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

| For the quarterly period ended |   | September 30, 2010 |
|--------------------------------|--------|--------------------|

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

| For the transition period from |   | To |   |
|--------------------------------|--------|----|--------|

----

| New Jersey                           | 20-2017322          |
|--------------------------------------|---------------------|
| (State or other jurisdiction of      | (I.R.S. Employer    |
|  incorporation or organization) | Identification No.) |

----

| Registrant’s telephone number, including area code |   | 973-764-3200 |
|----------------------------------------------------------|--------|--------------|

----

----

|                                                                                                                           |                                                                                        | Page   |   |
|--------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|--------|--------|
| Part I – CONSOLIDATED FINANCIAL INFORMATION                                                                              |                                                                                        | Number |   |
|                                                                                                                           |                                                                                        |   |   |
| Item 1:                                                                                                                        | Consolidated Financial Statements                                                           |   |   |   |
|                                                                                                                           |                                                                                        |   |   |   |
|                                                                                                                           | Consolidated Statements of Financial Condition as of September 30, 2010 and December        |   |   |   |   |
|                                                                                                                           | 31, 2009 (Unaudited)                                                                        |   |   | 3 |   |
|                                                                                                                           |                                                                                        |   |   |   |   |
|                                                                                                                           | Consolidated Statements of Operations for the Three and Nine Months Ended                   |   |   |   |   |
|                                                                                                                           | September 30, 2010 and 2009 (Unaudited)                                                |   |   | 4 |   |
|                                                                                                                           |                                                                                        |   |   |   |   |
|                                                                                                                           | Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months        |   |   |   |   |
|                                                                                                                           | Ended September 30, 2010 and 2009 (Unaudited)                                          |   |   | 5 |   |
|                                                                                                                           |                                                                                        |   |   |   |   |
|                                                                                                                           | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010          |   |   |   |   |
|                                                                                                                           | and 2009 (Unaudited)                                                                   |   |   | 6 |   |
|                                                                                                                           |                                                                                        |   |   |   |   |
|                                                                                                                           | Notes to Consolidated Financial Statements (Unaudited)                                      |   |   | 7 |   |
|                                                                                                                           |                                                                                        |   |   |   |   |
| Item 2:                                                                                                                        | Management’s Discussion and Analysis of Financial Condition and Results of Operations |   |   | 17 |   |
|                                                                                                                           |                                                                                        |   |   |   |   |
| Item 3:                                                                                                                        | Quantitative and Qualitative Disclosures about Market Risk                                  |   |   | 25 |   |
|                                                                                                                           |                                                                                        |   |   |   |   |
| Item 4(T):                                                                                                                     | Controls and Procedures                                                                     |   |   | 25 |   |
|                                                                                                                           |                                                                                        |   |   |   |
|                                                                                                                           |                                                                                        |   |   |   |
| Part II - OTHER INFORMATION                                                                                                    |                                                                                        |   |   |   |
|                                                                                                                           |                                                                                        |   |   |   |
| Item 1:                                                                                                                        | Legal Proceedings                                                                           |   |   | 25 |   |
|                                                                                                                           |                                                                                        |   |   |   |   |
| Item 1.A.                                                                                                                      | Risk Factors                                                                                |   |   | 26 |   |
|                                                                                                                           |                                                                                        |   |   |   |   |
| Item 2:                                                                                                                        | Unregistered Sales of Equity Securities and Use of Proceeds                                 |   |   | 26 |   |
|                                                                                                                           |                                                                                        |   |   |   |   |
| Item 3:                                                                                                                        | Defaults Upon Senior Securities                                                             |   |   | 26 |   |
|                                                                                                                           |                                                                                        |   |   |   |   |
| Item 4:                                                                                                                        | Removed and Reserved                                                                        |   |   | 26 |   |
|                                                                                                                           |                                                                                        |   |   |   |   |
| Item 5:                                                                                                                        | Other Information                                                                           |   |   | 26 |   |
|                                                                                                                           |                                                                                        |   |   |   |   |
| Item 6:                                                                                                              | Exhibits                                                                               |   |   | 26 |   |
|                       |                                                                                        |   |   |   |
|                                                                                                                           |                                                                                        |   |   |   |
| SIGNATURES                                                                                                                     |                                                                                        |   | 26     |   |

----

Part 1. CONSOLIDATED FINANCIAL INFORMATION

| HIGHLANDS BANCORP, INC.                                                                    |   |                                            |    |   |         |   |
|--------------------------------------------------------------------------------------------|--------|-------------------------------------------------|---------|--------|--------------|--------|
| Consolidated Statements of Financial Condition (Unaudited)                                 |   |                                            |    |   |         |   |
|                                                                                       |   |                                            |    |   |         |   |
|                                                                                       |   | September 30,                                   |    |   | December 31, |   |
|                                                                                       |   | 2010                                            |    |   | 2009         |   |
|                                                                                       |   | (In thousands, except share and per share data) |    |
| ASSETS                                                                                     |   |                                            |    |   |         |   |
| Cash and due from banks                                                                    |   | $                                               | 1,813   |   |         | $      | 1,211 |   |
| Interest bearing deposits in other banks                                                   |   |                                            | 41      |   |         |   | 49 |   |
| Federal funds sold                                                                         |   |                                            | -       |   |         |   | 2,038 |   |
|                                                                                       |   |                                            |    |   |         |   |   |   |
| Cash and Cash Equivalents                                                                  |   |                                            | 1,854   |   |         |   | 3,298 |   |
|                                                                                       |   |                                            |    |   |         |   |   |   |
| Time deposits in other banks                                                               |   |                                            | 28,041  |   |         |   | 26,752 |   |
| Securities available for sale                                                              |   |                                            | 17,843  |   |         |   | 19,134 |   |
| Restricted investment in bank stock                                                        |   |                                            | 588     |   |         |   | 522 |   |
| Loans held for sale                                                                        |   |                                            | -       |   |         |   | 784 |   |
| Loans receivable, net of allowance for loan losses of $1,727 in 2010;                      |   |                                            |    |   |         |   |   |   |
|    $1,438 in 2009.                                                          |   |                                            | 115,207 |   |         |   | 111,881 |   |
| Bank premises and equipment, net                                                           |   |                                            | 956     |   |         |   | 1,180 |   |
| Goodwill                                                                                   |   |                                            | 804     |   |         |   | 804 |   |
| Accrued interest receivable                                                                |   |                                            | 618     |   |         |   | 650 |   |
| Foreclosed assets                                                                          |   |                                            | 415     |   |         |   | - |   |
| Other assets                                                                               |   |                                            | 766     |   |         |   | 950 |   |
|                                                                                       |   |                                            |    |   |         |   |   |   |
| Total Assets                                                                               |   | $                                               | 167,092 |   |         | $      | 165,955 |   |
|                                                                                       |   |                                            |    |   |         |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                       |   |                                            |    |   |         |   |   |   |
| Liabilities                                                                                |   |                                            |    |   |         |   |   |   |
| Deposits:                                                                                  |   |                                            |    |   |         |   |   |   |
| Non-interest bearing                                                                       |   | $                                               | 23,297  |   |         | $      | 19,490 |   |
| Interest-bearing                                                                           |   |                                            | 118,566 |   |         |   | 124,076 |   |
| Total Deposits                                                                             |   |                                            | 141,863 |   |         |   | 143,566 |   |
|                                                                                       |   |                                            |    |   |         |   |   |   |
| Borrowings                                                                                 |   |                                            | 8,406   |   |         |   | 6,006 |   |
| Accrued interest payable                                                                   |   |                                            | 68      |   |         |   | 106 |   |
| Other liabilities                                                                          |   |                                            | 563     |   |         |   | 531 |   |
|                                                                                       |   |                                            |    |   |         |   |   |   |
| Total Liabilities                                                                          |   |                                            | 150,900 |   |         |   | 150,209 |   |
|                                                                                       |   |                                            |    |   |         |   |   |   |
| Stockholders' Equity                                                                       |   |                                            |    |   |         |   |   |   |
| Preferred stock, Series A, liquidation preference of $1,000 per share,                     |   |                                            | 5,494   |   |         |   | 5,471 |   |
| 5,450 outstanding at September 30, 2010 and December 31, 2009.                             |   |                                            |    |   |         |   |   |   |
|     Warrant Preferred stock Series B, liquidation preference of $1,000 |   |                                            |    |   |         |   |   |   |
| per share, 155 outstanding at September 30, 2010 and December 31, 2009.                    |   |                                            |    |   |         |   |   |   |
| Common stock, no par value; authorized 10,000,000 shares; issued and                       |   |                                            |    |   |         |   |   |   |
| outstanding 1,788,262 shares at September 30, 2010;                                        |   |                                            |    |   |         |   |   |   |
| $5 par value; authorized 5,000,000 shares; issued and outstanding                          |   |                                            |    |   |         |   |   |   |
| 1,788,262 shares at December 31, 2009                                                      |   |                                            | 15,972  |   |         |   | 8,941 |   |
| Surplus                                                                                    |   |                                            | -       |   |         |   | 7,041 |   |
| Accumulated deficit                                                                        |   |                                            | (5,683  | )      |         |   | (5,778 | ) |
| Accumulated other comprehensive income                                                     |   |                                            | 409     |   |         |   | 71 |   |
|                                                                                       |   |                                            |    |   |         |   |   |   |
| Total Stockholders' Equity                                                                 |   |                                            | 16,192  |   |         |   | 15,746 |   |
|                                                                                       |   |                                            |    |   |         |   |   |   |
| Total Liabilities and Stockholders' Equity                                                 |   | $                                               | 167,092 |   |         | $      | 165,955 |   |
|                                                                                       |   |                                            |    |   |         |   |   |   |
| See Notes to Consolidated Financial Statements                                             |   |                                            |    |   |         |   |   |   |

----

| HIGHLANDS BANCORP, INC.                                        |   |                             |      |   |                |   |      |   |   |   |      |   |
|----------------------------------------------------------------|--------|----------------------------------|-----------|--------|---------------------|--------|-----------|--------|--------|--------|-----------|--------|
| Consolidated Statements of Operations (Unaudited)              |   |                             |      |   |                |   |      |   |   |   |      |   |
|                                                           |   | Three Months Ended               |      |   | Nine Months         |   |
|                                                           |   | September 30,                    |      |   | Ended September 30, |   |
|                                                           |   | 2010                             |      |   | 2009                |   |      | 2010   |   |   | 2009      |   |
|                                                           |   | (In thousands                    |      |
|                                                           |   | except share and per share data) |      |
| Interest Income:                                               |   |                             |      |   |                |   |      |   |   |   |      |   |
| Loans                                                          |   | $                                | 1,587     |   |                | $      | 1,466     |   |   | $      | 4,784     |   |   | $ | 4,180 |   |
| Securities                                                     |   |                             | 138       |   |                |   | 206       |   |   |   | 497       |   |   |   | 671 |   |
| Federal funds sold                                             |   |                             | 2         |   |                |   | 2         |   |   |   | 4         |   |   |   | 5 |   |
| Other interest-earning assets                                  |   |                             | 92        |   |                |   | 61        |   |   |   | 300       |   |   |   | 73 |   |
| Total Interest Income                                          |   |                             | 1,819     |   |                |   | 1,735     |   |   |   | 5,585     |   |   |   | 4,929 |   |
|                                                           |   |                             |      |   |                |   |      |   |   |   |      |   |   |   |   |   |
| Interest Expense:                                              |   |                             |      |   |                |   |      |   |   |   |      |   |   |   |   |   |
| Deposits                                                       |   |                             | 334       |   |                |   | 596       |   |   |   | 1,123     |   |   |   | 1,721 |   |
| Borrowings                                                     |   |                             | 35        |   |                |   | 42        |   |   |   | 116       |   |   |   | 142 |   |
| Total Interest Expense                                         |   |                             | 369       |   |                |   | 638       |   |   |   | 1,239     |   |   |   | 1,863 |   |
|                                                           |   |                             |      |   |                |   |      |   |   |   |      |   |   |   |   |   |
| Net Interest Income before Provision for Loan Losses           |   |                             | 1,450     |   |                |   | 1,097     |   |   |   | 4,346     |   |   |   | 3,066 |   |
| Provision for Loan Losses                                      |   |                             | 121       |   |                |   | 448       |   |   |   | 558       |   |   |   | 808 |   |
|                                                           |   |                             |      |   |                |   |      |   |   |   |      |   |   |   |   |   |
| Net Interest Income after Provision for Loan Losses            |   |                             | 1,329     |   |                |   | 649       |   |   |   | 3,788     |   |   |   | 2,258 |   |
|                                                           |   |                             |      |   |                |   |      |   |   |   |      |   |   |   |   |   |
| Non-Interest Income                                            |   |                             |      |   |                |   |      |   |   |   |      |   |   |   |   |   |
| Fees and service charges                                       |   |                             | 98        |   |                |   | 98        |   |   |   | 282       |   |   |   | 214 |   |
| Gain on sale of investment securities                          |   |                             | -         |   |                |   | 19        |   |   |   | 87        |   |   |   | 19 |   |
| Loss on disposal of fixed assets                               |   |                             | -         |   |                |   | -         |   |   |   | -         |   |   |   | (15 | ) |
| Other income                                                   |   |                             | 9         |   |                |   | 9         |   |   |   | 29        |   |   |   | 25 |   |
| Total Non-Interest Income                                      |   |                             | 107       |   |                |   | 126       |   |   |   | 398       |   |   |   | 243 |   |
|                                                           |   |                             |      |   |                |   |      |   |   |   |      |   |   |   |   |   |
| Non-Interest Expenses                                          |   |                             |      |   |                |   |      |   |   |   |      |   |   |   |   |   |
| Salaries and employee benefits                                 |   |                             | 541       |   |                |   | 547       |   |   |   | 1,657     |   |   |   | 1,682 |   |
| Share-based compensation                                       |   |                             | -         |   |                |   | 1         |   |   |   | -         |   |   |   | 11 |   |
| Occupancy and equipment                                        |   |                             | 243       |   |                |   | 221       |   |   |   | 721       |   |   |   | 667 |   |
| Professional fees                                              |   |                             | 170       |   |                |   | 89        |   |   |   | 412       |   |   |   | 177 |   |
| Advertising and promotion                                      |   |                             | 16        |   |                |   | 27        |   |   |   | 67        |   |   |   | 96 |   |
| Data processing                                                |   |                             | 130       |   |                |   | 143       |   |   |   | 383       |   |   |   | 362 |   |
| FDIC insurance premiums                                        |   |                             | 75        |   |                |   | 49        |   |   |   | 223       |   |   |   | 163 |   |
| Other                                                          |   |                             | 131       |   |                |   | 125       |   |   |   | 391       |   |   |   | 377 |   |
| Total Non-Interest Expenses                                    |   |                             | 1,306     |   |                |   | 1,202     |   |   |   | 3,854     |   |   |   | 3,535 |   |
|                                                           |   |                             |      |   |                |   |      |   |   |   |      |   |   |   |   |   |
| Net Income (Loss)                                              |   | $                                | 130       |   |                | $      | (427      | )      |   | $      | 332       |   |   | $ | (1,034 | ) |
| Preferred stock dividends and accretion                        |   |                             | (79       | )      |                |   | (50       | )      |   |   | (238      | )      |   |   | (80 | ) |
| Net Income (Loss) available to common stockholders             |   | $                                | 51        |   |                | $      | (477      | )      |   | $      | 94        |   |   | $ | (1,114 | ) |
|                                                           |   |                             |      |   |                |   |      |   |   |   |      |   |   |   |   |   |
| Net Income (Loss) per common share - Basic and Diluted         |   | $                                | 0.03      |   |                | $      | (0.27     | )      |   | $      | 0.05      |   |   | $ | (0.62 | ) |
|                                                           |   |                             |      |   |                |   |      |   |   |   |      |   |   |   |   |   |
| Weighted Average Common Shares Outstanding - Basic and Diluted |   |                             | 1,788,262 |   |                |   | 1,788,262 |   |   |   | 1,788,262 |   |   |   | 1,788,262 |   |
|                                                           |   |                             |      |   |                |   |      |   |   |   |      |   |   |   |   |   |
| See Notes to Consolidated Financial Statements                 |   |                             |      |   |                |   |      |   |   |   |      |   |   |   |   |   |

----

| HIGHLANDS BANCORP, INC.                                |   |               |   |   |              |   |   |   |   |   |   |   |
|--------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|--------|--------|--------|--------|--------|--------|
| Consolidated Statements of Comprehensive Income (Loss) |   |               |   |   |              |   |   |
| (Unaudited)                                            |   |               |   |   |              |   |   |   |   |   |   |   |
|                                                   |   |               |   |   |              |   |   |   |   |   |   |   |
|                                                   |   | Three Months Ended |   |   | Nine Months Ended |   |
|                                                   |   | September 30,      |   |   | September 30,     |   |
|                                                   |   | 2010               |   |   | 2009              |   |   | 2010   |   |   | 2009   |   |
|                                                   |   | (in thousands)     |   |
|                                                   |   |               |   |   |              |   |   |   |   |   |   |   |
| Net income (loss)                                      |   | $                  | 130    |   |              | $      | (427   | )      |   | $      | 332    |   |   | $ | (1,034 | ) |
| Other comprehensive income:                            |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding gains on                            |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
|    securities available for sale        |   |               | 85     |   |              |   | 284    |   |   |   | 425    |   |   |   | 284 |   |
| Less reclassification adjustment                       |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| for gains included in net income (loss)                |   |               | -      |   |              |   | (19    | )      |   |   | (87    | )      |   |   | (19 | ) |
|                                                   |   |               | 85     |   |              |   | 265    |   |   |   | 338    |   |   |   | 265 |   |
| Total comprehensive income (loss)                      |   | $                  | 215    |   |              | $      | (162   | )      |   | $      | 670    |   |   | $ | (769 | ) |

----

| HIGHLANDS BANCORP, INC.                                                          |   |                            |    |   |   |   |
|----------------------------------------------------------------------------------|--------|---------------------------------|---------|--------|--------|--------|
| Consolidated Statements of Cash Flows                                            |   |                            |    |   |   |   |
| (Unaudited)                                                                      |   |                            |    |   |   |   |
|                                                                             |   | Nine Months Ended September 30, |    |
|                                                                             |   | 2010                            |    |   | 2009   |   |
|                                                                             |   | (In thousands)                  |    |
| Cash flows from operating activities:                                            |   |                            |    |   |   |   |
| Net income (loss)                                                                |   | $                               | 332     |   |   | $      | (1,034 | ) |
| Adjustments to reconcile net income (loss) to net                                |   |                            |    |   |   |   |   |   |
| cash (used by) provided by operating activities:                                 |   |                            |    |   |   |   |   |   |
| Depreciation of premises and equipment                                           |   |                            | 263     |   |   |   | 218 |   |
| Amortization and accretion, net                                                  |   |                            | 45      |   |   |   | (84 | ) |
| Gain on sale of available for sale securities                                    |   |                            | (87     | )      |   |   | (19 | ) |
| Provision for loan losses                                                        |   |                            | 558     |   |   |   | 808 |   |
| Net origination of loans held for sale                                           |   |                            | -       |   |   |   | (9,169 | ) |
| Proceeds from sale of loans                                                      |   |                            |    |   |   |   | 1,231 |   |
| Gain on sale of loans held for sale                                              |   |                            |    |   |   |   | (17 | ) |
| Stock-based compensation expense                                                 |   |                            | -       |   |   |   | 11 |   |
| Decrease in interest receivable                                                  |   |                            | 32      |   |   |   | (69 | ) |
| Decrease in other assets                                                         |   |                            | 184     |   |   |   | 71 |   |
| Decrease in accrued interest payable                                             |   |                            | (38     | )      |   |   | (5 | ) |
| Increase in other liabilities                                                    |   |                            | 32      |   |   |   | 21 |   |
| Net cash provided by (used by) operating activities                              |   |                            | 1,321   |   |   |   | (8,037 | ) |
|                                                                             |   |                            |    |   |   |   |   |   |
| Cash flows from investing activities:                                            |   |                            |    |   |   |   |   |   |
| Purchases of time deposits                                                       |   |                            | (25,119 | )      |   |   | (29,712 | ) |
| Principal repayments on time deposits                                            |   |                            | 23,830  |   |   |   | 5,130 |   |
| Proceeds from sales of securities available for sale                             |   |                            | 1,330   |   |   |   | 981 |   |
| Proceeds from maturities, calls and prepayments of securities available for sale |   |                            | 6,418   |   |   |   | 12,901 |   |
| Purchases of securities available for sale                                       |   |                            | (6,111  | )      |   |   | (15,137 | ) |
| Net increase in loans receivable                                                 |   |                            | (3,502  | )      |   |   | (10,025 | ) |
| Purchases of restricted stock                                                    |   |                            | (677    | )      |   |   | (58 | ) |
| Redemption of restricted stock                                                   |   |                            | 611     |   |   |   | 158 |   |
| Purchases of premises and equipment                                              |   |                            | (33     | )      |   |   | (234 | ) |
| Net cash used by investing activities                                            |   |                            | (3,253  | )      |   |   | (35,996 | ) |
|                                                                             |   |                            |    |   |   |   |   |   |
| Cash flows from financing activities:                                            |   |                            |    |   |   |   |   |   |
| Net (decrease) increase in deposits                                              |   |                            | (1,703  | )      |   |   | 42,871 |   |
| Increase in short term borrowings                                                |   |                            | 1,906   |   |   |   | - |   |
| Increase in long term borrowings                                                 |   |                            | 500     |   |   |   | 1,000 |   |
| Repayment of long term borrowings                                                |   |                            | -       |   |   |   | (4,500 | ) |
| Proceeds from the issuance of preferred stock, net of costs                      |   |                            | -       |   |   |   | 3,053 |   |
| Cash dividends paid on preferred stock                                           |   |                            | (215    | )      |   |   | (67 | ) |
| Net cash provided by financing activities                                        |   |                            | 488     |   |   |   | 42,357 |   |
|                                                                             |   |                            |    |   |   |   |   |   |
| Net increase (decrease) in cash and cash equivalents                             |   |                            | (1,444  | )      |   |   | (1,676 | ) |
| Cash and cash equivalents-beginning                                              |   |                            | 3,298   |   |   |   | 5,920 |   |
| Cash and cash equivalents-ending                                                 |   | $                               | 1,854   |   |   | $      | 4,244 |   |
|                                                                             |   |                            |    |   |   |   |   |   |
| Supplemental information:                                                        |   |                            |    |   |   |   |   |   |
| Cash paid during the period for interest                                         |   | $                               | 1,277   |   |   | $      | 1,868 |   |
|                                                                             |   |                            |    |   |   |   |   |   |
| Supplementary schedule of Non-Cash Investing Activities:                         |   |                            |    |   |   |   |   |   |
| Foreclosed real estate acquired in settlement of loans                           |   | $                               | 415     |   |   | $      | - |   |
|                                                                             |   |                            |    |   |   |   |   |   |
|                                                                             |   |                            |    |   |   |   |   |   |
| See Notes to Consolidated Financial Statements                                   |   |                            |    |   |   |   |   |   |

----

Notes to Consolidated Financial Statements

----

|                                   |   |           |   |   | Gross      |   |   | Gross      |   |   |   |   |
|----------------------------------------|--------|----------------|--------|--------|------------|--------|--------|------------|--------|--------|--------|--------|
|                                   |   | Amortized      |   |   | Unrealized |   |   | Unrealized |   |   | Fair   |   |
|                                   |   | Cost           |   |   | Gains      |   |   | Losses     |   |   | Value  |   |
|                                   |   | (In thousands) |   |
| September 30, 2010                     |   |           |   |   |       |   |   |       |   |   |   |   |
| U.S. Government agencies and sponsored |   |           |   |   |       |   |   |       |   |   |
| agencies                               |   |           |   |   |       |   |   |       |   |   |   |   |
| Due within one year                    |   | $              | 1,003  |   |       | $      | 8      |       |   | $      | -      |   |   | $ | 1,011 |   |
| Due after one but within five years    |   |           | 6,556  |   |       |   | 109    |       |   |   | -      |   |   |   | 6,665 |   |
| Due after five but within ten years    |   |           | 991    |   |       |   | 38     |       |   |   | -      |   |   |   | 1,029 |   |
| Due after ten years                    |   |           | 3,128  |   |       |   | 98     |       |   |   | -      |   |   |   | 3,226 |   |
| Mortgage-backed securities - U.S.      |   |           |   |   |       |   |   |       |   |   |   |   |   |   |   |   |
| Government sponsored agencies          |   |           | 4,547  |   |       |   | 135    |       |   |   | 7      |   |   |   | 4,675 |   |
| Other                                  |   |           |   |   |       |   |   |       |   |   |   |   |   |   |   |   |
| Due after five but within ten years    |   |           | 259    |   |       |   | 7      |       |   |   | -      |   |   |   | 266 |   |
| Due after ten years                    |   |           | 950    |   |       |   | 42     |       |   |   | 21     |   |   |   | 971 |   |
|                                   |   | $              | 17,434 |   |       | $      | 437    |       |   | $      | 28     |   |   | $ | 17,843 |   |
|                                   |   |           |   |   |       |   |   |       |   |   |   |   |   |   |   |   |
| December 31, 2009                      |   |           |   |   |       |   |   |       |   |   |   |   |   |   |   |   |
| U.S. Government agencies and sponsored |   |           |   |   |       |   |   |       |   |   |   |   |   |
| agencies                               |   |           |   |   |       |   |   |       |   |   |   |   |   |   |   |   |
| Due after one but within five years    |   | $              | 3,560  |   |       | $      | 13     |       |   | $      | -      |   |   | $ | 3,573 |   |
| Due after five but within ten years    |   |           | 2,503  |   |       |   | 4      |       |   |   | 3      |   |   |   | 2,504 |   |
| Due after ten years                    |   |           | 5,623  |   |       |   | 5      |       |   |   | 77     |   |   |   | 5,551 |   |
| Mortgage-backed securities - U.S.      |   |           |   |   |       |   |   |       |   |   |   |   |   |   |   |   |
| Government sponsored agencies          |   |           | 5,992  |   |       |   | 182    |       |   |   | 3      |   |   |   | 6,171 |   |
| Other                                  |   |           | 1,385  |   |       |   | 29     |       |   |   | 79     |   |   |   | 1,335 |   |
|                                   |   | $              | 19,063 |   |       | $      | 233    |       |   | $      | 162    |   |   | $ | 19,134 |   |

----

|                             |   | Less than 12 Months |   |   | 12 Months or More |   |   | Total  |   |
|----------------------------------|--------|---------------------|--------|--------|-------------------|--------|--------|--------|--------|
|                             |   |                |   |   | Gross             |   |   |   |   |   | Gross |   |   |   |   |   | Gross |   |
|                             |   | Fair                |   |   | Unrealized        |   |   | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                             |   | Value               |   |   | Losses            |   |   | Value  |   |   | Losses |   |   | Value |   |   | Losses |   |
|                             |   | (In thousands)      |   |
| September 30, 2010               |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government sponsored        |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| enterprises (GSEs) - residential |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| mortgage-backed securities       |   | $                   | 1,053  |   |              | $      | 7      |   |   | $ | - |   |   | $ | - |   |   | $ | 1,053 |   |   | $ | 7 |   |
| Other                            |   |                | 4      |   |              |   | 3      |   |   |   | 225 |   |   |   | 17 |   |   |   | 229 |   |   |   | 21 |   |
|                             |   | $                   | 1,057  |   |              | $      | 10     |   |   | $ | 225 |   |   | $ | 17 |   |   | $ | 1,282 |   |   | $ | 28 |   |
|                             |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009                |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government agencies         |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and sponsored agencies           |   | $                   | 5,011  |   |              | $      | 80     |   |   | $ | - |   |   | $ | - |   |   | $ | 5,011 |   |   | $ | 80 |   |
| U.S. Government sponsored        |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| enterprises (GSEs) - residential |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| mortgage-backed securities       |   |                | 435    |   |              |   | 3      |   |   |   | - |   |   |   | - |   |   |   | 435 |   |   |   | 3 |   |
| Other                            |   |                | 197    |   |              |   | 18     |   |   |   | 339 |   |   |   | 61 |   |   |   | 536 |   |   |   | 79 |   |
|                             |   | $                   | 5,643  |   |              | $      | 101    |   |   | $ | 339 |   |   | $ | 61 |   |   | $ | 5,982 |   |   | $ | 162 |   |

----

|                                                                                                        |   |                             |      |   |                            |   |      |   |   |   |      |   |
|-------------------------------------------------------------------------------------------------------------|--------|----------------------------------|-----------|--------|---------------------------------|--------|-----------|--------|--------|--------|-----------|--------|
|                                                                                                        |   | Three Months Ended September 30, |      |   | Nine Months Ended September 30, |   |
|                                                                                                        |   | 2010                             |      |   | 2009                            |   |      | 2010   |   |   | 2009      |   |
|                                                                                                        |   | (In thousands, except            |      |   | (In thousands, except           |   |
|                                                                                                        |   | per share data)                  |      |   | per share data)                 |   |
|                                                                                                        |   |                             |      |   |                            |   |      |   |   |   |      |   |
| Net income (loss) available to common stockholders                                                          |   | $                                | 51        |   |                            | $      | (477      | )      |   | $      | 94        |   |   | $ | (1,114 | ) |
|                                                                                                        |   |                             |      |   |                            |   |      |   |   |   |      |   |   |   |   |   |
| Weighted average shares outstanding                                                                         |   |                             | 1,788,262 |   |                            |   | 1,788,262 |   |   |   | 1,788,262 |   |   |   | 1,788,262 |   |
| Dilutive effect of potential common shares, stock options                                                   |   |                             | -         |   |                            |   | -         |   |   |   | -         |   |   |   | - |   |
|                                                                                                        |   |                             |      |   |                            |   |      |   |   |   |      |   |   |   |   |   |
| Diluted weighted average common shares outstanding                                                          |   |                             | 1,788,262 |   |                            |   | 1,788,262 |   |   |   | 1,788,262 |   |   |   | 1,788,262 |   |
| Basic income (loss) per common share                                                                        |   | $                                | 0.03      |   |                            | $      | (0.27     | )      |   | $      | 0.05      |   |   | $ | (0.62 | ) |
| Diluted income (loss) per common share                                                                      |   | $                                | 0.03      |   |                            | $      | (0.27     | )      |   | $      | 0.05      |   |   | $ | (0.62 | ) |
|                                                                                                        |   |                             |      |   |                            |   |      |   |   |   |      |   |   |   |   |   |
|                                                                                                        |   |                             |      |   |                            |   |      |   |   |   |      |   |   |   |   |   |
| Stock options for 124,000 and 129,000 shares of common stock were not considered in computing diluted       |
| loss per common share for the three and nine months ended September 30, 2010 and 2009, respectively because |
| they were not dilutive.                                                                                     |

----

| 2010   |   |  $ | 3,500 |   |
|--------|--------|---------|-------|--------|
| 2012   |   |    | 1,000 |   |
| 2013   |   |    | 2,000 |   |
|   |   |  $ | 6,500 |   |

----

|                          |   |          |   |   | (Level 1)          |   |   |              |   |   | (Level 3)    |   |
|-------------------------------|--------|---------------|--------|--------|--------------------|--------|--------|-------------------|--------|--------|--------------|--------|
|                          |   |          |   |   | Quoted Prices      |   |   | (Level 2)         |   |   | Significant  |   |
|                          |   | September 30, |   |   | Active Markets for |   |   | Significant Other |   |   | Unobservable |   |
| (In thousands)                |   | 2010          |   |   | Identical Assets   |   |   | Observable Inputs |   |   | Inputs       |   |
| Securities available for sale |   | $             | 17,843 |   |               | $      | -      |              |   | $      | 17,843       |   |   | $ | - |   |
|                          |   |          |   |   |               |   |   |              |   |   |         |   |   |   |   |   |
|                          |   | December 31,  |   |   |               |   |   |              |   |   |         |   |   |   |   |
|                          |   |          | 2009   |   |               |   |   |              |   |   |         |   |   |   |   |   |
| Securities available for sale |   | $             | 19,134 |   |               | $      | -      |              |   | $      | 19,134       |   |   | $ | - |   |

|           |   |          |   |   | (Level 1)          |   |   |              |   |   | (Level 3)    |   |
|----------------|--------|---------------|--------|--------|--------------------|--------|--------|-------------------|--------|--------|--------------|--------|
|           |   |          |   |   | Quoted Prices      |   |   | (Level 2)         |   |   | Significant  |   |
|           |   | September 30, |   |   | Active Markets for |   |   | Significant Other |   |   | Unobservable |   |
| (In thousands) |   | 2010          |   |   | Identical Assets   |   |   | Observable Inputs |   |   | Inputs       |   |
| Impaired loans |   | $             | 4,147  |   |               | $      | -      |              |   | $      | -            |   |   | $ | 4,147 |   |
|           |   |          |   |   |               |   |   |              |   |   |         |   |   |   |   |   |
|           |   | December 31,  |   |   |               |   |   |              |   |   |         |   |   |   |   |
|           |   |          | 2009   |   |               |   |   |              |   |   |         |   |   |   |   |   |
| Impaired loans |   | $             | 4,601  |   |               | $      | -      |              |   | $      | -            |   |   | $ | 4,601 |   |

|              |   |          |   |   | (Level 1)          |   |   |              |   |   | (Level 3)    |   |
|-------------------|--------|---------------|--------|--------|--------------------|--------|--------|-------------------|--------|--------|--------------|--------|
|              |   |          |   |   | Quoted Prices      |   |   | (Level 2)         |   |   | Significant  |   |
|              |   | September 30, |   |   | Active Markets for |   |   | Significant Other |   |   | Unobservable |   |
| (In thousands)    |   | 2010          |   |   | Identical Assets   |   |   | Observable Inputs |   |   | Inputs       |   |
| Foreclosed Assets |   | $             | 415    |   |               | $      | -      |              |   | $      | -            |   |   | $ | 415 |   |

----

----

|                                          |   |               |    |   |              |   |    |        |   |   |    |   |
|-----------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|---------|-------------|--------|--------|---------|--------|
|                                          |   | September 30, 2010 |    |   | December 31, 2009 |   |
|                                          |   | Carrying or        |    |   |              |   |    | Carrying or |   |   |    |   |
|                                          |   | Notional           |    |   | Fair              |   |    | Notional    |   |   | Fair    |   |
|                                          |   | Amount             |    |   | Value             |   |    | Amount      |   |   | Value   |   |
|                                          |   | (In thousands)     |    |
| Financial Assets:                             |   |               |    |   |              |   |    |        |   |   |    |   |
| Cash and cash equivalents                     |   | $                  | 1,854   |   |              | $      | 1,854   |        |   | $      | 3,298   |   |   | $ | 3,298 |   |
| Time deposits in other banks                  |   |               | 28,041  |   |              |   | 28,041  |        |   |   | 26,752  |   |   |   | 26,752 |   |
| Securities available for sale                 |   |               | 17,843  |   |              |   | 17,843  |        |   |   | 19,134  |   |   |   | 19,134 |   |
| Loans receivable, net and loans held for sale |   |               | 115,207 |   |              |   | 113,332 |        |   |   | 112,665 |   |   |   | 106,320 |   |
| Restricted investment in bank stock           |   |               | 588     |   |              |   | 588     |        |   |   | 522     |   |   |   | 522 |   |
| Accrued interest receivable                   |   |               | 618     |   |              |   | 618     |        |   |   | 650     |   |   |   | 650 |   |
|                                          |   |               |    |   |              |   |    |        |   |   |    |   |   |   |   |   |
| Financial Liabilities:                        |   |               |    |   |              |   |    |        |   |   |    |   |   |   |   |   |
| Deposits                                      |   |               | 141,863 |   |              |   | 141,753 |        |   |   | 143,566 |   |   |   | 143,569 |   |
| Borrowings                                    |   |               | 8,406   |   |              |   | 8,457   |        |   |   | 6,006   |   |   |   | 6,008 |   |
| Accrued interest payable                      |   |               | 68      |   |              |   | 68      |        |   |   | 106     |   |   |   | 106 |   |
|                                          |   |               |    |   |              |   |    |        |   |   |    |   |   |   |   |   |
| Off-Balance Financial Instruments:            |   |               |    |   |              |   |    |        |   |   |    |   |   |   |   |   |
| Commitments to extend credit                  |   |               | -       |   |              |   | -       |        |   |   | -       |   |   |   | - |   |
| Letters of credit                             |   |               | -       |   |              |   | -       |        |   |   | -       |   |   |   | - |   |
|                                          |   |               |    |   |              |   |    |        |   |   |    |   |   |   |   |   |

----

| ·      | A reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and |
|---------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·      | In the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements. |
|---------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

----

----

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

----

----

| Average Balances, Interest Income and Interest Expense, and Rates |   |
|-------------------------------------------------------------------|--------|
|                                                              |   | 2010 |   |   | 2009 |   |
|                                                              |   | Average |   |   | Income/ |   |   | Yield/ |   |   | Average |   |   | Income/ |   |   | Yield/ |   |
| (Dollars in thousands)                                            |   | Balance |   |   | Expense |   |   | Rate |   |   | Balance |   |   | Expense |   |   | Rate |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable                                                  |   | $ | 114,732 |   |   | $ | 1,587 |   |   |   | 5.53 | % |   | $ | 105,056 |   |   | $ | 1,466 |   |   |   | 5.58 | % |
| Securities available for sale                                     |   |   | 17,520 |   |   |   | 138 |   |   |   | 3.15 | % |   |   | 20,641 |   |   |   | 206 |   |   |   | 3.99 | % |
| Federal funds sold                                                |   |   | 3,205 |   |   |   | 2 |   |   |   | 0.25 | % |   |   | 3,203 |   |   |   | 1 |   |   |   | 0.12 | % |
| Deposits with other banks                                         |   |   | 29,814 |   |   |   | 92 |   |   |   | 1.23 | % |   |   | 14,646 |   |   |   | 62 |   |   |   | 1.69 | % |
| Total interest-earning assets                                     |   |   | 165,271 |   |   |   | 1,819 |   |   |   | 4.40 | % |   |   | 143,546 |   |   |   | 1,735 |   |   |   | 4.83 | % |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest earning assets                                       |   |   | 4,395 |   |   |   |   |   |   |   |   |   |   |   | 5,425 |   |   |   |   |   |   |   |   |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL ASSETS                                                      |   | $ | 169,666 |   |   |   |   |   |   |   |   |   |   | $ | 148,971 |   |   |   |   |   |   |   |   |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand, interest-bearing                                          |   | $ | 6,865 |   |   | $ | 12 |   |   |   | 0.70 | % |   | $ | 4,124 |   |   | $ | 12 |   |   |   | 1.16 | % |
| Money market and savings                                          |   |   | 85,512 |   |   |   | 172 |   |   |   | 0.80 | % |   |   | 66,223 |   |   |   | 307 |   |   |   | 1.85 | % |
| Time deposits                                                     |   |   | 29,623 |   |   |   | 150 |   |   |   | 2.03 | % |   |   | 39,571 |   |   |   | 277 |   |   |   | 2.80 | % |
| Borrowed funds                                                    |   |   | 6,564 |   |   |   | 35 |   |   |   | 2.13 | % |   |   | 6,732 |   |   |   | 42 |   |   |   | 2.50 | % |
| Total interest-bearing liabilities                                |   |   | 128,564 |   |   |   | 369 |   |   |   | 1.15 | % |   |   | 116,650 |   |   |   | 638 |   |   |   | 2.19 | % |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest bearing liabilities:                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand, non-interest bearing deposits                             |   |   | 24,383 |   |   |   |   |   |   |   |   |   |   |   | 16,454 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                                 |   |   | 428 |   |   |   |   |   |   |   |   |   |   |   | 794 |   |   |   |   |   |   |   |   |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shareholders' equity                                              |   |   | 16,291 |   |   |   |   |   |   |   |   |   |   |   | 15,073 |   |   |   |   |   |   |   |   |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL LIABILITIES AND                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SHAREHOLDERS' EQUITY                                              |   | $ | 169,666 |   |   |   |   |   |   |   |   |   |   | $ | 148,971 |   |   |   |   |   |   |   |   |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income/rate spread                                   |   |   |   |   |   | $ | 1,450 |   |   |   | 3.25 | % |   |   |   |   |   | $ | 1,097 |   |   |   | 2.65 | % |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest margin                                               |   |   |   |   |   |   |   |   |   |   | 3.51 | % |   |   |   |   |   |   |   |   |   |   | 3.06 | % |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

----

| Average Balances, Interest Income and Interest Expense, and Rates |
|-------------------------------------------------------------------|
|                                                              |   | 2010 |   |   | 2009 |   |
|                                                              |   | Average |   |   | Income/ |   |   | Yield/ |   |   | Average |   |   | Income/ |   |   | Yield/ |   |
| (Dollars in thousands)                                            |   | Balance |   |   | Expense |   |   | Rate |   |   | Balance |   |   | Expense |   |   | Rate |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable                                                  |   | $ | 115,864 |   |   | $ | 4,784 |   |   |   | 5.51 | % |   | $ | 100,752 |   |   | $ | 4,180 |   |   |   | 5.53 | % |
| Securities available for sale                                     |   |   | 18,679 |   |   |   | 497 |   |   |   | 3.55 | % |   |   | 19,328 |   |   |   | 671 |   |   |   | 4.63 | % |
| Federal funds sold                                                |   |   | 2,307 |   |   |   | 4 |   |   |   | 0.23 | % |   |   | 3,280 |   |   |   | 5 |   |   |   | 0.20 | % |
| Deposits with other banks                                         |   |   | 25,724 |   |   |   | 300 |   |   |   | 1.55 | % |   |   | 5,565 |   |   |   | 73 |   |   |   | 1.75 | % |
| Total interest-earning assets                                     |   |   | 162,574 |   |   |   | 5,585 |   |   |   | 4.58 | % |   |   | 128,925 |   |   |   | 4,929 |   |   |   | 5.10 | % |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest earning assets                                       |   |   | 4,437 |   |   |   |   |   |   |   |   |   |   |   | 3,627 |   |   |   |   |   |   |   |   |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL ASSETS                                                      |   | $ | 167,011 |   |   |   |   |   |   |   |   |   |   | $ | 132,552 |   |   |   |   |   |   |   |   |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand, interest-bearing                                          |   | $ | 5,412 |   |   | $ | 29 |   |   |   | 0.71 | % |   | $ | 2,348 |   |   | $ | 22 |   |   |   | 1.25 | % |
| Money market and savings                                          |   |   | 84,983 |   |   |   | 621 |   |   |   | 0.97 | % |   |   | 48,503 |   |   |   | 700 |   |   |   | 1.92 | % |
| Time deposits                                                     |   |   | 30,350 |   |   |   | 473 |   |   |   | 2.08 | % |   |   | 46,643 |   |   |   | 999 |   |   |   | 2.86 | % |
| Borrowed funds                                                    |   |   | 7,518 |   |   |   | 116 |   |   |   | 2.06 | % |   |   | 7,349 |   |   |   | 142 |   |   |   | 2.58 | % |
| Total interest-bearing liabilities                                |   |   | 128,263 |   |   |   | 1,239 |   |   |   | 1.29 | % |   |   | 104,843 |   |   |   | 1,863 |   |   |   | 2.37 | % |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest bearing liabilities:                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand, non-interest bearing deposits                             |   |   | 21,978 |   |   |   |   |   |   |   |   |   |   |   | 13,336 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                                 |   |   | 443 |   |   |   |   |   |   |   |   |   |   |   | 678 |   |   |   |   |   |   |   |   |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shareholders' equity                                              |   |   | 16,327 |   |   |   |   |   |   |   |   |   |   |   | 13,695 |   |   |   |   |   |   |   |   |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL LIABILITIES AND                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SHAREHOLDERS' EQUITY                                              |   | $ | 167,011 |   |   |   |   |   |   |   |   |   |   | $ | 132,552 |   |   |   |   |   |   |   |   |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income/rate spread                                   |   |   |   |   |   | $ | 4,346 |   |   |   | 3.29 | % |   |   |   |   |   | $ | 3,066 |   |   |   | 2.73 | % |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest margin                                               |   |   |   |   |   |   |   |   |   |   | 3.56 | % |   |   |   |   |   |   |   |   |   |   | 3.17 | % |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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|                                                    |   | September 30, |   |   | December 31, |   |
|---------------------------------------------------------|--------|---------------|--------|--------|--------------|--------|
| (In thousands except for ratios)                        |   | 2010          |   |   | 2009         |   |
| Tier I, common stockholders' equity                     |   | $             | 14,982 |   |         | $      | 14,871 |   |
| Tier II, allowable portion of allowance for loan losses |   |          | 1,660  |   |         |   | 1,438 |   |
| Total capital                                           |   |          | 16,642 |   |         |   | 16,309 |   |

| Total risk-based capital  |   |   | 12.5 | % |   |   | 12.6 | % |
|---------------------------|--------|--------|------|---|--------|--------|------|---|
| Tier I risk-based capital |   |   | 11.3 | % |   |   | 11.5 | % |
| Tier I leverage capital   |   |   | 8.9  | % |   |   | 9.0  | % |

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

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Item 1A - Risk Factors

|                                            | HIGHLANDS BANCORP, INC. |                                  |
|-------------------------------------------------|-------------------------|---------------------------------------|
|                                            |                    |                                  |   |   |
| Date:     November 10, 2010 |                    | By:                                   | /s/ George E. Irwin |   |
|                                            |                    | George E. Irwin                       |   |
|                                            |                    | President and Chief Executive Officer |   |
|                                            |                    |                                  |   |   |

|                                                  |   |                    |                      |   |
|-------------------------------------------------------|--------|-------------------------|---------------------------|--------|
| Date:     November 10, 2010  |   | By:                     | /s/ Eileen D. Piersa |   |
|                                                  |   | Eileen D. Piersa        |                      |
|                                                  |   | Chief Financial Officer |                      |
|                                                  |   |                    |                      |   |

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