |               |   | 194       |               |   |   | 554 |   |   |   | 466 |   |
| Total noninterest income                            |   |               | 2,290      |   |               |   | 2,465     |               |   |   | 24,890 |   |   |   | 5,592 |   |
| Noninterest Expense:                                |   |               |       |   |               |   |      |               |   |   |   |   |   |   |   |   |
| Compensation and benefits                           |   |               | 3,774      |   |               |   | 2,570     |               |   |   | 10,069 |   |   |   | 7,588 |   |
| Occupancy and equipment expense                     |   |               | 732        |   |               |   | 632       |               |   |   | 2,454 |   |   |   | 1,958 |   |
| Advertising and business development                |   |               | 80         |   |               |   | 115       |               |   |   | 233 |   |   |   | 303 |   |
| Professional services                               |   |               | 262        |   |               |   | 233       |               |   |   | 729 |   |   |   | 707 |   |
| Data processing fees                                |   |               | 179        |   |               |   | 130       |               |   |   | 513 |   |   |   | 389 |   |
| FDIC deposit insurance                              |   |               | 355        |   |               |   | 232       |               |   |   | 969 |   |   |   | 825 |   |
| Amortization of intangible assets                   |   |               | 154        |   |               |   | 81        |               |   |   | 372 |   |   |   | 243 |   |
| Valuation adjustment on other real estate owned     |   |               | 393        |   |               |   | -         |               |   |   | 1,088 |   |   |   | 175 |   |
| Impairment on investment securities                 |   |               | -          |   |               |   | 333       |               |   |   | - |   |   |   | 547 |   |
| Acquisition and integration expenses                |   |               | 141        |   |               |   | -         |               |   |   | 1,022 |   |   |   | - |   |
| Other expenses                                      |   |               | 1,711      |   |               |   | 903       |               |   |   | 3,968 |   |   |   | 2,670 |   |
| Total noninterest expense                           |   |               | 7,781      |   |               |   | 5,229     |               |   |   | 21,417 |   |   |   | 15,405 |   |
|                                                |   |               |       |   |               |   |      |               |   |   |   |   |   |   |   |   |
| Income before income tax expense (benefit)          |   |               | (685       | )      |               |   | (1,169    | )                  |   |   | 16,059 |   |   |   | (614 | ) |
| Income tax expense (benefit)                        |   |               | (413       | )      |               |   | (672      | )                  |   |   | 5,680 |   |   |   | (887 | ) |
| Net income (loss)                                   |   |               | (272       | )      |               |   | (497      | )                  |   |   | 10,379 |   |   |   | 273 |   |
| Dividends on preferred stock                        |   |               | 256        |   |               |   | 262       |               |   |   | 769 |   |   |   | 774 |   |
|                                                |   |               |       |   |               |   |      |               |   |   |   |   |   |   |   |   |
| Net income (loss) available to common shareholders  |   | $                  | (528       | )      |               | $      | (759      | )                  |   | $      | 9,610 |   |   | $ | (501 | ) |
|                                                |   |               |       |   |               |   |      |               |   |   |   |   |   |   |   |   |
| Net income (loss) per common share:                 |   |               |       |   |               |   |      |               |   |   |   |   |   |   |   |   |
| Basic                                               |   | $                  | (0.05      | )      |               | $      | (0.10     | )                  |   | $      | 1.04 |   |   | $ | (0.07 | ) |
| Diluted                                             |   |               | (0.05      | )      |               |   | (0.10     | )                  |   |   | 1.04 |   |   |   | (0.07 | ) |
|                                                |   |               |       |   |               |   |      |               |   |   |   |   |   |   |   |   |
| Weighted average common shares outstanding:         |   |               |       |   |               |   |      |               |   |   |   |   |   |   |   |   |
| Basic                                               |   |               | 10,844,386 |   |               |   | 7,419,206 |               |   |   | 9,260,762 |   |   |   | 7,405,199 |   |
| Diluted                                             |   |               | 10,844,386 |   |               |   | 7,419,206 |               |   |   | 9,260,762 |   |   |   | 7,405,199 |   |

----

CITIZENS 

|                                                                                         |   |      |   |   |   |   |   |       |   |   | Retained      |   |   | Accumulated   |   |   |          |   |
|----------------------------------------------------------------------------------------------|--------|-----------|--------|--------|--------|--------|--------|------------|--------|--------|---------------|--------|--------|---------------|--------|--------|---------------|--------|
|                                                                                         |   |      |   |   |   |   |   | Additional |   |   | Earnings      |   |   | Other         |   |   | Total         |   |
|                                                                                         |   | Preferred |   |   | Common |   |   | Paid-in    |   |   | Substantially |   |   | Comprehensive |   |   | Shareholders' |   |
|                                                                                         |   | Stock     |   |   | Stock  |   |   | Capital    |   |   | Restricted    |   |   | Income (Loss) |   |   | Equity        |   |
| (Dollars in thousands)                                                                       |   |      |   |   |   |   |   |       |   |   |          |   |   |          |   |   |          |   |
|                                                                                         |   |      |   |   |   |   |   |       |   |   |          |   |   |          |   |   |          |   |
|  Balances, January 1, 2009                                                              |   | $         | 20,507 |   |   | $      | 91     |       |   | $      | 48,009        |   |   | $             | 36,088 |   |          | $      | 25 |   |   | $ | 104,720 |   |
|                                                                                         |   |      |   |   |   |   |   |       |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |
|  Comprehensive results:                                                                 |   |      |   |   |   |   |   |       |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |
|     Net income                                                           |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | 273    |   |          |   | - |   |   |   | 273 |   |
|    Other comprehensive results, net of tax                                    |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | -      |   |          |   | 539 |   |   |   | 539 |   |
|  Accretion of discount on preferred stock                                               |   |      | 62     |   |   |   | -      |       |   |   | -             |   |   |          | (62    | )      |          |   | - |   |   |   | - |   |
|  Allocation from shares purchased with loan to ESOP                                     |   |      | -      |   |   |   | -      |       |   |   | 137           |   |   |          | -      |   |          |   | - |   |   |   | 137 |   |
|  Vesting of Recognition and Retention Plan (RRP)                                        |   |      | -      |   |   |   | -      |       |   |   | 251           |   |   |          | -      |   |          |   | - |   |   |   | 251 |   |
|  Stock-based compensation                                                               |   |      | -      |   |   |   | -      |       |   |   | 79            |   |   |          | -      |   |          |   | - |   |   |   | 79 |   |
|  Stock options exercised                                                                |   |      | -      |   |   |   | -      |       |   |   | 20            |   |   |          | (20    | )      |          |   | - |   |   |   | - |   |
|  Preferred stock dividends                                                              |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | (774   | )      |          |   | - |   |   |   | (774 | ) |
|  Cash dividends paid ($0.165 per common share)                                          |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | (1,235 | )      |          |   | - |   |   |   | (1,235 | ) |
|                                                                                         |   |      |   |   |   |   |   |       |   |   |          |   |   |          |   |   |          |   |   |   |   |   | - |   |
|  Balances, September 30, 2009                                                           |   | $         | 20,569 |   |   | $      | 91     |       |   | $      | 48,496        |   |   | $             | 34,270 |   |          | $      | 564 |   |   | $ | 103,990 |   |
|                                                                                         |   |      |   |   |   |   |   |       |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |
|                                                                                         |   |      |   |   |   |   |   |       |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |
|                                                                                         |   |      |   |   |   |   |   |       |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |
|  Balances, January 1, 2010                                                              |   | $         | 20,589 |   |   | $      | 91     |       |   | $      | 48,528        |   |   | $             | 3,411  |   |          | $      | (297 | ) |   | $ | 72,322 |   |
|                                                                                         |   |      |   |   |   |   |   |       |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |
|  Comprehensive results:                                                                 |   |      |   |   |   |   |   |       |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |
|     Net income                                                           |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | 10,379 |   |          |   | - |   |   |   | 10,379 |   |
|    Other comprehensive results, net of tax                                    |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | -      |   |          |   | 395 |   |   |   | 395 |   |
|  Issuance of 1,490,400 shares of common stock                                           |   |      | -      |   |   |   | 15     |       |   |   | 5,745         |   |   |          | -      |   |          |   | - |   |   |   | 5,760 |   |
|  Issuance of 8,280 shares of preferred stock                                            |   |      | 8,280  |   |   |   | -      |       |   |   | -             |   |   |          | -      |   |          |   | - |   |   |   | 8,280 |   |
|  Conversion of 8,280 shares of preferred stock to 1,839,999 shares of common stock |   |      | (8,280 | )      |   |   | 18     |       |   |   | 8,262         |   |   |          | -      |   |          |   | - |   |   |   | - |   |
|  Accretion of discount on preferred stock                                               |   |      | 62     |   |   |   | -      |       |   |   | -             |   |   |          | (62    | )      |          |   | - |   |   |   | - |   |
|  Allocation from shares purchased with loan to ESOP                                     |   |      | -      |   |   |   | -      |       |   |   | 137           |   |   |          | -      |   |          |   | - |   |   |   | 137 |   |
|  Vesting of RRP                                                                         |   |      | -      |   |   |   | -      |       |   |   | 272           |   |   |          | -      |   |          |   | - |   |   |   | 272 |   |
|  Stock-based compensation                                                               |   |      | -      |   |   |   | -      |       |   |   | 74            |   |   |          | -      |   |          |   | - |   |   |   | 74 |   |
|  Preferred stock dividends                                                              |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | (769   | )      |          |   | - |   |   |   | (769 | ) |
|  Cash dividends paid ($0.12 per common share)                                           |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | (1,167 | )      |          |   | - |   |   |   | (1,167 | ) |
|                                                                                         |   |      |   |   |   |   |   |       |   |   |          |   |   |          |   |   |          |   |   |   |   |   | - |   |
|  Balances, September 30, 2010                                                           |   | $         | 20,651 |   |   | $      | 124    |       |   | $      | 63,018        |   |   | $             | 11,792 |   |          | $      | 98 |   |   | $ | 95,683 |   |

----

| CITIZENS SOUTH BANKING CORPORATION                                           |   |              |    |   |              |   |
|------------------------------------------------------------------------------|--------|-------------------|---------|--------|-------------------|--------|
| CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)                            |   |              |    |   |
|                                                                         |   | Nine Months Ended |    |
|                                                                         |   | September 30,2010 |    |   | September 30,2009 |   |
|  (Dollars in thousands)                                                 |   |              |    |   |              |   |
|                                                                         |   |              |    |   |              |   |
|  Cash flows from operating activities:                                  |   |              |    |   |              |   |
| Net income                                                                   |   | $                 | 10,379  |   |              | $      | 273 |   |
| Reconciliation of net income to net cash provided by operating activities:   |   |              |    |   |              |
|  Provision for loan losses                                              |   |              | 9,050   |   |              |   | 6,825 |   |
|  Depreciation of premises and equipment                                 |   |              | 934     |   |              |   | 785 |   |
|  Impairment of securities                                               |   |              | -       |   |              |   | 547 |   |
|  Gain on sale of investment securities available-for-sale               |   |              | (349    | )      |              |   | (1,281 | ) |
|  Loss on sale of other assets                                           |   |              | 451     |   |              |   | 265 |   |
|  Gain on acquisition                                                    |   |              | (19,531 | )      |              |   | - |   |
|  Valuation adjustment on other real estate owned                        |   |              | 1,088   |   |              |   | 175 |   |
|  Net purchase accounting adjustments - discount accretion               |   |              | 652     |   |              |   | - |   |
|  Deferred loan origination fees                                         |   |              | 59      |   |              |   | (23 | ) |
|  Amortization of intangible assets                                      |   |              | 372     |   |              |   | 243 |   |
|  Allocation of shares to the ESOP                                       |   |              | 137     |   |              |   | 137 |   |
|  Stock-based compensation expense                                       |   |              | 74      |   |              |   | 79 |   |
|  Vesting of shares issued for the RRP                                   |   |              | 272     |   |              |   | 251 |   |
|  Decrease in accrued interest receivable                                |   |              | 581     |   |              |   | 292 |   |
|  (Increase) decrease in other assets                                    |   |              | 6,171   |   |              |   | (3,940 | ) |
|  Increase (decrease) in other liabilities                               |   |              | 3,752   |   |              |   | (2,259 | ) |
|  Net cash provided by operating activities                              |   |              | 14,092  |   |              |   | 2,369 |   |
|                                                                         |   |              |    |   |              |   |   |   |
|  Cash flows from investing activities:                                  |   |              |    |   |              |   |   |   |
|  Net decrease in loans                                                  |   |              | 30,469  |   |              |   | 4,567 |   |
|  Net increase in loans available for sale                               |   |              | (3,099  | )      |              |   | - |   |
|  Proceeds from sales of securities available for sale                   |   |              | 43,109  |   |              |   | 47,977 |   |
|  Proceeds from sales of premises and equipment                          |   |              | -       |   |              |   | 815 |   |
|  Proceeds from sales of other real estate owned                         |   |              | 4,634   |   |              |   | 2,185 |   |
|  Proceeds from maturities/issuer calls of securities available for sale |   |              | 20,076  |   |              |   | 15,911 |   |
|  Proceeds from maturities/issuer calls of securities held to maturity   |   |              | 30,015  |   |              |   | - |   |
|  Purchases of securities available for sale                             |   |              | (60,188 | )      |              |   | (32,183 | ) |
|  Purchases of securities held to maturity                               |   |              | (13,597 | )      |              |   | (11,086 | ) |
|  Net cash received in acquisition                                       |   |              | 95,058  |   |              |   | - |   |
|  Redemption of FHLB stock                                               |   |              | 458     |   |              |   | 644 |   |
|  Purchases of premises and equipment                                    |   |              | (9,263  | )      |              |   | (135 | ) |
|  Net cash provided by investment activities                             |   |              | 137,672 |   |              |   | 28,695 |   |
|                                                                         |   |              |    |   |              |   |   |   |
|  Cash flows from financing activities:                                  |   |              |    |   |              |   |   |   |
|  Net increase (decrease) in deposits                                    |   |              | (35,778 | )      |              |   | 20,127 |   |
|  Cash dividends paid to common stockholders                             |   |              | (1,167  | )      |              |   | (1,235 | ) |
|  Cash dividends paid to preferred stockholders                          |   |              | (769    | )      |              |   | (774 | ) |
|  Issuance of common stock                                               |   |              | 14,040  |   |              |   | - |   |
|  Repayment of borrowed money                                            |   |              | (27,162 | )      |              |   | (13,654 | ) |
|  Increase (decrease) in advances from borrowers for insurance and taxes |   |              | 36      |   |              |   | (89 | ) |
|  Net cash provided by (used in) financing activities                    |   |              | (50,800 | )      |              |   | 4,375 |   |
|                                                                         |   |              |    |   |              |   |   |   |
|  Net increase in cash and cash equivalents                              |   |              | 100,964 |   |              |   | 35,439 |   |
|  Cash and cash equivalents at beginning of year                         |   |              | 53,180  |   |              |   | 10,057 |   |
|  Cash and cash equivalents at end of year                               |   | $                 | 154,144 |   |              | $      | 45,496 |   |
|                                                                         |   |              |    |   |              |   |   |   |
|  Supplemental non-cash investing activity:                              |   |              |    |   |              |   |   |   |
|  Foreclosed loans transferred to other real estate owned                |   | $                 | 10,795  |   |              | $      | 3,330 |   |

----

CITIZENS 

----

----

|                                         |   | March 19, 2010         |    |
|----------------------------------------------|--------|------------------------|---------|
|                                         |   | (Dollars in thousands) |    |
|                                         |   |                   |    |
| Cash payment from FDIC                       |   | $                      | 66,400  |   |
| Book value of net assets/liabilities assumed |   |                   | (35,251 | ) |
| Fair value adjustments:                      |   |                   |    |   |
| Loans                                        |   |                   | (46,702 | ) |
| FDIC indeminfication asset                   |   |                   | 36,301  |   |
| Other real estate owned                      |   |                   | (83     | ) |
| Core deposit intangible                      |   |                   | 1,637   |   |
| Time deposits                                |   |                   | (768    | ) |
| Borrowed money                               |   |                   | (1,583  | ) |
| Other liabilities                            |   |                   | (1,218  | ) |
| Deferred tax liability                       |   |                   | (7,222  | ) |
| Net after tax gain on acquisition            |   | $                      | 11,511  |   |

----

|                                      |   | March 19, 2010         |    |
|-------------------------------------------|--------|------------------------|---------|
|                                      |   | (Dollars in thousands) |    |
|                                      |   |                   |    |
| Assets Acquired                           |   |                   |    |
| Cash and due from banks                   |   | $                      | 95,058  |   |
| Investment securities, available for sale |   |                   | 22,309  |   |
| Loans                                     |   |                   | 183,207 |   |
| FDIC indemnification asset                |   |                   | 36,301  |   |
| Other real estate owned                   |   |                   | 1,076   |   |
| Core deposit intangible                   |   |                   | 1,637   |   |
| Other assets                              |   |                   | 3,741   |   |
| Total assets acquired                     |   | $                      | 343,329 |   |
|                                      |   |                   |    |   |
| Liabilities Assumed                       |   |                   |    |   |
| Deposits                                  |   | $                      | 292,219 |   |
| Borrowings                                |   |                   | 31,582  |   |
| Deferred tax liabilities                  |   |                   | 7,222   |   |
| Other liabilities                         |   |                   | 795     |   |
| Total liabilities assumed                 |   | $                      | 331,818 |   |
|                                      |   |                   |    |   |
| Net Assets Acquired                       |   | $                      | 11,511  |   |
|                                      |   |                   |    |   |

----

|                                                                           |   | Three Months                                |       |   |  Nine Months   |   |
|--------------------------------------------------------------------------------|--------|--------------------------------------------------|------------|--------|---------------------|--------|
|                                                                           |   | Ended September 30,                              |       |   | Ended September 30, |   |
|                                                                           |   | 2010                                             |       |   | 2009                |   |   | 2010 |   |   | 2009 |   |
|                                                                           |   | (Dollars in thousands, except per share amounts) |       |
|                                                                           |   |                                             |       |   |                |   |   |   |   |   |   |   |
| Net income (loss) available to common shareholders                             |   | $                                                | (528       | )      |                | $      | (759 | ) |   | $ | 9,610 |   |   | $ | (501 | ) |
|                                                                           |   |                                             |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Basic EPS                                                                      |   | $                                                | (0.05      | )      |                | $      | (0.10 | ) |   | $ | 1.04 |   |   | $ | (0.07 | ) |
|                                                                           |   |                                             |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Shares used in the computation of basic EPS:                                   |   |                                             |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Weighted avg. number of shares outstanding                                     |   |                                             | 10,844,386 |   |                |   | 7,419,206 |   |   |   | 9,260,762 |   |   |   | 7,405,199 |   |
|                                                                           |   |                                             |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Incremental shares from assumed exercise of stock options and restricted stock |   |                                             | -          |   |                |   | - |   |   |   | - |   |   |   | - |   |
| Weighted average number of shares   outstanding - diluted       |   |                                             | 10,844,386 |   |                |   | 7,419,206 |   |   |   | 9,260,762 |   |   |   | 7,405,199 |   |
|                                                                           |   |                                             |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Diluted EPS                                                                    |   | $                                                | (0.05      | )      |                | $      | (0.10 | ) |   | $ | 1.04 |   |   | $ | (0.07 | ) |

----

|                                                       |   | Three Months           |   |   | Nine Months            |   |
|------------------------------------------------------------|--------|------------------------|--------|--------|------------------------|--------|
|                                                       |   | Ended September 30,    |   |   | Ended September 30,    |   |
|                                                       |   | 2010                   |   |   | 2009                   |   |   | 2010 |   |   | 2009 |   |
|                                                       |   | (Dollars in thousands) |   |   | (Dollars in thousands) |   |
|                                                       |   |                   |   |   |                   |   |   |   |   |   |   |   |
| Net income (loss)                                          |   | $                      | (272   | )      |                   | $      | (497 | ) |   | $ | 10,379 |   |   | $ | 273 |   |
|                                                       |   |                   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income:                                |   |                   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Investment securities, available for sale:                 |   |                   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding gains arising during period             |   |                   | 422    |   |                   |   | 2,176 |   |   |   | 992 |   |   |   | 2,158 |   |
| Tax expense                                                |   |                   | (163   | )      |                   |   | (839 | ) |   |   | (382 | ) |   |   | (832 | ) |
| Reclassification for realized gains included in net income |   |                   | (305   | )      |                   |   | (973 | ) |   |   | (349 | ) |   |   | (1,281 | ) |
| Tax benefit                                                |   |                   | 118    |   |                   |   | 375 |   |   |   | 135 |   |   |   | 494 |   |
| Other comprehensive income                                 |   |                   | 72     |   |                   |   | 739 |   |   |   | 395 |   |   |   | 539 |   |
| Total comprehensive income                                 |   | $                      | (200   | )      |                   | $      | 242 |   |   | $ | 10,774 |   |   | $ | 812 |   |

----

|                               |   |                   |   |   | Gross      |   |   | Gross      |   |   |       |   |
|------------------------------------|--------|------------------------|--------|--------|------------|--------|--------|------------|--------|--------|------------|--------|
|                               |   | Amortized              |   |   | Unrealized |   |   | Unrealized |   |   | Estimated  |   |
|                               |   | Cost                   |   |   | Gains      |   |   | Losses     |   |   | Fair Value |   |
|                               |   | (Dollars in thousands) |   |
| September 30, 2010                 |   |                   |   |   |       |   |   |       |   |   |       |   |
| Available for sale:                |   |                   |   |   |       |   |   |       |   |   |       |   |
| U.S. Government Agency obligations |   | $                      | 15,304 |   |       | $      | 39     |       |   | $      | -          |   |   | $ | 15,343 |   |
| Municipal bonds                    |   |                   | 8,165  |   |       |   | 188    |       |   |   | 1          |   |   |   | 8,352 |   |
| Mortgage-backed securities         |   |                   | 44,500 |   |       |   | 355    |       |   |   | 10         |   |   |   | 44,845 |   |
| Other securities                   |   |                   | 3,166  |   |       |   | 105    |       |   |   | 518        |   |   |   | 2,753 |   |
| Subtotal                           |   |                   | 71,135 |   |       |   | 687    |       |   |   | 529        |   |   |   | 71,293 |   |
|                               |   |                   |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Held to maturity:                  |   |                   |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
| U.S. Government Agency obligations |   |                   | 6,484  |   |       |   | 62     |       |   |   | -          |   |   |   | 6,546 |   |
| Mortgage-backed securities         |   |                   | 9,478  |   |       |   | 1,003  |       |   |   | -          |   |   |   | 10,481 |   |
| Subtotal                           |   |                   | 15,962 |   |       |   | 1,065  |       |   |   | -          |   |   |   | 17,027 |   |
|                               |   |                   |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Total at September 30, 2010        |   | $                      | 87,097 |   |       | $      | 1,752  |       |   | $      | 529        |   |   | $ | 88,320 |   |
|                               |   |                   |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
|                               |   |                   |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
|                               |   |                   |   |   |       | Gross  |   |       | Gross  |   |       |   |   |   |
|                               |   | Amortized              |   |   | Unrealized |   |   | Unrealized |   |   | Estimated  |   |
|                               |   | Cost                   |   |   | Gains      |   |   | Losses     |   |   | Fair Value |   |
|                               |   | (Dollars in thousands) |   |
| December 31, 2009                  |   |                   |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Available for sale:                |   |                   |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
| U.S. Government Agency obligations |   | $                      | 9,000  |   |       | $      | 32     |       |   | $      | 13         |   |   | $ | 9,019 |   |
| Municipal bonds                    |   |                   | 20,118 |   |       |   | 98     |       |   |   | 345        |   |   |   | 19,871 |   |
| Mortgage-backed securities         |   |                   | 19,258 |   |       |   | 216    |       |   |   | 115        |   |   |   | 19,359 |   |
| Other securities                   |   |                   | 3,098  |   |       |   | 141    |       |   |   | 498        |   |   |   | 2,741 |   |
| Subtotal                           |   |                   | 51,474 |   |       |   | 487    |       |   |   | 971        |   |   |   | 50,990 |   |
|                               |   |                   |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Held to maturity:                  |   |                   |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
| U.S. Government Agency obligations |   |                   | 26,464 |   |       |   | 84     |       |   |   | 305        |   |   |   | 26,243 |   |
| Mortgage-backed securities         |   |                   | 5,916  |   |       |   | 117    |       |   |   | -          |   |   |   | 6,033 |   |
| Subtotal                           |   |                   | 32,380 |   |       |   | 201    |       |   |   | 305        |   |   |   | 32,276 |   |
|                               |   |                   |   |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Total at December 31, 2009         |   | $                      | 83,854 |   |       | $      | 688    |       |   | $      | 1,276      |   |   | $ | 83,266 |   |

----

|                                    |   | September 30, 2010     |    |   | December 31, 2009 |   |
|-----------------------------------------|--------|------------------------|---------|--------|-------------------|--------|
|                                    |   | (Dollars in thousands) |    |
| Non-covered Loans:                      |   |                   |    |   |              |   |
| One-to-four family residential          |   | $                      | 102,266 |   |              | $      | 90,666 |   |
| Construction                            |   |                   | 11,229  |   |              |   | 22,325 |   |
| Multi-family residential                |   |                   | 23,678  |   |              |   | 25,577 |   |
| Commercial real estate                  |   |                   | 308,141 |   |              |   | 315,563 |   |
| Commercial business                     |   |                   | 34,770  |   |              |   | 38,442 |   |
| Consumer                                |   |                   | 114,795 |   |              |   | 117,473 |   |
| Gross non-covered loans                 |   |                   | 594,879 |   |              |   | 610,046 |   |
| Less:                                   |   |                   |    |   |              |   |   |   |
| Deferred loan fees, net and other items |   |                   | 466     |   |              |   | (155 | ) |
| Net non-covered loans                   |   | $                      | 594,413 |   |              | $      | 610,201 |   |

|                                          |   | September 30, 2010     |   |   | December 31, 2009 |   |
|-----------------------------------------------|--------|------------------------|--------|--------|-------------------|--------|
|                                          |   | (Dollars in thousands) |   |
| Construction loans:                           |   |                   |   |   |              |   |   |   |
| One-to-four family residential owner-occupied |   | $                      | 524    |   |              | $      | 1,109 |   |
| One-to-four family residential speculative    |   |                   | 5,889  |   |              |   | 10,911 |   |
| Commercial                                    |   |                   | 4,816  |   |              |   | 10,305 |   |
| Total construction loans                      |   | $                      | 11,229 |   |              | $      | 22,325 |   |

----

|                                    |   | September 30, 2010     |    |   | December 31, 2009 |   |
|-----------------------------------------|--------|------------------------|---------|--------|-------------------|--------|
|                                    |   | (Dollars in thousands) |    |
| Commercial real estate loans:           |   |                   |    |   |              |   |   |   |
| Residential acquisition and development |   | $                      | 26,094  |   |              | $      | 35,694 |   |
| Commercial land                         |   |                   | 40,620  |   |              |   | 40,191 |   |
| Other commercial real estate            |   |                   | 241,427 |   |              |   | 239,678 |   |
| Total commercial real estate loans      |   | $                      | 308,141 |   |              | $      | 315,563 |   |

|                          |                      |   | Three Months           |   |   | Nine Months         |   |
|-------------------------------|---------------------------|--------|------------------------|--------|--------|---------------------|--------|
|                          |                      |   | Ended September 30,    |   |   | Ended September 30, |   |
|                          |                      |   | 2010                   |   |   | 2009                |   |   | 2010 |   |   | 2009 |   |
|                          |                      |   | (Dollars in thousands) |   |
|                          |                      |   |                   |   |   |                |   |   |   |   |   |   |   |
| Balance - Beginning of period |                      | $      | 9,797                  |   |   | $                   | 8,685  |   |   | $ | 9,189 |   |   | $ | 8,025 |   |
| Add:                          | Provision for loan losses |   |                   | 3,000  |   |                |   | 3,975 |   |   |   | 9,050 |   |   |   | 6,825 |   |
|                          | Loan recoveries           |   |                   | 60     |   |                |   | 3 |   |   |   | 349 |   |   |   | 145 |   |
| Less:                         | Loan charge-offs          |   |                   | 2,105  |   |                |   | 3,164 |   |   |   | 7,836 |   |   |   | 5,496 |   |
| Balance - End of period       |                      | $      | 10,752                 |   |   | $                   | 9,499  |   |   | $ | 10,752 |   |   | $ | 9,499 |   |

----

|                                                 |   | September 30, 2010     |   |   | December 31, 2009 |   |
|------------------------------------------------------|--------|------------------------|--------|--------|-------------------|--------|
|                                                 |   | (Dollars in thousands) |   |
| Nonaccrual loans - non-covered                       |   | $                      | 19,652 |   |              | $      | 8,135 |   |
| Accruing non-covered loans past due 90 days or more  |   |                   | 169    |   |              |   | 3,855 |   |
| Non-covered nonperforming loans                      |   |                   | 19,821 |   |              |   | 11,990 |   |
| Nonperforming loans - covered by FDIC loss-share     |   |                   | 22,416 |   |              |   | - |   |
| Total nonperforming loans                            |   |                   | 42,237 |   |              |   | 11,990 |   |
| Other real estate owned - non-covered                |   |                   | 8,557  |   |              |   | 5,067 |   |
| Other real estate owned - covered by FDIC loss-share |   |                   | 3,183  |   |              |   | - |   |
| Total nonperforming assets                           |   | $                      | 53,977 |   |              | $      | 17,057 |   |

|                                          |   | September 30, 2010     |   |   | December 31, 2009 |   |
|-----------------------------------------------|--------|------------------------|--------|--------|-------------------|--------|
|                                          |   | (Dollars in thousands) |   |
|                                          |   |                   |   |   |              |   |   |   |
| One-to-four family residential                |   | $                      | 2,068  |   |              | $      | 898 |   |
| Construction loans:                           |   |                   |   |   |              |   |   |   |
| One-to-four family residential owner-occupied |   |                   | -      |   |              |   | - |   |
| One-to-four family residential speculative    |   |                   | 163    |   |              |   | 1,048 |   |
| Commercial real estate loans:                 |   |                   |   |   |              |   |   |   |
| Residential acquisition and development       |   |                   | 340    |   |              |   | 3,419 |   |
| Commercial land                               |   |                   | 5,034  |   |              |   | 3,640 |   |
| Other commercial real estate                  |   |                   | 9,566  |   |              |   | 1,841 |   |
| Commercial business                           |   |                   | 720    |   |              |   | 140 |   |
| Consumer                                      |   |                   | 1,930  |   |              |   | 1,004 |   |
| Total nonperforming non-covered loans         |   | $                      | 19,821 |   |              | $      | 11,990 |   |

----

|                       |   | September 30, 2010     |    |   | December 31, 2009 |   |
|----------------------------|--------|------------------------|---------|--------|-------------------|--------|
|                       |   | (Dollars in thousands) |    |
|                       |   |                   |    |   |              |   |
| Noninterest-bearing demand |   | $                      | 70,908  |   |              | $      | 45,830 |   |
| Interest-bearing demand    |   |                   | 162,249 |   |              |   | 113,564 |   |
| Money market deposit       |   |                   | 147,269 |   |              |   | 118,687 |   |
| Savings                    |   |                   | 17,021  |   |              |   | 10,584 |   |
| Time deposits              |   |                   | 468,339 |   |              |   | 320,680 |   |
| Total deposits             |   | $                      | 865,786 |   |              | $      | 609,345 |   |

|                                   |   | September 30, 2010     |   |   | December 31, 2009 |   |
|----------------------------------------|--------|------------------------|--------|--------|-------------------|--------|
|                                   |   | (Dollars in thousands) |
|                                   |   |                   |   |   |              |   |
| Loan commitments                       |   |                   |   |   |              |   |
| Residential mortgage loans             |   | $                      | 17,284 |   |              | $      | 12,560 |   |
| Non-residential mortgage loans         |   |                   | 5,924  |   |              |   | 13,656 |   |
| Commercial loans                       |   |                   | 760    |   |              |   | 1,435 |   |
| Consumer loans                         |   |                   | 1,034  |   |              |   | 849 |   |
| Total loan commitments                 |   | $                      | 25,002 |   |              | $      | 28,500 |   |
|                                   |   |                   |   |   |              |   |   |   |
| Unused lines of credit                 |   |                   |   |   |              |   |   |   |
| Commercial                             |   | $                      | 16,641 |   |              | $      | 18,448 |   |
| Consumer                               |   |                   | 75,383 |   |              |   | 75,261 |   |
| Total unused lines of credit           |   | $                      | 92,024 |   |              | $      | 93,709 |   |
|                                   |   |                   |   |   |              |   |   |   |
| Undisbursed Construction Loan Proceeds |   | $                      | 523    |   |              | $      | 1,100 |   |

----

----

|                                            |   | Level 1                      |    |   | Level 2  |   |         | Level 3 |   |   | Total       |   |
|-------------------------------------------------|--------|------------------------------|---------|--------|---------------|--------|--------------|---------|--------|--------|-------------|--------|
|                                            |   |  (Dollars in thousands) |    |
|                                            |   |                         |    |   |          |   |         |    |   |   |        |   |
|  September 30, 2010                        |   |                         |    |   |          |   |         |    |   |   |        |   |   |   |   |   |
|  Investment securities, available-for-sale |   | $                            | -  |   |          | $      | 68,340  |    |   | $      | 2,953       |   |   | $ | 71,293 |   |
|                                            |   |                         |    |   |          |   |         |    |   |   |        |   |   |   |   |   |
|  December 31, 2009                         |   |                         |    |   |          |   |         |    |   |   |        |   |   |   |   |   |
|  Investment securities, available-for-sale |   | $                            | -  |   |          | $      | 48,049  |    |   | $      | 2,941  |   |   | $ | 50,990 |   |

|  September 30, 2010                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|  Presold loans in process of settlement    |   | $      | -      |   |   | $      | 3,100  |   |   | $      | -      |   |   | $ | 3,100 |   |
|  Impaired loans             |   |   | -      |   |   |   | -      |   |   |   | 14,776 |   |   |   | 14,776 |   |
|  Other real estate owned                   |   |   | -      |   |   |   | -      |   |   |   | 11,740 |   |   |   | 11,740 |   |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  December 31, 2009                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Impaired loans                                           |   | $      | -      |   |   | $      | -      |   |   | $      | 20,678 |   |   | $ | 20,678 |   |
|  Other real estate owned                             |   |   | -      |   |   |   | -      |   |   |   | 5,067  |   |   |   | 5,067 |   |

----

|                                        |   | September 30, 2010     |    |   | December 31, 2009 |   |
|---------------------------------------------|--------|------------------------|---------|--------|-------------------|--------|
|                                        |   | Carrying               |    |   | Estimated         |   |   | Carrying |   |   | Estimated |   |
|                                        |   | Amount                 |    |   | Fair Value        |   |   | Amount |   |   | Fair Value |   |
|                                        |   | (Dollars in thousands) |    |
| Financial assets:                           |   |                   |    |   |              |   |   |   |   |   |   |   |
| Cash and due from banks                     |   | $                      | 16,792  |   |              | $      | 16,792 |   |   | $ | 8,925 |   |   | $ | 8,925 |   |
| Interest-earning bank balances              |   |                   | 137,352 |   |              |   | 137,352 |   |   |   | 44,255 |   |   |   | 44,255 |   |
| Investment securities                       |   |                   | 87,255  |   |              |   | 88,320 |   |   |   | 83,370 |   |   |   | 83,266 |   |
| Federal Home Loan Bank stock                |   |                   | 5,938   |   |              |   | 5,938 |   |   |   | 4,149 |   |   |   | 4,149 |   |
| Presold loans in process of settlement      |   |                   | 3,100   |   |              |   | 3,100 |   |   |   | - |   |   |   | - |   |
| Net loans receivable                        |   |                   | 754,740 |   |              |   | 755,763 |   |   |   | 610,201 |   |   |   | 596,371 |   |
| Accrued interest receivable                 |   |                   | 3,028   |   |              |   | 3,028 |   |   |   | 2,430 |   |   |   | 2,430 |   |
| Bank-owned life insurance                   |   |                   | 18,107  |   |              |   | 18,107 |   |   |   | 17,522 |   |   |   | 17,522 |   |
|                                        |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:                      |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                             |   |                   | 233,157 |   |              |   | 233,157 |   |   |   | 159,394 |   |   |   | 159,394 |   |
| Money market accounts                       |   |                   | 147,269 |   |              |   | 147,269 |   |   |   | 118,687 |   |   |   | 118,687 |   |
| Savings                                     |   |                   | 17,021  |   |              |   | 17,021 |   |   |   | 10,584 |   |   |   | 10,584 |   |
| Time deposits                               |   |                   | 468,339 |   |              |   | 475,962 |   |   |   | 320,680 |   |   |   | 322,122 |   |
| Securities sold under repurchase agreements |   |                   | 9,785   |   |              |   | 9,785 |   |   |   | 8,970 |   |   |   | 8,970 |   |
| Borrowings                                  |   |                   | 101,236 |   |              |   | 111,485 |   |   |   | 97,629 |   |   |   | 93,039 |   |

----

ITEM 

----

| Quarterly Financial Highlights (unaudited)                |   | 2010                          |       |   | 2009    |   |
|-----------------------------------------------------------|--------|-------------------------------|------------|--------|---------|--------|
|                                                      |   | At and For the Quarters Ended |       |
|                                                      |   | September 30                  |       |   | June 30 |   |   | March 31 |   |   | December 31 |   |   | September 2009 |   |
| (Dollars in thousands, except per share data)             |   |                          |       |   |    |   |   |   |   |   |   |   |   |   |   |
|                                                      |   |                          |       |   |    |   |   |   |   |   |   |   |   |   |   |
| Summary of Operations:                                    |   |                          |       |   |    |   |   |   |   |   |   |   |   |   |   |
| Interest income - taxable equivalent                      |   | $                             | 11,675     |   |    | $      | 12,308 |   |   | $ | 9,210 |   |   | $ | 9,387 |   |   | $ | 9,656 |   |
| Interest expense                                          |   |                          | 3,790      |   |    |   | 4,083 |   |   |   | 3,393 |   |   |   | 3,531 |   |   |   | 3,947 |   |
| Net interest income - taxable equivalent                  |   |                          | 7,885      |   |    |   | 8,225 |   |   |   | 5,817 |   |   |   | 5,856 |   |   |   | 5,709 |   |
| Less: Taxable-equivalent adjustment                       |   |                          | 79         |   |    |   | 114 |   |   |   | 98 |   |   |   | 106 |   |   |   | 139 |   |
| Net interest income                                       |   |                          | 7,806      |   |    |   | 8,111 |   |   |   | 5,719 |   |   |   | 5,750 |   |   |   | 5,570 |   |
| Provision for loan losses                                 |   |                          | 3,000      |   |    |   | 3,000 |   |   |   | 3,050 |   |   |   | 4,155 |   |   |   | 3,975 |   |
| Net interest income after loan loss provision             |   |                          | 4,806      |   |    |   | 5,111 |   |   |   | 2,669 |   |   |   | 1,595 |   |   |   | 1,595 |   |
| Noninterest income                                        |   |                          | 2,290      |   |    |   | 2,415 |   |   |   | 20,185 |   |   |   | 2,381 |   |   |   | 2,465 |   |
| Noninterest expense                                       |   |                          | 7,781      |   |    |   | 7,279 |   |   |   | 6,356 |   |   |   | 34,867 |   |   |   | 5,229 |   |
| Net income (loss) before income taxes                     |   |                          | (685       | )      |    |   | 247 |   |   |   | 16,498 |   |   |   | (30,891 | ) |   |   | (1,169 | ) |
| Income tax expense (benefit)                              |   |                          | (413       | )      |    |   | (108 | ) |   |   | 6,201 |   |   |   | (611 | ) |   |   | (672 | ) |
| Net income (loss)                                         |   |                          | (272       | )      |    |   | 355 |   |   |   | 10,297 |   |   |   | (30,280 | ) |   |   | (497 | ) |
| Dividends on preferred stock                              |   |                          | 256        |   |    |   | 257 |   |   |   | 257 |   |   |   | 259 |   |   |   | 262 |   |
| Net income (loss) available to common shareholders        |   | $                             | (528       | )      |    | $      | 98 |   |   | $ | 10,040 |   |   | $ | (30,539 | ) |   | $ | (759 | ) |
|                                                      |   |                          |       |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per Common Share Data:                                    |   |                          |       |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income:                                               |   |                          |       |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Basic                                         |   | $                             | (0.05      | )      |    | $      | 0.01 |   |   | $ | 1.29 |   |   | $ | (4.11 | ) |   | $ | (0.10 | ) |
|   Diluted                                       |   |                          | (0.05      | )      |    |   | 0.01 |   |   |   | 1.29 |   |   |   | (4.11 | ) |   |   | (0.10 | ) |
| Weighted average shares outstanding:                      |   |                          |       |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Basic                                         |   |                          | 10,844,386 |   |    |   | 9,077,042 |   |   |   | 7,786,819 |   |   |   | 7,426,992 |   |   |   | 7,419,206 |   |
|   Diluted                                       |   |                          | 10,844,386 |   |    |   | 9,077,042 |   |   |   | 7,786,819 |   |   |   | 7,426,992 |   |   |   | 7,419,206 |   |
| End of period shares outstanding                          |   |                          | 10,964,146 |   |    |   | 10,965,941 |   |   |   | 9,125,942 |   |   |   | 7,526,854 |   |   |   | 7,526,854 |   |
| Cash dividends declared                                   |   | $                             | 0.04       |   |    | $      | 0.04 |   |   | $ | 0.04 |   |   | $ | 0.04 |   |   | $ | 0.04 |   |
| Book value                                                |   |                          | 6.86       |   |    |   | 6.91 |   |   |   | 7.39 |   |   |   | 6.87 |   |   |   | 11.08 |   |
| Tangible book value                                       |   |                          | 6.70       |   |    |   | 6.73 |   |   |   | 7.16 |   |   |   | 6.80 |   |   |   | 7.06 |   |
|                                                      |   |                          |       |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| End of Period Balances:                                   |   |                          |       |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                              |   | $                             | 1,087,558  |   |    | $      | 1,077,431 |   |   | $ | 1,132,652 |   |   | $ | 791,532 |   |   | $ | 820,608 |   |
| Loans, net of deferred fees                               |   |                          | 754,740    |   |    |   | 776,234 |   |   |   | 787,643 |   |   |   | 610,201 |   |   |   | 616,793 |   |
| Investment securities                                     |   |                          | 87,255     |   |    |   | 97,678 |   |   |   | 100,161 |   |   |   | 83,370 |   |   |   | 90,174 |   |
| Interest-earning assets                                   |   |                          | 937,278    |   |    |   | 927,757 |   |   |   | 987,669 |   |   |   | 725,835 |   |   |   | 734,938 |   |
| Deposits                                                  |   |                          | 865,786    |   |    |   | 853,526 |   |   |   | 884,127 |   |   |   | 609,345 |   |   |   | 606,614 |   |
| Shareholders' equity                                      |   |                          | 95,682     |   |    |   | 96,410 |   |   |   | 96,390 |   |   |   | 72,322 |   |   |   | 103,990 |   |
|                                                      |   |                          |       |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Quarterly Average Balances:                               |   |                          |       |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                              |   | $                             | 1,080,680  |   |    | $      | 1,105,788 |   |   | $ | 873,418 |   |   | $ | 823,608 |   |   | $ | 831,268 |   |
| Loans, net of deferred fees                               |   |                          | 767,381    |   |    |   | 780,209 |   |   |   | 599,826 |   |   |   | 610,568 |   |   |   | 624,112 |   |
| Investment securities                                     |   |                          | 91,425     |   |    |   | 100,501 |   |   |   | 89,020 |   |   |   | 87,061 |   |   |   | 94,673 |   |
| Interest-earning assets                                   |   |                          | 915,882    |   |    |   | 949,130 |   |   |   | 732,124 |   |   |   | 736,134 |   |   |   | 741,974 |   |
| Deposits                                                  |   |                          | 853,902    |   |    |   | 859,408 |   |   |   | 614,007 |   |   |   | 605,608 |   |   |   | 609,243 |   |
| Shareholders' equity                                      |   |                          | 96,258     |   |    |   | 96,282 |   |   |   | 78,292 |   |   |   | 103,313 |   |   |   | 103,913 |   |
|                                                      |   |                          |       |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Financial Performance Ratios (annualized):                |   |                          |       |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return on average assets                                  |   |                          | -0.20      | %      |    |   | 0.04 | % |   |   | 4.66 | % |   |   | -14.71 | % |   |   | -0.36 | % |
| Return on average common equity                           |   |                          | -2.77      | %      |    |   | 0.56 | % |   |   | 73.21 | % |   |   | -146.44 | % |   |   | -3.61 | % |
| Noninterest income to average total assets  (1) |   |                          | 0.85       | %      |    |   | 0.87 | % |   |   | 9.24 | % |   |   | 1.16 | % |   |   | 1.19 | % |
| Noninterest expense to average total assets (2)           |   |                          | 2.88       | %      |    |   | 2.63 | % |   |   | 2.91 | % |   |   | 16.93 | % |   |   | 2.52 | % |
| Efficiency ratio  (1) (2)                       |   |                          | 76.47      | %      |    |   | 68.41 | % |   |   | 24.44 | % |   |   | 423.30 | % |   |   | 63.97 | % |

----

|                                          |                                                                                    |   |                          |   |   |    |   |   |     |   |   |        |   |   |           |   |
|-----------------------------------------------|-----------------------------------------------------------------------------------------|--------|-------------------------------|--------|--------|---------|--------|--------|----------|--------|--------|-------------|--------|--------|----------------|--------|
| Quarterly Financial Highlights (unaudited)    |                                                                                    | 2010   |                          |   | 2009   |    |
|                                          |                                                                                    |   | At and For the Quarters Ended |   |
|                                          |                                                                                    |   | September 30                  |   |   | June 30 |   |   | March 31 |   |   | December 31 |   |   | September 2009 |   |
| (Dollars in thousands, except per share data) |                                                                                    |   |                          |   |   |    |   |   |     |   |   |        |   |   |           |
|                                          |                                                                                    |   |                          |   |   |    |   |   |     |   |   |        |   |   |           |   |
| Net Interest Margin (annualized):             |                                                                                    |   |                          |   |   |    |   |   |     |   |   |        |   |   |           |
|                                          | Yield on earning assets                                                                 |   |                          | 4.91   | %      |    |   | 4.96   | %        |   |   | 5.02        | %      |   |           | 4.98   | % |   |   | 5.13 | % |
|                                          | Cost of funds                                                                           |   |                          | 1.66   | %      |    |   | 1.72   | %        |   |   | 2.01        | %      |   |           | 2.09   | % |   |   | 2.30 | % |
|                                          | Net Interest spread                                                                     |   |                          | 3.25   | %      |    |   | 3.24   | %        |   |   | 3.01        | %      |   |           | 2.89   | % |   |   | 2.83 | % |
|                                          | Net interest margin (taxable equivalent)                                                |   |                          | 3.42   | %      |    |   | 3.48   | %        |   |   | 3.22        | %      |   |           | 3.12   | % |   |   | 3.05 | % |
|                                          |                                                                                    |   |                          |   |   |    |   |   |     |   |   |        |   |   |           |   |   |   |   |   |   |
| Credit Quality Information and Ratios:        |                                                                                    |   |                          |   |   |    |   |   |     |   |   |        |   |   |           |   |   |   |   |   |
|                                          | Past due loans (30-89 days) accruing - non-covered                                      |   | $                             | 6,602  |   |    | $      | 10,145 |     |   | $      | 7,003       |   |   | $              | 10,224 |   |   | $ | 10,860 |   |
|                                          | Past due loans - non-covered to total non-covered loans                                 |   |                          | 1.11   | %      |    |   | 1.68   | %        |   |   | 1.15        | %      |   |           | 1.68   | % |   |   | 1.76 | % |
|                                          |                                                                                    |   |                          |   |   |    |   |   |     |   |   |        |   |   |           |   |   |   |   |   |   |
|                                          | Past due loans (30-89 days) accruing - covered by FDIC loss-share (3)                   |   | $                             | 8,701  |   |    | $      | 5,257  |     |   | $      | 11,030      |   |   |           | -      |   |   |   | - |   |
|                                          | Past due loans - covered to total covered loans                                         |   |                          | 5.43   | %      |    |   | 3.07   | %        |   |   | 6.09        | %      |   |           | -      |   |   |   | - |   |
|                                          |                                                                                    |   |                          |   |   |    |   |   |     |   |   |        |   |   |           |   |   |   |   |   |   |
|                                          | Allowance for loan losses - beginning of period                                         |   | $                             | 9,796  |   |    | $      | 9,230  |     |   | $      | 9,189       |   |   | $              | 9,499  |   |   | $ | 8,685 |   |
|                                          | Add:  Provision for loan losses                                               |   |                          | 3,000  |   |    |   | 3,000  |     |   |   | 3,050       |   |   |           | 4,155  |   |   |   | 3,975 |   |
|                                          | Less:  Net charge-offs (NCOs)                                                 |   |                          | 2,044  |   |    |   | 2,434  |     |   |   | 3,009       |   |   |           | 4,465  |   |   |   | 3,161 |   |
|                                          | Allowance for loan losses - end of period                                               |   |                          | 10,752 |   |    |   | 9,796  |     |   |   | 9,230       |   |   |           | 9,189  |   |   |   | 9,499 |   |
|                                          |                                                                                    |   |                          |   |   |    |   |   |     |   |   |        |   |   |           |   |   |   |   |   |   |
|                                          | Allowance for loan losses to total non-covered loans                                    |   |                          | 1.81   | %      |    |   | 1.62   | %        |   |   | 1.52        | %      |   |           | 1.51   | % |   |   | 1.54 | % |
|                                          | Net charge-offs to average non-covered loans (annualized)                               |   |                          | 1.36   | %      |    |   | 1.61   | %        |   |   | 1.98        | %      |   |           | 2.93   | % |   |   | 2.04 | % |
|                                          | Nonperforming non-covered loans to non-covered loans                                    |   |                          | 3.33   | %      |    |   | 2.15   | %        |   |   | 2.26        | %      |   |           | 1.96   | % |   |   | 1.73 | % |
|                                          | Nonperforming non-covered assets to total assets                                        |   |                          | 2.61   | %      |    |   | 1.97   | %        |   |   | 1.69        | %      |   |           | 2.15   | % |   |   | 1.72 | % |
|                                          | Nonperforming non-covered assets to total non-covered loans and other real estate owned |   |                          | 4.71   | %      |    |   | 3.46   | %        |   |   | 3.12        | %      |   |           | 2.77   | % |   |   | 2.28 | % |
|                                          |                                                                                    |   |                          |   |   |    |   |   |     |   |   |        |   |   |           |   |   |   |   |   |   |
|                                          | Nonperforming Assets (NPAs):                                                            |   |                          |   |   |    |   |   |     |   |   |        |   |   |           |   |   |   |   |   |   |
|                                          | Nonperforming loans:                                                                    |   |                          |   |   |    |   |   |     |   |   |        |   |   |           |   |   |   |   |   |   |
|                                          | Non-covered loans:                                                                      |   |                          |   |   |    |   |   |     |   |   |        |   |   |           |   |   |   |   |   |   |
|                                          |   Residential                                                                 |   | $                             | 2,068  |   |    | $      | 1,646  |     |   | $      | 1,618       |   |   | $              | 898    |   |   | $ | 345 |   |
|                                          |   Construction                                                                |   |                          | 163    |   |    |   | 896    |     |   |   | 443         |   |   |           | 1,048  |   |   |   | 1,554 |   |
|                                          |   Acquisition and development                                                 |   |                          | 340    |   |    |   | 691    |     |   |   | 2,890       |   |   |           | 3,419  |   |   |   | 3,510 |   |
|                                          |   Commercial land                                                             |   |                          | 5,034  |   |    |   | 3,252  |     |   |   | 6,148       |   |   |           | 3,640  |   |   |   | 1,884 |   |
|                                          |   Other commercial real estate                                                |   |                          | 9,566  |   |    |   | 4,127  |     |   |   | 1,422       |   |   |           | 1,841  |   |   |   | 2,197 |   |
|                                          |   Commercial business                                                         |   |                          | 720    |   |    |   | 742    |     |   |   | 131         |   |   |           | 140    |   |   |   | - |   |
|                                          |   Consumer                                                                    |   |                          | 1,930  |   |    |   | 1,652  |     |   |   | 1,083       |   |   |           | 1,004  |   |   |   | 1,208 |   |
|                                          | Total non-covered nonperforming loans                                                   |   |                          | 19,821 |   |    |   | 13,006 |     |   |   | 13,735      |   |   |           | 11,990 |   |   |   | 10,698 |   |
|                                          | Total nonperforming loans covered by FDIC loss-share  (4)                     |   |                          | 22,416 |   |    |   | 24,924 |     |   |   | 15,846      |   |   |           | -      |   |   |   | - |   |
|                                          | Other real estate owned - non-covered                                                   |   |                          | 8,557  |   |    |   | 8,239  |     |   |   | 5,386       |   |   |           | 5,067  |   |   |   | 3,444 |   |
|                                          | Other real estate owned - covered by FDIC loss-share                                    |   |                          | 3,183  |   |    |   | 2,343  |     |   |   | 2,009       |   |   |           | -      |   |   |   | - |   |
|                                          | Total nonperforming assets                                                              |   | $                             | 53,977 |   |    | $      | 48,512 |     |   | $      | 36,976      |   |   | $              | 17,057 |   |   | $ | 14,142 |   |
|                                          |                                                                                    |   |                          |   |   |    |   |   |     |   |   |        |   |   |           |   |   |   |   |   |   |
| Capital Ratios:                               |                                                                                    |   |                          |   |   |    |   |   |     |   |   |        |   |   |           |   |   |   |   |   |
|                                          | Tangible common equity                                                                  |   |                          | 6.74   | %      |    |   | 6.86   | %        |   |   | 5.78        | %      |   |           | 6.47   | % |   |   | 6.72 | % |
|                                          | Total Risk-Based Capital (Bank only)                                                    |   |                          | 16.83  | %      |    |   | 16.78  | %        |   |   | 15.53       | %      |   |           | 14.07  | % |   |   | 14.68 | % |
|                                          | Tier 1 Risk-Based Capital (Bank only)                                                   |   |                          | 15.58  | %      |    |   | 15.52  | %        |   |   | 14.47       | %      |   |           | 12.98  | % |   |   | 13.53 | % |
|                                          | Tier 1 Total Capital (Bank only)                                                        |   |                          | 9.58   | %      |    |   | 9.74   | %        |   |   | 9.18        | %      |   |           | 10.44  | % |   |   | 10.70 | % |

----

| (1)  | Includes the gain on acquisition of Bank of Hiawassee of $18.7 million for the quarter ended March 31, 2010. Subsequent adjustments in the amountsof $605,000 and $193,000 were made for the quarters ended June 30, 2010 and September 30, 2010, respectively. |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)  | Includes $29.6 million impairment of goodwill for the quarter ended December 31, 2009. Also includes acquisition and integration expenses of$787,000, $94,000, and $141,000 for the quarters ended March 31, 2010, June 30, 2010, and September 30, 2010, respectively. |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)  | The contractual balance of past due loans covered by FDIC loss-share agreements totaled $13.8 million, $6.4 million, and $14.8 millionat March 31, 2010, June 30, 2010, and September 30, 2010, respectively. |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)  | The contractual balance of nonperforming loans covered by FDIC loss-share agreements totaled $29.0 million, $35.4 million and $29.1 millionat March 31, 2010, June 30, 2010, and September 30, 2010, respectively. |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

|                                            |   | Three Months Ended     |   |   |              |   |
|-------------------------------------------------|--------|------------------------|--------|--------|-------------------|--------|
|                                            |   | September 30,2010      |   |   | September 30,2009 |   |   | Variance |   |
|                                            |   | (Dollars in thousands) |   |
| Noninterest income:                             |   |                   |   |   |              |   |   |   |   |
| Service charges on deposit accounts             |   | $                      | 1,132  |   |              | $      | 859 |   |   | $ | 273 |   |
| Mortgage banking income                         |   |                   | 461    |   |              |   | 215 |   |   |   | 246 |   |
| Commissions on sales of financial products      |   |                   | 53     |   |              |   | 43 |   |   |   | 10 |   |
| Income from bank-owned life insurance           |   |                   | 196    |   |              |   | 202 |   |   |   | (6 | ) |
| Gain from acquisition                           |   |                   | 193    |   |              |   | - |   |   |   | 193 |   |
| Gain on sale of investments, available for sale |   |                   | 305    |   |              |   | 973 |   |   |   | (668 | ) |
| Loss on sale of other assets                    |   |                   | (185   | )      |              |   | (21 | ) |   |   | (164 | ) |
| Other income                                    |   |                   | 135    |   |              |   | 194 |   |   |   | (59 | ) |
| Total noninterest income                        |   | $                      | 2,290  |   |              | $      | 2,465 |   |   | $ | (175 | ) |

----

|                 |                                            |                      |   | Three Months Ended     |   |   |               |   |
|----------------------|-------------------------------------------------|---------------------------|--------|------------------------|--------|--------|--------------------|--------|
|                 |                                            |                      |   | September 30, 2010     |   |   | September 30, 2009 |   |   | Variance |   |
|                 |                                            |                      |   | (Dollars in thousands) |   |
| Noninterest Expense: |                                            |                      |   |                   |   |   |               |   |   |
|                 | Compensation and benefits                       |                      | $      | 3,774                  |   |   | $                  | 2,570  |   |   | $ | 1,204 |   |
|                 | Occupancy and equipment expense                 |                      |   | 732                    |   |   |               | 632    |   |   |   | 100 |   |
|                 | Advertising and business development            |                      |   | 80                     |   |   |               | 115    |   |   |   | (35 | ) |
|                 | Professional services                           |                      |   | 262                    |   |   |               | 233    |   |   |   | 29 |   |
|                 | Data processing fees                            |                      |   | 179                    |   |   |               | 130    |   |   |   | 49 |   |
|                 | FDIC deposit insurance                          |                      |   | 355                    |   |   |               | 232    |   |   |   | 123 |   |
|                 | Amortization of intangible assets               |                      |   | 154                    |   |   |               | 81     |   |   |   | 73 |   |
|                 | Valuation adjustment on other real estate owned |                      |   | 393                    |   |   |               | -      |   |   |   | 393 |   |
|                 | Impairment on investment securities             |                      |   | -                      |   |   |               | 333    |   |   |   | (333 | ) |
|                 | Acquisition and integration expenses            |                      |   | 141                    |   |   |               | -      |   |   |   | 141 |   |
|                 | Other expenses                                  |                      |   | 1,711                  |   |   |               | 903    |   |   |   | 808 |   |
|                 |                                            | Total noninterest expense |   | $                      | 7,781  |   |               | $      | 5,229 |   |   | $ | 2,552 |   |

----

----

|                |                                            |                     |   | Nine Months Ended      |   |   |               |   |
|---------------------|-------------------------------------------------|--------------------------|--------|------------------------|--------|--------|--------------------|--------|
|                |                                            |                     |   | September 30, 2010     |   |   | September 30, 2009 |   |   | Variance |   |
|                |                                            |                     |   | (Dollars in thousands) |   |
| Noninterest income: |                                            |                     |   |                   |   |   |               |   |   |
|                | Service charges on deposit accounts             |                     | $      | 2,893                  |   |   | $                  | 2,428  |   |   | $ | 465 |   |
|                | Mortgage banking income                         |                     |   | 1,028                  |   |   |               | 975    |   |   |   | 53 |   |
|                | Commissions on sales of financial products      |                     |   | 359                    |   |   |               | 137    |   |   |   | 222 |   |
|                | Income from bank-owned life insurance           |                     |   | 627                    |   |   |               | 570    |   |   |   | 57 |   |
|                | Gain from acquisition                           |                     |   | 19,531                 |   |   |               | 0      |   |   |   | 19,531 |   |
|                | Gain on sale of investments, available for sale |                     |   | 349                    |   |   |               | 1,281  |   |   |   | (932 | ) |
|                | Loss on sale of other assets                    |                     |   | (451                   | )      |   |               | (265   | ) |   |   | (186 | ) |
|                | Other income                                    |                     |   | 554                    |   |   |               | 466    |   |   |   | 88 |   |
|                |                                            | Total noninterest income |   | $                      | 24,890 |   |               | $      | 5,592 |   |   | $ | 19,298 |   |

----

|                 |                                            |                      |   | Nine Months Ended      |   |   |              |   |
|----------------------|-------------------------------------------------|---------------------------|--------|------------------------|--------|--------|-------------------|--------|
|                 |                                            |                      |   | September 30,2010      |   |   | September 30,2009 |   |   | Variance |   |
|                 |                                            |                      |   | (Dollars in thousands) |   |   |              |   |
| Noninterest Expense: |                                            |                      |   |                   |   |   |              |   |   |
|                 | Compensation and benefits                       |                      | $      | 10,069                 |   |   | $                 | 7,588  |   |   | $ | 2,481 |   |
|                 | Occupancy and equipment expense                 |                      |   | 2,454                  |   |   |              | 1,958  |   |   |   | 496 |   |
|                 | Advertising and business development            |                      |   | 233                    |   |   |              | 303    |   |   |   | (70 | ) |
|                 | Professional services                           |                      |   | 729                    |   |   |              | 707    |   |   |   | 22 |   |
|                 | Data processing fees                            |                      |   | 513                    |   |   |              | 389    |   |   |   | 124 |   |
|                 | FDIC deposit insurance                          |                      |   | 969                    |   |   |              | 825    |   |   |   | 144 |   |
|                 | Amortization of intangible assets               |                      |   | 372                    |   |   |              | 243    |   |   |   | 129 |   |
|                 | Valuation adjustment on other real estate owned |                      |   | 1,088                  |   |   |              | 175    |   |   |   | 913 |   |
|                 | Impairment on investment securities             |                      |   | -                      |   |   |              | 547    |   |   |   | (547 | ) |
|                 | Acquisition and integration expenses            |                      |   | 1,022                  |   |   |              | -      |   |   |   | 1,022 |   |
|                 | Other expenses                                  |                      |   | 3,968                  |   |   |              | 2,670  |   |   |   | 1,298 |   |
|                 |                                            | Total noninterest expense |   | $                      | 21,417 |   |              | $      | 15,405 |   |   | $ | 6,012 |   |

----

----

|                                               |   |                   |    |   |                         |   |   | Minimum Requirements |   |
|----------------------------------------------------|--------|------------------------|---------|--------|------------------------------|--------|--------|----------------------|--------|
|                                               |   | Actual                 |    |   |  to be Well Capitalized |   |
|                                               |   | Amount                 |    |   | Ratio                        |   |   | Amount               |   |   | Ratio |   |
|                                               |   | (Dollars in thousands) |    |
| Regulatory Capital Ratios:                         |   |                   |    |   |                         |   |   |                 |   |   |   |   |
| Total risk-based capital (to risk-weighted assets) |   | $                      | 112,887 |   |                         |   | 16.83  | %                    |   | $ | 67,073 |   |   |   | 10.00 | % |
| Tier 1 capital (to risk-weighted assets)           |   |                   | 104,469 |   |                         |   | 15.58  | %                    |   |   | 40,243 |   |   |   | 6.00 | % |
| Tier 1 capital (to adjusted total assets)          |   |                   | 104,469 |   |                         |   | 9.58   | %                    |   |   | 54,525 |   |   |   | 5.00 | % |
| Tangible capital (to adjusted total assets)        |   |                   | 104,469 |   |                         |   | 9.58   | %                    |   |   | 32,715 |   |   |   | 3.00 | % |

Item 

Item 

----

Part 

Item 

Item 

Item 

Item 

----

SIGNATURES

----