| Kentucky                                                               |   | 61-1168311               |
|------------------------------------------------------------------------|--------|--------------------------|
| (State or other jurisdiction of incorporation |   | (I.R.S. Employer    |
| or organization)                                                  |   | Identification No.) |
|                                                                   |   |                     |
| 2323 Ring Road, Elizabethtown, Kentucky            |   | 42701                    |
| (Address of principal executive offices)           |   | Zip Code            |

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| PART I.       |
|---------------|
|          |   |   |
| ITEM 1.  | Business |   1 |
|          |   |   |
| PART II. |
|          |   |   |
| ITEM 6.  | Selected Financial Data |   13 |
|          |   |   |
| ITEM 7.  | Management’s Discussion and Analysis of Financial Condition and Results of Operations |   13 |
|          |   |   |
| ITEM 8.  | Financial Statements and Supplementary Data |   34 |
|          |   |   |
| ITEM 9A. | Controls and Procedures |   76 |
|          |   |   |
| PART IV. |
|          |   |   |
| ITEM 15. | Exhibits and Financial Statement Schedules |   76 |
|          |   |   |
| SIGNATURES    |   78 |

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|      |   | Balance Prior  |      |   |       |   |    | Balance After |   | Prior Appraisal |      | Subsequent  |
|----------------|--------|----------------|-----------|--------|------------|--------|---------|---------------|--------|-----------------|-----------|-------------|
|      |   | to Restatement |      |   | Write down |   |    | Restatement   |   | Date            |      | Information |
| Property One   |   | $              | 701,400   |   |       | $      | 231,400 |          |   | $               | 470,000   |        | January 25,2010 |   | Appraisal |
| Property Two   |   |           | 322,579   |   |       |   | 221,779 |          |   |            | 100,800   |        | July 12, 2010 |   | Appraisal |
| Property Three |   |           | 2,445,747 |   |       |   | 255,547 |          |   |            | 2,190,200 |        | March 30, 2010 |   | Appraisal |
| Property Four  |   |           | 178,091   |   |       |   | 88,091  |          |   |            | 90,000    |        |   |   | Sale of Property |
| Total     |   | $              | 3,647,817 |   |       | $      | 796,817 |          |   | $               | 2,851,000 |        |   |   |   |

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|   | § | a broad array of residential mortgage products, both fixed and adjustable rate; |
|--------|--------|---------------------------------------------------------------------------------|

|   | § | consumer loans, including home equity lines of credit, auto loans, recreational vehicle, and other secured and unsecured loans; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|

|   | § | specialized financing programs to support community development; |
|--------|--------|------------------------------------------------------------------|

|   | § | mortgages for multi-family real estate; |
|--------|--------|-----------------------------------------|

|   | § | commercial real estate loans; |
|--------|--------|-------------------------------|

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|   | § | commercial loans to businesses, including revolving lines of credit and term loans; |
|--------|--------|-------------------------------------------------------------------------------------|

|   | § | real estate development; |
|--------|--------|--------------------------|

|   | § | construction lending; and |
|--------|--------|---------------------------|

|   | § | agricultural lending. |
|--------|--------|-----------------------|

|   | § | multiple checking and NOW accounts for both personal and business accounts; |
|--------|--------|-----------------------------------------------------------------------------|

|   | § | various savings accounts, including those for minors; |
|--------|--------|-------------------------------------------------------|

|   | § | money market accounts; |
|--------|--------|------------------------|

|   | § | tax qualified deposit accounts such as Health Savings Accounts and Individual Retirement Accounts; and |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   | § | a broad array of certificate of deposit products. |
|--------|--------|---------------------------------------------------|

|   | § | providing access to merchant bankcard services; |
|--------|--------|-------------------------------------------------|

|   | § | supplying various forms of electronic funds transfer; |
|--------|--------|-------------------------------------------------------|

|   | § | providing debit cards and credit cards; and |
|--------|--------|---------------------------------------------|

|   | § | providing telephone and Internet banking. |
|--------|--------|-------------------------------------------|

|   | · | obtain an independent assessment of executive management and senior commercial lending staff; |
|--------|--------|-----------------------------------------------------------------------------------------------|

|   | · | increase the Bank’s capital ratios; |
|--------|--------|-------------------------------------------|

|   | · | develop and implement a plan to reduce the level of non-performing assets; |
|--------|--------|----------------------------------------------------------------------------|

|   | · | develop and implement a plan to reduce concentrations of credit in commercial real estate loans; |
|--------|--------|--------------------------------------------------------------------------------------------------|

|   | · | maintain adequate reserves for loan and lease losses; |
|--------|--------|-------------------------------------------------------|

|   | · | implement revised credit risk management practices and credit administration policies and procedures; |
|--------|--------|-------------------------------------------------------------------------------------------------------|

|   | · | implement procedures to ensure compliance with applicable laws, rules, regulations and policy statements; |
|--------|--------|-----------------------------------------------------------------------------------------------------------|

|   | · | periodically evaluate the Bank’s strategic plan and budget for fiscal 2011; |
|--------|--------|-----------------------------------------------------------------------------------|

|   | · | develop revisions to the Bank’s funding contingency plan, which identifies available sources of liquidity and plans for dealing with potential adverse economic and market conditions; and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | prepare and submit progress reports to the FDIC and KDFI. |
|--------|--------|-----------------------------------------------------------|

|                    |   |         |   |   | Ratio Required |   |   | Ratio Required |   |
|----------------------------------------|--------|--------------|--------|--------|----------------|--------|--------|----------------|--------|
|                    |   | Actual as of |   |   | by the Order   |   |   | by the Order   |   |
|                    |   | 12/31/2010   |   |   | at 3/31/2011   |   |   | at 6/30/2011   |   |
|                    |   | Restated     |   |   |           |   |   |           |   |
| Total capital to risk-weighted assets  |   |         | 11.38  | %      |           |   | 11.50  | %              |   |   | 12.00 | % |
| Tier 1 capital to average total assets |   |         | 7.18   | %      |           |   | 8.50   | %              |   |   | 9.00 | % |

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| County    |   | Number of Offices |   |   | FFKY Market Share % |   |   | FFKY Rank |   |
|-----------|--------|-------------------|--------|--------|---------------------|--------|--------|-----------|--------|
| Meade     |   | 3                 |   |   |                | 55.0   |   |      | 1      |   |
| Hardin    |   | 5                 |   |   |                | 26.0   |   |      | 1      |   |
| Bullitt   |   | 3                 |   |   |                | 21.0   |   |      | 3      |   |
| Hart      |   | 1                 |   |   |                | 17.0   |   |      | 3      |   |
| Harrison  |   | 3                 |   |   |                | 13.0   |   |      | 4      |   |
| Nelson    |   | 2                 |   |   |                | 8.0    |   |      | 5      |   |
| Floyd     |   | 1                 |   |   |                | 2.0    |   |      | 10     |   |
| Jefferson |   | 4                 |   |   |                | 1.0    |   |      | 11     |   |

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|   | • | Redefines the deposit insurance assessment base as average consolidated total assets minus average tangible equity (defined as Tier I Capital); |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Makes generally conforming changes to the unsecured debt and brokered deposit adjustments to assessment rates; |
|--------|---------|----------------------------------------------------------------------------------------------------------------|

|   | •  | Creates a depository institution debt adjustment; |
|--------|---------------|---------------------------------------------------|

|   | •  | Eliminates the secured liability adjustment; and |
|--------|---------------|--------------------------------------------------|

|   | • | Adopts a new assessment rate schedule effective April 1, 2011, and, in lieu of dividends, other rate schedules when the reserve ratio reaches certain levels. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

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| (Dollars in thousands, except per share data) |   | At December 31, |      |
|-----------------------------------------------|--------|-----------------|-----------|
|                                     |   | 2010            |      |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Financial Condition Data:                     |   | Restated        |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                  |   | $               | 1,319,507 |   |   | $ | 1,209,504 |   |   | $ | 1,017,047 |   |   | $ | 872,691 |   |   | $ | 822,826 |   |
| Net loans outstanding (1)                     |   |            | 865,657   |   |   |   | 985,390 |   |   |   | 899,436 |   |   |   | 760,114 |   |   |   | 698,026 |   |
| Investments                                   |   |            | 196,153   |   |   |   | 46,931 |   |   |   | 22,797 |   |   |   | 39,685 |   |   |   | 52,447 |   |
| Deposits                                      |   |            | 1,173,908 |   |   |   | 1,049,815 |   |   |   | 775,399 |   |   |   | 689,243 |   |   |   | 641,037 |   |
| Borrowings                                    |   |            | 70,532    |   |   |   | 72,245 |   |   |   | 165,816 |   |   |   | 105,883 |   |   |   | 106,724 |   |
| Stockholders' equity                          |   |            | 71,311    |   |   |   | 85,132 |   |   |   | 72,952 |   |   |   | 73,460 |   |   |   | 72,098 |   |
|                                          |   |            |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number of:                                    |   |            |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Offices                                       |   |            | 22        |   |   |   | 22 |   |   |   | 20 |   |   |   | 15 |   |   |   | 14 |   |
| Full time equivalent employees                |   |            | 325       |   |   |   | 324 |   |   |   | 316 |   |   |   | 284 |   |   |   | 270 |   |

|                                                  |   | Year Ended December 31, |    |
|-------------------------------------------------------|--------|-------------------------|---------|
|                                                  |   | 2010                    |    |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Operations Data:                                      |   | Restated                |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                                       |   | $                       | 59,565  |   |   | $ | 58,856 |   |   | $ | 57,564 |   |   | $ | 60,545 |   |   | $ | 53,832 |   |
| Interest expense                                      |   |                    | 23,485  |   |   |   | 21,792 |   |   |   | 24,799 |   |   |   | 29,751 |   |   |   | 24,108 |   |
| Net interest income                                   |   |                    | 36,080  |   |   |   | 37,064 |   |   |   | 32,765 |   |   |   | 30,794 |   |   |   | 29,724 |   |
| Provision for loan losses                             |   |                    | 16,881  |   |   |   | 9,524 |   |   |   | 5,947 |   |   |   | 1,209 |   |   |   | 540 |   |
| Non-interest income                                   |   |                    | 7,304   |   |   |   | 8,519 |   |   |   | 8,449 |   |   |   | 8,203 |   |   |   | 7,739 |   |
| Non-interest expense                                  |   |                    | 34,119  |   |   |   | 43,917 |   |   |   | 28,286 |   |   |   | 23,790 |   |   |   | 21,952 |   |
| Income tax expense/(benefit)                          |   |                    | 1,786   |   |   |   | (1,149 | ) |   |   | 2,184 |   |   |   | 4,646 |   |   |   | 4,634 |   |
| Net income/(loss) attributable to common shareholders |   |                    | (10,456 | ) |   |   | (7,741 | ) |   |   | 4,797 |   |   |   | 9,352 |   |   |   | 10,337 |   |
|                                                  |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings/(loss) per common share: (2)                 |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                 |   |                    | (2.21   | ) |   |   | (1.65 | ) |   | $ | 1.03 |   |   | $ | 1.98 |   |   | $ | 2.14 |   |
| Diluted                                               |   |                    | (2.21   | ) |   |   | (1.65 | ) |   |   | 1.02 |   |   |   | 1.96 |   |   |   | 2.12 |   |
| Book value per common share (2)                       |   |                    | 10.89   |   |   |   | 13.87 |   |   |   | 15.63 |   |   |   | 15.76 |   |   |   | 14.95 |   |
| Dividends paid per common share (2)                   |   |                    | -       |   |   |   | 0.43 |   |   |   | 0.76 |   |   |   | 0.73 |   |   |   | 0.66 |   |
|                                                  |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return on average assets                              |   |                    | (.74    | )% |   |   | (.61 | )% |   |   | 0.51 | % |   |   | 1.10 | % |   |   | 1.31 | % |
| Average equity to average assets                      |   |                    | 6.77    | % |   |   | 8.56 | % |   |   | 8.02 | % |   |   | 8.54 | % |   |   | 8.71 | % |
| Return on average equity                              |   |                    | (10.99  | )% |   |   | (7.18 | )% |   |   | 6.37 | % |   |   | 12.88 | % |   |   | 15.03 | % |
| Efficiency ratio (3)                                  |   |                    | 79      | % |   |   | 70 | % |   |   | 69 | % |   |   | 61 | % |   |   | 59 | % |

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|   | · | Raising capital by selling capital stock through a public offering or private placement. |
|--------|--------|------------------------------------------------------------------------------------------|

|   | · | Continuing to operate the Company and the Bank in a safe and sound manner.  Until we can complete a capital raise, this will most likely require us to reduce lending concentrations, potentially sell loans, and take significant operating expense reductions and other cost cutting measures aimed at lowering expenses.  Additionally, we would adjust the mix of our assets to reduce the total risk weight of our assets, reduce total assets over time and potentially sell branches, deposits and loans. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Evaluating other strategic alternatives, such as a sale of assets, one or more branches, or the institution. |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

----

----

|                                      |   |   |      |   |   |   |      |   |   |   | 2010/2009 |   |   | 2009/2008 |   |
|-------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|-----------|--------|
| (Dollars in thousands)                    |   | 2010   |      |   | 2009   |   |      | 2008   |   |   | Change    |   |   | Change    |   |
| Net interest income, tax equivalent basis |   | $      | 36,536    |   |   | $      | 37,326    |   |   | $      | 32,970    |   |   |      | -2.1   | % |   |   | 13.2 | % |
| Net interest spread                       |   |   | 2.87      | %      |   |   | 3.46      | %      |   |   | 3.53      | %      |   |      | (59    | )bp |   |   | (7 | )bp |
| Net interest margin                       |   |   | 3.05      | %      |   |   | 3.66      | %      |   |   | 3.78      | %      |   |      | (61    | )bp |   |   | (12 | )bp |
| Average earnings assets                   |   | $      | 1,199,777 |   |   | $      | 1,020,803 |   |   | $      | 871,940   |   |   |      | 17.5   | % |   |   | 17.1 | % |
| bp = basis point = 1/100th of a percent   |   |   |      |   |   |   |      |   |   |   |      |   |   |      |   |   |   |   |   |   |

----

|                                                                        |   | Year Ended December 31, |      |
|----------------------------------------------------------------------------------|--------|-------------------------|-----------|
|                                                                             |   | 2010                    |      |   | 2009 |   |   | 2008 |   |
| (Dollars in thousands)                                                           |   | Average                 |      |   |   |   |   | Average |   |   | Average |   |   |   |   |   | Average |   |   | Average |   |   |   |   |   | Average |   |
|                                                                             |   | Balance                 |      |   | Interest |   |   | Yield/Cost |   |   | Balance |   |   | Interest |   |   | Yield/Cost |   |   | Balance |   |   | Interest |   |   | Yield/Cost |   |
|                                                                             |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ASSETS                                                                           |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest earning assets:                                                         |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Treasury and agencies                                                       |   | $                       | 64,354    |   |   | $ | 1,600 |   |   |   | 2.49 | % |   | $ | 9,603 |   |   | $ | 251 |   |   |   | 2.61 | % |   | $ | 6,469 |   |   | $ | 257 |   |   |   | 3.97 | % |
| Mortgage-backed securities                                                       |   |                    | 36,203    |   |   |   | 1,403 |   |   |   | 3.88 | % |   |   | 6,963 |   |   |   | 290 |   |   |   | 4.16 | % |   |   | 9,006 |   |   |   | 390 |   |   |   | 4.33 | % |
| Equity securities                                                                |   |                    | 502       |   |   |   | 57 |   |   |   | 11.35 | % |   |   | 959 |   |   |   | 106 |   |   |   | 11.05 | % |   |   | 1,543 |   |   |   | 67 |   |   |   | 4.34 | % |
| State and political subdivision securities (1)                                   |   |                    | 20,633    |   |   |   | 1,342 |   |   |   | 6.50 | % |   |   | 11,848 |   |   |   | 771 |   |   |   | 6.51 | % |   |   | 9,426 |   |   |   | 600 |   |   |   | 6.37 | % |
| Corporate bonds                                                                  |   |                    | 1,770     |   |   |   | 101 |   |   |   | 5.71 | % |   |   | 2,121 |   |   |   | 117 |   |   |   | 5.52 | % |   |   | 2,533 |   |   |   | 159 |   |   |   | 6.28 | % |
| Loans (2) (3) (4)                                                                |   |                    | 954,354   |   |   |   | 54,977 |   |   |   | 5.76 | % |   |   | 971,750 |   |   |   | 57,113 |   |   |   | 5.88 | % |   |   | 830,748 |   |   |   | 55,739 |   |   |   | 6.71 | % |
| FHLB stock                                                                       |   |                    | 7,140     |   |   |   | 338 |   |   |   | 4.73 | % |   |   | 8,515 |   |   |   | 383 |   |   |   | 4.50 | % |   |   | 8,116 |   |   |   | 423 |   |   |   | 5.21 | % |
| Interest bearing deposits                                                        |   |                    | 114,821   |   |   |   | 203 |   |   |   | 0.18 | % |   |   | 9,044 |   |   |   | 87 |   |   |   | 0.96 | % |   |   | 4,099 |   |   |   | 134 |   |   |   | 3.27 | % |
| Total interest earning assets                                                    |   |                    | 1,199,777 |   |   |   | 60,021 |   |   |   | 5.00 | % |   |   | 1,020,803 |   |   |   | 59,118 |   |   |   | 5.79 | % |   |   | 871,940 |   |   |   | 57,769 |   |   |   | 6.63 | % |
| Less:  Allowance for loan losses                                       |   |                    | (19,223   | ) |   |   |   |   |   |   |   |   |   |   | (14,972 | ) |   |   |   |   |   |   |   |   |   |   | (9,114 | ) |   |   |   |   |   |   |   |   |
| Non-interest earning assets                                                      |   |                    | 82,625    |   |   |   |   |   |   |   |   |   |   |   | 86,398 |   |   |   |   |   |   |   |   |   |   |   | 76,343 |   |   |   |   |   |   |   |   |   |
| Total assets                                                                     |   | $                       | 1,263,179 |   |   |   |   |   |   |   |   |   |   | $ | 1,092,229 |   |   |   |   |   |   |   |   |   |   | $ | 939,169 |   |   |   |   |   |   |   |   |   |
|                                                                             |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                             |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                                                    |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings accounts                                                                 |   | $                       | 113,438   |   |   | $ | 883 |   |   |   | 0.78 | % |   | $ | 119,745 |   |   | $ | 905 |   |   |   | 0.76 | % |   | $ | 106,901 |   |   | $ | 1,666 |   |   |   | 1.56 | % |
| NOW and money market accounts                                                    |   |                    | 267,144   |   |   |   | 3,022 |   |   |   | 1.13 | % |   |   | 179,917 |   |   |   | 1,402 |   |   |   | 0.78 | % |   |   | 136,796 |   |   |   | 1,307 |   |   |   | 0.96 | % |
| Certificates of deposit and other time deposits                                  |   |                    | 653,293   |   |   |   | 15,824 |   |   |   | 2.42 | % |   |   | 515,764 |   |   |   | 15,610 |   |   |   | 3.03 | % |   |   | 444,718 |   |   |   | 17,539 |   |   |   | 3.94 | % |
| Short-term borrowings                                                            |   |                    | 523       |   |   |   | 38 |   |   |   | 7.27 | % |   |   | 50,602 |   |   |   | 152 |   |   |   | 0.30 | % |   |   | 44,454 |   |   |   | 896 |   |   |   | 2.02 | % |
| FHLB advances                                                                    |   |                    | 52,603    |   |   |   | 2,388 |   |   |   | 4.54 | % |   |   | 52,742 |   |   |   | 2,405 |   |   |   | 4.56 | % |   |   | 53,009 |   |   |   | 2,413 |   |   |   | 4.55 | % |
| Subordinated debentures                                                          |   |                    | 18,000    |   |   |   | 1,330 |   |   |   | 7.39 | % |   |   | 18,000 |   |   |   | 1,318 |   |   |   | 7.32 | % |   |   | 14,667 |   |   |   | 978 |   |   |   | 6.67 | % |
| Total interest bearing liabilities                                               |   |                    | 1,105,001 |   |   |   | 23,485 |   |   |   | 2.13 | % |   |   | 936,770 |   |   |   | 21,792 |   |   |   | 2.33 | % |   |   | 800,545 |   |   |   | 24,799 |   |   |   | 3.10 | % |
| Non-interest bearing liabilities:                                                |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest bearing deposits                                                    |   |                    | 69,434    |   |   |   |   |   |   |   |   |   |   |   | 58,945 |   |   |   |   |   |   |   |   |   |   |   | 57,962 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                                                |   |                    | 3,194     |   |   |   |   |   |   |   |   |   |   |   | 3,073 |   |   |   |   |   |   |   |   |   |   |   | 5,349 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                                |   |                    | 1,177,629 |   |   |   |   |   |   |   |   |   |   |   | 998,788 |   |   |   |   |   |   |   |   |   |   |   | 863,856 |   |   |   |   |   |   |   |   |   |
|                                                                             |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stockholders' equity                                                             |   |                    | 85,550    |   |   |   |   |   |   |   |   |   |   |   | 93,441 |   |   |   |   |   |   |   |   |   |   |   | 75,313 |   |   |   |   |   |   |   |   |   |
| Total liabilities andstockholders' equity                                        |   | $                       | 1,263,179 |   |   |   |   |   |   |   |   |   |   | $ | 1,092,229 |   |   |   |   |   |   |   |   |   |   | $ | 939,169 |   |   |   |   |   |   |   |   |   |
|                                                                             |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                              |   |                    |      |   |   | $ | 36,536 |   |   |   |   |   |   |   |   |   |   | $ | 37,326 |   |   |   |   |   |   |   |   |   |   | $ | 32,970 |   |   |   |   |   |
| Net interest spread                                                              |   |                    |      |   |   |   |   |   |   |   | 2.87 | % |   |   |   |   |   |   |   |   |   |   | 3.46 | % |   |   |   |   |   |   |   |   |   |   | 3.53 | % |
| Net interest margin                                                              |   |                    |      |   |   |   |   |   |   |   | 3.05 | % |   |   |   |   |   |   |   |   |   |   | 3.66 | % |   |   |   |   |   |   |   |   |   |   | 3.78 | % |
| Ratio of average interest earning assets to average interest bearing liabilities |   |                    |      |   |   |   |   |   |   |   | 108.58 | % |   |   |   |   |   |   |   |   |   |   | 108.97 | % |   |   |   |   |   |   |   |   |   |   | 108.92 | % |

----

----

|                                            |   | Year Ended          |   |   | Year Ended          |   |
|-------------------------------------------------|--------|---------------------|--------|--------|---------------------|--------|
|                                            |   | December 31,        |   |   | December 31,        |   |
|                                            |   | 2010 vs. 2009       |   |   | 2009 vs. 2008       |   |
|                                            |   | Increase (decrease) |   |   | Increase (decrease) |   |
|                                            |   | Due to change in    |   |   | Due to change in    |   |
| (Dollars in thousands)                          |   |                |   |   |                |   |   | Net |   |   |   |   |   |   |   |   | Net |   |
|                                            |   | Rate                |   |   | Volume              |   |   | Change |   |   | Rate |   |   | Volume |   |   | Change |   |
|                                            |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income:                                |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Treasury and agencies                      |   | $                   | (13    | )      |                | $      | 1,362 |   |   | $ | 1,349 |   |   | $ | (106 | ) |   | $ | 100 |   |   | $ | (6 | ) |
| Mortgage-backed securities                      |   |                | (22    | )      |                |   | 1,135 |   |   |   | 1,113 |   |   |   | (14 | ) |   |   | (86 | ) |   |   | (100 | ) |
| Equity securities                               |   |                | 3      |   |                |   | (52 | ) |   |   | (49 | ) |   |   | 72 |   |   |   | (33 | ) |   |   | 39 |   |
| State and political subdivision securities      |   |                | -      |   |                |   | 571 |   |   |   | 571 |   |   |   | 14 |   |   |   | 157 |   |   |   | 171 |   |
| Corporate bonds                                 |   |                | 4      |   |                |   | (20 | ) |   |   | (16 | ) |   |   | (18 | ) |   |   | (24 | ) |   |   | (42 | ) |
| Loans                                           |   |                | (1,123 | )      |                |   | (1,013 | ) |   |   | (2,136 | ) |   |   | (7,409 | ) |   |   | 8,783 |   |   |   | 1,374 |   |
| FHLB stock                                      |   |                | 19     |   |                |   | (64 | ) |   |   | (45 | ) |   |   | (60 | ) |   |   | 20 |   |   |   | (40 | ) |
| Interest bearing deposits                       |   |                | (125   | )      |                |   | 241 |   |   |   | 116 |   |   |   | (137 | ) |   |   | 90 |   |   |   | (47 | ) |
|                                            |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total interest earning assets                   |   |                | (1,257 | )      |                |   | 2,160 |   |   |   | 903 |   |   |   | (7,658 | ) |   |   | 9,007 |   |   |   | 1,349 |   |
|                                            |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense:                               |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings accounts                                |   |                | 27     |   |                |   | (49 | ) |   |   | (22 | ) |   |   | (942 | ) |   |   | 181 |   |   |   | (761 | ) |
| NOW and money market accounts                   |   |                | 781    |   |                |   | 839 |   |   |   | 1,620 |   |   |   | (269 | ) |   |   | 364 |   |   |   | 95 |   |
| Certificates of deposit and other time deposits |   |                | (3,473 | )      |                |   | 3,687 |   |   |   | 214 |   |   |   | (4,466 | ) |   |   | 2,537 |   |   |   | (1,929 | ) |
| Short-term borrowings                           |   |                | 179    |   |                |   | (293 | ) |   |   | (114 | ) |   |   | (853 | ) |   |   | 109 |   |   |   | (744 | ) |
| FHLB advances                                   |   |                | (11    | )      |                |   | (6 | ) |   |   | (17 | ) |   |   | 4 |   |   |   | (12 | ) |   |   | (8 | ) |
| Subordinated debentures                         |   |                | 12     |   |                |   | - |   |   |   | 12 |   |   |   | 103 |   |   |   | 237 |   |   |   | 340 |   |
|                                            |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total interest bearing liabilities              |   |                | (2,485 | )      |                |   | 4,178 |   |   |   | 1,693 |   |   |   | (6,423 | ) |   |   | 3,416 |   |   |   | (3,007 | ) |
|                                            |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net change in net interest income               |   | $                   | 1,228  |   |                | $      | (2,018 | ) |   | $ | (790 | ) |   | $ | (1,235 | ) |   | $ | 5,591 |   |   | $ | 4,356 |   |

|                                                                     |   |     |   |   |   |   |   |   |   |   | 2010/2009 |   |   | 2009/2008 |   |
|--------------------------------------------------------------------------|--------|----------|--------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|-----------|--------|
| (Dollars in thousands)                                                   |   | 2010     |   |   | 2009   |   |   | 2008   |   |   | Change    |   |   | %         |   |   | Change |   |   | % |   |
|                                                                     |   | Restated |   |   |   |   |   |   |   |   | Restated  |   |   |      |   |   |   |   |   |   |   |   |
| Non-interest income                                                      |   |     |   |   |   |   |   |   |   |   |      |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Customer sevice fees on deposit accounts                                 |   | $        | 6,479  |   |   | $      | 6,677  |   |   | $      | 6,601     |   |   | $         | (198   | ) |   |   | -3.0 | % |   | $ | 76 |   |   |   | 1.2 | % |
| Gain on sale of mortgage loans                                           |   |     | 1,760  |   |   |   | 1,194  |   |   |   | 697       |   |   |      | 566    |   |   |   | 47.4 | % |   |   | 497 |   |   |   | 71.3 | % |
| Gain on sale of investments                                              |   |     | 37     |   |   |   | -      |   |   |   | 55        |   |   |      | 37     |   |   |   | 100.0 | % |   |   | (55 | ) |   |   | -100.0 | % |
| Net impairment losses recognized in earnings                             |   |     | (1,048 | )      |   |   | (862   | )      |   |   | (516      | )      |   |      | (186   | ) |   |   | 21.6 | % |   |   | (346 | ) |   |   | 67.1 | % |
| Loss on sale and write downs of real estate acquired through foreclosure |   |     | (2,333 | )      |   |   | (578   | )      |   |   | (162      | )      |   |      | (1,755 | ) |   |   | 303.6 | % |   |   | (416 | ) |   |   | 256.8 | % |
| Brokerage commissions                                                    |   |     | 413    |   |   |   | 373    |   |   |   | 469       |   |   |      | 40     |   |   |   | 10.7 | % |   |   | (96 | ) |   |   | -20.5 | % |
| Other income                                                             |   |     | 1,996  |   |   |   | 1,715  |   |   |   | 1,305     |   |   |      | 281    |   |   |   | 16.4 | % |   |   | 410 |   |   |   | 31.4 | % |
|                                                                     |   | $        | 7,304  |   |   | $      | 8,519  |   |   | $      | 8,449     |   |   | $         | (1,215 | ) |   |   | -14.3 | % |   | $ | 70 |   |   |   | 0.8 | % |

----

|                                        |   |     |   |   |   |   |   |   |   |   | 2010/2009 |   |   | 2009/2008 |    |
|--------------------------------------------------|--------|----------|--------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|-----------|---------|
| (Dollars in thousands)                           |   | 2010     |   |   | 2009   |   |   | 2008   |   |   | Change    |   |   | %         |    |   | Change |   |   | % |   |
|                                        |   | Restated |   |   |   |   |   |   |   |   | Restated  |   |   |      |    |   |   |   |   |   |   |
| Non-interest expenses                            |   |     |   |   |   |   |   |   |   |   |      |   |   |      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Employee compensation and benefits               |   | $        | 15,718 |   |   | $      | 15,834 |   |   | $      | 14,600    |   |   | $         | (116    | ) |   |   | -0.7 | % |   | $ | 1,234 |   |   |   | 8.5 | % |
| Office occupancy expense and equipment           |   |     | 3,174  |   |   |   | 3,271  |   |   |   | 2,865     |   |   |      | (97     | ) |   |   | -3.0 | % |   |   | 406 |   |   |   | 14.2 | % |
| Marketing and advertising                        |   |     | 715    |   |   |   | 844    |   |   |   | 782       |   |   |      | (129    | ) |   |   | -15.3 | % |   |   | 62 |   |   |   | 7.9 | % |
| Outside services and data processing             |   |     | 2,721  |   |   |   | 3,194  |   |   |   | 3,324     |   |   |      | (473    | ) |   |   | -14.8 | % |   |   | (130 | ) |   |   | -3.9 | % |
| Bank franchise tax                               |   |     | 2,059  |   |   |   | 960    |   |   |   | 1,010     |   |   |      | 1,099   |   |   |   | 114.5 | % |   |   | (50 | ) |   |   | -5.0 | % |
| FDIC insurance premiums                          |   |     | 2,713  |   |   |   | 1,900  |   |   |   | 716       |   |   |      | 813     |   |   |   | 42.8 | % |   |   | 1,184 |   |   |   | 165.4 | % |
| Goodwill impairment                              |   |     | -      |   |   |   | 11,931 |   |   |   | -         |   |   |      | (11,931 | ) |   |   | -100.0 | % |   |   | 11,931 |   |   |   | 100.0 | % |
| Amortization of intangible assets                |   |     | 396    |   |   |   | 510    |   |   |   | 284       |   |   |      | (114    | ) |   |   | -22.4 | % |   |   | 226 |   |   |   | 79.6 | % |
| Real estate acquired through foreclosure expense |   |     | 1,678  |   |   |   | 668    |   |   |   | 472       |   |   |      | 1,010   |   |   |   | 151.2 | % |   |   | 196 |   |   |   | 41.5 | % |
| Other expense                                    |   |     | 4,945  |   |   |   | 4,805  |   |   |   | 4,233     |   |   |      | 140     |   |   |   | 2.9 | % |   |   | 572 |   |   |   | 13.5 | % |
|                                             |   | $        | 34,119 |   |   | $      | 43,917 |   |   | $      | 28,286    |   |   | $         | (9,798  | ) |   |   | -22.3 | % |   | $ | 15,631 |   |   |   | 55.3 | % |

----

|                |   | December 31, |         |
|--------------------------|--------|--------------|--------------|
| (Dollars in thousands)   |   | 2010         |         |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                     |   | Amount       |         |   | % |   |   | Amount |   |   | % |   |   | Amount |   |   | % |   |   | Amount |   |   | % |   |   | Amount |   |   | % |   |
| Type of Loan:            |   |         |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real Estate:             |   |         |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential              |   | $            | 164,090      |   |   |   | 18.47 | % |   | $ | 179,130 |   |   |   | 17.86 | % |   | $ | 165,318 |   |   |   | 18.11 | % |   | $ | 132,209 |   |   |   | 17.21 | % |   | $ | 137,155 |   |   |   | 19.44 | % |
| Construction             |   |         | 11,034       |   |   |   | 1.24 |   |   |   | 14,567 |   |   |   | 1.45 |   |   |   | 17,387 |   |   |   | 1.90 |   |   |   | 21,383 |   |   |   | 2.78 |   |   |   | 23,953 |   |   |   | 3.39 |   |
| Commercial               |   |         | 557,764      |   |   |   | 62.79 |   |   |   | 627,788 |   |   |   | 62.58 |   |   |   | 563,314 |   |   |   | 61.70 |   |   |   | 470,929 |   |   |   | 61.32 |   |   |   | 410,146 |   |   |   | 58.12 |   |
| Consumer and home equity |   |         |  77,781 |   |   |   |  8.76 |   |   |   |  74,844 |   |   |   |  7.46 |   |   |   |  69,649 |   |   |   |  7.63 |   |   |   |  63,090 |   |   |   |  8.21 |   |   |   |  62,805 |   |   |   |  8.90 |   |
| Indirect consumer        |   |         | 29,588       |   |   |   | 3.33 |   |   |   | 36,628 |   |   |   | 3.65 |   |   |   | 31,754 |   |   |   | 3.48 |   |   |   | 27,721 |   |   |   | 3.61 |   |   |   | 30,857 |   |   |   | 4.37 |   |
| Commercial, other        |   |         | 41,677       |   |   |   | 4.69 |   |   |   | 61,969 |   |   |   | 6.18 |   |   |   | 56,012 |   |   |   | 6.13 |   |   |   | 51,924 |   |   |   | 6.76 |   |   |   | 40,121 |   |   |   | 5.68 |   |
| Loans held for sale      |   |         | 6,388        |   |   |   | 0.72 |   |   |   | 8,183 |   |   |   | 0.82 |   |   |   | 9,567 |   |   |   | 1.05 |   |   |   | 780 |   |   |   | 0.10 |   |   |   | 673 |   |   |   | 0.10 |   |
|                     |   |         |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans              |   | $            | 888,322      |   |   |   | 100.00 | % |   | $ | 1,003,109 |   |   |   | 100.00 | % |   | $ | 913,001 |   |   |   | 100.00 | % |   | $ | 768,036 |   |   |   | 100.00 | % |   | $ | 705,710 |   |   |   | 100.00 | % |

----

|                       |   |                   |    |   | Due after     |   |    |         |   |   |    |   |
|----------------------------|--------|------------------------|---------|--------|---------------|--------|---------|--------------|--------|--------|---------|--------|
|                       |   | Due during             |    |   | 1 through     |   |    | Due after 5  |   |   |    |   |
|                       |   | the year ended         |    |   | 5 years after |   |    | years after  |   |   |    |   |
|                       |   | December 31,           |    |   | December 31,  |   |    | December 31, |   |   | Total   |   |
|                       |   | 2011                   |    |   | 2010          |   |    | 2010         |   |   | Loans   |   |
|                       |   | (Dollars in thousands) |    |
|                       |   |                   |    |   |          |   |    |         |   |   |    |   |
| Residential mortgage       |   | $                      | 7,184   |   |          | $      | 36,703  |         |   | $      | 120,203 |   |   | $ | 164,090 |   |
| Real estate construction   |   |                   | 8,928   |   |          |   | 2,106   |         |   |   | -       |   |   |   | 11,034 |   |
| Real estate commercial     |   |                   | 141,885 |   |          |   | 386,604 |         |   |   | 29,275  |   |   |   | 557,764 |   |
| Consumer & home equity |   |                   | 14,954  |   |          |   | 23,117  |         |   |   | 39,710  |   |   |   | 77,781 |   |
| Indirect consumer          |   |                   | 623     |   |          |   | 26,224  |         |   |   | 2,741   |   |   |   | 29,588 |   |
| Commercial, other          |   |                   | 14,895  |   |          |   | 25,175  |         |   |   | 1,607   |   |   |   | 41,677 |   |
| Loans held for sale        |   |                   | 6,388   |   |          |   | -       |         |   |   | -       |   |   |   | 6,388 |   |
| Total                      |   | $                      | 194,857 |   |          | $      | 499,929 |         |   | $      | 193,536 |   |   | $ | 888,322 |   |

|                       |   |                   |    |   | Floating or      |   |    |   |   |
|----------------------------|--------|------------------------|---------|--------|------------------|--------|---------|--------|--------|
|                       |   | Fixed Rates            |    |   | Adjustable Rates |   |    | Total  |   |
|                       |   | (Dollars in thousands) |    |
|                       |   |                   |    |   |             |   |    |   |   |
| Residential mortgage       |   | $                      | 87,358  |   |             | $      | 69,548  |   |   | $ | 156,906 |   |
| Real estate construction   |   |                   | 2,106   |   |             |   | -       |   |   |   | 2,106 |   |
| Real estate commercial     |   |                   | 285,625 |   |             |   | 130,254 |   |   |   | 415,879 |   |
| Consumer & home equity |   |                   | 15,474  |   |             |   | 47,353  |   |   |   | 62,827 |   |
| Indirect consumer          |   |                   | 28,965  |   |             |   | -       |   |   |   | 28,965 |   |
| Commercial, other          |   |                   | 19,049  |   |             |   | 7,733   |   |   |   | 26,782 |   |
| Total                      |   | $                      | 438,577 |   |             | $      | 254,888 |   |   | $ | 693,465 |   |

----

|                                                                     |   | Year Ended December 31, |   |
|--------------------------------------------------------------------------|--------|-------------------------|--------|
| (Dollars in thousands)                                                   |   | 2010                    |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at beginning of period                                           |   | $                       | 17,719 |   |   | $ | 13,565 |   |   | $ | 7,922 |   |   | $ | 7,684 |   |   | $ | 7,377 |   |
| Allowance related to acquisition                                         |   |                    | -      |   |   |   | - |   |   |   | 327 |   |   |   | - |   |   |   | - |   |
| Loans charged-off:                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential mortgage                                                     |   |                    | 222    |   |   |   | 127 |   |   |   | 15 |   |   |   | 18 |   |   |   | 3 |   |
| Consumer & home equity                                               |   |                    | 535    |   |   |   | 778 |   |   |   | 515 |   |   |   | 385 |   |   |   | 446 |   |
| Commercial & commercial real estate                                  |   |                    | 11,438 |   |   |   | 4,721 |   |   |   | 364 |   |   |   | 807 |   |   |   | 165 |   |
| Total charge-offs                                                        |   |                    | 12,195 |   |   |   | 5,626 |   |   |   | 894 |   |   |   | 1,210 |   |   |   | 614 |   |
| Recoveries:                                                              |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential mortgage                                                     |   |                    | -      |   |   |   | 2 |   |   |   | 4 |   |   |   | 10 |   |   |   | 7 |   |
| Consumer & home equity                                               |   |                    | 188    |   |   |   | 205 |   |   |   | 239 |   |   |   | 222 |   |   |   | 287 |   |
| Commercial & commercial real estate                                  |   |                    | 72     |   |   |   | 49 |   |   |   | 20 |   |   |   | 7 |   |   |   | 87 |   |
| Total recoveries                                                         |   |                    | 260    |   |   |   | 256 |   |   |   | 263 |   |   |   | 239 |   |   |   | 381 |   |
|                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loans charged-off                                                    |   |                    | 11,935 |   |   |   | 5,370 |   |   |   | 631 |   |   |   | 971 |   |   |   | 233 |   |
|                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses                                                |   |                    | 16,881 |   |   |   | 9,524 |   |   |   | 5,947 |   |   |   | 1,209 |   |   |   | 540 |   |
|                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at end of period                                                 |   | $                       | 22,665 |   |   | $ | 17,719 |   |   | $ | 13,565 |   |   | $ | 7,922 |   |   | $ | 7,684 |   |
|                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses to total loans (excluding loans held for sale) |   |                    | 2.57   | % |   |   | 1.78 | % |   |   | 1.50 | % |   |   | 1.03 | % |   |   | 1.09 | % |
| Net charge-offs to average loans outstanding                             |   |                    | 1.25   | % |   |   | 0.55 | % |   |   | 0.08 | % |   |   | 0.13 | % |   |   | 0.03 | % |
| Allowance for loan losses to total non-performing loans                  |   |                    | 49     | % |   |   | 47 | % |   |   | 81 | % |   |   | 89 | % |   |   | 159 | % |

----

|                   |   | December 31, |   |
|------------------------|--------|--------------|--------|
|                   |   | 2010         |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                   |   | Amount of    |   |   | Percent of |   |   | Amount of |   |   | Percent of |   |   | Amount of |   |   | Percent of |   |   | Amount of |   |   | Percent of |   |   | Amount of |   |   | Percent of |   |
| (Dollars in thousands) |   | Allowance    |   |   | Total loans |   |   | Allowance |   |   | Total loans |   |   | Allowance |   |   | Total loans |   |   | Allowance |   |   | Total loans |   |   | Allowance |   |   | Total loans |   |
|                   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential mortgage   |   | $            | 751    |   |   |   | 19 | % |   | $ | 517 |   |   |   | 19 | % |   | $ | 455 |   |   |   | 19 | % |   | $ | 348 |   |   |   | 17 | % |   | $ | 340 |   |   |   | 20 | % |
| Consumer               |   |         | 1,504  |   |   |   | 12 |   |   |   | 1,634 |   |   |   | 11 |   |   |   | 1,415 |   |   |   | 11 |   |   |   | 1,293 |   |   |   | 12 |   |   |   | 1,298 |   |   |   | 13 |   |
| Commercial             |   |         | 20,410 |   |   |   | 69 |   |   |   | 15,568 |   |   |   | 70 |   |   |   | 11,695 |   |   |   | 70 |   |   |   | 6,281 |   |   |   | 71 |   |   |   | 6,046 |   |   |   | 67 |   |
| Total                  |   | $            | 22,665 |   |   |   | 100 | % |   | $ | 17,719 |   |   |   | 100 | % |   | $ | 13,565 |   |   |   | 100 | % |   | $ | 7,922 |   |   |   | 100 | % |   | $ | 7,684 |   |   |   | 100 | % |

|                            |   | December 31, |    |   | December 31, |   |    | December 31, |   |
|---------------------------------|--------|--------------|---------|--------|--------------|--------|---------|--------------|--------|
| (Dollars in thousands)          |   | 2010         |    |   | 2009         |   |    | 2008         |   |
| Criticized Loans:               |   |         |    |   |         |   |    |         |   |
| Total Criticized                |   | $            | 28,309  |   |         | $      | 63,456  |         |   | $ | 81,207 |   |
|                            |   |         |    |   |         |   |    |         |   |   |   |   |
| Classified Loans:               |   |         |    |   |         |   |    |         |   |   |   |   |
| Substandard                     |   | $            | 95,663  |   |         | $      | 65,408  |         |   | $ | 41,901 |   |
| Doubtful                        |   |         | 583     |   |         |   | 370     |         |   |   | - |   |
| Loss                            |   |         | 64      |   |         |   | 1,178   |         |   |   | 114 |   |
| Total Classified                |   | $            | 96,310  |   |         | $      | 66,956  |         |   | $ | 42,015 |   |
|                            |   |         |    |   |         |   |    |         |   |   |   |   |
| Total Criticized and Classified |   | $            | 124,619 |   |         | $      | 130,412 |         |   | $ | 123,222 |   |

----

|                   |   | December 31, |   |
|------------------------|--------|--------------|--------|
| (Dollars in thousands) |   | 2010         |   |   | 2009 |   |   | 2008 |   |
|                   |   | Restated     |   |   |   |   |   |   |   |
| Beginning balance      |   | $            | 8,428  |   |   | $ | 5,925 |   |   | $ | 1,749 |   |
| Additions              |   |         | 24,622 |   |   |   | 6,011 |   |   |   | 4,781 |   |
| Sales                  |   |         | (4,928 | ) |   |   | (2,930 | ) |   |   | (443 | ) |
| Writedowns             |   |         | (2,315 | ) |   |   | (578 | ) |   |   | (162 | ) |
| Ending balance         |   | $            | 25,807 |   |   | $ | 8,428 |   |   | $ | 5,925 |   |

----

|                                                                         |   | December 31, |         |
|----------------------------------------------------------------------------------------|--------|--------------|--------------|
| (Dollar in thousands)                                                                  |   | 2010         |         |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                                                                   |   | Restated     |         |   |   |   |   |   |   |   |   |   |   |   |   |
| Restructured                                                                           |   | $            | 3,906        |   |   | $ | 9,812 |   |   | $ | 1,182 |   |   | $ | 2,335 |   |   | $ | 2,470 |   |
| Past due 90 days still on accrual                                                      |   |         | -            |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Loans on non-accrual status                                                            |   |         | 42,169       |   |   |   | 28,186 |   |   |   | 15,587 |   |   |   | 6,554 |   |   |   | 2,368 |   |
|                                                                                   |   |         |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total non-performing loans                                                             |   |         | 46,075       |   |   |   | 37,998 |   |   |   | 16,769 |   |   |   | 8,889 |   |   |   | 4,838 |   |
| Real estate acquired through foreclosure                                               |   |         |  25,807 |   |   |   |  8,428 |   |   |   |  5,925 |   |   |   |  1,749 |   |   |   |  918 |   |
| Other repossessed assets                                                               |   |         | 40           |   |   |   | 103 |   |   |   | 91 |   |   |   | 52 |   |   |   | 82 |   |
| Total non-performing assets                                                            |   | $            | 71,922       |   |   | $ | 46,529 |   |   | $ | 22,785 |   |   | $ | 10,690 |   |   | $ | 5,838 |   |
|                                                                                   |   |         |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income that would have been earned on non-performing loans                    |   | $            | 2,654        |   |   | $ | 2,234 |   |   | $ | 825 |   |   | $ | 696 |   |   | $ | 368 |   |
| Interest income recognized on non-performing loans                                     |   |         | 277          |   |   |   | 211 |   |   |   | 75 |   |   |   | 188 |   |   |   | 227 |   |
| Ratios:  Non-performing loans to total loans (excluding loans held for sale) |   |         |   5.22  | % |   |   |   3.82 | % |   |   |   1.86 | % |   |   |   1.16 | % |   |   |   0.69 | % |
|   Non-performing assets to total loans (excluding loans held for sale)            |   |         |   8.16  | % |   |   |   4.68 | % |   |   |   2.52 | % |   |   |   1.39 | % |   |   |   0.83 | % |

----

|                                             |   | December 31, |    |
|--------------------------------------------------|--------|--------------|---------|
| (Dollars in thousands)                           |   | 2010         |    |   | 2009 |   |   | 2008 |   |
|                                             |   |         |    |   |   |   |   |   |   |
| Securities available-for-sale:                   |   |         |    |   |   |   |   |   |   |
| U.S. Treasury and agencies                       |   | $            | 113,893 |   |   | $ | 20,080 |   |   | $ | - |   |
| Government-sponsored mortgage-backed residential |   |         | 59,170  |   |   |   | 9,752 |   |   |   | 6,139 |   |
| Equity                                           |   |         | 293     |   |   |   | 990 |   |   |   | 948 |   |
| State and municipal                              |   |         | 22,618  |   |   |   | 14,893 |   |   |   | 8,615 |   |
| Trust preferred securities                       |   |         | 55      |   |   |   | 49 |   |   |   | 73 |   |
| Total                                            |   | $            | 196,029 |   |   | $ | 45,764 |   |   | $ | 15,775 |   |
|                                             |   |         |    |   |   |   |   |   |   |   |   |   |
| Securities held-to-maturity:                     |   |         |    |   |   |   |   |   |   |   |   |   |
| U.S. Treasury and agencies                       |   | $            | -       |   |   | $ | - |   |   | $ | 4,503 |   |
| Government-sponsored mortgage-backed residential |   |         | 102     |   |   |   | 902 |   |   |   | 1,780 |   |
| State and municipal                              |   |         | -       |   |   |   | 245 |   |   |   | 481 |   |
| Trust preferred securities                       |   |         | 22      |   |   |   | 20 |   |   |   | 258 |   |
| Total                                            |   | $            | 124     |   |   | $ | 1,167 |   |   | $ | 7,022 |   |

----

|                                   |   |      |    |   |   |   |    | Weighted |   |
|----------------------------------------|--------|-----------|---------|--------|--------|--------|---------|----------|--------|
|                                   |   | Amortized |    |   | Fair   |   |    | Average  |   |
| (Dollars in thousands)                 |   | Cost      |    |   | Value  |   |    | Yield*   |   |
| Securities available-for-sale:         |   |      |    |   |   |   |    |     |   |
| Due after one year through five years  |   | $         | 11,824  |   |   | $      | 11,915  |     |   |   | 1.96 | % |
| Due after five years through ten years |   |      | 29,655  |   |   |   | 29,469  |     |   |   | 2.87 |   |
| Due after ten years                    |   |      | 159,365 |   |   |   | 154,352 |     |   |   | 3.62 |   |
| Equity                                 |   |      | 299     |   |   |   | 293     |     |   |   | 6.32 |   |
| Total                                  |   | $         | 201,143 |   |   | $      | 196,029 |     |   |   | 3.41 |   |
|                                   |   |      |    |   |   |   |    |     |   |   |   |   |
|                                   |   |      |    |   |   |   |    |     |   | Weighted |   |
|                                   |   | Amortized |    |   | Fair   |   |    | Average  |   |
| (Dollars in thousands)                 |   | Cost      |    |   | Value  |   |    | Yield*   |   |
| Securities held-to-maturity:           |   |      |    |   |   |   |    |     |   |   |   |   |
| Due after five years through ten years |   | $         | 67      |   |   | $      | 68      |     |   |   | 2.76 | % |
| Due after ten years                    |   |      | 57      |   |   |   | 58      |     |   |   | 3.27 |   |
| Total                                  |   | $         | 124     |   |   | $      | 126     |     |   |   | 3.00 |   |

----

|                    |   | December 31, |      |
|-------------------------|--------|--------------|-----------|
| (Dollars in thousands)  |   | 2010         |      |   | 2009 |   |
|                    |   |         |      |   |   |   |
| Non-interest bearing    |   | $            | 73,566    |   |   | $ | 63,950 |   |
| NOW demand              |   |         | 129,887   |   |   |   | 117,319 |   |
| Savings                 |   |         | 109,349   |   |   |   | 131,401 |   |
| Money market            |   |         | 157,135   |   |   |   | 127,885 |   |
| Certificates of deposit |   |         | 703,971   |   |   |   | 609,260 |   |
| Total                   |   | $            | 1,173,908 |   |   | $ | 1,049,815 |   |

|                      |   | Certificates   |    |
|---------------------------|--------|----------------|---------|
| Maturity Period           |   | of Deposit     |    |
|                      |   | (In Thousands) |    |
|                      |   |           |    |
| Three months or less      |   | $              | 51,187  |   |
| Three through six months  |   |           | 30,376  |   |
| Six through twelve months |   |           | 49,944  |   |
| Over twelve months        |   |           | 215,837 |   |
| Total                     |   | $              | 347,344 |   |

----

|                                                          |   | December 31,           |   |
|---------------------------------------------------------------|--------|------------------------|--------|
|                                                          |   | 2010                   |   |   | 2009 |   |   | 2008 |   |
|                                                          |   | (Dollars in thousands) |   |
|                                                          |   |                   |   |   |   |   |   |   |   |
| Average balance outstanding                                   |   | $                      | 53,126 |   |   | $ | 103,344 |   |   | $ | 97,463 |   |
| Maximum amount outstanding at any month-end during the period |   |                   | 53,734 |   |   |   | 167,409 |   |   |   | 147,816 |   |
| Year end balance                                              |   |                   | 52,532 |   |   |   | 54,245 |   |   |   | 147,816 |   |
| Weighted average interest rate:                               |   |                   |   |   |   |   |   |   |   |   |   |   |
| At end of year                                                |   |                   | 4.36   | % |   |   | 4.36 | % |   |   | 1.81 | % |
| During the year                                               |   |                   | 4.57   | % |   |   | 2.47 | % |   |   | 3.40 | % |

----

----

|                         |   | Capital Adequacy Ratios as of |   |   |             |   |
|------------------------------|--------|-------------------------------|--------|--------|------------------|--------|
|                         |   | December 31, 2010             |   |   |             |   |
|                         |   | Restated                      |   |   |             |   |
|                         |   | Regulatory                    |   |   | Well-Capitalized |   |   |   |   |   |   |   |
| Risk-Based Capital Ratios    |   | Minimums                      |   |   | Minimums         |   |   | The Bank |   |   | The Corporation |   |
| Tier 1 capital (1)           |   |                          | 4.00   | %      |             |   | 6.00 | % |   |   | 10.12 | % |   |   | 10.07 | % |
| Total risk-based capital (2) |   |                          | 8.00   | %      |             |   | 10.00 | % |   |   | 11.38 | % |   |   | 11.34 | % |
| Tier 1 leverage ratio (3)    |   |                          | 4.00   | %      |             |   | 5.00 | % |   |   | 7.18 | % |   |   | 7.16 | % |

| (1) | Shareholders’ equity plus corporation-obligated mandatory redeemable capital securities, less unrealized gains (losses) on debt securities available for sale, net of deferred income taxes, less non-qualifying intangible assets; computed as a ratio of risk-weighted assets, as defined in the risk-based capital guidelines. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Tier 1 capital plus qualifying loan loss allowance and subordinated debt; computed as a ratio of risk-weighted assets, as defined in the risk-based capital guidelines. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Tier 1 capital computed as a percentage of fourth quarter average assets less non-qualifying intangibles. |
|-----|-----------------------------------------------------------------------------------------------------------|

|                                   |   |                   |   |   | Ratio Required    |   |   | Ratio Required    |   |
|----------------------------------------|--------|------------------------|--------|--------|------------------------|--------|--------|------------------------|--------|
|                                   |   | Actual as of |   |   | by the Order |   |   | by the Order |   |
|                                   |   | 12/31/2010             |   |   | at 3/31/2011      |   |   | at 6/30/2011      |   |
|                                   |   | Restated               |   |   |                   |   |   |                   |   |
| Total capital to risk-weighted assets  |   |                   | 11.38  | %      |                   |   | 11.50  | %                      |   |   | 12.00 | % |
| Tier 1 capital to average total assets |   |                   | 7.18   | %      |                   |   | 8.50   | %                      |   |   | 9.00 | % |

|                               |   |   |    |   |           |   |    | Greater than      |   |   | Greater than    |   |   |           |   |
|------------------------------------|--------|--------|---------|--------|----------------|--------|---------|------------------------|--------|--------|----------------------|--------|--------|----------------|--------|
|                               |   |   |    |   | Less than |   |    | one year to  |   |   | 3 years to |   |   | More than |   |
| December 31, 2010        |   | Total  |    |   | one year  |   |    | 3 years           |   |   | 5 years         |   |   | 5 years   |   |
|                               |   |   |    |   |           |   |    | (Dollars in thousands) |   |   |                 |   |
| Aggregate Contractual Obligations: |   |   |    |   |           |   |    |                   |   |   |                 |   |   |           |   |
| Time deposits                      |   | $      | 703,971 |   |           | $      | 278,617 |                   |   | $      | 360,856              |   |   | $              | 32,036 |   |   | $ | 32,462 |   |
| FHLB borrowings                    |   |   | 52,532  |   |           |   | 25,138  |                   |   |   | 257                  |   |   |           | 10,698 |   |   |   | 16,439 |   |
| Subordinated debentures            |   |   | 18,000  |   |           |   | -       |                   |   |   | -                    |   |   |           | -      |   |   |   | 18,000 |   |
| Lease commitments                  |   |   | 5,592   |   |           |   | 593     |                   |   |   | 800                  |   |   |           | 548    |   |   |   | 3,651 |   |

----

----

|                             |   | December 31, 2010 |   |
|----------------------------------|--------|-----------------------------|--------|
|                             |   | Decrease in Rates |   |   |   |   |   | Increase in Rates |   |
|                             |   | 200                         |   |   | 100 |   |   |   |   |   | 100 |   |   | 200 |   |
| (Dollars in thousands) |   | Basis Points           |   |   | Basis Points |   |   | Base |   |   | Basis Points |   |   | Basis Points |   |
|                             |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Projected interest income        |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                            |   | $                           | 51,538 |   |   | $ | 52,676 |   |   | $ | 53,694 |   |   | $ | 54,888 |   |   | $ | 56,060 |   |
| Investments                      |   |                        | 7,122  |   |   |   | 7,287 |   |   |   | 6,909 |   |   |   | 7,808 |   |   |   | 8,745 |   |
| Total interest income            |   |                        | 58,660 |   |   |   | 59,963 |   |   |   | 60,603 |   |   |   | 62,696 |   |   |   | 64,805 |   |
|                             |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Projected interest expense       |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                         |   |                        | 17,668 |   |   |   | 17,764 |   |   |   | 18,068 |   |   |   | 19,048 |   |   |   | 19,278 |   |
| Borrowed funds                   |   |                        | 2,491  |   |   |   | 2,491 |   |   |   | 2,490 |   |   |   | 2,525 |   |   |   | 2,554 |   |
| Total interest expense           |   |                        | 20,159 |   |   |   | 20,255 |   |   |   | 20,558 |   |   |   | 21,573 |   |   |   | 21,832 |   |
|                             |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income              |   | $                           | 38,501 |   |   | $ | 39,708 |   |   | $ | 40,045 |   |   | $ | 41,123 |   |   | $ | 42,973 |   |
| Change from base                 |   | $                           | (1,544 | ) |   | $ | (337 | ) |   |   |   |   |   | $ | 1,078 |   |   | $ | 2,928 |   |
| % Change from base               |   |                        | (3.86  | )% |   |   | (0.84 | )% |   |   |   |   |   |   | 2.69 | % |   |   | 7.31 | % |

|                             |   | December 31, 2009 |   |
|----------------------------------|--------|-----------------------------|--------|
|                             |   | Decrease in Rates |   |   |   |   |   | Increase in Rates |   |
|                             |   | 200                         |   |   | 100 |   |   |   |   |   | 100 |   |   | 200 |   |
| (Dollars in thousands) |   | Basis Points           |   |   | Basis Points |   |   | Base |   |   | Basis Points |   |   | Basis Points |   |
|                             |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Projected interest income        |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                            |   | $                           | 55,484 |   |   | $ | 56,942 |   |   | $ | 58,564 |   |   | $ | 60,162 |   |   | $ | 61,850 |   |
| Investments                      |   |                        | 2,271  |   |   |   | 2,116 |   |   |   | 2,150 |   |   |   | 2,552 |   |   |   | 2,953 |   |
| Total interest income            |   |                        | 57,755 |   |   |   | 59,058 |   |   |   | 60,714 |   |   |   | 62,714 |   |   |   | 64,803 |   |
|                             |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Projected interest expense       |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                         |   |                        | 15,938 |   |   |   | 16,077 |   |   |   | 16,587 |   |   |   | 16,920 |   |   |   | 18,043 |   |
| Borrowed funds                   |   |                        | 3,753  |   |   |   | 3,753 |   |   |   | 3,752 |   |   |   | 4,329 |   |   |   | 4,905 |   |
| Total interest expense           |   |                        | 19,691 |   |   |   | 19,830 |   |   |   | 20,339 |   |   |   | 21,249 |   |   |   | 22,948 |   |
|                             |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income              |   | $                           | 38,064 |   |   | $ | 39,228 |   |   | $ | 40,375 |   |   | $ | 41,465 |   |   | $ | 41,855 |   |
| Change from base                 |   | $                           | (2,311 | ) |   | $ | (1,147 | ) |   |   |   |   |   | $ | 1,090 |   |   | $ | 1,480 |   |
| % Change from base               |   |                        | (5.72  | )% |   |   | (2.84 | )% |   |   |   |   |   |   | 2.70 | % |   |   | 3.67 | % |

----

| Audited Consolidated Financial Statements: |    |
|--------------------------------------------|--------------|
|                                       |         |
|                                       | ·       | Report on Management’s Assessment of Internal Control Over Financial Reporting | 35 |
|                                       | ·       | Report of Independent Registered Public Accounting Firm | 36 |
|                                       | ·       | Consolidated Balance Sheets | 37 |
|                                       | ·       | Consolidated Statements of Operations | 38 |
|                                       | ·       | Consolidated Statements of Comprehensive Income (Loss) | 39 |
|                                       | ·       | Consolidated Statements of Changes in Stockholders’ Equity | 40 |
|                                       | ·       | Consolidated Statements of Cash Flows | 41 |
|                                       | ·       | Notes to Consolidated Financial Statements | 42 |

----

| Date: May 13, 2011 | By:     | B. Keith Johnson              |
|-------------------------|--------------|-------------------------------|
|                    |         | Chief Executive Officer       |
|                    |         |                          |
| Date: May 13, 2011      | By:          | Gregory S. Schreacke          |
|                    |         | President                     |
|                    |    | Chief Financial Officer & |
|                    |         | Principal Accounting Officer  |

----

|   |                   |
|--------|-------------------|
|   |              |
|   | Crowe Horwath LLP |

----

|                                                                                                                                                        |   | December 31, |      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|-----------|
| (Dollars in thousands, except  per share data)                                                                                                    |   | 2010         |      |   | 2009 |   |
|                                                                                                                                                        |   | Restated (1) |      |   |   |   |
| ASSETS:                                                                                                                                                     |   |         |      |   |   |   |
| Cash and due from banks                                                                                                                                     |   | $            | 14,840    |   |   | $ | 21,253 |   |
| Interest bearing deposits                                                                                                                                   |   |         | 151,336   |   |   |   | 77,280 |   |
| Total cash and cash equivalents                                                                                                                             |   |         | 166,176   |   |   |   | 98,533 |   |
|                                                                                                                                                        |   |         |      |   |   |   |   |   |
| Securities available-for-sale                                                                                                                               |   |         | 196,029   |   |   |   | 45,764 |   |
| Securities held-to-maturity, fair value of $126 (2010) and $1,176 (2009)                                                                                    |   |         | 124       |   |   |   | 1,167 |   |
| Total securities                                                                                                                                            |   |         | 196,153   |   |   |   | 46,931 |   |
|                                                                                                                                                        |   |         |      |   |   |   |   |   |
| Loans held for sale                                                                                                                                         |   |         | 6,388     |   |   |   | 8,183 |   |
| Loans, net of unearned fees                                                                                                                                 |   |         | 881,934   |   |   |   | 994,926 |   |
| Allowance for loan losses                                                                                                                                   |   |         | (22,665   | ) |   |   | (17,719 | ) |
| Net loans                                                                                                                                                   |   |         | 865,657   |   |   |   | 985,390 |   |
|                                                                                                                                                        |   |         |      |   |   |   |   |   |
| Federal Home Loan Bank stock                                                                                                                                |   |         | 4,909     |   |   |   | 8,515 |   |
| Cash surrender value of life insurance                                                                                                                      |   |         | 9,354     |   |   |   | 9,008 |   |
| Premises and equipment, net                                                                                                                                 |   |         | 31,988    |   |   |   | 31,965 |   |
| Real estate owned:                                                                                                                                          |   |         |      |   |   |   |   |   |
| Acquired through foreclosure                                                                                                                                |   |         | 25,807    |   |   |   | 8,428 |   |
| Held for development                                                                                                                                        |   |         | 45        |   |   |   | 45 |   |
| Other repossessed assets                                                                                                                                    |   |         | 40        |   |   |   | 103 |   |
| Core deposit intangible                                                                                                                                     |   |         | 994       |   |   |   | 1,300 |   |
| Accrued interest receivable                                                                                                                                 |   |         | 6,404     |   |   |   | 5,658 |   |
| Accrued income taxes                                                                                                                                        |   |         | 2,161     |   |   |   | - |   |
| Deferred income taxes                                                                                                                                       |   |         | 2,982     |   |   |   | 4,515 |   |
| Prepaid FDIC premium                                                                                                                                        |   |         | 4,449     |   |   |   | 7,022 |   |
| Other assets                                                                                                                                                |   |         | 2,388     |   |   |   | 2,091 |   |
|                                                                                                                                                        |   |         |      |   |   |   |   |   |
| TOTAL ASSETS                                                                                                                                                |   | $            | 1,319,507 |   |   | $ | 1,209,504 |   |
|                                                                                                                                                        |   |         |      |   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                        |   |         |      |   |   |   |   |   |
| LIABILITIES:                                                                                                                                                |   |         |      |   |   |   |   |   |
| Deposits:                                                                                                                                                   |   |         |      |   |   |   |   |   |
| Non-interest bearing                                                                                                                                        |   | $            | 73,566    |   |   | $ | 63,950 |   |
| Interest bearing                                                                                                                                            |   |         | 1,100,342 |   |   |   | 985,865 |   |
| Total deposits                                                                                                                                              |   |         | 1,173,908 |   |   |   | 1,049,815 |   |
|                                                                                                                                                        |   |         |      |   |   |   |   |   |
| Short-term borrowings                                                                                                                                       |   |         | -         |   |   |   | 1,500 |   |
| Advances from Federal Home Loan Bank                                                                                                                        |   |         | 52,532    |   |   |   | 52,745 |   |
| Subordinated debentures                                                                                                                                     |   |         | 18,000    |   |   |   | 18,000 |   |
| Accrued interest payable                                                                                                                                    |   |         | 594       |   |   |   | 360 |   |
| Accounts payable and other liabilities                                                                                                                      |   |         | 3,162     |   |   |   | 1,952 |   |
|                                                                                                                                                        |   |         |      |   |   |   |   |   |
| TOTAL LIABILITIES                                                                                                                                           |   |         | 1,248,196 |   |   |   | 1,124,372 |   |
| Commitments and contingent liabilities (See Note 20)                                                                                                        |   |         | -         |   |   |   | - |   |
|                                                                                                                                                        |   |         |      |   |   |   |   |   |
| STOCKHOLDERS' EQUITY:                                                                                                                                       |   |         |      |   |   |   |   |   |
| Serial preferred stock, $1 par value per share; authorized 5,000,000 shares; issued and outstanding, 20,000 shares with a liquidation preference of $20,000 |   |         | 19,835    |   |   |   | 19,781 |   |
| Common stock, $1 par value per share; authorized 35,000,000 shares; issued and outstanding, 4,726,329 shares (2010), and 4,709,839 shares (2009)            |   |         | 4,726     |   |   |   | 4,710 |   |
| Additional paid-in capital                                                                                                                                  |   |         | 35,201    |   |   |   | 34,984 |   |
| Retained earnings                                                                                                                                           |   |         | 16,264    |   |   |   | 26,720 |   |
| Accumulated other comprehensive loss                                                                                                                        |   |         | (4,715    | ) |   |   | (1,063 | ) |
|                                                                                                                                                        |   |         |      |   |   |   |   |   |
| TOTAL STOCKHOLDERS' EQUITY                                                                                                                                  |   |         | 71,311    |   |   |   | 85,132 |   |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                  |   | $            | 1,319,507 |   |   | $ | 1,209,504 |   |

----

----

| (Dollars in thousands, except per share data)                                  |   | Year Ended December 31, |    |
|--------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                           |   | 2010                    |    |   | 2009 |   |   | 2008 |   |
| Interest and Dividend Income:                                                  |   | Restated (1)            |    |   |   |   |   |   |   |
| Loans, including fees                                                          |   | $                       | 54,977  |   |   | $ | 57,113 |   |   | $ | 55,739 |   |
| Taxable securities                                                             |   |                    | 3,703   |   |   |   | 1,234 |   |   |   | 1,429 |   |
| Tax exempt securities                                                          |   |                    | 885     |   |   |   | 509 |   |   |   | 396 |   |
| Total interest income                                                          |   |                    | 59,565  |   |   |   | 58,856 |   |   |   | 57,564 |   |
|                                                                           |   |                    |    |   |   |   |   |   |   |   |   |   |
| Interest Expense:                                                              |   |                    |    |   |   |   |   |   |   |   |   |   |
| Deposits                                                                       |   |                    | 19,729  |   |   |   | 17,917 |   |   |   | 20,512 |   |
| Short-term borrowings                                                          |   |                    | 38      |   |   |   | 152 |   |   |   | 896 |   |
| Federal Home Loan Bank advances                                                |   |                    | 2,388   |   |   |   | 2,405 |   |   |   | 2,413 |   |
| Subordinated debentures                                                        |   |                    | 1,330   |   |   |   | 1,318 |   |   |   | 978 |   |
| Total interest expense                                                         |   |                    | 23,485  |   |   |   | 21,792 |   |   |   | 24,799 |   |
|                                                                           |   |                    |    |   |   |   |   |   |   |   |   |   |
| Net interest income                                                            |   |                    | 36,080  |   |   |   | 37,064 |   |   |   | 32,765 |   |
| Provision for loan losses                                                      |   |                    | 16,881  |   |   |   | 9,524 |   |   |   | 5,947 |   |
| Net interest income after provision for loan losses                            |   |                    | 19,199  |   |   |   | 27,540 |   |   |   | 26,818 |   |
|                                                                           |   |                    |    |   |   |   |   |   |   |   |   |   |
| Non-interest Income:                                                           |   |                    |    |   |   |   |   |   |   |   |   |   |
| Customer service fees on deposit accounts                                      |   |                    | 6,479   |   |   |   | 6,677 |   |   |   | 6,601 |   |
| Gain on sale of mortgage loans                                                 |   |                    | 1,760   |   |   |   | 1,194 |   |   |   | 697 |   |
| Gain on sale of investments                                                    |   |                    | 37      |   |   |   | - |   |   |   | 55 |   |
| Other than temporary impairment loss:                                          |   |                    |    |   |   |   |   |   |   |   |   |   |
| Total other-than-temporary impairment losses                                   |   |                    | (1,048  | ) |   |   | (1,077 | ) |   |   | (516 | ) |
| Portion of loss recognized in other comprehensive income/(loss) (before taxes) |   |                    | -       |   |   |   | 215 |   |   |   | - |   |
| Net impairment losses recognized in earnings                                   |   |                    | (1,048  | ) |   |   | (862 | ) |   |   | (516 | ) |
| Loss on sale and write downs on real estate acquired through foreclosure       |   |                    | (2,333  | ) |   |   | (578 | ) |   |   | (162 | ) |
| Brokerage commissions                                                          |   |                    | 413     |   |   |   | 373 |   |   |   | 469 |   |
| Other income                                                                   |   |                    | 1,996   |   |   |   | 1,715 |   |   |   | 1,305 |   |
| Total non-interest income                                                      |   |                    | 7,304   |   |   |   | 8,519 |   |   |   | 8,449 |   |
|                                                                           |   |                    |    |   |   |   |   |   |   |   |   |   |
| Non-interest Expense:                                                          |   |                    |    |   |   |   |   |   |   |   |   |   |
| Employee compensation and benefits                                             |   |                    | 15,718  |   |   |   | 15,834 |   |   |   | 14,600 |   |
| Office occupancy expense and equipment                                         |   |                    | 3,174   |   |   |   | 3,271 |   |   |   | 2,865 |   |
| Marketing and advertising                                                      |   |                    | 715     |   |   |   | 844 |   |   |   | 782 |   |
| Outside services and data processing                                           |   |                    | 2,720   |   |   |   | 3,194 |   |   |   | 3,324 |   |
| Bank franchise tax                                                             |   |                    | 2,060   |   |   |   | 960 |   |   |   | 1,010 |   |
| FDIC insurance premiums                                                        |   |                    | 2,713   |   |   |   | 1,900 |   |   |   | 716 |   |
| Goodwill impairment                                                            |   |                    | -       |   |   |   | 11,931 |   |   |   | - |   |
| Amortization of intangible assets                                              |   |                    | 396     |   |   |   | 510 |   |   |   | 284 |   |
| Real estate acquired through foreclosure expense                               |   |                    | 1,678   |   |   |   | 668 |   |   |   | 472 |   |
| Other expense                                                                  |   |                    | 4,945   |   |   |   | 4,805 |   |   |   | 4,233 |   |
| Total non-interest expense                                                     |   |                    | 34,119  |   |   |   | 43,917 |   |   |   | 28,286 |   |
|                                                                           |   |                    |    |   |   |   |   |   |   |   |   |   |
| Income/(loss) before income taxes                                              |   |                    | (7,616  | ) |   |   | (7,858 | ) |   |   | 6,981 |   |
| Income taxes/(benefits)                                                        |   |                    | 1,786   |   |   |   | (1,149 | ) |   |   | 2,184 |   |
| Net income/(loss)                                                              |   |                    | (9,402  | ) |   |   | (6,709 | ) |   |   | 4,797 |   |
| Less:                                                                          |   |                    |    |   |   |   |   |   |   |   |   |   |
| Dividends on preferred stock                                                   |   |                    | (1,000  | ) |   |   | (980 | ) |   |   | - |   |
| Accretion on preferred stock                                                   |   |                    | (54     | ) |   |   | (52 | ) |   |   | - |   |
| Net income/(loss) attributable to common shareholders                          |   | $                       | (10,456 | ) |   | $ | (7,741 | ) |   | $ | 4,797 |   |
|                                                                           |   |                    |    |   |   |   |   |   |   |   |   |   |
| Shares applicable to basic income per common share                             |   |                    | 4,724   |   |   |   | 4,695 |   |   |   | 4,666 |   |
| Basic income/(loss) per common share                                           |   | $                       | (2.21   | ) |   | $ | (1.65 | ) |   | $ | 1.03 |   |
|                                                                           |   |                    |    |   |   |   |   |   |   |   |   |   |
| Shares applicable to diluted income per common share                           |   |                    | 4,724   |   |   |   | 4,695 |   |   |   | 4,686 |   |
| Diluted income/(loss) per common share                                         |   | $                       | (2.21   | ) |   | $ | (1.65 | ) |   | $ | 1.02 |   |
|                                                                           |   |                    |    |   |   |   |   |   |   |   |   |   |
| Cash dividends declared per common share                                       |   | $                       | -       |   |   | $ | 0.43 |   |   | $ | 0.76 |   |

----

----

|                                                                                                                                                       |   | Year Ended December 31, |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
| (Dollars in thousands)                                                                                                                                     |   | 2010                    |    |   | 2009 |   |   | 2008 |   |
|                                                                                                                                                       |   | Restated (1)            |    |   |   |   |   |   |   |
| Net Income/(Loss)                                                                                                                                          |   | $                       | (9,402  | ) |   | $ | (6,709 | ) |   | $ | 4,797 |   |
| Other comprehensive income (loss):                                                                                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |
| Change in unrealized gain (loss) on securities available-for-sale                                                                                          |   |                    | (4,590  | ) |   |   | 1,215 |   |   |   | (3,529 | ) |
| Change in unrealized gain (loss) on securities available-for-sale for which a portion of other-than-temporary impairment has been recognized into earnings |   |                    | (84     | ) |   |   | 62 |   |   |   | - |   |
| Reclassification of realized amount on securities available-for-sale losses (gains)                                                                        |   |                    | 961     |   |   |   | 831 |   |   |   | 461 |   |
| Non-credit component of other-than- temporary impairment on held-to-maturity securities                                                                    |   |                    | -       |   |   |   | (215 | ) |   |   | - |   |
| Reclassification of unrealized loss on held-to-maturity security recognized in income                                                                      |   |                    | 50      |   |   |   | 31 |   |   |   | - |   |
| Accretion (amortization) of non-credit component of other-than-temporary impairment on held-to-maturity securities                                         |   |                    | (2      | ) |   |   | 6 |   |   |   | - |   |
| Net unrealized gain (loss) recognized in comprehensive income                                                                                              |   |                    | (3,665  | ) |   |   | 1,930 |   |   |   | (3,068 | ) |
| Tax effect                                                                                                                                                 |   |                    | 13      |   |   |   | (656 | ) |   |   | 1,043 |   |
| Total other comphrehensive income (loss)                                                                                                                   |   |                    | (3,652  | ) |   |   | 1,274 |   |   |   | (2,025 | ) |
|                                                                                                                                                       |   |                    |    |   |   |   |   |   |   |   |   |   |
| Comprehensive Income/(Loss)                                                                                                                                |   | $                       | (13,054 | ) |   | $ | (5,435 | ) |   | $ | 2,772 |   |

|                                                                                                        |   | Balance    |   |   | Current |   |   | Balance    |   |
|-------------------------------------------------------------------------------------------------------------|--------|------------|--------|--------|---------|--------|--------|------------|--------|
|                                                                                                        |   | at         |   |   | Period  |   |   | at         |   |
|                                                                                                        |   | 12/31/2009 |   |   | Change  |   |   | 12/31/2010 |   |
| Unrealized gains (losses) on securities available-for-sale                                                  |   | $          | (1,404 | )      |    | $      | (4,287 | )          |   | $ | (5,691 | ) |
| Unrealized gains (losses) on available-for-sale  securities for which OTTI has been recorded,     |   |       | 479    |   |    |   | 603    |       |   |   | 1,082 |   |
| Unrealized gains (losses) on held-to-maturity securities for which OTTI has been recorded, net of accretion |   |       | (138   | )      |    |   | 32     |       |   |   | (106 | ) |
|                                                                                                        |   |       |   |   |    |   |   |       |   |   |   |   |
| Total                                                                                                       |   | $          | (1,063 | )      |    | $      | (3,652 | )          |   | $ | (4,715 | ) |

----

----

|                                                                                                                                                                                                  |   | Shares    |   |   | Amount |   |   | AdditionalPaid-in |   |   | Retained |   |   | AccumulatedOtherComprehensive(Loss), Net of |   |   |     |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|--------|--------|--------|--------|-------------------|--------|--------|----------|--------|--------|-------------------------------------------------------|--------|--------|----------|--------|
|                                                                                                                                                                                                       |   | Preferred |   |   | Common |   |   | Preferred         |   |   | Common   |   |   | Capital                                               |   |   | Earnings |   |   | Tax |   |   | Total |   |
| Balance, January 1, 2008                                                                                                                                                                                   |   |      | -      |   |   |   | 4,661  |              |   | $      | -        |   |   | $                                                     | 4,661  |   |     | $      | 33,886 |   |   | $ | 35,225 |   |   | $ | (312 | ) |   | $ | 73,460 |   |
| Net income                                                                                                                                                                                                 |   |      |   |   |   |   |   |              |   |   |     |   |   |                                                  |   |   |     |   |   |   |   |   | 4,797 |   |   |   |   |   |   |   | 4,797 |   |
| Stock issued for employee benefit plans                                                                                                                                                                    |   |      |   |   |   |   | 7      |              |   |   |     |   |   |                                                  | 7      |   |     |   | 137 |   |   |   |   |   |   |   |   |   |   |   | 144 |   |
| Stock-based compensation expense                                                                                                                                                                           |   |      |   |   |   |   |   |              |   |   |     |   |   |                                                  |   |   |     |   | 122 |   |   |   |   |   |   |   |   |   |   |   | 122 |   |
| Net change in unrealized gains (losses) on securities available- for-sale, net of tax                                                                                                                      |   |      |   |   |   |   |   |              |   |   |     |   |   |                                                  |   |   |     |   |   |   |   |   |   |   |   |   | (2,025 | ) |   |   | (2,025 | ) |
| Cash dividends declared ($.76 per share)                                                                                                                                                                   |   |      | -      |   |   |   | -      |              |   |   | -        |   |   |                                                  | -      |   |     |   | - |   |   |   | (3,546 | ) |   |   | - |   |   |   | (3,546 | ) |
| Balance, December 31, 2008                                                                                                                                                                                 |   |      | -      |   |   |   | 4,668  |              |   |   | -        |   |   |                                                  | 4,668  |   |     |   | 34,145 |   |   |   | 36,476 |   |   |   | (2,337 | ) |   |   | 72,952 |   |
| Net loss                                                                                                                                                                                                   |   |      |   |   |   |   |   |              |   |   |     |   |   |                                                  |   |   |     |   |   |   |   |   | (6,709 | ) |   |   |   |   |   |   | (6,709 | ) |
| Issuance of preferred stock and a common stock warrant                                                                                                                                                     |   |      | 20,000 |   |   |   |   |              |   |   | 19,729   |   |   |                                                  |   |   |     |   | 271 |   |   |   |   |   |   |   |   |   |   |   | 20,000 |   |
| Shares issued under dividend reinvestment program                                                                                                                                                          |   |      |   |   |   |   | 22     |              |   |   |     |   |   |                                                  | 22     |   |     |   | 281 |   |   |   |   |   |   |   |   |   |   |   | 303 |   |
| Stock issued for stock options exercised                                                                                                                                                                   |   |      |   |   |   |   | 12     |              |   |   |     |   |   |                                                  | 12     |   |     |   | 89 |   |   |   |   |   |   |   |   |   |   |   | 101 |   |
| Stock issued for employee benefit plans                                                                                                                                                                    |   |      |   |   |   |   | 8      |              |   |   |     |   |   |                                                  | 8      |   |     |   | 95 |   |   |   |   |   |   |   |   |   |   |   | 103 |   |
| Stock-based compensation expense                                                                                                                                                                           |   |      |   |   |   |   |   |              |   |   |     |   |   |                                                  |   |   |     |   | 103 |   |   |   |   |   |   |   |   |   |   |   | 103 |   |
| Net change in unrealized gains (losses) on securities available- for-sale, net of tax                                                                                                                      |   |      |   |   |   |   |   |              |   |   |     |   |   |                                                  |   |   |     |   |   |   |   |   |   |   |   |   | 933 |   |   |   | 933 |   |
| Unrealized loss on held-to-maturity securities for which an other-than-temporary impairment charge has been recorded, net of tax                                                                           |   |      |   |   |   |   |   |              |   |   |     |   |   |                                                  |   |   |     |   |   |   |   |   |   |   |   |   | (138 | ) |   |   | (138 | ) |
| Change in unrealized gains (losses) on securities available-for-sale for which a portion of an other-than-temporary impairment charge has been recognized into earnings, net of reclassification and taxes |   |      |   |   |   |   |   |              |   |   |     |   |   |                                                  |   |   |     |   |   |   |   |   |   |   |   |   | 479 |   |   |   | 479 |   |
| Dividends on preferred stock                                                                                                                                                                               |   |      |   |   |   |   |   |              |   |   |     |   |   |                                                  |   |   |     |   |   |   |   |   | (980 | ) |   |   |   |   |   |   | (980 | ) |
| Accretion of preferred stock discount                                                                                                                                                                      |   |      |   |   |   |   |   |              |   |   | 52       |   |   |                                                  |   |   |     |   |   |   |   |   | (52 | ) |   |   |   |   |   |   | - |   |
| Cash dividends declared ($.43 per share)                                                                                                                                                                   |   |      | -      |   |   |   | -      |              |   |   | -        |   |   |                                                  | -      |   |     |   | - |   |   |   | (2,015 | ) |   |   | - |   |   |   | (2,015 | ) |
| Balance, December 31, 2009                                                                                                                                                                                 |   |      | 20,000 |   |   |   | 4,710  |              |   |   | 19,781   |   |   |                                                  | 4,710  |   |     |   | 34,984 |   |   |   | 26,720 |   |   |   | (1,063 | ) |   |   | 85,132 |   |
| Net loss - Restated                                                                                                                                                                                        |   |      |   |   |   |   |   |              |   |   |     |   |   |                                                  |   |   |     |   |   |   |   |   | (9,402 | ) |   |   |   |   |   |   | (9,402 | ) |
| Shares issued under dividend reinvestment program                                                                                                                                                          |   |      |   |   |   |   | 2      |              |   |   |     |   |   |                                                  | 2      |   |     |   | 15 |   |   |   |   |   |   |   |   |   |   |   | 17 |   |
| Stock issued for employee benefit plans                                                                                                                                                                    |   |      |   |   |   |   | 14     |              |   |   |     |   |   |                                                  | 14     |   |     |   | 102 |   |   |   |   |   |   |   |   |   |   |   | 116 |   |
| Stock-based compensation expense                                                                                                                                                                           |   |      |   |   |   |   |   |              |   |   |     |   |   |                                                  |   |   |     |   | 100 |   |   |   |   |   |   |   |   |   |   |   | 100 |   |
| Net change in unrealized gains (losses) on securities available-for-sale                                                                                                                                   |   |      |   |   |   |   |   |              |   |   |     |   |   |                                                  |   |   |     |   |   |   |   |   |   |   |   |   | (4,287 | ) |   |   | (4,287 | ) |
| Change in unrealized gains (losses) on held-to-maturity securities for which an other-than-temporary impairment charge has been recorded                                                                   |   |      |   |   |   |   |   |              |   |   |     |   |   |                                                  |   |   |     |   |   |   |   |   |   |   |   |   | 32 |   |   |   | 32 |   |
| Change in unrealized gains (losses) on securities available-for-sale for which a portion of an other-than-temporary impairment charge has been recognized into earnings, net of reclassification           |   |      |   |   |   |   |   |              |   |   |     |   |   |                                                  |   |   |     |   |   |   |   |   |   |   |   |   | 603 |   |   |   | 603 |   |
| Dividends on preferred stock                                                                                                                                                                               |   |      |   |   |   |   |   |              |   |   |     |   |   |                                                  |   |   |     |   |   |   |   |   | (1,000 | ) |   |   |   |   |   |   | (1,000 | ) |
| Accretion of preferred stock discount                                                                                                                                                                      |   |      | -      |   |   |   | -      |              |   |   | 54       |   |   |                                                  | -      |   |     |   | - |   |   |   | (54 | ) |   |   | - |   |   |   | - |   |
| Balance, December 31, 2010-Restated (1)                                                                                                                                                                    |   |      | 20,000 |   |   |   | 4,726  |              |   | $      | 19,835   |   |   | $                                                     | 4,726  |   |     | $      | 35,201 |   |   | $ | 16,264 |   |   | $ | (4,715 | ) |   | $ | 71,311 |   |

----

----

| (Dollars in thousands)                                                                   |   | Year Ended December 31, |     |
|------------------------------------------------------------------------------------------|--------|-------------------------|----------|
|                                                                                     |   | 2010                    |     |   | 2009 |   |   | 2008 |   |
| Operating Activities:                                                                    |   | Restated (1)            |     |   |   |   |   |   |   |
| Net income/(loss)                                                                        |   | $                       | (9,402   | ) |   | $ | (6,709 | ) |   | $ | 4,797 |   |
| Adjustments to reconcile net income/(loss) to net cash provided by operating activities: |   |                    |     |   |   |   |   |   |   |   |   |   |
| Provision for loan losses                                                                |   |                    | 16,881   |   |   |   | 9,524 |   |   |   | 5,947 |   |
| Depreciation on premises and equipment                                                   |   |                    | 1,764    |   |   |   | 1,738 |   |   |   | 1,592 |   |
| Income tax valuation allowance                                                           |   |                    | 6,024    |   |   |   | - |   |   |   | - |   |
| Loss on impairment of goodwill                                                           |   |                    | -        |   |   |   | 11,931 |   |   |   | - |   |
| Federal Home Loan Bank stock dividends                                                   |   |                    | -        |   |   |   | - |   |   |   | (309 | ) |
| Intangible asset amortization                                                            |   |                    | 396      |   |   |   | 510 |   |   |   | 284 |   |
| Net amortization (accretion) available-for-sale                                          |   |                    | (1,610   | ) |   |   | (101 | ) |   |   | (3 | ) |
| Net amortization (accretion) held-to-maturity                                            |   |                    | -        |   |   |   | 9 |   |   |   | 10 |   |
| Impairment loss on securities available-for-sale                                         |   |                    | 998      |   |   |   | 831 |   |   |   | 516 |   |
| Impairment loss on securities held-to-maturity                                           |   |                    | 50       |   |   |   | 31 |   |   |   | - |   |
| Gain on sale of investments available-for-sale                                           |   |                    | (37      | ) |   |   | - |   |   |   | (55 | ) |
| Gain on sale of mortgage loans                                                           |   |                    | (1,760   | ) |   |   | (1,194 | ) |   |   | (697 | ) |
| Origination of loans held for sale                                                       |   |                    | (131,599 | ) |   |   | (130,893 | ) |   |   | (58,332 | ) |
| Proceeds on sale of loans held for sale                                                  |   |                    | 135,154  |   |   |   | 133,471 |   |   |   | 50,242 |   |
| Deferred taxes                                                                           |   |                    | (4,478   | ) |   |   | (4,024 | ) |   |   | (1,785 | ) |
| Stock-based compensation expense                                                         |   |                    | 100      |   |   |   | 103 |   |   |   | 122 |   |
| Prepaid FDIC premium                                                                     |   |                    | 2,573    |   |   |   | (7,022 | ) |   |   | - |   |
| Changes in:                                                                              |   |                    |     |   |   |   |   |   |   |   |   |   |
| Cash surrender value of life insurance                                                   |   |                    | (346     | ) |   |   | (354 | ) |   |   | (364 | ) |
| Interest receivable                                                                      |   |                    | (746     | ) |   |   | (1,279 | ) |   |   | (55 | ) |
| Other assets                                                                             |   |                    | 410      |   |   |   | (747 | ) |   |   | 54 |   |
| Interest payable                                                                         |   |                    | 234      |   |   |   | 72 |   |   |   | (933 | ) |
| Accrued income tax                                                                       |   |                    | (2,161   | ) |   |   | (224 | ) |   |   | (129 | ) |
| Accounts payable and other liabilities                                                   |   |                    | 1,210    |   |   |   | (416 | ) |   |   | 83 |   |
| Net cash from operating activities                                                       |   |                    | 13,655   |   |   |   | 5,257 |   |   |   | 985 |   |
|                                                                                     |   |                    |     |   |   |   |   |   |   |   |   |   |
| Investing Activities:                                                                    |   |                    |     |   |   |   |   |   |   |   |   |   |
| Cash paid for acquisition of Farmers State Bank, net of cash acquired                    |   |                    | -        |   |   |   | - |   |   |   | (1,466 | ) |
| Sales of securities available-for-sale                                                   |   |                    | 685      |   |   |   | - |   |   |   | 669 |   |
| Purchases of securities available-for-sale                                               |   |                    | (243,155 | ) |   |   | (30,811 | ) |   |   | (524 | ) |
| Maturities of securities available-for-sale                                              |   |                    | 89,141   |   |   |   | 2,231 |   |   |   | 2,557 |   |
| Maturities of securities held-to-maturity                                                |   |                    | 1,041    |   |   |   | 5,606 |   |   |   | 13,161 |   |
| Net change in loans                                                                      |   |                    | 82,944   |   |   |   | (99,377 | ) |   |   | (92,055 | ) |
| Redemption of Federal Home Loan Bank stock                                               |   |                    | 3,606    |   |   |   | - |   |   |   | - |   |
| Net purchases of premises and equipment                                                  |   |                    | (1,787   | ) |   |   | (3,635 | ) |   |   | (4,306 | ) |
| Net cash from investing activities                                                       |   |                    | (67,525  | ) |   |   | (125,986 | ) |   |   | (81,964 | ) |
|                                                                                     |   |                    |     |   |   |   |   |   |   |   |   |   |
| Financing Activities                                                                     |   |                    |     |   |   |   |   |   |   |   |   |   |
| Net change in deposits                                                                   |   |                    | 124,093  |   |   |   | 274,416 |   |   |   | 30,405 |   |
| Change in short-term borrowings                                                          |   |                    | (1,500   | ) |   |   | (93,369 | ) |   |   | 52,069 |   |
| Repayments to Federal Home Loan Bank                                                     |   |                    | (213     | ) |   |   | (202 | ) |   |   | (136 | ) |
| Proceeds from issuance of subordinated debentures                                        |   |                    | -        |   |   |   | - |   |   |   | 8,000 |   |
| Issuance of preferred stock, net                                                         |   |                    | -        |   |   |   | 20,000 |   |   |   | - |   |
| Issuance of common stock under dividend reinvestment program                             |   |                    | 17       |   |   |   | 303 |   |   |   | - |   |
| Issuance of common stock for stock options exercised                                     |   |                    | -        |   |   |   | 101 |   |   |   | - |   |
| Issuance of common stock for employee benefit plans                                      |   |                    | 116      |   |   |   | 103 |   |   |   | 144 |   |
| Dividends paid on common stock                                                           |   |                    | -        |   |   |   | (2,015 | ) |   |   | (3,546 | ) |
| Dividends paid on preferred stock                                                        |   |                    | (1,000   | ) |   |   | (980 | ) |   |   | - |   |
| Net cash from financing activities                                                       |   |                    | 121,513  |   |   |   | 198,357 |   |   |   | 86,936 |   |
|                                                                                     |   |                    |     |   |   |   |   |   |   |   |   |   |
| Increase in cash and cash equivalents                                                    |   |                    | 67,643   |   |   |   | 77,628 |   |   |   | 5,957 |   |
| Cash and cash equivalents, beginning of year                                             |   |                    | 98,533   |   |   |   | 20,905 |   |   |   | 14,948 |   |
| Cash and cash equivalents, end of year                                                   |   | $                       | 166,176  |   |   | $ | 98,533 |   |   | $ | 20,905 |   |

----

----

| 1.  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|----------|--------------------------------------------|

----

| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued) |
|----|----------------------------------------------------------------|

----

| 1.  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued) |
|----------|----------------------------------------------------------------|

----

| 1.  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued) |
|----------|----------------------------------------------------------------|

----

| 1.  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued) |
|----------|----------------------------------------------------------------|

| 2.  | RECENT DEVELOPMENTS AND REGULATORY MATTERS |
|----------|--------------------------------------------|

|   | · | Raising capital by selling capital stock through a public offering or private placement. |
|--------|--------|------------------------------------------------------------------------------------------|

|   | · | Continuing to operate the Company and the Bank in a safe and sound manner.  Until we can complete a capital raise, this will most likely require us to reduce lending concentrations, potentially sell loans, and take significant operating expense reductions and other cost cutting measures aimed at lowering expenses.  Additionally, we would adjust the mix of our assets to reduce the total risk weight of our assets, reduce total assets over time and potentially sell branches, deposits and loans. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Evaluating other strategic alternatives, such as a sale of assets, one or more branches, or the institution. |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

----

| 3.  | SECURITIES |
|----------|------------|

|                                             |   |      |    |   | Gross      |   |   | Gross      |   |   |       |   |
|--------------------------------------------------|--------|-----------|---------|--------|------------|--------|--------|------------|--------|--------|------------|--------|
| (Dollars in thousands)                           |   | Amortized |    |   | Unrealized |   |   | Unrealized |   |   |       |   |
|                                             |   | Cost      |    |   | Gains      |   |   | Losses     |   |   | Fair Value |   |
| Securities available-for-sale:                   |   |      |    |   |       |   |   |       |   |   |       |   |
| December 31, 2010:                               |   |      |    |   |       |   |   |       |   |   |       |   |
| U.S. Treasury and agencies                       |   | $         | 117,886 |   |       | $      | 97     |       |   | $      | (4,090     | )      |   | $ | 113,893 |   |
| Government-sponsored mortgage-backed residential |   |      | 59,320  |   |       |   | 448    |       |   |   | (598       | )      |   |   | 59,170 |   |
| Equity                                           |   |      | 299     |   |       |   | -      |       |   |   | (6         | )      |   |   | 293 |   |
| State and municipal                              |   |      | 22,564  |   |       |   | 264    |       |   |   | (210       | )      |   |   | 22,618 |   |
| Trust preferred securities                       |   |      | 1,074   |   |       |   | -      |       |   |   | (1,019     | )      |   |   | 55 |   |
|                                             |   |      |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Total                                            |   | $         | 201,143 |   |       | $      | 809    |       |   | $      | (5,923     | )      |   | $ | 196,029 |   |
|                                             |   |      |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| December 31, 2009:                               |   |      |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| U.S. Treasury and agencies                       |   | $         | 20,000  |   |       | $      | 80     |       |   | $      | -          |   |   | $ | 20,080 |   |
| Government-sponsored mortgage-backed residential |   |      | 9,632   |   |       |   | 171    |       |   |   | (51        | )      |   |   | 9,752 |   |
| Equity                                           |   |      | 933     |   |       |   | 60     |       |   |   | (3         | )      |   |   | 990 |   |
| State and municipal                              |   |      | 14,604  |   |       |   | 399    |       |   |   | (110       | )      |   |   | 14,893 |   |
| Trust preferred securities                       |   |      | 1,983   |   |       |   | -      |       |   |   | (1,934     | )      |   |   | 49 |   |
|                                             |   |      |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Total                                            |   | $         | 47,152  |   |       | $      | 710    |       |   | $      | (2,098     | )      |   | $ | 45,764 |   |

|                                             |   |      |   |   | Gross        |   |   | Gross        |   |   |       |   |
|--------------------------------------------------|--------|-----------|--------|--------|--------------|--------|--------|--------------|--------|--------|------------|--------|
|                                             |   | Amortized |   |   | Unrecognized |   |   | Unrecognized |   |   |       |   |
|                                             |   | Cost      |   |   | Gains        |   |   | Losses       |   |   | Fair Value |   |
| Securities held-to-maturity:                     |   |      |   |   |         |   |   |         |   |   |       |   |
| December 31, 2010:                               |   |      |   |   |         |   |   |         |   |   |       |   |
| Government-sponsored mortgage-backed residential |   | $         | 102    |   |         | $      | 2      |         |   | $      | -          |   |   | $ | 104 |   |
| Trust preferred securities                       |   |      | 22     |   |         |   | -      |         |   |   | -          |   |   |   | 22 |   |
|                                             |   |      |   |   |         |   |   |         |   |   |       |   |   |   |   |   |
| Total                                            |   | $         | 124    |   |         | $      | 2      |         |   | $      | -          |   |   | $ | 126 |   |
|                                             |   |      |   |   |         |   |   |         |   |   |       |   |   |   |   |   |
| December 31, 2009:                               |   |      |   |   |         |   |   |         |   |   |       |   |   |   |   |   |
| Government-sponsored mortgage-backed residential |   | $         | 902    |   |         | $      | 6      |         |   | $      | -          |   |   | $ | 908 |   |
| State and municipal                              |   |      | 245    |   |         |   | 3      |         |   |   | -          |   |   |   | 248 |   |
| Trust preferred securities                       |   |      | 20     |   |         |   | -      |         |   |   | -          |   |   |   | 20 |   |
|                                             |   |      |   |   |         |   |   |         |   |   |       |   |   |   |   |   |
| Total                                            |   | $         | 1,167  |   |         | $      | 9      |         |   | $      | -          |   |   | $ | 1,176 |   |

|                                             |   | Available for Sale |    |   | Held-to-Maturity |   |
|--------------------------------------------------|--------|--------------------|---------|--------|------------------|--------|
|                                             |   | Amortized          |    |   | Fair             |   |   | Amortized |   |   | Fair |   |
| (Dollars in thousands)                           |   | Cost               |    |   | Value            |   |   | Cost |   |   | Value |   |
|                                             |   |               |    |   |             |   |   |   |   |   |   |   |
| Due in one year or less                          |   | $                  | -       |   |             | $      | - |   |   | $ | - |   |   | $ | - |   |
| Due after one year through five years            |   |               | 10,515  |   |             |   | 10,558 |   |   |   | - |   |   |   | - |   |
| Due after five years through ten years           |   |               | 28,920  |   |             |   | 28,689 |   |   |   | - |   |   |   | - |   |
| Due after ten years                              |   |               | 102,089 |   |             |   | 97,319 |   |   |   | 22 |   |   |   | 22 |   |
| Government-sponsored mortgage-backed residential |   |               | 59,320  |   |             |   | 59,170 |   |   |   | 102 |   |   |   | 104 |   |
| Equity                                           |   |               | 299     |   |             |   | 293 |   |   |   | - |   |   |   | - |   |
|                                             |   | $                  | 201,143 |   |             | $      | 196,029 |   |   | $ | 124 |   |   | $ | 126 |   |

----

| 3. | SECURITIES – (Continued) |
|----|--------------------------------|

|                 |   | Year Ended December 31, |   |
|----------------------|--------|-------------------------|--------|
|                 |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                 |   | (Dollars in thousands)  |   |
|                 |   |                    |   |   |   |   |   |   |   |
| Proceeds from sales  |   | $                       | 685    |   |   | $ | - |   |   | $ | 669 |   |
| Gross realized gains |   |                    | 37     |   |   |   | - |   |   |   | 55 |   |

| (Dollars in thousands)                           |   |                |    |   |              |   |   |   |   |   |       |   |   |   |   |   |       |   |
|--------------------------------------------------|--------|---------------------|---------|--------|-------------------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|--------|------------|--------|
| December 31, 2010                                |   | Less than 12 Months |    |   | 12 Months or More |   |   | Total  |   |
|                                             |   | Fair                |    |   | Unrealized        |   |   | Fair   |   |   | Unrealized |   |   | Fair   |   |   | Unrealized |   |
| Description of Securities                        |   | Value               |    |   | Loss              |   |   | Value  |   |   | Loss       |   |   | Value  |   |   | Loss       |   |
|                                             |   |                |    |   |              |   |   |   |   |   |       |   |   |   |   |   |       |   |
| U.S. Treasury and agencies                       |   | $                   | 70,896  |   |              | $      | (4,090 | )      |   | $      | -          |   |   | $      | -      |   |       | $      | 70,896 |   |   | $ | (4,090 | ) |
| Government-sponsored mortgage-backed residential |   |                | 22,084  |   |              |   | (598   | )      |   |   | -          |   |   |   | -      |   |       |   | 22,084 |   |   |   | (598 | ) |
| Equity                                           |   |                | 3       |   |              |   | (6     | )      |   |   | -          |   |   |   | -      |   |       |   | 3 |   |   |   | (6 | ) |
| State and municipal                              |   |                | 11,095  |   |              |   | (157   | )      |   |   | 527        |   |   |   | (53    | )      |       |   | 11,622 |   |   |   | (210 | ) |
| Trust preferred securities                       |   |                | -       |   |              |   | -      |   |   |   | 55         |   |   |   | (1,019 | )      |       |   | 55 |   |   |   | (1,019 | ) |
|                                             |   |                |    |   |              |   |   |   |   |   |       |   |   |   |   |   |       |   |   |   |   |   |   |   |
| Total temporarily impaired                       |   | $                   | 104,078 |   |              | $      | (4,851 | )      |   | $      | 582        |   |   | $      | (1,072 | )      |       | $      | 104,660 |   |   | $ | (5,923 | ) |

| December 31, 2009                                |   | Less than 12 Months |   |   | 12 Months or More |   |   | Total  |   |
|--------------------------------------------------|--------|---------------------|--------|--------|-------------------|--------|--------|--------|--------|
|                                             |   | Fair                |   |   | Unrealized        |   |   | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
| Description of Securities                        |   | Value               |   |   | Loss              |   |   | Value  |   |   | Loss |   |   | Value |   |   | Loss |   |
|                                             |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Government-sponsored mortgage-backed residential |   | $                   | 5,141  |   |              | $      | (51    | )      |   | $ | - |   |   | $ | - |   |   | $ | 5,141 |   |   | $ | (51 | ) |
| Equity                                           |   |                | 75     |   |              |   | (3     | )      |   |   | - |   |   |   | - |   |   |   | 75 |   |   |   | (3 | ) |
| State and municipal                              |   |                | 1,161  |   |              |   | (22    | )      |   |   | 2,456 |   |   |   | (88 | ) |   |   | 3,617 |   |   |   | (110 | ) |
| Trust preferred securities                       |   |                | -      |   |              |   | -      |   |   |   | 49 |   |   |   | (1,934 | ) |   |   | 49 |   |   |   | (1,934 | ) |
|                                             |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total temporarily impaired                       |   | $                   | 6,377  |   |              | $      | (76    | )      |   | $ | 2,505 |   |   | $ | (2,022 | ) |   | $ | 8,882 |   |   | $ | (2,098 | ) |

----

| 3. | SECURITIES – (Continued) |
|----|--------------------------------|

|   | · | We assume default rates on individual entities behind the pools based on Fitch ratings for financial institutions and A.M. Best ratings for insurance companies.  These ratings are used to predict the default rates for the next several quarters.  Two of the trust preferred securities hold a limited number of real estate investment trusts (REITs) in their pools.  REITs are evaluated on an individual basis to predict future default rates. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We assume that annual defaults for the remaining life of each security will be 37.5 basis points. |
|--------|--------|---------------------------------------------------------------------------------------------------|

|   | · | We assume a recovery rate of 15% on deferrals after two years. |
|--------|--------|----------------------------------------------------------------|

|   | · | We assume 2% prepayments through the five year par call and then 2% per annum for the remaining life of the security. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

|   | · | Our securities have been modeled using the above assumptions by FTN Financial using the forward LIBOR curve plus original spread to discount projected cash flows to present values. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Valuation estimates provided by our investment broker; |
|--------|--------|--------------------------------------------------------|

|   | · | The amount of fair value decline; |
|--------|--------|-----------------------------------|

|   | · | How long the decline in fair value has existed; |
|--------|--------|-------------------------------------------------|

|   | · | Significant rating agency changes on the issuer; |
|--------|--------|--------------------------------------------------|

|   | · | Level of interest rates and any movement in pricing for credit and other risks; |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | Information about the performance of the underlying institutions that issued the debt instruments, such as net income, return on equity, capital adequacy, non-performing assets, Texas ratios, etc; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our intent to sell the security or whether it is more likely than not that we will be required to sell the security before its anticipated recovery; and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Other relevant observable inputs. |
|--------|--------|-----------------------------------|

----

| 3. | SECURITIES – (Continued) |
|----|--------------------------------|

|                         |   |      |   | Moody's   |   |    |   |   |   |   |      |   |   |      |   |   |      |   |   | % of Current  |    |   |         |   |
|-----------------------------------|--------|-----------|--------|-----------|--------|---------|--------|--------|--------|--------|-----------|--------|--------|-----------|--------|--------|-----------|--------|--------|---------------|---------|--------|--------------|--------|
|                              |   |      |   | Credit    |   | Current |   |   |   |   |      |   |   |      |   |   | Current   |   |   | Deferrals and |    |   |         |   |
| (Dollars in thousands)            |   |      |   | Ratings   |   | Moody's |   |   |   |   |      |   |   | Estimated |   |   | Deferrals |   |   | Defaults      |    |   | Year to Date |   |
|                              |   |      |   | When      |   | Credit  |   | Par    |   |   | Amortized |   |   | Fair      |   |   | and       |   |   | to Current    |    |   | OTTI         |   |
| Security                          |   | Tranche   |   | Purchased |   | Ratings |   | Value  |   |   | Cost      |   |   | Value     |   |   | Defaults  |   |   | Collateral    |    |   | Recognized   |   |
|                              |   |      |   |      |   |    |   |   |   |   |      |   |   |      |   |   |      |   |   |          |    |   |         |   |
| Preferred Term Securities IV      |   | Mezzanine |   | A3        |   | Ca      |   | $      | 244    |   |      | $      | 182    |      |   | $      | 24        |   |   | $             | 18,000  |   |         |   | 27 | % |   | $ | 18 |   |
| Preferred Term Securities VI      |   | Mezzanine |   | A1        |   | Caa1    |   |   | 259    |   |      |   | 22     |      |   |   | 22        |   |   |          | 33,000  |   |         |   | 81 | % |   |   | 50 |   |
| Preferred Term Securities XV B1   |   | Mezzanine |   | A2        |   | Ca      |   |   | 1,004  |   |      |   | 415    |      |   |   | 19        |   |   |          | 211,700 |   |         |   | 35 | % |   |   | 423 |   |
| Preferred Term Securities XXI C2  |   | Mezzanine |   | A3        |   | Ca      |   |   | 1,018  |   |      |   | 399    |      |   |   | 7         |   |   |          | 215,890 |   |         |   | 29 | % |   |   | 249 |   |
| Preferred Term Securities XXII C1 |   | Mezzanine |   | A3        |   | Ca      |   |   | 503    |   |      |   | 78     |      |   |   | 5         |   |   |          | 412,500 |   |         |   | 30 | % |   |   | 308 |   |
|                              |   |      |   |      |   |    |   |   |   |   |      |   |   |      |   |   |      |   |   |          |    |   |         |   |   |   |   |   |   |   |
| Total                             |   |      |   |      |   |    |   | $      | 3,028  |   |      | $      | 1,096  |      |   | $      | 77        |   |   |          |    |   |         |   |   |   |   | $ | 1,048 |   |

| (Dollars in thousands)                                                                                                 |   |   |   |   |   |   |
|------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                                                                                   |   | 2010   |   |   | 2009   |   |
|                                                                                                                   |   |   |   |   |   |   |
| Beginning balance                                                                                                      |   | $      | 862    |   |   | $      | - |   |
| Increases to the amount related to the credit loss for which other-than-temporary impairment was previously recognized |   |   | 1,048  |   |   |   | 862 |   |
| Ending balance                                                                                                         |   | $      | 1,910  |   |   | $      | 862 |   |

| 4. | LOANS |
|----|-------|

|                               |   | December 31, |    |
|------------------------------------|--------|--------------|---------|
| (Dollars in thousands)             |   | 2010         |    |   | 2009 |   |
|                               |   |         |    |   |   |   |
| Commercial                         |   | $            | 42,265  |   |   | $ | 62,940 |   |
| Commercial Real Estate:            |   |         |    |   |   |   |   |   |
| Land Development                   |   |         | 56,086  |   |   |   | 31,236 |   |
| Building Lots                      |   |         | 11,333  |   |   |   | 15,775 |   |
| Other                              |   |         | 490,345 |   |   |   | 580,777 |   |
| Real estate construction           |   |         | 11,034  |   |   |   | 14,567 |   |
| Residential mortgage               |   |         | 163,975 |   |   |   | 178,985 |   |
| Consumer and home equity           |   |         | 77,781  |   |   |   | 74,844 |   |
| Indirect consumer                  |   |         | 29,588  |   |   |   | 36,628 |   |
| Loans held for sale                |   |         | 6,388   |   |   |   | 8,183 |   |
|                               |   |         | 888,795 |   |   |   | 1,003,935 |   |
| Less:                              |   |         |    |   |   |   |   |   |
| Net deferred loan origination fees |   |         | (473    | ) |   |   | (826 | ) |
| Allowance for loan losses          |   |         | (22,665 | ) |   |   | (17,719 | ) |
|                               |   |         | (23,138 | ) |   |   | (18,545 | ) |
|                               |   |         |    |   |   |   |   |   |
| Net Loans                          |   | $            | 865,657 |   |   | $ | 985,390 |   |

----

| 4.  | LOANS – (Continued) |
|----------|---------------------------|

|                             |   | As of and For the        |    |
|----------------------------------|--------|--------------------------|---------|
|                             |   | Years Ended December 31, |    |
| (Dollars in thousands)           |   | 2010                     |    |   | 2009 |   |   | 2008 |   |
|                             |   |                     |    |   |   |   |   |   |   |
| Balance, beginning of year       |   | $                        | 17,719  |   |   | $ | 13,565 |   |   | $ | 7,922 |   |
| Allowance related to acquisition |   |                     | -       |   |   |   | - |   |   |   | 327 |   |
| Provision for loan losses        |   |                     | 16,881  |   |   |   | 9,524 |   |   |   | 5,947 |   |
| Charge-offs                      |   |                     | (12,195 | ) |   |   | (5,626 | ) |   |   | (894 | ) |
| Recoveries                       |   |                     | 260     |   |   |   | 256 |   |   |   | 263 |   |
| Balance, end of year             |   | $                        | 22,665  |   |   | $ | 17,719 |   |   | $ | 13,565 |   |

|                                       |   |       |   |   | Commercial  |   |    | Real Estate  |   |   | Residential |   |   | Consumer & |    |   | Indirect |   |   |   |   |
|-------------------------------------------------|--------|------------|--------|--------|-------------|--------|---------|--------------|--------|--------|-------------|--------|--------|----------------|---------|--------|----------|--------|--------|--------|--------|
| (Dollars in thousands)                          |   | Commercial |   |   | Real Estate |   |    | Construction |   |   | Mortgage    |   |   | Home Equity    |    |   | Consumer |   |   | Total  |   |
|                                            |   |       |   |   |        |   |    |         |   |   |        |   |   |           |    |   |     |   |   |   |   |
| Allowance for loan losses:                      |   |       |   |   |        |   |    |         |   |   |        |   |   |           |    |   |     |   |   |   |   |
| Ending allowance balance attributable to loans: |   |       |   |   |        |   |    |         |   |   |        |   |   |           |    |   |     |   |   |   |   |
| Individually evaluated for impairment           |   | $          | 691    |   |        | $      | 11,872  |         |   |   | 24          |   |   | $              | 334     |   |     | $      | 147    |   |   | $ | 29 |   |   | $ | 13,097 |   |
| Collectively evaluated for impairment           |   |       | 966    |   |        |   | 6,723   |         |   |   | 134         |   |   |           | 417     |   |     |   | 561    |   |   |   | 767 |   |   |   | 9,568 |   |
|                                            |   |       |   |   |        |   |    |         |   |   |        |   |   |           |    |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Total ending allowance balance                  |   | $          | 1,657  |   |        | $      | 18,595  |         |   |   | 158         |   |   | $              | 751     |   |     | $      | 708    |   |   | $ | 796 |   |   | $ | 22,665 |   |
|                                            |   |       |   |   |        |   |    |         |   |   |        |   |   |           |    |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Loans:                                          |   |       |   |   |        |   |    |         |   |   |        |   |   |           |    |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Loans individually evaluated for impairment     |   | $          | 1,870  |   |        | $      | 86,250  |         |   | $      | 1,267       |   |   | $              | 1,609   |   |     | $      | 337    |   |   | $ | 91 |   |   | $ | 91,424 |   |
| Loans collectively evaluated for impairment     |   |       | 40,395 |   |        |   | 471,514 |         |   |   | 9,767       |   |   |           | 162,366 |   |     |   | 77,444 |   |   |   | 29,497 |   |   |   | 790,983 |   |
| Loans acquired with deteriorated credit quality |   |       | -      |   |        |   | -       |         |   |   | -           |   |   |           | -       |   |     |   | -      |   |   |   | - |   |   |   | - |   |
|                                            |   |       |   |   |        |   |    |         |   |   |        |   |   |           |    |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Total ending loans balance                      |   | $          | 42,265 |   |        | $      | 557,764 |         |   | $      | 11,034      |   |   | $              | 163,975 |   |     | $      | 77,781 |   |   | $ | 29,588 |   |   | $ | 882,407 |   |

| (Dollars in thousands)                      |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                        |   |   |   |   |   |   |   |   |   |
| Year-end impaired loans                     |   | $      | 96,310 |   |   | $      | 66,956 |   |   | $ | 42,015 |   |
| Amount of allowance for loan loss allocated |   |   | 13,297 |   |   |   | 7,101  |   |   |   | 4,893 |   |
| Average impaired loans outstanding          |   |   | 80,764 |   |   |   | 60,858 |   |   |   | 29,200 |   |
| Interest income recognized                  |   |   | 2,461  |   |   |   | 2,173  |   |   |   | 1,246 |   |
| Interest income received                    |   |   | 2,461  |   |   |   | 2,173  |   |   |   | 1,246 |   |

----

| 4.  | LOANS – (Continued) |
|----------|---------------------------|

|                                |   | Unpaid    |   |   |       |   |   | Allowance for |   |
|-------------------------------------|--------|-----------|--------|--------|------------|--------|--------|---------------|--------|
|                                |   | Principal |   |   | Recorded   |   |   | Loan Losses   |   |
| (Dollars in thousands)              |   | Balance   |   |   | Investment |   |   | Allocated     |   |
|                                |   |      |   |   |       |   |   |          |   |
| With no related allowance recorded: |   |      |   |   |       |   |   |          |   |
| Commercial                          |   | $         | 312    |   |       | $      | 312    |          |   | $ | - |   |
| Commercial Real Estate:             |   |      |   |   |       |   |   |          |   |   |   |   |
| Land Development                    |   |      | -      |   |       |   | -      |          |   |   | - |   |
| Building Lots                       |   |      | -      |   |       |   | -      |          |   |   | - |   |
| Other                               |   |      | 30,337 |   |       |   | 32,332 |          |   |   | - |   |
| Real Estate Construction            |   |      | 185    |   |       |   | 185    |          |   |   | - |   |
| Residential Mortgage                |   |      | -      |   |       |   | -      |          |   |   | - |   |
| Consumer and Home Equity            |   |      | -      |   |       |   | -      |          |   |   | - |   |
| Indirect Consumer                   |   |      | -      |   |       |   | -      |          |   |   | - |   |
|                                |   |      |   |   |       |   |   |          |   |   |   |   |
| With an allowance recorded:         |   |      |   |   |       |   |   |          |   |   |   |   |
| Commercial                          |   |      | 1,558  |   |       |   | 1,558  |          |   |   | 691 |   |
| Commercial Real Estate:             |   |      |   |   |       |   |   |          |   |   |   |   |
| Land Development                    |   |      | 22,895 |   |       |   | 22,895 |          |   |   | 4,562 |   |
| Building Lots                       |   |      | 3,430  |   |       |   | 3,430  |          |   |   | 39 |   |
| Other                               |   |      | 27,593 |   |       |   | 27,593 |          |   |   | 7,271 |   |
| Real Estate Construction            |   |      | 1,082  |   |       |   | 1,082  |          |   |   | 24 |   |
| Residential Mortgage                |   |      | 1,609  |   |       |   | 1,609  |          |   |   | 334 |   |
| Consumer and Home Equity            |   |      | 337    |   |       |   | 337    |          |   |   | 147 |   |
| Indirect Consumer                   |   |      | 91     |   |       |   | 91     |          |   |   | 29 |   |
|                                |   |      |   |   |       |   |   |          |   |   |   |   |
| Total                               |   | $         | 89,429 |   |       | $      | 91,424 |          |   | $ | 13,097 |   |

|                                         |   | December 31, |   |
|----------------------------------------------|--------|--------------|--------|
| (Dollars in thousands)                       |   | 2010         |   |   | 2009 |   |
|                                         |   |         |   |   |   |   |
| Restructured                                 |   | $            | 3,906  |   |   | $ | 9,812 |   |
| Loans past due over 90 days still on accrual |   |         | -      |   |   |   | - |   |
| Non accrual loans                            |   |         | 42,169 |   |   |   | 28,186 |   |
| Total                                        |   | $            | 46,075 |   |   | $ | 37,998 |   |

|                     |   |         |   |   | Loans Past Due |   |   |       |   |
|--------------------------|--------|--------------|--------|--------|----------------|--------|--------|------------|--------|
|                     |   |         |   |   | Over 90 Days   |   |   |       |   |
|                     |   |         |   |   | Still          |   |   |       |   |
| (Dollars in thousands)   |   | Restructured |   |   | Accruing       |   |   | Nonaccrual |   |
|                     |   |         |   |   |           |   |   |       |   |
| Commercial               |   | $            | 179    |   |           |   | -      |       |   | $ | 597 |   |
| Commercial Real Estate:  |   |         |   |   |           |   |   |       |   |   |   |   |
| Land Development         |   |         | -      |   |           |   | -      |       |   |   | 15,356 |   |
| Building Lots            |   |         | -      |   |           |   |   |       |   |   | 3,430 |   |
| Other                    |   |         | 3,394  |   |           |   | -      |       |   |   | 19,939 |   |
| Real Estate Construction |   |         | -      |   |           |   |   |       |   |   | - |   |
| Residential Mortgage     |   |         | 306    |   |           |   | -      |       |   |   | 2,294 |   |
| Consumer and Home Equity |   |         | 27     |   |           |   |   |       |   |   | 365 |   |
| Indirect Consumer        |   |         | -      |   |           |   | -      |       |   |   | 188 |   |
|                     |   |         |   |   |           |   |   |       |   |   |   |   |
| Total                    |   | $            | 3,906  |   |           |   | -      |       |   | $ | 42,169 |   |

----

| 4.  | LOANS – (Continued) |
|----------|---------------------------|

|                             |   | 30-59         |   |   | 60-89         |   |   | Greater than |   |   |          |   |   |           |   |   |   |   |
|----------------------------------|--------|---------------|--------|--------|---------------|--------|--------|-------------------|--------|--------|---------------|--------|--------|----------------|--------|--------|--------|--------|
|                             |   | Days          |   |   | Days          |   |   | 90 Days      |   |   | Total         |   |   | Loans Not |   |   |   |   |
| (Dollars in thousands) |   | Past Due |   |   | Past Due |   |   | Past Due     |   |   | Past Due |   |   | Past Due  |   |   | Total  |   |
|                             |   |          |   |   |          |   |   |              |   |   |          |   |   |           |   |   |   |   |   |   |
| Commercial                       |   | $             | 719    |   |          | $      | 683    |              |   | $      | 574           |   |   | $              | 1,976  |   |   | $      | 40,289 |   |   | $ | 42,265 |   |
| Commercial Real Estate:          |   |          |   |   |          |   |   |              |   |   |          |   |   |           |   |   |   |   |   |   |   |   |   |   |
| Land Development                 |   |          | -      |   |          |   | -      |              |   |   | 7,682         |   |   |           | 7,682  |   |   |   | 48,404 |   |   |   | 56,086 |   |
| Building Lots                    |   |          | -      |   |          |   | -      |              |   |   | 3,430         |   |   |           | 3,430  |   |   |   | 7,903 |   |   |   | 11,333 |   |
| Other                            |   |          | 2,824  |   |          |   | 10,110 |              |   |   | 16,294        |   |   |           | 29,228 |   |   |   | 461,117 |   |   |   | 490,345 |   |
| Real Estate Construction         |   |          | 1,082  |   |          |   | -      |              |   |   | -             |   |   |           | 1,082  |   |   |   | 9,952 |   |   |   | 11,034 |   |
| Residential Mortgage             |   |          | 313    |   |          |   | 962    |              |   |   | 4,386         |   |   |           | 5,661  |   |   |   | 158,314 |   |   |   | 163,975 |   |
| Consumer and Home Equity         |   |          | 527    |   |          |   | 70     |              |   |   | 680           |   |   |           | 1,277  |   |   |   | 76,504 |   |   |   | 77,781 |   |
| Indirect Consumer                |   |          | 386    |   |          |   | 51     |              |   |   | 188           |   |   |           | 625    |   |   |   | 28,963 |   |   |   | 29,588 |   |
|                             |   |          |   |   |          |   |   |              |   |   |          |   |   |           |   |   |   |   |   |   |   |   |   |   |
| Total                            |   | $             | 5,851  |   |          | $      | 11,876 |              |   | $      | 33,234        |   |   | $              | 50,961 |   |   | $      | 831,446 |   |   | $ | 882,407 |   |

----

| 4.  | LOANS – (Continued) |
|----------|---------------------------|

| (Dollars in thousands)   |   | Not Rated |    |   | Pass   |   |    | Criticized |   |   | Substandard |   |   | Doubtful |   |   | Loss   |   |   | Total  |   |
|--------------------------|--------|-----------|---------|--------|--------|--------|---------|------------|--------|--------|-------------|--------|--------|----------|--------|--------|--------|--------|--------|--------|--------|
|                     |   |      |    |   |   |   |    |       |   |   |        |   |   |     |   |   |   |   |   |   |   |
| Commercial               |   | $         | -       |   |   | $      | 38,036  |       |   | $      | 2,359       |   |   | $        | 1,412  |   |   | $      | 458    |   |   | $ | - |   |   | $ | 42,265 |   |
| Commercial Real Estate:  |   |      |    |   |   |   |    |       |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Land Development         |   |      | -       |   |   |   | 29,769  |       |   |   | 3,422       |   |   |     | 22,895 |   |   |   | -      |   |   |   | - |   |   |   | 56,086 |   |
| Building Lots            |   |      | -       |   |   |   | 7,903   |       |   |   | -           |   |   |     | 3,430  |   |   |   | -      |   |   |   | - |   |   |   | 11,333 |   |
| Other                    |   |      | -       |   |   |   | 409,387 |       |   |   | 21,012      |   |   |     | 59,800 |   |   |   | 125    |   |   |   | 21 |   |   |   | 490,345 |   |
| Real Estate Construction |   |      | -       |   |   |   | 9,767   |       |   |   | -           |   |   |     | 1,267  |   |   |   | -      |   |   |   | - |   |   |   | 11,034 |   |
| Residential Mortgage     |   |      | 157,498 |   |   |   | -       |       |   |   | 917         |   |   |     | 5,560  |   |   |   | -      |   |   |   | - |   |   |   | 163,975 |   |
| Consumer and Home Equity |   |      | 76,086  |   |   |   | -       |       |   |   | 599         |   |   |     | 1,072  |   |   |   | -      |   |   |   | 24 |   |   |   | 77,781 |   |
| Indirect Consumer        |   |      | 29,342  |   |   |   | -       |       |   |   | -           |   |   |     | 227    |   |   |   | -      |   |   |   | 19 |   |   |   | 29,588 |   |
|                     |   |      |    |   |   |   |    |       |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                    |   | $         | 262,926 |   |   | $      | 494,862 |       |   | $      | 28,309      |   |   | $        | 95,663 |   |   | $      | 583    |   |   | $ | 64 |   |   | $ | 882,407 |   |

|                           |   | Residential |    |   | Consumer & |   |   | Indirect |   |
|--------------------------------|--------|-------------|---------|--------|----------------|--------|--------|----------|--------|
| (Dollars in thousands)         |   | Mortgage    |    |   | Home Equity    |   |   | Consumer |   |
|                           |   |        |    |   |           |   |   |     |   |
| Performing                     |   | $           | 161,375 |   |           | $      | 77,389 |     |   | $ | 29,400 |   |
| Restructured & Non-accrual |   |        | 2,600   |   |           |   | 392    |     |   |   | 188 |   |
|                           |   |        |    |   |           |   |   |     |   |   |   |   |
| Total                          |   | $           | 163,975 |   |           | $      | 77,781 |     |   | $ | 29,588 |   |

| 5.  | REAL ESTATE ACQUIRED THROUGH FORECLOSURE |
|----------|------------------------------------------|

|                   |   | December 31, |   |
|------------------------|--------|--------------|--------|
| (Dollars in thousands) |   | 2010         |   |   | 2009 |   |   | 2008 |   |
|                   |   | Restated     |   |   |   |   |   |   |   |
| Beginning balance      |   | $            | 8,428  |   |   | $ | 5,925 |   |   | $ | 1,749 |   |
| Additions              |   |         | 24,622 |   |   |   | 6,011 |   |   |   | 4,781 |   |
| Sales                  |   |         | (4,928 | ) |   |   | (2,930 | ) |   |   | (443 | ) |
| Writedowns             |   |         | (2,315 | ) |   |   | (578 | ) |   |   | (162 | ) |
| Ending balance         |   | $            | 25,807 |   |   | $ | 8,428 |   |   | $ | 5,925 |   |

----

| 6. | FAIR VALUE |
|----|------------|

|                                             |   |              | Quoted Prices in |   |                         |   |   |                   |   |   |
|--------------------------------------------------|--------|-------------------|----------------------------|--------|------------------------------|--------|--------|------------------------|--------|--------|
|                                             |   |              |                       |   | Active Markets for |   |   | Significant Other |   |   | Significant |   |
|                                             |   | December 31, |                       |   | Identical Assets        |   |   | Observable Inputs |   |   | Unobservable Inputs |   |
| (Dollars in thousands)                 |   | 2010              |                       |   | (Level 1)               |   |   | (Level 2)         |   |   | (Level 3) |   |
|                                             |   |              |                       |   |                         |   |   |                   |   |   |   |   |
| Assets:                                          |   |              |                       |   |                         |   |   |                   |   |   |   |   |
| U.S. Treasury and agencies                       |   | $                 | 113,893                    |   |                         | $      | -      |                   |   | $      | 113,893 |   |   | $ | - |   |
| Government-sponsored mortgage-backed residential |   |              | 59,170                     |   |                         |   | -      |                   |   |   | 59,170 |   |   |   | - |   |
| Equity                                           |   |              | 293                        |   |                         |   | 2      |                   |   |   | - |   |   |   | 291 |   |
| State and municipal                              |   |              | 22,618                     |   |                         |   | -      |                   |   |   | 22,618 |   |   |   | - |   |
| Trust preferred securities                       |   |              | 55                         |   |                         |   | -      |                   |   |   | - |   |   |   | 55 |   |
|                                             |   |              |                       |   |                         |   |   |                   |   |   |   |   |   |   |   |   |
| Total                                            |   | $                 | 196,029                    |   |                         | $      | 2      |                   |   | $      | 195,681 |   |   | $ | 346 |   |

|                                             |   |              | Quoted Prices in |   |                         |   |   |                   |   |   |
|--------------------------------------------------|--------|-------------------|----------------------------|--------|------------------------------|--------|--------|------------------------|--------|--------|
|                                             |   |              |                       |   | Active Markets for |   |   | Significant Other |   |   | Significant |   |
|                                             |   | December 31, |                       |   | Identical Assets        |   |   | Observable Inputs |   |   | Unobservable Inputs |   |
| (Dollars in thousands)                 |   | 2009              |                       |   | (Level 1)               |   |   | (Level 2)         |   |   | (Level 3) |   |
|                                             |   |              |                       |   |                         |   |   |                   |   |   |   |   |
| Assets:                                          |   |              |                       |   |                         |   |   |                   |   |   |   |   |
| U.S. Treasury and agencies                       |   | $                 | 20,080                     |   |                         | $      | -      |                   |   | $      | 20,080 |   |   | $ | - |   |
| Government-sponsored mortgage-backed residential |   |              | 9,752                      |   |                         |   | -      |                   |   |   | 9,752 |   |   |   | - |   |
| Equity                                           |   |              | 990                        |   |                         |   | 699    |                   |   |   | - |   |   |   | 291 |   |
| State and municipal                              |   |              | 14,893                     |   |                         |   | -      |                   |   |   | 14,893 |   |   |   | - |   |
| Trust preferred securities                       |   |              | 49                         |   |                         |   | -      |                   |   |   | - |   |   |   | 49 |   |
|                                             |   |              |                       |   |                         |   |   |                   |   |   |   |   |   |   |   |   |
| Total                                            |   | $                 | 45,764                     |   |                         | $      | 699    |                   |   | $      | 44,725 |   |   | $ | 340 |   |

----

| 6. | FAIR VALUE - (Continued) |
|----|--------------------------|

|                                   |   | Fair Value Measurements |   |
|----------------------------------------|--------|-----------------------------------|--------|
|                                   |   | Using Significant            |   |
|                                   |   | Unobservable Inputs          |   |
|                                   |   | (Level 3)                    |   |
|                                   |   |                              |   |
|                                   |   | Year Ended                   |   |
|                                   |   | December 31,                 |   |
| (Dollars in thousands)                 |   | 2010                              |   |   | 2009 |   |
|                                   |   |                              |   |   |   |   |
| Beginning balance                      |   | $                                 | 340    |   |   | $ | 364 |   |
| Total gains or losses:                 |   |                              |   |   |   |   |   |   |
| Impairment charges on securities       |   |                              | (998   | ) |   |   | (831 | ) |
| Included in other comprehensive income |   |                              | 1,004  |   |   |   | 807 |   |
| Transfers in and/or out of Level 3     |   |                              | -      |   |   |   | - |   |
| Ending balance                         |   | $                                 | 346    |   |   | $ | 340 |   |

----

| 6.  | FAIR VALUE - (Continued) |
|----------|--------------------------|

|                             |   | Changes in Unrealized Gains/Losses                        |   |
|----------------------------------|--------|--------------------------------------------------------------------------|--------|
|                             |   | Relating to Assets Still Held at Reporting |   |
|                             |   | Date for the Year Ended                              |   |
|                             |   | December 31,                                                        |   |
| (Dollars in thousands) |   | 2010                                                                     |   |   | 2009 |   |
|                             |   |                                                                     |   |   |   |   |
| Interest income on securities    |   | $                                                                        | -      |   |   | $ | - |   |
| Other changes in fair value      |   |                                                                     | 915    |   |   |   | 725 |   |
| Total                            |   | $                                                                        | 915    |   |   | $ | 725 |   |

|                                      |   |              |   |   | Quoted Prices in   |   |   |                   |   |   |                     |   |
|-------------------------------------------|--------|-------------------|--------|--------|------------------------------|--------|--------|------------------------|--------|--------|--------------------------|--------|
|                                      |   |              |   |   | Active Markets for |   |   | Significant Other |   |   | Significant              |   |
|                                      |   | December 31, |   |   | Identical Assets        |   |   | Observable Inputs |   |   | Unobservable Inputs |   |
| (Dollars in thousands)          |   | 2010              |   |   | (Level 1)               |   |   | (Level 2)         |   |   | (Level 3)           |   |
|                                      |   | Restated          |   |   |                         |   |   |                   |   |   |                     |   |
| Assets:                                   |   |              |   |   |                         |   |   |                   |   |   |                     |   |
| Impaired loans:                           |   |              |   |   |                         |   |   |                   |   |   |                     |   |
| Commercial                                |   | $                 | 1,092  |   |                         | $      | -      |                   |   | $      | -                        |   |   | $ | 1,092 |   |
| Commercial Real Estate:                   |   |              |   |   |                         |   |   |                   |   |   |                     |   |   |   |   |   |
| Land Development                          |   |              | 18,333 |   |                         |   | -      |                   |   |   | -                        |   |   |   | 18,333 |   |
| Building Lots                             |   |              | 3,391  |   |                         |   | -      |                   |   |   | -                        |   |   |   | 3,391 |   |
| Other                                     |   |              | 49,505 |   |                         |   | -      |                   |   |   | -                        |   |   |   | 49,505 |   |
| Real Estate Contruction                   |   |              | 1,057  |   |                         |   | -      |                   |   |   | -                        |   |   |   | 1,057 |   |
| Residential Mortgage                      |   |              | 4,821  |   |                         |   | -      |                   |   |   | -                        |   |   |   | 4,821 |   |
| Consumer and Home Equity                  |   |              | 824    |   |                         |   | -      |                   |   |   | -                        |   |   |   | 824 |   |
| Indirect Consumer                         |   |              | 171    |   |                         |   | -      |                   |   |   | -                        |   |   |   | 171 |   |
| Real estate acquired through foreclosure  |   |              | 8,578  |   |                         |   | -      |                   |   |   | -                        |   |   |   | 8,578 |   |
| Trust preferred security held-to-maturity |   |              | 22     |   |                         |   | -      |                   |   |   | -                        |   |   |   | 22 |   |

|                                      |   |              |   |   | Quoted Prices in   |   |   |                   |   |   |                     |   |
|-------------------------------------------|--------|-------------------|--------|--------|------------------------------|--------|--------|------------------------|--------|--------|--------------------------|--------|
|                                      |   |              |   |   | Active Markets for |   |   | Significant Other |   |   | Significant              |   |
|                                      |   | December 31, |   |   | Identical Assets        |   |   | Observable Inputs |   |   | Unobservable Inputs |   |
| (Dollars in thousands)          |   | 2009              |   |   | (Level 1)               |   |   | (Level 2)         |   |   | (Level 3)           |   |
|                                      |   |              |   |   |                         |   |   |                   |   |   |                     |   |
| Assets:                                   |   |              |   |   |                         |   |   |                   |   |   |                     |   |
| Impaired loans                            |   | $                 | 49,359 |   |                         | $      | -      |                   |   | $      | -                        |   |   | $ | 49,359 |   |
| Real estate acquired through foreclosure  |   |              | 3,799  |   |                         |   | -      |                   |   |   | -                        |   |   |   | 3,799 |   |
| Trust preferred security held-to-maturity |   |              | 20     |   |                         |   | -      |                   |   |   | -                        |   |   |   | 20 |   |

----

| 6.  | FAIR VALUE - (Continued) |
|----------|--------------------------|

| (Dollars in thousands)     |   | December 31, 2010 |      |   | December 31, 2009 |   |
|--------------------------------------|--------|-----------------------------|-----------|--------|-----------------------------|--------|
|                                 |   | Carrying                    |      |   | Fair                        |   |   | Carrying |   |   | Fair |   |
|                                 |   | Value                       |      |   | Value                       |   |   | Value |   |   | Value |   |
| Financial assets:                    |   |                        |      |   |                        |   |   |   |   |   |   |   |
| Cash and due from banks              |   | $                           | 166,176   |   |                        | $      | 166,176 |   |   | $ | 98,533 |   |   | $ | 98,533 |   |
| Securities held-to-maturity          |   |                        | 102       |   |                        |   | 104 |   |   |   | 1,147 |   |   |   | 1,156 |   |
| Loans held for sale                  |   |                        | 6,388     |   |                        |   | 6,472 |   |   |   | 8,183 |   |   |   | 8,257 |   |
| Loans, net                           |   |                        | 780,075   |   |                        |   | 789,889 |   |   |   | 927,848 |   |   |   | 933,225 |   |
| Accrued interest receivable          |   |                        | 6,404     |   |                        |   | 6,404 |   |   |   | 5,658 |   |   |   | 5,658 |   |
| FHLB stock                           |   |                        | 4,909     |   |                        |   | N/A |   |   |   | 8,515 |   |   |   | N/A |   |
|                                 |   |                        |      |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:               |   |                        |      |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                             |   |                        | 1,173,908 |   |                        |   | 1,163,654 |   |   |   | 1,049,815 |   |   |   | 1,042,957 |   |
| Short-term borrowings                |   |                        | -         |   |                        |   | - |   |   |   | 1,500 |   |   |   | 1,500 |   |
| Advances from Federal Home Loan Bank |   |                        | 52,532    |   |                        |   | 55,190 |   |   |   | 52,745 |   |   |   | 55,856 |   |
| Subordinated debentures              |   |                        | 18,000    |   |                        |   | 12,743 |   |   |   | 18,000 |   |   |   | 12,743 |   |
| Accrued interest payable             |   |                        | 594       |   |                        |   | 594 |   |   |   | 360 |   |   |   | 360 |   |

----

| 7.  | PREMISES AND EQUIPMENT |
|----------|------------------------|

|                              |   | December 31, |    |
|-----------------------------------|--------|-------------------|---------|
| (Dollars in thousands)  |   | 2010              |    |   | 2009 |   |
|                              |   |              |    |   |   |   |
| Land                              |   | $                 | 8,024   |   |   | $ | 7,598 |   |
| Buildings                         |   |              | 27,151  |   |   |   | 27,020 |   |
| Furniture, fixtures and equipment |   |              | 13,109  |   |   |   | 11,976 |   |
|                              |   |              | 48,284  |   |   |   | 46,594 |   |
| Less accumulated depreciation     |   |              | (16,296 | ) |   |   | (14,629 | ) |
|                              |   | $                 | 31,988  |   |   | $ | 31,965 |   |

|                             |   | Year Ended   |   |
|----------------------------------|--------|-------------------|--------|
| (Dollars in thousands) |   | December 31, |   |
|                             |   |              |   |
| 2011                             |   | $                 | 593    |   |
| 2012                             |   |              | 494    |   |
| 2013                             |   |              | 306    |   |
| 2014                             |   |              | 274    |   |
| 2015                             |   |              | 274    |   |
| Thereafter                       |   |              | 3,651  |   |
|                             |   | $                 | 5,592  |   |

| 8.  | GOODWILL AND INTANGIBLE ASSETS |
|----------|--------------------------------|

|                                |   | December 31, |   |
|-------------------------------------|--------|-------------------|--------|
| (Dollars in thousands)    |   | 2010              |   |   | 2009 |   |   | 2008 |   |
|                                |   |              |   |   |   |   |   |   |   |
| Beginning of year                   |   | $                 | -      |   |   | $ | 11,931 |   |   | $ | 8,384 |   |
| Acquisition of FSB Bancshares, Inc. |   |              | -      |   |   |   | - |   |   |   | 3,547 |   |
| Goodwill impairment                 |   |              | -      |   |   |   | (11,931 | ) |   |   | - |   |
| End of year                         |   | $                 | -      |   |   | $ | - |   |   | $ | 11,931 |   |

----

| 8.  | GOODWILL AND INTANGIBLE ASSETS - (Continued) |
|----------|----------------------------------------------|

| (Dollars in thousands)        |   | December 31, 2010 |   |   | December 31, 2009 |   |
|-----------------------------------------|--------|-----------------------------|--------|--------|-----------------------------|--------|
|                                    |   | Gross                       |   |   |                        |   |   | Gross |   |   |   |   |
|                                    |   | Carrying                    |   |   | Accumulated                 |   |   | Carrying |   |   | Accumulated |   |
|                                    |   | Amount                      |   |   | Amortization                |   |   | Amount |   |   | Amortization |   |
| Amortized intangible assets:            |   |                        |   |   |                        |   |   |   |   |   |   |   |
| Core deposit intangibles                |   | $                           | 1,910  |   |                        | $      | 916 |   |   | $ | 1,910 |   |   | $ | 610 |   |
| Other customer relationship intangibles |   |                        | 669    |   |                        |   | 274 |   |   |   | 669 |   |   |   | 184 |   |
|                                    |   | $                           | 2,579  |   |                        | $      | 1,190 |   |   | $ | 2,579 |   |   | $ | 794 |   |

|                             |   | Year Ended   |   |
|----------------------------------|--------|-------------------|--------|
| (Dollars in thousands) |   | December 31, |   |
|                             |   |              |   |
| 2011                             |   | $                 | 370    |   |
| 2012                             |   |              | 322    |   |
| 2013                             |   |              | 277    |   |
| 2014                             |   |              | 145    |   |
| 2015                             |   |              | 98     |   |
|                             |   | $                 | 1,212  |   |

| 9.  | DEPOSITS |
|----------|----------|

| (Dollars in thousands) |   | Amount |    |
|----------------------------------|--------|--------|---------|
|                             |   |   |    |
| 2011                             |   | $      | 278,617 |   |
| 2012                             |   |   | 240,490 |   |
| 2013                             |   |   | 120,366 |   |
| 2014                             |   |   | 14,904  |   |
| 2015                             |   |   | 17,132  |   |
| Thereafter                       |   |   | 32,462  |   |
|                             |   | $      | 703,971 |   |

| 10.  | SHORT-TERM BORROWINGS |
|-----------|-----------------------|

----

| 11.  | ADVANCES FROM FEDERAL HOME LOAN BANK |
|-----------|--------------------------------------|

|                                                                                     |   | December 31, |   |
|------------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                     |   | 2010              |   |   | 2009 |   |
|                                                                                     |   | Weighted-         |   |   |   |   |   | Weighted- |   |   |   |   |
| (Dollars in Thousands)                                                         |   | Average           |   |   |   |   |   | Average |   |   |   |   |
|                                                                                     |   | Rate              |   |   | Amount |   |   | Rate |   |   | Amount |   |
| Fixed rate advances:                                                                     |   |              |   |   |   |   |   |   |   |   |   |   |
| Convertible fixed rate advances with interest rates from 3.99% to 5.05% due through 2017 |   |              | 4.55   | % |   | $ | 50,000 |   |   |   | 4.55 | % |   | $ | 50,000 |   |
| Other fixed rate advances with interest rates from 4.19% to 5.72% due through 2020       |   |              | 4.91   | % |   |   | 2,532 |   |   |   | 4.92 | % |   |   | 2,745 |   |
| Total borrowings                                                                         |   |              |   |   |   | $ | 52,532 |   |   |   |   |   |   | $ | 52,745 |   |

|       |   | (Dollars in thousands) |   |
|------------|--------|----------------------------------|--------|
|       |   |                             |   |
| 2011       |   | $                                | 25,138 |   |
| 2012       |   |                             | 128    |   |
| 2013       |   |                             | 129    |   |
| 2014       |   |                             | 10,202 |   |
| 2015       |   |                             | 496    |   |
| Thereafter |   |                             | 16,439 |   |
|       |   | $                                | 52,532 |   |

| 12. | SUBORDINATED DEBENTURES |
|-----|-------------------------|

----

| 12. | SUBORDINATED DEBENTURES - (Continued) |
|-----|---------------------------------------|

| 13.  | PREFERRED STOCK |
|-----------|-----------------|

----

| 14.  | INCOME TAXES |
|-----------|--------------|

|                               |   | Year Ended December 31, |   |
|------------------------------------|--------|----------------------------------------|--------|
| (Dollars in thousands)   |   | 2010                                   |   |   | 2009 |   |   | 2008 |   |
|                               |   | Restated                               |   |   |   |   |   |   |   |
| Current                            |   | $                                      | 239    |   |   | $ | 2,876 |   |   | $ | 3,615 |   |
| Deferred                           |   |                                   | (3,244 | ) |   |   | (4,025 | ) |   |   | (1,431 | ) |
|                               |   |                                   |   |   |   |   |   |   |   |   |   |   |
|                               |   |                                   | (3,005 | ) |   |   | (1,149 | ) |   |   | 2,184 |   |
| Valuation allowance                |   |                                   | 4,791  |   |   |   | - |   |   |   | - |   |
|                               |   |                                   |   |   |   |   |   |   |   |   |   |   |
| Total income tax expense/(benefit) |   | $                                      | 1,786  |   |   | $ | (1,149 | ) |   | $ | 2,184 |   |

|                                               |   | Year Ended December 31, |   |
|----------------------------------------------------|--------|----------------------------------------|--------|
| (Dollars in thousands)                   |   | 2010                                   |   |   | 2009 |   |   | 2008 |   |
|                                               |   | Restated                               |   |   |   |   |   |   |   |
| Federal statutory rate                             |   |                                   | 34.0   | % |   |   | 34.0 | % |   |   | 34.0 | % |
| Change in valuation allowance                      |   |                                   | (63.0  | ) |   |   | - |   |   |   | - |   |
| Goodwill impairment                                |   |                                   | -      |   |   |   | (23.2 | ) |   |   | - |   |
| Tax-exempt interest income                         |   |                                   | 3.8    |   |   |   | 2.2 |   |   |   | (1.9 | ) |
| Increase in cash surrender value of life insurance |   |                                   | 1.6    |   |   |   | 1.5 |   |   |   | (1.8 | ) |
| Dividends to ESOP                                  |   |                                   | -      |   |   |   | 0.3 |   |   |   | (0.6 | ) |
| Stock option expense                               |   |                                   | (0.5   | ) |   |   | (0.5 | ) |   |   | 0.6 |   |
| Effect of state tax expense recorded               |   |                                   | 0.5    |   |   |   | 0.2 |   |   |   | 0.7 |   |
| Other                                              |   |                                   | 0.1    |   |   |   | 0.1 |   |   |   | 0.3 |   |
| Effective rate                                     |   |                                   | -23.5  | % |   |   | 14.6 | % |   |   | 31.3 | % |

----

| 14. | INCOME TAXES - (Continued) |
|-----|----------------------------|

|                                                 |   | December 31, |   |
|------------------------------------------------------|--------|--------------|--------|
| (Dollars in thousands)                               |   | 2010         |   |   | 2009 |   |
|                                                 |   | Restated     |   |   |   |   |
| Deferred tax assets:                                 |   |         |   |   |   |   |
| Allowance for loan losses                            |   | $            | 7,824  |   |   | $ | 6,024 |   |
| Intangibles and fair value adjustments               |   |         | 226    |   |   |   | 348 |   |
| Net unrealized loss on securities available-for-sale |   |         | 1,794  |   |   |   | 547 |   |
| Other than temporary impairment                      |   |         | 780    |   |   |   | 469 |   |
| Prepaid retirement benefits                          |   |         | -      |   |   |   | 179 |   |
| Writedowns of real estate owned                      |   |         | 831    |   |   |   | 205 |   |
| Nonaccrual loan interest                             |   |         | 896    |   |   |   | 580 |   |
| Accrued liabilities and other                        |   |         | 203    |   |   |   | 150 |   |
| Total deferred tax assets                            |   |         | 12,554 |   |   |   | 8,502 |   |
|                                                 |   |         |   |   |   |   |   |   |
| Deferred tax liabilities:                            |   |         |   |   |   |   |   |   |
| Depreciation                                         |   | $            | 2,052  |   |   | $ | 2,056 |   |
| Federal Home Loan Bank stock                         |   |         | 1,049  |   |   |   | 1,554 |   |
| Deferred gain on like-kind exchange                  |   |         | 8      |   |   |   | 8 |   |
| Other                                                |   |         | 439    |   |   |   | 369 |   |
| Total deferred tax liabilities                       |   |         | 3,548  |   |   |   | 3,987 |   |
|                                                 |   |         |   |   |   |   |   |   |
| Net temporary differences                            |   |         | 9,006  |   |   |   | 4,515 |   |
|                                                 |   |         |   |   |   |   |   |   |
| Valuation allowance                                  |   |         | (6,024 | ) |   |   | - |   |
|                                                 |   |         |   |   |   |   |   |   |
| Net deferred tax assets                              |   | $            | 2,982  |   |   | $ | 4,515 |   |

----

| 15.  | STOCKHOLDERS’ EQUITY |
|-----------|----------------------------|

|   | (a) | Regulatory Capital Requirements –The Corporation and the Bank are subject to regulatory capital requirements administered by federal banking agencies.  Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices.  Capital amounts and classifications are also subject to qualitative judgments by regulators.  Failure to meet capital requirements can initiate regulatory action. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition.  If adequately capitalized, regulatory approval is required to accept brokered deposits.  If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the following table) of Total and Tier I capital (as defined in the regulations) to risk weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As part of an informal regulatory agreement with the FDIC and KDFI, the Bank was required to maintain a Tier 1 leverage ratio of 8%.  At December 31, 2010, we were not in compliance with the Tier 1 capital requirement. Although the Corporation and the Bank remain above the regulatory capital levels for “well-capitalized” standards, because of the losses we have incurred in recent quarters, our elevated levels of non-performing loans and other real estate, and the ongoing economic stress in Jefferson and Oldham Counties, Kentucky, the FDIC, KDFI and the Bank entered into the Consent Order referred to in Note 2.  The Consent Order resulted in the Bank being categorized as a "troubled institution" by bank regulators, which by definition does not permit the Bank to be considered "well-capitalized" despite its current capital levels. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 15.  | STOCKHOLDERS’ EQUITY – (Continued) |
|-----------|------------------------------------------------|

|                                           |   |   |    |   |              |   |   |              |   |   |       |   |   | To Be Considered |   |
|-----------------------------------------------------|--------|--------|---------|--------|-------------------|--------|--------|-------------------|--------|--------|------------|--------|--------|------------------|--------|
|                                                |   |   |    |   |              |   |   |              |   |   |       |   |   | Well Capitalized |   |
|                                                |   |   |    |   |              |   |   |              |   |   |       |   |   | Under Prompt     |   |
| (Dollars in thousands)                              |   |   |    |   |              |   |   | For Capital       |   |   | Correction |   |
|                                                |   | Actual |    |   | Adequacy Purposes |   |   | Action Provisions |   |
| As of December 31, 2010:                            |   | Amount |    |   | Ratio             |   |   | Amount            |   |   | Ratio      |   |   | Amount           |   |   | Ratio |   |
| Restated                                            |   |   |    |   |              |   |   |              |   |   |       |   |   |             |   |   |   |   |
| Total risk-based capital (to risk- weighted assets) |   |   |    |   |              |   |   |              |   |   |       |   |   |             |   |   |   |   |
| Consolidated                                        |   | $      | 104,717 |   |              |   | 11.34  | %                 |   | $      | 73,890     |   |   |             | 8.00   | % |   |   | N/A |   |   |   | N/A |   |
| Bank                                                |   |   | 105,116 |   |              |   | 11.38  |              |   |   | 73,880     |   |   |             | 8.00   |   |   |   | 92,350 |   |   |   | 10.00 |   |
| Tier I capital (to risk-weighted assets)            |   |   |    |   |              |   |   |              |   |   |       |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                        |   |   | 93,034  |   |              |   | 10.07  |              |   |   | 36,945     |   |   |             | 4.00   |   |   |   | N/A |   |   |   | N/A |   |
| Bank                                                |   |   | 93,423  |   |              |   | 10.12  |              |   |   | 36,940     |   |   |             | 4.00   |   |   |   | 55,410 |   |   |   | 6.00 |   |
| Tier I capital (to average assets)                  |   |   |    |   |              |   |   |              |   |   |       |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                        |   |   | 93,034  |   |              |   | 7.16   |              |   |   | 52,003     |   |   |             | 4.00   |   |   |   | N/A |   |   |   | N/A |   |
| Bank                                                |   |   | 93,423  |   |              |   | 7.18   |              |   |   | 52,082     |   |   |             | 4.00   |   |   |   | 65,103 |   |   |   | 5.00 |   |

|                                           |   |   |    |   |              |   |   |              |   |   |       |   |   | To Be Considered |   |
|-----------------------------------------------------|--------|--------|---------|--------|-------------------|--------|--------|-------------------|--------|--------|------------|--------|--------|------------------|--------|
|                                                |   |   |    |   |              |   |   |              |   |   |       |   |   | Well Capitalized |   |
|                                                |   |   |    |   |              |   |   |              |   |   |       |   |   | Under Prompt     |   |
| (Dollars in thousands)                              |   |   |    |   |              |   |   | For Capital       |   |   | Correction |   |
|                                                |   | Actual |    |   | Adequacy Purposes |   |   | Action Provisions |   |
| As of December 31, 2009:                            |   | Amount |    |   | Ratio             |   |   | Amount            |   |   | Ratio      |   |   | Amount           |   |   | Ratio |   |
| Total risk-based capital (to risk- weighted assets) |   |   |    |   |              |   |   |              |   |   |       |   |   |             |   |   |   |   |
| Consolidated                                        |   | $      | 115,702 |   |              |   | 11.35  | %                 |   | $      | 81,550     |   |   |             | 8.00   | % |   |   | N/A |   |   |   | N/A |   |
| Bank                                                |   |   | 114,514 |   |              |   | 11.25  |              |   |   | 81,467     |   |   |             | 8.00   |   |   |   | 101,834 |   |   |   | 10.00 |   |
| Tier I capital (to risk-weighted assets)            |   |   |    |   |              |   |   |              |   |   |       |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                        |   |   | 102,894 |   |              |   | 10.09  |              |   |   | 40,775     |   |   |             | 4.00   |   |   |   | N/A |   |   |   | N/A |   |
| Bank                                                |   |   | 101,719 |   |              |   | 9.99   |              |   |   | 40,734     |   |   |             | 4.00   |   |   |   | 61,100 |   |   |   | 6.00 |   |
| Tier I capital (to average assets)                  |   |   |    |   |              |   |   |              |   |   |       |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                        |   |   | 102,894 |   |              |   | 8.66   |              |   |   | 47,533     |   |   |             | 4.00   |   |   |   | N/A |   |   |   | N/A |   |
| Bank                                                |   |   | 101,719 |   |              |   | 8.90   |              |   |   | 45,732     |   |   |             | 4.00   |   |   |   | 57,165 |   |   |   | 5.00 |   |

|                                   |   |                   |   |   | Ratio Required    |   |   | Ratio Required    |   |
|----------------------------------------|--------|------------------------|--------|--------|------------------------|--------|--------|------------------------|--------|
|                                   |   | Actual as of |   |   | by the Order |   |   | by the Order |   |
|                                   |   | 12/31/2010             |   |   | at 3/31/2011      |   |   | at 6/30/2011      |   |
|                                   |   | Restated               |   |   |                   |   |   |                   |   |
| Total capital to risk-weighted assets  |   |                   | 11.38  | %      |                   |   | 11.50  | %                      |   |   | 12.00 | % |
| Tier 1 capital to average total assets |   |                   | 7.18   | %      |                   |   | 8.50   | %                      |   |   | 9.00 | % |

|   | (b) | Dividend Restrictions – Our principal source of funds for dividend payments is dividends received from the Bank.  Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies.  Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above.  The Bank currently has a regulatory agreement with the FDIC and KDFI that requires us to obtain the consent of the Regional Director of the FDIC and the Commissioner of the KDFI to declare and pay cash dividends.  The Corporation has also entered into an agreement with the Federal Reserve to obtain regulatory approval before declaring any dividends.  We may not redeem shares or obtain additional borrowings without prior approval. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 15.  | STOCKHOLDERS’ EQUITY – (Continued) |
|-----------|------------------------------------------------|

|   | (c) | Liquidation Account – In connection with our conversion from mutual to stock form of ownership during 1987, we established a “liquidation account”, currently in the amount of $521,000 for the purpose of granting to eligible deposit account holders a priority in the event of future liquidation.  Only in such an event, an eligible account holder who continues to maintain a deposit account will be entitled to receive a distribution from the liquidation account.  The total amount of the liquidation account decreases in an amount proportionately corresponding to decreases in the deposit account balances of the eligible account holders. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | Capital Purchase Program – On January 9, 2009, we sold $20 million of cumulative perpetual preferred shares, with a liquidation preference of $1,000 per share (the “Senior Preferred Shares”) to the U.S. Treasury under the terms of its Capital Purchase Plan.  The Senior Preferred Shares constitute Tier 1 capital and rank senior to our common shares.  The Senior Preferred Shares pay cumulative dividends at a rate of 5% per annum for the first five years and will reset to a rate of 9% per annum after five years. The Senior Preferred Shares may be redeemed at any time, at our option.  See Note 13 for additional information. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 16.  | EARNINGS (LOSS) PER SHARE |
|-----------|---------------------------|

| (Dollars in thousands, except per share data)      |   | Year EndedDecember 31, |    |
|----------------------------------------------------|--------|------------------------|---------|
|                                               |   | 2010                   |    |   | 2009 |   |   | 2008 |   |
|                                               |   | Restated               |    |   |   |   |   |   |   |
| Basic:                                             |   |                   |    |   |   |   |   |   |   |
| Net income/(loss)                                  |   | $                      | (9,402  | ) |   | $ | (6,709 | ) |   | $ | 4,797 |   |
| Less:                                              |   |                   |    |   |   |   |   |   |   |   |   |   |
| Preferred stock dividends                          |   |                   | (1,000  | ) |   |   | (980 | ) |   |   | - |   |
| Accretion on preferred stock discount              |   |                   | (54     | ) |   |   | (52 | ) |   |   | - |   |
| Net income (loss) available to common shareholders |   | $                      | (10,456 | ) |   | $ | (7,741 | ) |   | $ | 4,797 |   |
| Weighted average common shares                     |   |                   | 4,724   |   |   |   | 4,695 |   |   |   | 4,666 |   |
|                                               |   |                   |    |   |   |   |   |   |   |   |   |   |
| Diluted:                                           |   |                   |    |   |   |   |   |   |   |   |   |   |
| Weighted average common shares                     |   |                   | 4,724   |   |   |   | 4,695 |   |   |   | 4,666 |   |
| Dilutive effect of stock options and warrants      |   |                   | -       |   |   |   | - |   |   |   | 20 |   |
| Weighted average common and incremental shares     |   |                   | 4,724   |   |   |   | 4,695 |   |   |   | 4,686 |   |
|                                               |   |                   |    |   |   |   |   |   |   |   |   |   |
| Earnings (Loss) Per Common Share:                  |   |                   |    |   |   |   |   |   |   |   |   |   |
| Basic                                              |   | $                      | (2.21   | ) |   | $ | (1.65 | ) |   | $ | 1.03 |   |
| Diluted                                            |   | $                      | (2.21   | ) |   | $ | (1.65 | ) |   | $ | 1.02 |   |

| 17. | EMPLOYEE BENEFIT PLANS |
|-----|------------------------|

|   | (a) | Pension Plan–We are a participant in the Pentegra Defined Benefit Plan for Financial Institutions (formerly known as Financial Institutions Retirement Fund) which is a non-contributory, multiple-employer defined benefit pension plan, covering employees hired before June 1, 2002.  Because the plan was curtailed, employees hired on or after that date are not eligible for membership in the fund.  Eligible employees are 100% vested at the completion of five years of participation in the plan.  Our policy is to contribute annually the minimum funding amounts.  Employer contributions and administrative expenses charged to operations for the years ended December 31, 2010, 2009 and 2008 totaled $1,000, $233,000, and $1,000, respectively. Accrued liabilities associated with the plan as of December 31, 2010 and 2009 were $324,000 and $527,000, respectively. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 17.  | EMPLOYEE BENEFIT PLANS – (Continued) |
|-----------|--------------------------------------------|

|   | (b) | KSOP–We have a combined 401(k)/Employee Stock Ownership Plan.  The plan is available to all employees meeting certain eligibility requirements. The plan allows employee contributions up to 50% of their compensation up to the annual dollar limit set by the IRS. The employer matches 100% of the employee contributions up to 6% of the employee’s compensation.  If the employee does not contribute at least 2% of the employee’s compensation, then the employer makes a minimum contribution for the employee of 2% of the employee’s compensation.  Employees are 100% vested in matching contributions upon meeting the eligibility requirements of the plan.  Shares of our common stock are acquired in non-leveraged transactions.  At the time of purchase, the shares are released and allocated to eligible employees determined by a formula specified in the plan agreement.  Accordingly, the plan has no unallocated shares.  The number of shares to be purchased and allocated is at the Board of Directors discretion.  For 2010 and 2009, the Board of Directors decided not to make a contribution to the KSOP plan. Employer matching contributions and administrative expenses charged to operations for the plan for the years ended December 31, 2010, 2009 and 2008 were $540,000, $552,000, and $494,000, respectively. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                 |   | Year Ended   |    |
|----------------------|--------|-------------------|---------|
|                 |   | December 31, |    |
|                 |   | 2010              |    |   | 2009 |   |   | 2008 |   |
|                 |   |              |    |   |   |   |   |   |   |
| KSOP shares (ending) |   |              | 236,625 |   |   |   | 205,289 |   |   |   | 224,956 |   |
| Shares released      |   |              | -       |   |   |   | - |   |   |   | 7,877 |   |
| Compensation expense |   | $                 | -       |   |   | $ | - |   |   | $ | 110,500 |   |

|   | (c) | Stock Based Compensation Plan – Our 2006 Stock Option and Incentive Compensation Plan, which is shareholder approved, succeeded our 1998 Stock Option and Incentive Compensation Plan. Under the 2006 Plan, we may grant restricted stock and incentive or non-qualified stock options tokey employees and directorsfor a total of 647,350 shares of our common stock.Options available for future grant under the 1998 Plan totaled 38,500 shares and were rolled into the 2006 Plan.We believe that the ability to award stock options and other forms of stock-based incentive compensation can assist us in attracting and retaining key employees. Stock-based incentive compensation is also a means to align the interests of key employees with those of our shareholders by providing awards intended to reward recipients for our long-term growth.The option to purchase shares vest over periods of one to five years and expire ten years after the date of grant.We issue new shares of common stock upon the exercise of stock options. If options or awards granted under the 2006 Plan expire or terminate for any reason without having been exercised in full or released from restriction, the corresponding shares shall again be available for option or award for the purposes of the Plan. At December 31, 2010, options and restricted stock available for future grant under the 2006 Plan totaled 430,559. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 17.  | EMPLOYEE BENEFIT PLANS – (Continued) |
|-----------|--------------------------------------------|

|                                          |   | December 31, |   |
|-----------------------------------------------|--------|-------------------|--------|
|                                          |   | 2010              |   |   | 2009 |   |   | 2008 |   |
| Assumptions:                                  |   |              |   |   |   |   |   |   |   |
| Risk-free interest rate                       |   |              | 3.31   | % |   |   | 3.84 | % |   |   | 3.48 | % |
| Expected dividend yield                       |   |              | -      | % |   |   | 6.83 | % |   |   | 3.49 | % |
| Expected life (years)                         |   |              | 10     |   |   |   | 10 |   |   |   | 10 |   |
| Expected common stock market price volatility |   |              | 37     | % |   |   | 36 | % |   |   | 24 | % |
| Estimated fair value per share                |   | $                 | 1.68   |   |   | $ | 1.51 |   |   | $ | 4.84 |   |

|                                |   |    |    |   | Weighted |   |   | Average     |   |   |                             |   |
|-------------------------------------|--------|---------|---------|--------|----------|--------|--------|-------------|--------|--------|----------------------------------|--------|
|                                |   | Number  |    |   | Average  |   |   | Remaining   |   |   | Aggregate                        |   |
|                                |   | of      |    |   | Exercise |   |   | Contractual |   |   | Intrinsic                        |   |
|                                |   | Options |    |   | Price    |   |   | Term        |   |   | Value                            |   |
|                                |   |    |    |   |     |   |   |        |   |   | (Dollars In Thousands) |   |
|                                |   |    |    |   |     |   |   |        |   |   |                             |   |
| Outstanding, beginning of period    |   |    | 279,706 |   |     | $      | 15.12  |        |   |   |                             |   |   |   |
| Granted during period               |   |    | 61,500  |   |     |   | 4.07   |        |   |   |                             |   |   |   |
| Forfeited during period             |   |    | (4,685  | )      |     |   | 11.61  |        |   |   |                             |   |   |   |
| Cancelled during period             |   |    | (40,000 | )      |     |   | 9.06   |        |   |   |                             |   |   |   |
| Exercised during period             |   |    | -       |   |     |   | -      |        |   |   |                             |   |   |   |
| Outstanding, end of period          |   |    | 296,521 |   |     | $      | 13.70  |        |   |   | 7.2                              |   |   | $ | - |   |
|                                |   |    |    |   |     |   |   |        |   |   |                             |   |   |   |   |   |
| Eligible for exercise at period end |   |    | 125,793 |   |     | $      | 18.97  |        |   |   | 5.0                              |   |   | $ | - |   |

|   | (d) | Employee Stock Purchase Plan – We maintain an Employee Stock Purchase Plan whereby eligible employees have the option to purchase common stock of the Corporation through payroll deduction at a 10% discount.  The purchase price of the shares under the plan will be 90% of the closing price of the common stock at the date of purchase.  The plan provides for the purchase of up to 100,000 shares of common stock, which may be obtained by purchases issued from a reserve.  Funding for the purchase of common stock is from employee contributions.  Total compensation cost charged against earnings for the Plan for the periods ended December 31, 2010, 2009 and 2008 totaled $9,000, $12,000 and $9,000, respectively. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 18.  | CASH FLOW ACTIVITIES |
|-----------|----------------------|

|                                                                                    |   | Year Ended   |   |
|-----------------------------------------------------------------------------------------|--------|-------------------|--------|
| (a)   Cash Paid for:                                           |   | December 31, |   |
|     (Dollars in thousands)                                     |   | 2010              |   |   | 2009 |   |   | 2008 |   |
|                                                                                    |   |              |   |   |   |   |   |   |   |
| Interest expense                                                                        |   | $                 | 23,251 |   |   | $ | 21,720 |   |   | $ | 25,604 |   |
|                                                                                    |   |              |   |   |   |   |   |   |   |   |   |   |
| Income taxes                                                                            |   | $                 | 1,950  |   |   | $ | 3,014 |   |   | $ | 3,649 |   |
|                                                                                    |   |              |   |   |   |   |   |   |   |   |   |   |
| (b)   Supplemental disclosure of non-cash activities:                         |   |
|     (Dollars in thousands)                                               |   |
|                                                                                    |   | Year Ended        |   |
|                                                                                    |   | December 31,      |   |
|                                                                                    |   | 2010              |   |   | 2009 |   |   | 2008 |   |
|                                                                                    |   |              |   |   |   |   |   |   |   |   |   |
| Loans to facilitate sales of real estate owned and repossessed assets                   |   | $                 | 7,589  |   |   | $ | 6,072 |   |   | $ | 978 |   |
|                                                                                    |   |              |   |   |   |   |   |   |   |   |   |   |
| Transfers from loans to real estate acquired through foreclosure and repossessed assets |   | $                 | 25,702 |   |   | $ | 8,587 |   |   | $ | 5,196 |   |

----

| 19. | CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) |
|-----|-------------------------------------------------------|

| Condensed Balance Sheets                                        |   |
|-----------------------------------------------------------------|--------|
|                                                            |   |   |   |   |   |   |   |   |   |
|                                                            |   | December 31, |   |   |   |   |
| (Dollars in thousands)                                          |   | 2010 |   |   | 2009 |   |   |   |   |
|                                                            |   | Restated |   |   |   |   |   |   |   |
|                                                            |   |   |   |   |   |   |   |   |   |
| Assets                                                          |   |   |   |   |   |   |   |   |   |   |   |
| Cash and interest bearing deposits                              |   | $ | 240 |   |   | $ | 1,860 |   |   |   |   |
| Investment in Bank                                              |   |   | 89,701 |   |   |   | 101,930 |   |   |   |   |
| Securities available-for sale                                   |   |   | 291 |   |   |   | 978 |   |   |   |   |
| Other assets                                                    |   |   | 80 |   |   |   | 163 |   |   |   |   |
|                                                            |   | $ | 90,312 |   |   | $ | 104,931 |   |   |   |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and Stockholders' Equity                            |   |   |   |   |   |   |   |   |   |   |   |
| Short-term borrowings                                           |   | $ | - |   |   | $ | 1,500 |   |   |   |   |
| Subordinated debentures                                         |   |   | 18,000 |   |   |   | 18,000 |   |   |   |   |
| Other liabilities                                               |   |   | 1,001 |   |   |   | 299 |   |   |   |   |
| Stockholders' equity                                            |   |   | 71,311 |   |   |   | 85,132 |   |   |   |   |
|                                                            |   | $ | 90,312 |   |   | $ | 104,931 |   |   |   |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |
| Condensed Statements of Income/(Loss)                           |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |
|                                                            |   | Year Ended |   |
|                                                            |   | December 31, |   |
| (Dollars in thousands)                                          |   | 2010 |   |   | 2009 |   |   | 2008 |   |
|                                                            |   | Restated |   |   |   |   |   |   |   |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |
| Dividend from Bank                                              |   | $ | 587 |   |   | $ | 3,052 |   |   | $ | 10,823 |   |
| Interest income                                                 |   |   | 57 |   |   |   | 107 |   |   |   | 70 |   |
| Interest expense                                                |   |   | (1,368 | ) |   |   | (1,353 | ) |   |   | (978 | ) |
| Gain on sale of investments                                     |   |   | 37 |   |   |   | - |   |   |   | 55 |   |
| Losses on securities impairment                                 |   |   | - |   |   |   | - |   |   |   | (516 | ) |
| Other income                                                    |   |   | - |   |   |   | 1 |   |   |   | 5 |   |
| Other expenses                                                  |   |   | (168 | ) |   |   | (378 | ) |   |   | (520 | ) |
| Income before income tax benefit                                |   |   | (855 | ) |   |   | 1,429 |   |   |   | 8,939 |   |
| Income tax benefit                                              |   |   | (153 | ) |   |   | 609 |   |   |   | 703 |   |
| Income before equity in undistributed net income/(loss) of Bank |   |   | (1,008 | ) |   |   | 2,038 |   |   |   | 9,642 |   |
| Equity in undistributed net income/(loss) of Bank               |   |   | (8,394 | ) |   |   | (8,747 | ) |   |   | (4,845 | ) |
| Net income/(loss)                                               |   | $ | (9,402 | ) |   | $ | (6,709 | ) |   | $ | 4,797 |   |

----

| 19. | CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) – (Continued) |
|-----|---------------------------------------------------------------------------|

|                                                                                 |   | Year Ended   |   |
|--------------------------------------------------------------------------------------|--------|--------------|--------|
| (Dollars in thousands)                                                               |   | December 31, |   |
|                                                                                 |   | 2010         |   |   | 2009 |   |   | 2008 |   |
|                                                                                 |   | Restated     |   |   |   |   |   |   |   |
| Operating Activities:                                                                |   |         |   |   |   |   |   |   |   |
| Net income/(loss)                                                                    |   | $            | (9,402 | ) |   | $ | (6,709 | ) |   | $ | 4,797 |   |
| Adjustments to reconcile net income/(loss) to cash provided by operating activities: |   |         |   |   |   |   |   |   |   |   |   |   |
| Equity in undistributed net income/(loss) of Bank                                    |   |         | 8,394  |   |   |   | 8,747 |   |   |   | 4,845 |   |
| Losses on securities impairment                                                      |   |         | -      |   |   |   | - |   |   |   | 516 |   |
| Gain on sale of investments available-for-sale                                       |   |         | (37    | ) |   |   | - |   |   |   | (55 | ) |
| Stock-based compensation expense                                                     |   |         | 100    |   |   |   | 103 |   |   |   | 122 |   |
| Changes in:                                                                          |   |         |   |   |   |   |   |   |   |   |   |   |
| Other assets                                                                         |   |         | 305    |   |   |   | (107 | ) |   |   | (185 | ) |
| Accounts payable and other liabilities                                               |   |         | 702    |   |   |   | 1 |   |   |   | 177 |   |
| Net cash from operating activities                                                   |   |         | 62     |   |   |   | 2,035 |   |   |   | 10,217 |   |
|                                                                                 |   |         |   |   |   |   |   |   |   |   |   |   |
| Investing Activities:                                                                |   |         |   |   |   |   |   |   |   |   |   |   |
| Cash paid for acquisition of Farmers State Bank                                      |   |         | -      |   |   |   | - |   |   |   | (14,000 | ) |
| Capital contributed to Bank                                                          |   |         | -      |   |   |   | (20,000 | ) |   |   | (1,100 | ) |
| Purchases of securities available-for-sale                                           |   |         | -      |   |   |   | - |   |   |   | (524 | ) |
| Sales of securities available-for-sale                                               |   |         | 685    |   |   |   | - |   |   |   | 669 |   |
| Net cash from investing activities                                                   |   |         | 685    |   |   |   | (20,000 | ) |   |   | (14,955 | ) |
|                                                                                 |   |         |   |   |   |   |   |   |   |   |   |   |
| Financing Activities:                                                                |   |         |   |   |   |   |   |   |   |   |   |   |
| Change in short-term borrowings                                                      |   |         | (1,500 | ) |   |   | 1,500 |   |   |   | - |   |
| Proceeds from issuance of subordinated debentures                                    |   |         | -      |   |   |   | - |   |   |   | 8,000 |   |
| Issuance of preferred stock, net                                                     |   |         | -      |   |   |   | 20,000 |   |   |   | - |   |
| Issuance of common stock under dividend reinvestment program                         |   |         | 17     |   |   |   | 303 |   |   |   | - |   |
| Issuance of common stock for stock options exercised                                 |   |         | -      |   |   |   | 101 |   |   |   | - |   |
| Issuance of common stock for employee benefit plans                                  |   |         | 116    |   |   |   | 103 |   |   |   | 144 |   |
| Dividends paid on common stock                                                       |   |         | -      |   |   |   | (2,015 | ) |   |   | (3,546 | ) |
| Dividends paid on preferred stock                                                    |   |         | (1,000 | ) |   |   | (980 | ) |   |   | - |   |
| Net cash from financing activities                                                   |   |         | (2,367 | ) |   |   | 19,012 |   |   |   | 4,598 |   |
|                                                                                 |   |         |   |   |   |   |   |   |   |   |   |   |
| Net change in cash and interest bearing deposits                                     |   |         | (1,620 | ) |   |   | 1,047 |   |   |   | (140 | ) |
| Cash and interest bearing deposits, beginning of year                                |   |         | 1,860  |   |   |   | 813 |   |   |   | 953 |   |
| Cash and interest bearing deposits, end of year                                      |   | $            | 240    |   |   | $ | 1,860 |   |   | $ | 813 |   |

----

| 20.  | FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK |
|-----------|---------------------------------------------------|

| (Dollars in thousands) |   | December 31, 2010 |   |   | December 31, 2009 |   |
|----------------------------------|--------|-----------------------------|--------|--------|-----------------------------|--------|
|                             |   | Fixed                       |   |   | Variable                    |   |   | Fixed |   |   | Variable |   |
|                             |   | Rate                        |   |   | Rate                        |   |   | Rate |   |   | Rate |   |
|                             |   |                        |   |   |                        |   |   |   |   |   |   |   |
| Commitments to make loans        |   | $                           | -      |   |                        | $      | - |   |   | $ | - |   |   | $ | 496 |   |
| Unused lines of credit           |   |                        | -      |   |                        |   | 87,475 |   |   |   | - |   |   |   | 110,484 |   |
| Standby letters of credit        |   |                        | -      |   |                        |   | 9,150 |   |   |   | - |   |   |   | 9,319 |   |
|                             |   | $                           | -      |   |                        | $      | 96,625 |   |   | $ | - |   |   | $ | 120,299 |   |

| 21.  | RELATED PARTY TRANSACTIONS |
|-----------|----------------------------|

|                             |   | December 31, |   |
|----------------------------------|--------|-------------------|--------|
| (Dollars in thousands) |   | 2010              |   |   | 2009 |   |
|                             |   |              |   |   |   |   |
| Beginning of year                |   | $                 | 2,389  |   |   | $ | 1,306 |   |
| New loans                        |   |              | 253    |   |   |   | 1,231 |   |
| Other changes                    |   |              | 15     |   |   |   | 978 |   |
| Repayments                       |   |              | (917   | ) |   |   | (1,126 | ) |
| End of year                      |   | $                 | 1,740  |   |   | $ | 2,389 |   |

----

| 22.  | SUMMARY OF QUARTERLY FINANCIAL DATA – (Unaudited) |
|-----------|---------------------------------------------------------|

| (Dollars in thousands except per share data) |   |
|----------------------------------------------------------------------------|--------|
|                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Year Ended December 31, 2010:                          |   | March 31, |   |   | June 30, |   |   | September 30, |   |   | December 31, |   |
|                                                                       |   |   |   |   |   |   |   |   |   |   | Restated |   |
| Total interest income                                                      |   | $ | 14,711 |   |   | $ | 15,347 |   |   | $ | 14,915 |   |   | $ | 14,592 |   |
| Total interest expense                                                     |   |   | 5,810 |   |   |   | 5,828 |   |   |   | 5,819 |   |   |   | 6,028 |   |
| Net interest income                                                        |   |   | 8,901 |   |   |   | 9,519 |   |   |   | 9,096 |   |   |   | 8,564 |   |
| Provision for loan losses                                                  |   |   | 1,752 |   |   |   | 3,274 |   |   |   | 6,327 |   |   |   | 5,528 |   |
| Non-interest income                                                        |   |   | 2,138 |   |   |   | 2,181 |   |   |   | 1,980 |   |   |   | 1,005 |   |
| Non-interest expense                                                       |   |   | 8,274 |   |   |   | 8,634 |   |   |   | 8,714 |   |   |   | 8,497 |   |
| Net income/(loss) attributable to common shareholders                      |   |   | 491 |   |   |   | (325 | ) |   |   | (2,757 | ) |   |   | (7,865 | ) |
| Earnings/(loss) per common share:                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                      |   |   | 0.10 |   |   |   | (0.07 | ) |   |   | (0.58 | ) |   |   | (1.66 | ) |
| Diluted                                                                    |   |   | 0.10 |   |   |   | (0.07 | ) |   |   | (0.58 | ) |   |   | (1.66 | ) |
|                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Year Ended December 31, 2009:                                              |   | March 31, |   |   | June 30, |   |   | September 30, |   |   | December 31, |   |
|                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total interest income                                                      |   | $ | 14,358 |   |   | $ | 14,578 |   |   | $ | 14,859 |   |   | $ | 15,061 |   |
| Total interest expense                                                     |   |   | 5,469 |   |   |   | 5,322 |   |   |   | 5,472 |   |   |   | 5,529 |   |
| Net interest income                                                        |   |   | 8,889 |   |   |   | 9,256 |   |   |   | 9,387 |   |   |   | 9,532 |   |
| Provision for loan losses                                                  |   |   | 2,045 |   |   |   | 1,913 |   |   |   | 2,482 |   |   |   | 3,084 |   |
| Non-interest income                                                        |   |   | 2,003 |   |   |   | 2,090 |   |   |   | 1,895 |   |   |   | 2,531 |   |
| Non-interest expense                                                       |   |   | 7,783 |   |   |   | 8,444 |   |   |   | 8,028 |   |   |   | 19,662 |   |
| Net income/(loss) attributable to common shareholders                      |   |   | 483 |   |   |   | 488 |   |   |   | 312 |   |   |   | (9,024 | ) |
| Earnings/(loss) per common share:                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                      |   |   | 0.10 |   |   |   | 0.10 |   |   |   | 0.07 |   |   |   | (1.92 | ) |
| Diluted                                                                    |   |   | 0.10 |   |   |   | 0.10 |   |   |   | 0.07 |   |   |   | (1.92 | ) |

| 23.  | RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS |
|-----------|--------------------------------------------------|

----

| 23.  | RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS – (Continued) |
|-----------|----------------------------------------------------------------------|

|                                       |   | At December 31, 2010 |      |
|--------------------------------------------|--------|-------------------------------------|-----------|
|                                       |   | As Previously                  |      |   |   |   |   |   |   |
| Consolidated Balance Sheet       |   | Reported                            |      |   | Adjustment |   |   | Restated |   |
| Real estate owned:                         |   |                                |      |   |   |   |   |   |   |
| Acquired through foreclosure               |   | $                                   | 26,604    |   |   | $ | (797 | ) |   | $ | 25,807 |   |
| Accrued income taxes                       |   |                                | 2,102     |   |   |   | 59 |   |   |   | 2,161 |   |
| Other assets                               |   |                                | 2,638     |   |   |   | (250 | ) |   |   | 2,388 |   |
| Total assets                               |   |                                | 1,320,495 |   |   |   | (988 | ) |   |   | 1,319,507 |   |
| Accounts payable and other liabilities     |   |                                | 3,023     |   |   |   | 139 |   |   |   | 3,162 |   |
| Total liabilities                          |   |                                | 1,248,057 |   |   |   | 139 |   |   |   | 1,248,196 |   |
| Retained earnings                          |   |                                | 17,391    |   |   |   | (1,127 | ) |   |   | 16,264 |   |
| Total stockholders' equity                 |   |                                | 72,438    |   |   |   | (1,127 | ) |   |   | 71,311 |   |
| Total liabilities and stockholders' equity |   |                                | 1,320,495 |   |   |   | (988 | ) |   |   | 1,319,507 |   |

|                                                                |   | As of and for the Three Months Ended, |   |   | As of and for the Year Ended, |   |
|--------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------|--------|
|                                                                     |   | December 31, 2010                                              |   |   | December 31, 2010                                 |   |
| Consolidated Statement                                              |   | As Previously                                                       |   |   |                                                        |   |   |   |   |   | As Previously |   |   |   |   |   |   |   |
| of Operations                                                       |   | Reported                                                                 |   |   | Adjustment                                                  |   |   | Restated |   |   | Reported |   |   | Adjustment |   |   | Restated |   |
| Loss on sale and write downs on real estate acquired through foreclosure |   | $                                                                        | (698   | )      |                                                        | $      | (797 | ) |   | $ | (1,495 | ) |   | $ | (1,536 | ) |   | $ | (797 | ) |   | $ | (2,333 | ) |
| Total non-interest income                                                |   |                                                                     | 1,802  |   |                                                        |   | (797 | ) |   |   | 1,005 |   |   |   | 8,101 |   |   |   | (797 | ) |   |   | 7,304 |   |
|                                                                     |   |                                                                     |   |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Employee compensation and benefits                                       |   |                                                                     | 3,491  |   |                                                        |   | 56 |   |   |   | 3,547 |   |   |   | 15,662 |   |   |   | 56 |   |   |   | 15,718 |   |
| Outside services and data processing                                     |   |                                                                     | 617    |   |                                                        |   | 83 |   |   |   | 700 |   |   |   | 2,637 |   |   |   | 83 |   |   |   | 2,720 |   |
| Bank franchise tax                                                       |   |                                                                     | 328    |   |                                                        |   | 250 |   |   |   | 578 |   |   |   | 1,810 |   |   |   | 250 |   |   |   | 2,060 |   |
| Total non-interest expense                                               |   |                                                                     | 8,108  |   |                                                        |   | 389 |   |   |   | 8,497 |   |   |   | 33,730 |   |   |   | 389 |   |   |   | 34,119 |   |
|                                                                     |   |                                                                     |   |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income/(loss) before income taxes                                        |   |                                                                     | (3,270 | )      |                                                        |   | (1,186 | ) |   |   | (4,456 | ) |   |   | (6,430 | ) |   |   | (1,186 | ) |   |   | (7,616 | ) |
| Income taxes/(benefits)                                                  |   |                                                                     | 3,205  |   |                                                        |   | (59 | ) |   |   | 3,146 |   |   |   | 1,845 |   |   |   | (59 | ) |   |   | 1,786 |   |
|                                                                     |   |                                                                     |   |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income/(loss)                                                        |   |                                                                     | (6,475 | )      |                                                        |   | (1,127 | ) |   |   | (7,602 | ) |   |   | (8,275 | ) |   |   | (1,127 | ) |   |   | (9,402 | ) |
| Net income/(loss) attributable to common shareholders                    |   |                                                                     | (6,738 | )      |                                                        |   | (1,127 | ) |   |   | (7,865 | ) |   |   | (9,329 | ) |   |   | (1,127 | ) |   |   | (10,456 | ) |
|                                                                     |   |                                                                     |   |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic income/(loss) per common share                                     |   |                                                                     | (1.42  | )      |                                                        |   | (0.24 | ) |   |   | (1.66 | ) |   |   | (1.97 | ) |   |   | (0.24 | ) |   |   | (2.21 | ) |
| Diluted income/(loss) per common share                                   |   |                                                                     | (1.42  | )      |                                                        |   | (0.24 | ) |   |   | (1.66 | ) |   |   | (1.97 | ) |   |   | (0.24 | ) |   |   | (2.21 | ) |

|                                                     |   | As of and for the Year Ended, |   |
|----------------------------------------------------------|--------|-------------------------------------------------------------|--------|
|                                                     |   | December 31, 2010                                 |   |
|                                                     |   | As Previously                                          |   |   |   |   |   |   |   |
| Consolidated Statement of Cash Flows |   | Reported                                                    |   |   | Adjustment |   |   | Restated |   |
| Net income/(loss)                                        |   | $                                                           | (8,275 | ) |   | $ | (1,127 | ) |   | $ | (9,402 | ) |
| Income tax valuation allowance                           |   |                                                        | 5,675  |   |   |   | 349 |   |   |   | 6,024 |   |
| Deferred taxes                                           |   |                                                        | (4,129 | ) |   |   | (349 | ) |   |   | (4,478 | ) |
| Other assets                                             |   |                                                        | (637   | ) |   |   | 1,047 |   |   |   | 410 |   |
| Accrued income tax                                       |   |                                                        | (2,102 | ) |   |   | (59 | ) |   |   | (2,161 | ) |
| Accounts payable and other liabilities                   |   |                                                        | 1,071  |   |   |   | 139 |   |   |   | 1,210 |   |

----

|   | · | Starting May 16, 2011, the executive loan committee will review on a weekly basis, any classified and/or collateral dependent loans as well as other real estate owned properties for new and updated appraisals, changes in market conditions and the status of the borrowers and/or guarantors; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Establish a tracking system to be shared with the finance department, loan officers and special assets officers showing property name, loan/asset number, and the date that appraisals were ordered, received and reviewed, and what, if any, change in valuation occurred. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1.  | Financial Statements Filed |
|--------|----------|----------------------------|

|   | (a)(1) | Report of Independent Registered Public Accounting Firm - Crowe Horwath, LLP |
|--------|--------|------------------------------------------------------------------------------|

|   | (b) | Consolidated Balance Sheets at December 31, 2010 and 2009. |
|--------|-----|------------------------------------------------------------|

|   | (c) | Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008. |
|--------|-----|---------------------------------------------------------------------------------------------|

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

|   | (e) | Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2010, 2009 and 2008. |
|--------|-----|------------------------------------------------------------------------------------------------------------------|

|   | (f) | Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008. |
|--------|-----|---------------------------------------------------------------------------------------------|

|   | (g) | Notes to Consolidated Financial Statements |
|--------|-----|--------------------------------------------|

|   | 2.  | Financial Statements Schedules |
|--------|----------|--------------------------------|

----

|   | 3.  | Exhibits |
|--------|----------|----------|

| Exhibit No. |   | Description                                                                                                                                                                    |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                           |
| 23          |   | Consent of Crowe Horwath LLP, Independent Registered Public Accounting Firm                                                                                                    |
|        |   |                                                                                                                                                                           |
| 31.1        |   | Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act                                                                                         |
|        |   |                                                                                                                                                                           |
| 31.2        |   | Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act                                                                                         |
|        |   |                                                                                                                                                                           |
| 32          |   | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) |

----

|          | FIRST FINANCIAL SERVICE CORPORATION |                           |
|---------------|-------------------------------------|--------------------------------|
|          |                                |                           |   |
| Date: 5/13/11 | By:                                 | /s/ B. Keith Johnson           |   |
|          |                                | B. Keith Johnson               |   |
|          |                                | Chief Executive Officer        |   |
|          |                                | Duly Authorized Representative |   |

----

| Exhibit No. |   | Description                                                                                                                                                                    |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                           |
| 23          |   | Consent of Crowe Horwath LLP, Independent Registered Public Accounting Firm                                                                                                    |
|        |   |                                                                                                                                                                           |
| 31.1        |   | Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act                                                                                         |
|        |   |                                                                                                                                                                           |
| 31.2        |   | Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act                                                                                         |
|        |   |                                                                                                                                                                           |
| 32          |   | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) |

----