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

|  ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO ___________ |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

| NORTH CAROLINA                                | 56-2259050                           |
|-----------------------------------------------|--------------------------------------|
| (State or other jurisdiction of Incorporation | (IRS Employer Identification Number) |
| or organization)                              |                                 |

| Large accelerated filer  ̈ | Accelerated filer  ̈    |
|--------------------------------|-----------------------------|
| Non-accelerated filer  ̈   | Smaller reporting company x |

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|      |                                                                                              | Page No. |
|-----------|---------------------------------------------------------------------------------------------------|---------------|
|      |                                                                                              |          |   |
| Part I.   | FINANCIAL INFORMATION                                                                             |          |   |
|      |                                                                                              |          |   |
| Item 1 -  | Financial Statements (Unaudited)                                                                  |          |   |
|      |                                                                                              |          |   |
|      | Consolidated Balance Sheets March 31, 2011 and December 31, 2010                                  | 3             |   |
|      |                                                                                              |          |   |
|      | Consolidated Statements of Operations Three Months Ended March 31, 2011 and 2010                  | 4             |   |
|      |                                                                                              |          |   |
|      | Consolidated Statements of Comprehensive Income (Loss) Three Months Ended March 31, 2011 and 2010 | 5             |   |
|      |                                                                                              |          |   |
|      | Consolidated Statement of Stockholders’ Equity Three Months Ended March 31, 2011            | 6             |   |
|      |                                                                                              |          |   |
|      | Consolidated Statements of Cash Flows Three Months Ended March 31, 2011 and 2010                  | 7             |   |
|      |                                                                                              |          |   |
|      | Notes to Consolidated Financial Statements                                                        | 8 - 31        |   |
|      |                                                                                              |          |   |
| Item 2 -  | Management’s Discussion and Analysis of Financial Condition and Results of Operations       | 32 - 48       |   |
|      |                                                                                              |          |   |
| Item 3 -  | Quantitative and Qualitative Disclosures about Market Risk                                        | 49            |   |
|      |                                                                                              |          |   |
| Item 4 -  | Controls and Procedures                                                                           | 49            |   |
|      |                                                                                              |          |   |
| Part II.  | Other Information                                                                                 |          |   |
|      |                                                                                              |          |   |
| Item 1 -  | Legal Proceedings                                                                                 | 50            |   |
|      |                                                                                              |          |   |
| Item 1a - | Risk Factors                                                                                      | 50            |   |
|      |                                                                                              |          |   |
| Item 2 -  | Unregistered Sales of Equity Securities and Use of Proceeds                                       | 50            |   |
|      |                                                                                              |          |   |
| Item 3 -  | Defaults Upon Senior Debt                                                                         | 50            |   |
|      |                                                                                              |          |   |
| Item 4 -  | (Removed and Reserved)                                                                            | 50            |   |
|      |                                                                                              |          |   |
| Item 5 -  | Other Information                                                                                 | 50            |   |
|      |                                                                                              |          |   |
| Item 6 -  | Exhibits                                                                                          | 50            |   |

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----

|                                                                                                                                                                  |   | March 31, 2011 |        |   | December 31, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|-------------|--------|-------------------|--------|
|                                                                                                                                                                  |   | (Unaudited)              |        |   | 2010*             |   |
| ASSETS                                                                                                                                                                |   |                     |        |   |              |   |
|                                                                                                                                                                  |   |                     |        |   |              |   |
| Cash and due from banks                                                                                                                                               |   | $                        | 7,985,889   |   |              | $      | 8,372,969 |   |
| Interest-earning deposits with banks                                                                                                                                  |   |                     | 1,836,777   |   |              |   | 2,663,210 |   |
| Federal funds sold                                                                                                                                                    |   |                     | 56,560,000  |   |              |   | 38,070,000 |   |
| Investment securities available for sale, at fair value                                                                                                               |   |                     | 187,996,416 |   |              |   | 181,916,229 |   |
|                                                                                                                                                                  |   |                     |        |   |              |   |   |   |
| Mortgage loans held for sale                                                                                                                                          |   |                     | 805,334     |   |              |   | 5,689,853 |   |
|                                                                                                                                                                  |   |                     |        |   |              |   |   |   |
| Loans held for investment                                                                                                                                             |   |                     | 652,783,299 |   |              |   | 676,803,069 |   |
| Allowance for loan losses                                                                                                                                             |   |                     | (23,485,000 | )      |              |   | (20,702,000 | ) |
| NET LOANS HELD FOR INVESTMENT                                                                                                                                         |   |                     | 629,298,299 |   |              |   | 656,101,069 |   |
|                                                                                                                                                                  |   |                     |        |   |              |   |   |   |
| Accrued interest receivable                                                                                                                                           |   |                     | 3,385,428   |   |              |   | 3,995,242 |   |
| Federal Home Loan Bank stock, at cost                                                                                                                                 |   |                     | 10,521,700  |   |              |   | 10,521,700 |   |
| Bank premises and equipment                                                                                                                                           |   |                     | 11,393,760  |   |              |   | 11,585,920 |   |
| Investment in life insurance                                                                                                                                          |   |                     | 18,677,135  |   |              |   | 18,482,993 |   |
| Foreclosed assets                                                                                                                                                     |   |                     | 14,112,547  |   |              |   | 15,523,592 |   |
| Other assets                                                                                                                                                          |   |                     | 16,985,014  |   |              |   | 20,095,741 |   |
|                                                                                                                                                                  |   |                     |        |   |              |   |   |   |
| TOTAL ASSETS                                                                                                                                                          |   | $                        | 959,558,299 |   |              | $      | 973,018,518 |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                            |   |                     |        |   |              |   |   |   |
|                                                                                                                                                                  |   |                     |        |   |              |   |   |   |
| Deposits:                                                                                                                                                             |   |                     |        |   |              |   |   |   |
| Demand                                                                                                                                                                |   | $                        | 59,260,695  |   |              | $      | 62,043,933 |   |
| Savings                                                                                                                                                               |   |                     | 57,277,047  |   |              |   | 64,772,708 |   |
| Money market and NOW                                                                                                                                                  |   |                     | 230,432,064 |   |              |   | 220,749,043 |   |
| Time                                                                                                                                                                  |   |                     | 378,235,388 |   |              |   | 376,817,639 |   |
|                                                                                                                                                                  |   |                     |        |   |              |   |   |   |
| TOTAL DEPOSITS                                                                                                                                                        |   |                     | 725,205,194 |   |              |   | 724,383,323 |   |
|                                                                                                                                                                  |   |                     |        |   |              |   |   |   |
| Short-term borrowings                                                                                                                                                 |   |                     | 5,000,000   |   |              |   | 7,000,000 |   |
| Long-term debt                                                                                                                                                        |   |                     | 152,748,000 |   |              |   | 157,748,000 |   |
| Accrued expenses and other liabilities                                                                                                                                |   |                     | 4,936,295   |   |              |   | 4,871,837 |   |
| TOTAL LIABILITIES                                                                                                                                                     |   |                     | 887,889,489 |   |              |   | 894,003,160 |   |
| Commitments (Note B)                                                                                                                                                  |   |                     |        |   |              |   |   |   |
|                                                                                                                                                                  |   |                     |        |   |              |   |   |   |
| Stockholders’ Equity                                                                                                                                            |   |                     |        |   |              |   |   |   |
| Preferred stock, no par value, 5,000,000 shares authorized,  24,900 shares issued and outstanding at both  March 31, 2011 and December 31, 2010   |   |                     | 23,495,835  |   |              |   | 23,379,651 |   |
| Common stock, $1 par value, 40,000,000 shares authorized; 9,664,059 and 9,664,059 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively |   |                     | 9,664,059   |   |              |   | 9,664,059 |   |
| Common stock warrant                                                                                                                                                  |   |                     | 2,367,368   |   |              |   | 2,367,368 |   |
| Additional paid-in capital                                                                                                                                            |   |                     | 74,668,867  |   |              |   | 74,634,362 |   |
| Accumulated deficit                                                                                                                                                   |   |                     | (40,080,264 | )      |              |   | (32,917,437 | ) |
| Accumulated other comprehensive income                                                                                                                                |   |                     | 1,552,945   |   |              |   | 1,887,355 |   |
|                                                                                                                                                                  |   |                     |        |   |              |   |   |   |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                                                      |   |                     | 71,668,810  |   |              |   | 79,015,358 |   |
|                                                                                                                                                                  |   |                     |        |   |              |   |   |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                      |   | $                        | 959,558,299 |   |              | $      | 973,018,518 |   |

----

----

|                                                       |   | 2011   |       |   | 2010   |   |
|------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                                       |   |   |       |   |   |   |
| INTEREST INCOME                                            |   |   |       |   |   |   |
| Loans                                                      |   | $      | 9,077,943  |   |   | $      | 11,484,041 |   |
| Investment securities available for sale                   |   |   | 1,662,690  |   |   |   | 1,936,330 |   |
| Federal funds sold and interest-earning deposits           |   |   | 29,092     |   |   |   | 4,686 |   |
|                                                       |   |   |       |   |   |   |   |   |
| TOTAL INTEREST INCOME                                      |   |   | 10,769,725 |   |   |   | 13,425,057 |   |
| INTEREST EXPENSE                                           |   |   |       |   |   |   |   |   |
| Deposits                                                   |   |   | 3,348,840  |   |   |   | 4,345,601 |   |
| Short-term borrowings                                      |   |   | 15,359     |   |   |   | 206,281 |   |
| Long-term borrowings                                       |   |   | 1,370,647  |   |   |   | 1,412,155 |   |
|                                                       |   |   |       |   |   |   |   |   |
| TOTAL INTEREST EXPENSE                                     |   |   | 4,734,846  |   |   |   | 5,964,037 |   |
|                                                       |   |   |       |   |   |   |   |   |
| NET INTEREST INCOME                                        |   |   | 6,034,879  |   |   |   | 7,461,020 |   |
| PROVISION FOR LOAN LOSSES                                  |   |   | 7,023,511  |   |   |   | 1,801,177 |   |
|                                                       |   |   |       |   |   |   |   |   |
| NET INTEREST INCOME (LOSS) AFTER PROVISION FOR LOAN LOSSES |   |   | (988,632   | )      |   |   | 5,659,843 |   |
| NON-INTEREST INCOME                                        |   |   |       |   |   |   |   |   |
| Mortgage loan origination revenue                          |   |   | 74,970     |   |   |   | 192,909 |   |
| Fees on deposit accounts                                   |   |   | 447,049    |   |   |   | 431,939 |   |
| Earnings on life insurance                                 |   |   | 212,717    |   |   |   | 217,432 |   |
| Gain (loss) on disposal of assets                          |   |   | (721       | )      |   |   | 7,000 |   |
| Gain on sale of loans                                      |   |   | 91,455     |   |   |   | 44,200 |   |
| Gain on sale of investment securities                      |   |   | 100,631    |   |   |   | - |   |
| Other                                                      |   |   | 116,142    |   |   |   | 152,229 |   |
|                                                       |   |   |       |   |   |   |   |   |
| TOTAL NON-INTEREST INCOME                                  |   |   | 1,042,243  |   |   |   | 1,045,709 |   |
| NON-INTEREST EXPENSE                                       |   |   |       |   |   |   |   |   |
| Salaries and employee benefits                             |   |   | 3,347,288  |   |   |   | 3,129,752 |   |
| Occupancy and equipment                                    |   |   | 1,012,039  |   |   |   | 957,180 |   |
| Data processing                                            |   |   | 420,297    |   |   |   | 386,328 |   |
| FDIC insurance premiums                                    |   |   | 448,985    |   |   |   | 308,680 |   |
| Loan related expense                                       |   |   | 492,239    |   |   |   | 354,499 |   |
| Other professional services                                |   |   | 543,980    |   |   |   | 262,464 |   |
| Other                                                      |   |   | 835,427    |   |   |   | 787,017 |   |
|                                                       |   |   |       |   |   |   |   |   |
| TOTAL NON-INTEREST EXPENSE                                 |   |   | 7,100,255  |   |   |   | 6,185,920 |   |
|                                                       |   |   |       |   |   |   |   |   |
| INCOME (LOSS) BEFORE INCOME TAXES                          |   |   | (7,046,644 | )      |   |   | 519,632 |   |
|                                                       |   |   |       |   |   |   |   |   |
| INCOME TAXES (BENEFIT)                                     |   |   | -          |   |   |   | (22,800 | ) |
|                                                       |   |   |       |   |   |   |   |   |
| NET INCOME (LOSS)                                          |   |   | (7,046,644 | )      |   |   | 542,432 |   |
|                                                       |   |   |       |   |   |   |   |   |
| Effective dividend on preferred stock (Note G)             |   |   | 427,434    |   |   |   | 419,269 |   |
|                                                       |   |   |       |   |   |   |   |   |
| Net income (loss) available to common shareholders         |   | $      | (7,474,078 | )      |   | $      | 123,163 |   |
|                                                       |   |   |       |   |   |   |   |   |
| NET INCOME (LOSS) PER COMMON SHARE                         |   |   |       |   |   |   |   |   |
| Basic                                                      |   | $      | (0.78      | )      |   | $      | .01 |   |
| Diluted                                                    |   | $      | (0.78      | )      |   | $      | .01 |   |
|                                                       |   |   |       |   |   |   |   |   |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note C)        |   |   |       |   |   |   |   |   |
| Basic                                                      |   |   | 9,581,390  |   |   |   | 9,574,264 |   |
| Diluted                                                    |   |   | 9,581,390  |   |   |   | 9,587,748 |   |

----

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|                                                            |   | 2011   |       |   | 2010   |   |
|-----------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                                            |   |   |       |   |   |   |
| Net income (loss)                                               |   | $      | (7,046,644 | )      |   | $      | 542,432 |   |
|                                                            |   |   |       |   |   |   |   |   |
| Other comprehensive income:                                     |   |   |       |   |   |   |   |   |
|                                                            |   |   |       |   |   |   |   |   |
| Securities available for sale:                                  |   |   |       |   |   |   |   |   |
|                                                            |   |   |       |   |   |   |   |   |
| Unrealized holding gain (loss) on available for sale securities |   |   | (724,878   | )      |   |   | 1,265,489 |   |
| Tax effect                                                      |   |   | 279,441    |   |   |   | (487,846 | ) |
| Reclassification of gains recognized In net income              |   |   | 100,631    |   |   |   | - |   |
| Tax effect                                                      |   |   | (38,793    | )      |   |   | - |   |
|                                                            |   |   |       |   |   |   |   |   |
| Net of tax amount                                               |   |   | (383,599   | )      |   |   | 777,643 |   |
|                                                            |   |   |       |   |   |   |   |   |
| Cash flow hedging activities:                                   |   |   |       |   |   |   |   |   |
|                                                            |   |   |       |   |   |   |   |   |
| Unrealized holding gain (loss) on cash flow hedging activities  |   |   | 80,049     |   |   |   | (144,287 | ) |
| Tax effect                                                      |   |   | (30,859    | )      |   |   | 55,623 |   |
|                                                            |   |   |       |   |   |   |   |   |
| Net of tax amount                                               |   |   | 49,190     |   |   |   | (88,664 | ) |
|                                                            |   |   |       |   |   |   |   |   |
| Total other comprehensive income (loss)                         |   |   | (334,409   | )      |   |   | 688,979 |   |
|                                                            |   |   |       |   |   |   |   |   |
| COMPREHENSIVE INCOME (LOSS)                                     |   | $      | (7,381,053 | )      |   | $      | 1,231,411 |   |

----

----

|                    |   |            |   |   |         |   |       |   |   |   |      |   |   |        |      |   |          |   |      |                |   |   | Accumulated |   |   |   |        |
|------------------------------|--------|-----------------|--------|--------|--------------|--------|------------|--------|--------|--------|-----------|--------|--------|-------------|-----------|--------|---------------|--------|-----------|---------------------|--------|--------|-------------|--------|--------|--------|-------------|
|                         |   |            |   |   |         |   |       |   |   |   |      |   |   | Common      |      |   | Additional    |   |      |                |   |   | other       |   |   | Total  |        |
|                         |   | Preferred stock |   |   | Common stock |   |       | stock  |   |   | paid-in   |   |   | Accumulated |      |   | comprehensive |   |      | stockholders’ |   |
|                         |   | Shares          |   |   | Amount       |   |       | Shares |   |   | Amount    |   |   | warrants    |      |   | capital       |   |      | deficit             |   |   | income      |   |   | equity |        |
|                         |   |            |   |   |         |   |       |   |   |   |      |   |   |        |      |   |          |   |      |                |   |   |        |   |   |   |        |
| Balance at December 31, 2010 |   |            | 24,900 |   |         | $      | 23,379,651 |   |   |   | 9,664,059 |   |   | $           | 9,664,059 |   |          | $      | 2,367,368 |                |   | $      | 74,634,362  |   |   | $      | (32,917,436 | ) |   | $ | 1,887,354 |   |   | $ | 79,015,358 |   |
|                         |   |            |   |   |         |   |       |   |   |   |      |   |   |        |      |   |          |   |      |                |   |   |        |   |   |   |        |   |   |   |   |   |   |   |   |   |
| Net loss                     |   |            | -      |   |         |   | -          |   |   |   | -         |   |   |        | -         |   |          |   | -         |                |   |   | -           |   |   |   | (7,046,644  | ) |   |   | - |   |   |   | (7,046,644 | ) |
|                         |   |            |   |   |         |   |       |   |   |   |      |   |   |        |      |   |          |   |      |                |   |   |        |   |   |   |        |   |   |   |   |   |   |   |   |   |
| Other comprehensive loss     |   |            | -      |   |         |   | -          |   |   |   | -         |   |   |        | -         |   |          |   | -         |                |   |   | -           |   |   |   | -           |   |   |   | (334,409 | ) |   |   | (334,409 | ) |
|                         |   |            |   |   |         |   |       |   |   |   |      |   |   |        |      |   |          |   |      |                |   |   |        |   |   |   |        |   |   |   |   |   |   |   |   |   |
| Stock based compensation     |   |            | -      |   |         |   | -          |   |   |   | -         |   |   |        | -         |   |          |   | -         |                |   |   | 34,505      |   |   |   | -           |   |   |   | - |   |   |   | 34,505 |   |
|                         |   |            |   |   |         |   |       |   |   |   |      |   |   |        |      |   |          |   |      |                |   |   |        |   |   |   |        |   |   |   |   |   |   |   |   |   |
| Restricted stock issued      |   |            | -      |   |         |   | -          |   |   |   | -         |   |   |        | -         |   |          |   | -         |                |   |   | -           |   |   |   | -           |   |   |   | - |   |   |   | - |   |
|                         |   |            |   |   |         |   |       |   |   |   |      |   |   |        |      |   |          |   |      |                |   |   |        |   |   |   |        |   |   |   |   |   |   |   |   |   |
| Accretion of discount        |   |            | -      |   |         |   | 116,184    |   |   |   | -         |   |   |        | -         |   |          |   | -         |                |   |   | -           |   |   |   | (116,184    | ) |   |   | - |   |   |   | - |   |
|                         |   |            |   |   |         |   |       |   |   |   |      |   |   |        |      |   |          |   |      |                |   |   |        |   |   |   |        |   |   |   |   |   |   |   |   |   |
| Preferred stock dividend     |   |            | -      |   |         |   | -          |   |   |   | -         |   |   |        | -         |   |          |   | -         |                |   |   | -           |   |   |   | -           |   |   |   | - |   |   |   | - |   |
|                         |   |            |   |   |         |   |       |   |   |   |      |   |   |        |      |   |          |   |      |                |   |   |        |   |   |   |        |   |   |   |   |   |   |   |   |   |
| Balance at March 31, 2011    |   |            | 24,900 |   |         | $      | 23,495,835 |   |   |   | 9,664,059 |   |   | $           | 9,664,059 |   |          | $      | 2,367,368 |                |   | $      | 74,668,867  |   |   | $      | (40,080,264 | ) |   | $ | 1,552,945 |   |   | $ | 71,668,810 |   |

----

----

|                                                                                     |   | 2011   |        |   | 2010   |   |
|------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES                                                     |   |   |        |   |   |   |
| Net income (loss)                                                                        |   | $      | (7,046,644  | )      |   | $      | 542,432 |   |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |   |   |        |   |   |   |   |   |
| Depreciation                                                                             |   |   | 251,800     |   |   |   | 239,659 |   |
| Provision for loan losses                                                                |   |   | 7,023,511   |   |   |   | 1,801,177 |   |
| Gain on mortgage loan commitments                                                        |   |   | (6,334      | )      |   |   | - |   |
| Net gain on sales of mortgage loans                                                      |   |   | (85,120     | )      |   |   | (44,200 | ) |
| Originations of mortgage loans held-for-sale                                             |   |   | (11,843,128 | )      |   |   | (1,266,561 | ) |
| Proceeds from sales of mortgage loans                                                    |   |   | 16,812,766  |   |   |   | 1,140,266 |   |
| Amortization of core deposit premium                                                     |   |   | 33,337      |   |   |   | 33,337 |   |
| Deferred income taxes                                                                    |   |   | 31,529      |   |   |   | (55,622 | ) |
| Gain on sale of available for sale securities                                            |   |   | (100,631    | )      |   |   | - |   |
| Net loss on disposal of and valuation adjustments to - foreclosed assets                 |   |   | 158,876     |   |   |   | 32,919 |   |
| (Gain) loss on disposal of other assets                                                  |   |   | 721         |   |   |   | (7,000 | ) |
| Net amortization of premiums/discounts on securities                                     |   |   | 494,751     |   |   |   | 333,781 |   |
| Accretion of loan discount                                                               |   |   | -           |   |   |   | (416,958 | ) |
| Amortization of deposit premium                                                          |   |   | -           |   |   |   | 10,108 |   |
| Net increase in cash value of life insurance                                             |   |   | (194,142    | )      |   |   | (204,338 | ) |
| Stock based compensation                                                                 |   |   | 34,506      |   |   |   | 31,967 |   |
| Change in assets and liabilities:                                                        |   |   |        |   |   |   |   |   |
| (Increase) decrease in accrued interest receivable                                       |   |   | 609,814     |   |   |   | 139,128 |   |
| (Increase) decrease in other assets                                                      |   |   | 3,293,624   |   |   |   | (269,700 | ) |
| Increase (decrease) in accrued interest payable                                          |   |   | (24,567     | )      |   |   | 25,314 |   |
| Increase in accrued expenses and other liabilities                                       |   |   | 138,215     |   |   |   | 141,587 |   |
| TOTAL ADJUSTMENTS                                                                        |   |   | 16,629,528  |   |   |   | 1,664,864 |   |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                                |   |   | 9,582,884   |   |   |   | 2,207,296 |   |
|                                                                                     |   |   |        |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                     |   |   |        |   |   |   |   |   |
| Purchases of investment securities available for sale                                    |   |   | (35,078,914 | )      |   |   | (1,009,241 | ) |
| Principal repayments of investment securities available for sale                         |   |   | 7,534,704   |   |   |   | 6,454,830 |   |
| Proceeds from sale of securities available for sale                                      |   |   | 20,445,655  |   |   |   | - |   |
| Proceeds from disposal of foreclosed real estate                                         |   |   | 1,618,919   |   |   |   | 2,012,883 |   |
| Proceeds from sale of loans                                                              |   |   | 1,950,000   |   |   |   | - |   |
| Net decrease in loans                                                                    |   |   | 17,461,008  |   |   |   | 8,819,668 |   |
| Purchases of bank premises and equipment                                                 |   |   | (59,641     | )      |   |   | (380,962 | ) |
| NET CASH PROVIDED BY INVESTING ACTIVITIES                                                |   |   | 13,871,731  |   |   |   | 15,897,178 |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                     |   |   |        |   |   |   |   |   |
| Net increase (decrease) in deposits:                                                     |   |   |        |   |   |   |   |   |
| Demand                                                                                   |   |   | (2,783,237  | )      |   |   | (5,620,279 | ) |
| Savings                                                                                  |   |   | (7,495,661  | )      |   |   | 3,807,760 |   |
| Money market and NOW                                                                     |   |   | 9,683,021   |   |   |   | 16,707,537 |   |
| Time deposits                                                                            |   |   | 1,417,749   |   |   |   | (23,782,593 | ) |
| Net decrease in short-term borrowings                                                    |   |   | (2,000,000  | )      |   |   | (17,000,000 | ) |
| Net increase (decrease) in long-term borrowings                                          |   |   | (5,000,000  | )      |   |   | 3,000,000 |   |
| Dividends paid on preferred stock                                                        |   |   | -           |   |   |   | (311,250 | ) |
| NET CASH USED BY FINANCING ACTIVITIES                                                    |   |   | (6,178,128  | )      |   |   | (23,198,825 | ) |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     |   |   | 17,276,487  |   |   |   | (5,094,351 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                           |   |   | 49,106,179  |   |   |   | 31,727,108 |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                                 |   | $      | 66,382,666  |   |   | $      | 26,632,757 |   |

----

----

| Undisbursed lines of credit                                                                       |   | $      | 33,281,040 |   |
|---------------------------------------------------------------------------------------------------|--------|--------|------------|--------|
| Commitments to extend credit                                                                      |   |   | 90,919,792 |   |
| Stand-by letters of credit                                                                        |   |   | 3,707,959  |   |
| Commitments to sell loans held for sale                                                           |   |   | 805,334    |   |
| Commitments to purchase investment securities                                                     |   |   | 2,190,333  |   |
| Undisbursed commitment to purchase additional investment in Small Business Investment Corporation |   |   | 363,000    |   |

|                                                                             |   | Three Months Ended |      |
|----------------------------------------------------------------------------------|--------|--------------------|-----------|
|                                                                             |   | March 31           |      |
|                                                                             |   | 2011               |      |   | 2010 |   |
| Weighted average number of shares used in computing basic net income per share   |   |               | 9,581,390 |   |   |   | 9,574,264 |   |
|                                                                             |   |               |      |   |   |   |   |   |
| Effect of dilutive stock options                                                 |   |               | -         |   |   |   | 13,484 |   |
|                                                                             |   |               |      |   |   |   |   |   |
| Weighted average number of shares used in computing diluted net income per share |   |               | 9,581,390 |   |   |   | 9,587,748 |   |

----

----

|                                                                   |   | March 31, 2011    |        |
|------------------------------------------------------------------------|--------|-------------------|-------------|
|                                                                   |   |              |        |   | Gross |   |   | Gross |   |   |   |   |
|                                                                   |   | Amortized         |        |   | unrealized |   |   | unrealized |   |   | Fair |   |
|                                                                   |   | cost              |        |   | gains |   |   | losses |   |   | value |   |
| Securities available for sale:                                         |   |              |        |   |   |   |   |   |   |   |   |   |
| U.S. government securities and obligations of U.S. government agencies |   | $                 | 10,512,100  |   |   | $ | 440,565 |   |   | $ | 7,713 |   |   | $ | 10,944,952 |   |
| Mortgage-backed securities                                             |   |              | 32,972,287  |   |   |   | 1,322,532 |   |   |   | 99,004 |   |   |   | 34,195,815 |   |
| Collateralized mortgage obligations                                    |   |              | 91,416,870  |   |   |   | 1,706,516 |   |   |   | 183,322 |   |   |   | 92,940,064 |   |
| Municipals, non-taxable                                                |   |              | 44,797,358  |   |   |   | 440,209 |   |   |   | 693,096 |   |   |   | 44,544,471 |   |
| Municipals, taxable                                                    |   |              | 2,032,407   |   |   |   | - |   |   |   | 30,167 |   |   |   | 2,002,240 |   |
| Corporate bonds                                                        |   |              | 2,787,869   |   |   |   | 70,101 |   |   |   | - |   |   |   | 2,857,970 |   |
| Marketable equity                                                      |   |              | 451,368     |   |   |   | 96,656 |   |   |   | 37,120 |   |   |   | 510,904 |   |
|                                                                   |   | $                 | 184,970,259 |   |   | $ | 4,076,579 |   |   | $ | 1,050,422 |   |   | $ | 187,966,416 |   |
|                                                                   |   |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                   |   | December 31, 2010 |        |
|                                                                   |   |              |        |   | Gross |   |   | Gross |   |   |   |   |   |
|                                                                   |   | Amortized         |        |   | unrealized |   |   | unrealized |   |   | Fair |   |
|                                                                   |   | cost              |        |   | gains |   |   | losses |   |   | value |   |
| Securities available for sale:                                         |   |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. government securities and obligations of U.S. government agencies |   | $                 | 9,346,395   |   |   | $ | 492,005 |   |   | $ | - |   |   | $ | 9,838,400 |   |
| Mortgage-backed securities                                             |   |              | 38,079,632  |   |   |   | 1,667,631 |   |   |   | 22,418 |   |   |   | 39,724,845 |   |
| Collateralized mortgage obligations                                    |   |              | 76,553,621  |   |   |   | 2,022,287 |   |   |   | 126,224 |   |   |   | 78,449,684 |   |
| Municipals                                                             |   |              | 51,067,962  |   |   |   | 442,604 |   |   |   | 892,203 |   |   |   | 50,618,363 |   |
| Corporate bonds                                                        |   |              | 2,777,457   |   |   |   | 15,665 |   |   |   | 24,322 |   |   |   | 2,768,800 |   |
| Marketable equity                                                      |   |              | 440,757     |   |   |   | 121,082 |   |   |   | 45,702 |   |   |   | 516,137 |   |
|                                                                   |   | $                 | 178,265,824 |   |   | $ | 4,761,274 |   |   | $ | 1,110,869 |   |   | $ | 181,916,229 |   |

----

----

|                                  |   | March 31, 2011      |       |
|---------------------------------------|--------|---------------------|------------|
|                                  |   | Less Than 12 Months |       |   | 12 Months or More |   |   | Total |   |
|                                  |   | Fair                |       |   | Unrealized |   |   | Fair |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                  |   | value               |       |   | losses |   |   | value |   |   | losses |   |   | value |   |   | losses |   |
| Securities available for sale:        |   |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US Government securities              |   | $                   | 2,000,040  |   |   | $ | 7,713 |   |   | $ | - |   |   | $ | - |   |   | $ | 2,000,040 |   |   | $ | 7,713 |   |
| Mortgage-backed                       |   |                | 7,532,432  |   |   |   | 99,004 |   |   |   | - |   |   |   | - |   |   |   | 7,532,432 |   |   |   | 99,004 |   |
| Collateralized mortgage obligations   |   |                | 18,047,471 |   |   |   | 183,322 |   |   |   | - |   |   |   | - |   |   |   | 18,047,471 |   |   |   | 183,322 |   |
| Municipals, non-taxable               |   |                | 19,433,720 |   |   |   | 693,096 |   |   |   | - |   |   |   | - |   |   |   | 19,433,720 |   |   |   | 693,096 |   |
| Municipals, taxable                   |   |                | 2,002,240  |   |   |   | 30,167 |   |   |   | - |   |   |   | - |   |   |   | 2,002,240 |   |   |   | 30,167 |   |
| Marketable equity                     |   |                | -          |   |   |   | - |   |   |   | 44,704 |   |   |   | 37,120 |   |   |   | 44,704 |   |   |   | 37,120 |   |
|                                  |   |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total temporarily impaired securities |   | $                   | 49,015,903 |   |   | $ | 1,013,302 |   |   | $ | 44,704 |   |   | $ | 37,120 |   |   | $ | 49,060,607 |   |   | $ | 1,050,422 |   |
|                                  |   |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                  |   | December 31, 2010   |       |
|                                  |   | Less Than 12 Months |       |   | 12 Months or More |   |   | Total |   |
|                                  |   | Fair                |       |   | Unrealized |   |   | Fair |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                  |   | value               |       |   | losses |   |   | value |   |   | losses |   |   | value |   |   | losses |   |
| Securities available for sale:        |   |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed                       |   | $                   | 984,306    |   |   | $ | 22,418 |   |   | $ | - |   |   | $ | - |   |   | $ | 984,306 |   |   | $ | 22,418 |   |
| Collateralized mortgage obligations   |   |                | 7,274,222  |   |   |   | 126,224 |   |   |   | - |   |   |   | - |   |   |   | 7,274,222 |   |   |   | 126,224 |   |
| Municipals                            |   |                | 27,738,632 |   |   |   | 823,580 |   |   |   | 1,006,202 |   |   |   | 68,623 |   |   |   | 28,744,834 |   |   |   | 892,203 |   |
| Corporate bonds                       |   |                | 1,831,230  |   |   |   | 24,322 |   |   |   | - |   |   |   | - |   |   |   | 1,831,230 |   |   |   | 24,322 |   |
| Marketable equity                     |   |                | -          |   |   |   | - |   |   |   | 36,122 |   |   |   | 45,702 |   |   |   | 36,122 |   |   |   | 45,702 |   |
|                                  |   |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total temporarily impaired securities |   | $                   | 37,828,390 |   |   | $ | 996,544 |   |   | $ | 1,042,324 |   |   | $ | 114,325 |   |   | $ | 38,870,714 |   |   | $ | 1,110,869 |   |

----

----

|                                   |   | Amortized |        |   | Fair   |   |
|----------------------------------------|--------|-----------|-------------|--------|--------|--------|
|                                   |   | cost      |        |   | value  |   |
|                                   |   |      |        |   |   |   |
| Due within one year                    |   | $         | 26,862,850  |   |   | $      | 27,593,246 |   |
| Due after one year through five years  |   |      | 98,499,914  |   |   |   | 100,827,723 |   |
| Due after five years through ten years |   |      | 33,753,056  |   |   |   | 33,797,349 |   |
| Due after ten years                    |   |      | 25,403,071  |   |   |   | 25,267,194 |   |
| Other equity securities                |   |      | 451,368     |   |   |   | 510,904 |   |
|                                   |   | $         | 184,970,259 |   |   | $      | 187,996,416 |   |

|                                  |   | March 31, 2011 |        |   | December 31, 2010 |   |
|---------------------------------------|--------|----------------|-------------|--------|-------------------|--------|
| Real estate - commercial              |   | $              | 336,006,020 |   |              | $      | 345,902,319 |   |
| Real estate - residential             |   |           | 82,069,448  |   |              |   | 81,644,508 |   |
| Construction loans                    |   |           | 133,069,646 |   |              |   | 140,848,750 |   |
| Commercial and industrial loans       |   |           | 43,697,294  |   |              |   | 48,144,401 |   |
| Home equity loans and lines of credit |   |           | 54,927,058  |   |              |   | 57,125,274 |   |
| Loans to individuals                  |   |           | 3,680,878   |   |              |   | 3,838,154 |   |
| Total loans                           |   |           | 653,450,344 |   |              |   | 677,503,406 |   |
| Less:                                 |   |           |        |   |              |   |   |   |
| Deferred loan fees                    |   |           | (667,045    | )      |              |   | (700,337 | ) |
| Allowance for loan losses             |   |           | (23,485,000 | )      |              |   | (20,702,000 | ) |
| Total                                 |   | $              | 629,298,299 |   |              | $      | 656,101,069 |   |

----

----

|                                  |   | March 31, 2011   |   |
|---------------------------------------|--------|------------------|--------|
|                                  |   | Commercial       |   |   | Commercial |   |   | Residential |   |   | Construction |   |   |   |   |   |   |   |
|                                  |   | & Industrial |   |   | Real Estate |   |   | Real Estate |   |   | Dev & Acq |   |   | Consumer |   |   | Total |   |
| Allowance for loan losses:            |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beginning balance                     |   | $                | 2,689  |   |   | $ | 5,345 |   |   | $ | 2,814 |   |   | $ | 9,774 |   |   | $ | 80 |   |   | $ | 20,702 |   |
| Charge-offs                           |   |             | (269   | ) |   |   | (216 | ) |   |   | (339 | ) |   |   | (3,761 | ) |   |   | (14 | ) |   |   | (4,599 | ) |
| Recoveries                            |   |             | 36     |   |   |   | - |   |   |   | 10 |   |   |   | 312 |   |   |   | - |   |   |   | 358 |   |
| Provision                             |   |             | 253    |   |   |   | 2,134 |   |   |   | 1,880 |   |   |   | 2,752 |   |   |   | 5 |   |   |   | 7,024 |   |
| Ending balance                        |   | $                | 2,709  |   |   | $ | 7,263 |   |   | $ | 4,365 |   |   | $ | 9,077 |   |   | $ | 71 |   |   | $ | 23,485 |   |
| Ending balance:                       |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment |   | $                | 1,298  |   |   | $ | 3,575 |   |   | $ | 2,475 |   |   | $ | 6,636 |   |   | $ | 35 |   |   | $ | 14,019 |   |
|                                  |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Collectively evaluated for impairment |   | $                | 1,411  |   |   | $ | 3,688 |   |   | $ | 1,890 |   |   | $ | 2,441 |   |   | $ | 36 |   |   | $ | 9,466 |   |
|                                  |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans:                                |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance                        |   | $                | 43,697 |   |   | $ | 336,006 |   |   | $ | 136,996 |   |   | $ | 133,070 |   |   | $ | 3,681 |   |   | $ | 653,450 |   |
| Ending balance:                       |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment |   | $                | 3,641  |   |   | $ | 18,463 |   |   | $ | 13,772 |   |   | $ | 39,062 |   |   | $ | 37 |   |   | $ | 74,975 |   |
| Collectively evaluated for impairment |   | $                | 40,056 |   |   | $ | 317,543 |   |   | $ | 123,224 |   |   | $ | 94,008 |   |   | $ | 3,644 |   |   | $ | 578,475 |   |

----

----

|                                  |   | December 31, 2010 |   |
|---------------------------------------|--------|-------------------|--------|
|                                  |   | Commercial        |   |   | Commercial |   |   | Residential |   |   | Construction |   |   |   |   |   |   |   |
|                                  |   | & Industrial  |   |   | Real Estate |   |   | Real Estate |   |   | Dev & Acq |   |   | Consumer |   |   | Total |   |
|                                  |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses:            |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance                        |   | $                 | 2,689  |   |   | $ | 5,345 |   |   | $ | 2,813 |   |   | $ | 9,775 |   |   | $ | 80 |   |   | $ | 20,702 |   |
| Individually evaluated for impairment |   | $                 | 1,094  |   |   | $ | 1,780 |   |   | $ | 882 |   |   | $ | 7,272 |   |   | $ | 10 |   |   | $ | 11,038 |   |
|                                  |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Collectively evaluated for impairment |   | $                 | 1,595  |   |   | $ | 3,565 |   |   | $ | 1,931 |   |   | $ | 2,503 |   |   | $ | 70 |   |   | $ | 9,664 |   |
|                                  |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans:                                |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance                        |   | $                 | 48,144 |   |   | $ | 345,903 |   |   | $ | 138,729 |   |   | $ | 140,889 |   |   | $ | 3,838 |   |   | $ | 677,503 |   |
| Ending balance:                       |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment |   | $                 | 2,471  |   |   | $ | 10,024 |   |   | $ | 9,531 |   |   | $ | 32,403 |   |   | $ | 13 |   |   | $ | 54,442 |   |
| Collectively evaluated for impairment |   | $                 | 45,673 |   |   | $ | 335,879 |   |   | $ | 129,198 |   |   | $ | 108,486 |   |   | $ | 3,825 |   |   | $ | 623,061 |   |

| · | Risk Grade 1 - Minimal credit risk - A loan to a borrower of unquestionable financial strength. Financial information exhibits superior earnings, leverage and liquidity positions, which firmly establish a repayment source that is substantial in relation to debt. These borrowers would generally have access to national credit and equity markets. Also includes a loan fully protected by cash equivalents or high grade, readily marketable securities. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Risk Grade 2 – Modest credit risk - Loans to borrowers of better than average financial strength.  Earnings performance is consistent and primary and secondary sources of repayment are well established.  Borrower exhibits very good asset quality and liquidity with strong debt servicing capacity.  Company management has depth, is experienced and well regarded in the industry.  This risk grade is reserved for loans secured by readily marketable collateral or is a loan made within guidelines to borrowers with liquid financial statements. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| · | Risk Grade 3 – Average credit risk - Loans to borrowers involving satisfactory financial strength.  Earnings performance is consistent with primary and secondary sources of repayment well defined and adequate to retire the debt in a timely and orderly fashion.   These businesses would generally exhibit satisfactory asset quality and liquidity with moderate leverage, average performance to their peer group and experienced management in key positions.  This risk grade is reserved for the Bank’s top quality loans. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Risk Grade 4 – Acceptable credit risk - Loans to borrowers with more than average risk but with little risk of ultimate collection. The loan may contain certain characteristics that require some supervision and attention by the lender.  Asset quality is acceptable, but debt capacity is modest and little excess liquidity is available.  The borrower may be fully leveraged, and unable to overcome major setbacks.  Covenants are structured to ensure adequate protection.  Management may have limited experience and depth.  Includes loans, which are highly leveraged transactions due to regulatory constraints.  Also includes loans involving reasonable exceptions to policy.  This grade is given to acceptable loans. These loans have adequate sources of repayment, with little identifiable risk of collection. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Risk Grade 5 – Acceptable credit risk - A loan that is sound yet ultimate collectability may depend on guarantor support or tertiary repayment sources.  Although asset quality remains acceptable, the borrower has a smaller and/or less diverse asset base, very little liquidity and limited debt capacity.  Earnings performance is inconsistent and the borrower may be highly leveraged and below average size or lower-tier competitor.  Limited management experience and depth.  May be well-conceived start-up venture, but repayment is still dependent upon a successful operation.  Includes loans with significant documentation or policy exceptions, improper loan structure or inadequate loan servicing procedures.  May also include a loan in which strong reliance for a secondary repayment source is placed on a guarantor who exhibits the ability and willingness to repay.  These credits require significant supervision by the lender and covenants structured to ensure adequate protection.  Loans which are highly leveraged transactions due to the obligor's financial status.  This grade is given to acceptable loans that show signs of weakness in either sources of repayment or collateral, but have demonstrated mitigating factors that minimize the risk of delinquency or loss. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Risk Grade 6 – Special mention - Criticized Exposure.  A loan which still has the capacity to perform but contains certain characteristics that require continual supervision and attention from the lender. These characteristics may include but are not limited to (1) adverse trends in financial condition or key operating, liquidity, trading asset turn, or leverage ratios; (2) inconsistent repayment performance; or (3) fatal documentation errors that would prevent the Bank from enforcing its note or security instruments. Material adverse trends have not yet been developed. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Risk Grade 7 – Substandard - A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. A loan classified as Substandard must have a well-defined weakness or weaknesses that jeopardize the collection of all payments contractually due the Bank upon liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Risk Grade 8 – Doubtful - Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| · | Risk Grade 9 – Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that is not practical or desirable to defer writing off this worthless loan even though partial recovery may be affected in the future.  Probable Loss portions of Doubtful assets are charged against the Allowance for Loan Losses. Loans may reside in this classification for administrative purposes for a period not to exceed the earlier of thirty (30) days or calendar quarter end. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Other – Ungraded loans.  Overdraft protection accounts are typically not graded at origination, but are assigned a risk grade when credit deterioration is detected. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                     |   | March 31, 2011    |   |
|--------------------------|--------|-------------------|--------|
|                     |   |              |   |   | Commercial |   |   |   |   |   |   |   |   |   |   |
|                     |   | Commercial        |   |   | Real Estate |   |   | Commercial |   |   | Commercial |   |   |   |   |
|                     |   | & Industrial  |   |   | Other |   |   | Construction |   |   | LOC |   |   | Total |   |
| 1-Minimal Credit Risk    |   | $                 | 2,135  |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 2,135 |   |
| 2-Modest Credit Risk     |   |              | 392    |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 392 |   |
| 3-Average Credit Risk    |   |              | 507    |   |   |   | 10,373 |   |   |   | 2,449 |   |   |   | - |   |   |   | 13,329 |   |
| 4-Acceptable Credit Risk |   |              | 11,758 |   |   |   | 158,670 |   |   |   | 18,588 |   |   |   | 210 |   |   |   | 189,226 |   |
| 5-Acceptable Credit Risk |   |              | 22,093 |   |   |   | 129,231 |   |   |   | 38,800 |   |   |   | 109 |   |   |   | 190,233 |   |
| 6-Special Mention        |   |              | 2,603  |   |   |   | 19,269 |   |   |   | 27,514 |   |   |   | 3 |   |   |   | 49,389 |   |
| 7-Substandard            |   |              | 2,857  |   |   |   | 15,967 |   |   |   | 36,718 |   |   |   | 4 |   |   |   | 55,546 |   |
| 8-Doubtful               |   |              | 781    |   |   |   | 2,496 |   |   |   | 2,050 |   |   |   | - |   |   |   | 5,327 |   |
| 9-Loss                   |   |              | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Other                    |   |              | 5      |   |   |   | - |   |   |   | - |   |   |   | 240 |   |   |   | 245 |   |
| Total                    |   | $                 | 43,131 |   |   | $ | 336,006 |   |   | $ | 126,119 |   |   | $ | 566 |   |   | $ | 505,822 |   |
|                     |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                     |   | December 31, 2010 |   |
|                     |   |              |   |   |   | Commercial |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                     |   | Commercial        |   |   | Real Estate |   |   | Commercial |   |   | Commercial |   |   |   |   |   |
|                     |   | & Industrial  |   |   | Other |   |   | Construction |   |   | LOC |   |   | Total |   |
| 1-Minimal Credit Risk    |   | $                 | 3,704  |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 3,704 |   |
| 2-Modest Credit Risk     |   |              | 276    |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 276 |   |
| 3-Average Credit Risk    |   |              | 638    |   |   |   | 11,177 |   |   |   | 1,850 |   |   |   | - |   |   |   | 13,665 |   |
| 4-Acceptable Credit Risk |   |              | 13,125 |   |   |   | 164,402 |   |   |   | 22,265 |   |   |   | 173 |   |   |   | 199,965 |   |
| 5-Acceptable Credit Risk |   |              | 24,025 |   |   |   | 144,810 |   |   |   | 51,069 |   |   |   | 87 |   |   |   | 219,991 |   |
| 6-Special Mention        |   |              | 3,595  |   |   |   | 15,419 |   |   |   | 24,150 |   |   |   | 5 |   |   |   | 43,169 |   |
| 7-Substandard            |   |              | 2,044  |   |   |   | 8,456 |   |   |   | 29,911 |   |   |   | - |   |   |   | 40,411 |   |
| 8-Doubtful               |   |              | 132    |   |   |   | 1,568 |   |   |   | 2,225 |   |   |   | - |   |   |   | 3,925 |   |
| 9-Loss                   |   |              | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Other                    |   |              | 67     |   |   |   | 70 |   |   |   | 49 |   |   |   | 273 |   |   |   | 459 |   |
| Total                    |   | $                 | 47,606 |   |   | $ | 345,902 |   |   | $ | 131,519 |   |   | $ | 538 |   |   | $ | 525,565 |   |

----

----

|                     |   | March 31, 2011    |   |
|--------------------------|--------|-------------------|--------|
|                     |   | Residential       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                     |   | Real Estate       |   |   | Consumer |   |   |   |   |   |   |   |   |   |   |
|                     |   | Other             |   |   | Construction |   |   | Home Equity |   |   | Consumer |   |   | Total |   |
| 1-Minimal Credit Risk    |   | $                 | -      |   |   | $ | - |   |   | $ | - |   |   | $ | 369 |   |   | $ | 369 |   |
| 2-Modest Credit Risk     |   |              | -      |   |   |   | - |   |   |   | 67 |   |   |   | - |   |   |   | 67 |   |
| 3-Average Credit Risk    |   |              | 9,759  |   |   |   | 860 |   |   |   | 6,897 |   |   |   | 550 |   |   |   | 18,066 |   |
| 4-Acceptable Credit Risk |   |              | 34,618 |   |   |   | 4,651 |   |   |   | 33,223 |   |   |   | 998 |   |   |   | 73,490 |   |
| 5-Acceptable Credit Risk |   |              | 23,960 |   |   |   | 359 |   |   |   | 8,829 |   |   |   | 685 |   |   |   | 33,833 |   |
| 6-Special Mention        |   |              | 4,013  |   |   |   | 787 |   |   |   | 1,589 |   |   |   | 312 |   |   |   | 6,701 |   |
| 7-Substandard            |   |              | 9,619  |   |   |   | 294 |   |   |   | 4,152 |   |   |   | 37 |   |   |   | 14,102 |   |
| 8-Doubtful               |   |              | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| 9-Loss                   |   |              | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Other                    |   |              | 100    |   |   |   | - |   |   |   | 170 |   |   |   | 730 |   |   |   | 1,000 |   |
| Total                    |   | $                 | 82,069 |   |   | $ | 6,951 |   |   | $ | 54,927 |   |   | $ | 3,681 |   |   | $ | 147,628 |   |
|                     |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                     |   | December 31, 2010 |   |
|                     |   | Residential       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                     |   | Real Estate       |   |   | Consumer |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                     |   | Other             |   |   | Construction |   |   | Home Equity |   |   | Consumer |   |   | Total |   |
| 1-Minimal Credit Risk    |   | $                 | -      |   |   | $ | - |   |   | $ | - |   |   | $ | 421 |   |   | $ | 421 |   |
| 2-Modest Credit Risk     |   |              | -      |   |   |   | - |   |   |   | 78 |   |   |   | - |   |   |   | 78 |   |
| 3-Average Credit Risk    |   |              | 9,707  |   |   |   | 2,275 |   |   |   | 6,440 |   |   |   | 597 |   |   |   | 19,019 |   |
| 4-Acceptable Credit Risk |   |              | 34,191 |   |   |   | 5,297 |   |   |   | 35,153 |   |   |   | 1,041 |   |   |   | 44,682 |   |
| 5-Acceptable Credit Risk |   |              | 24,648 |   |   |   | 704 |   |   |   | 10,392 |   |   |   | 736 |   |   |   | 36,480 |   |
| 6-Special Mention        |   |              | 6,808  |   |   |   | 788 |   |   |   | 1,463 |   |   |   | 377 |   |   |   | 9,436 |   |
| 7-Substandard            |   |              | 5,996  |   |   |   | 221 |   |   |   | 3,368 |   |   |   | 13 |   |   |   | 9,598 |   |
| 8-Doubtful               |   |              | 295    |   |   |   | 45 |   |   |   | 167 |   |   |   | - |   |   |   | 507 |   |
| 9-Loss                   |   |              | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Other                    |   |              | -      |   |   |   | - |   |   |   | 64 |   |   |   | 653 |   |   |   | 717 |   |
| Total                    |   | $                 | 81,645 |   |   | $ | 9,330 |   |   | $ | 57,125 |   |   | $ | 3,838 |   |   | $ | 151,938 |   |

----

----

|                            |   | March 31, 2011 |   |
|---------------------------------|--------|----------------|--------|
|                            |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Recorded |   |
|                            |   |           |   |   | Greater than |   |   |   |   |   |   |   |   |   |   |   | Investment > |   |
|                            |   | 30-89 Days     |   |   | 90 Days |   |   | Total |   |   |   |   |   | Total |   |   | 90 Days & |   |
|                            |   | Past Due(1)    |   |   | Past Due(2) |   |   | Past Due |   |   | Current |   |   | Loans |   |   | Accruing |   |
| Commercial & Industrial     |   | $              | 1,423  |   |   | $ | 79 |   |   | $ | 1,502 |   |   | $ | 41,629 |   |   | $ | 43,131 |   |   | $ | - |   |
| Commercial – Construction |   |           | 4,328  |   |   |   | 16,978 |   |   |   | 21,306 |   |   |   | 104,813 |   |   |   | 126,119 |   |   |   | - |   |
| Commercial - Real Estate        |   |           | 2,261  |   |   |   | 11,412 |   |   |   | 13,673 |   |   |   | 322,333 |   |   |   | 336,006 |   |   |   | - |   |
| Commercial - Lines of Credit    |   |           | 12     |   |   |   | - |   |   |   | 12 |   |   |   | 554 |   |   |   | 566 |   |   |   | - |   |
| Commercial – Other        |   |           | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Consumer                        |   |           | -      |   |   |   | - |   |   |   | - |   |   |   | 3,681 |   |   |   | 3,681 |   |   |   | - |   |
| Consumer – Construction   |   |           | 166    |   |   |   | - |   |   |   | 166 |   |   |   | 6,785 |   |   |   | 6,951 |   |   |   | - |   |
| Consumer – Other          |   |           | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Home Equity                     |   |           | 545    |   |   |   | 1,137 |   |   |   | 1,682 |   |   |   | 53,245 |   |   |   | 54,927 |   |   |   | - |   |
| Residential Real Estate         |   |           | 3,298  |   |   |   | 1,956 |   |   |   | 5,254 |   |   |   | 76,815 |   |   |   | 82,069 |   |   |   | - |   |
|                            |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                           |   | $              | 12,033 |   |   | $ | 31,562 |   |   | $ | 43,595 |   |   | $ | 609,855 |   |   | $ | 653,450 |   |   | $ | - |   |

|                            |   | December 31, 2010 |   |
|---------------------------------|--------|-------------------|--------|
|                            |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Recorded |   |
|                            |   |              |   |   | Greater than |   |   |   |   |   |   |   |   |   |   |   | Investment > |   |
|                            |   | 30-89 Days        |   |   | 90 Days |   |   | Total |   |   |   |   |   | Total |   |   | 90 Days & |   |
|                            |   | Past Due(1)       |   |   | Past Due(2) |   |   | Past Due |   |   | Current |   |   | Loans |   |   | Accruing |   |
| Accruing                        |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial & Industrial     |   | $                 | 469    |   |   | $ | 167 |   |   | $ | 636 |   |   | $ | 46,970 |   |   | $ | 47,606 |   |   | $ | - |   |
| Commercial – Construction |   |              | 6,118  |   |   |   | 8,649 |   |   |   | 14,767 |   |   |   | 116,752 |   |   |   | 131,519 |   |   |   | - |   |
| Commercial - Real Estate        |   |              | 3,943  |   |   |   | 7,301 |   |   |   | 11,244 |   |   |   | 334,658 |   |   |   | 345,902 |   |   |   | - |   |
| Commercial - Lines of Credit    |   |              | -      |   |   |   | - |   |   |   | - |   |   |   | 538 |   |   |   | 538 |   |   |   | - |   |
| Commercial – Other        |   |              | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Consumer                        |   |              | -      |   |   |   | 5 |   |   |   | 5 |   |   |   | 3,833 |   |   |   | 3,838 |   |   |   | - |   |
| Consumer – Construction   |   |              | 221    |   |   |   | 45 |   |   |   | 266 |   |   |   | 9,064 |   |   |   | 9,330 |   |   |   | - |   |
| Consumer – Other          |   |              | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Home Equity                     |   |              | 350    |   |   |   | 881 |   |   |   | 1,231 |   |   |   | 55,894 |   |   |   | 57,125 |   |   |   | - |   |
| Residential Real Estate         |   |              | 3,601  |   |   |   | 2,093 |   |   |   | 5,694 |   |   |   | 75,951 |   |   |   | 81,645 |   |   |   | - |   |
|                            |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                           |   | $                 | 14,702 |   |   | $ | 19,141 |   |   | $ | 33,843 |   |   | $ | 643,660 |   |   | $ | 677,503 |   |   | $ | - |   |

----

----

|                                 |   | March 31, 2011 |   |
|--------------------------------------|--------|----------------|--------|
|                                 |   |           |   |   | Unpaid |   |   |   |   |   | Average |   |   | Interest |   |
|                                 |   | Recorded       |   |   | Principal |   |   | Related |   |   | Recorded |   |   | Income |   |
|                                 |   | Investment     |   |   | Balance |   |   | Allowance |   |   | Investment |   |   | Recognized |   |
|                                 |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| With no related allowance recorded:  |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consumer                             |   | $              | -      |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Commercial & industrial          |   |           | 79     |   |   |   | 88 |   |   |   | - |   |   |   | 231 |   |   |   | 4 |   |
| Commercial construction              |   |           | 5,944  |   |   |   | 7,298 |   |   |   | - |   |   |   | 7,192 |   |   |   | 99 |   |
| Commercial real estate - other       |   |           | 4,304  |   |   |   | 4,305 |   |   |   | - |   |   |   | 3,735 |   |   |   | 56 |   |
| Consumer construction                |   |           | -      |   |   |   | - |   |   |   | - |   |   |   | 15 |   |   |   | - |   |
| Home equity lines/loans              |   |           | 422    |   |   |   | 484 |   |   |   | - |   |   |   | 1,357 |   |   |   | 16 |   |
| Residential real estate - other      |   |           | 2,211  |   |   |   | 2,211 |   |   |   | - |   |   |   | 2,355 |   |   |   | 38 |   |
|                                 |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sub-Total                            |   |           | 12,960 |   |   |   | 14,386 |   |   |   | - |   |   |   | 14,885 |   |   |   | 213 |   |
|                                 |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| With an allowance recorded:          |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consumer                             |   |           | 37     |   |   |   | 37 |   |   |   | 35 |   |   |   | 37 |   |   |   | 1 |   |
| Commercial & industrial          |   |           | 3,562  |   |   |   | 3,562 |   |   |   | 1,298 |   |   |   | 2,957 |   |   |   | 47 |   |
| Commercial construction              |   |           | 32,824 |   |   |   | 35,158 |   |   |   | 6,577 |   |   |   | 34,031 |   |   |   | 475 |   |
| Commercial real estate – other |   |           | 14,158 |   |   |   | 15,044 |   |   |   | 3,575 |   |   |   | 13,379 |   |   |   | 212 |   |
| Consumer construction                |   |           | 295    |   |   |   | 294 |   |   |   | 59 |   |   |   | 330 |   |   |   | 6 |   |
| Home equity lines/loans              |   |           | 3,730  |   |   |   | 4,106 |   |   |   | 1,570 |   |   |   | 2,747 |   |   |   | 38 |   |
| Residential real estate - other      |   |           | 7,409  |   |   |   | 9,360 |   |   |   | 905 |   |   |   | 6,453 |   |   |   | 98 |   |
|                                 |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sub-Total                            |   |           | 62,015 |   |   |   | 67,561 |   |   |   | 14,019 |   |   |   | 59,934 |   |   |   | 877 |   |
|                                 |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Totals:                              |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                           |   |           | 3,641  |   |   |   | 3,650 |   |   |   | 1,298 |   |   |   | 3,188 |   |   |   | 51 |   |
| Commercial real estate               |   |           | 18,463 |   |   |   | 19,349 |   |   |   | 3,575 |   |   |   | 17,114 |   |   |   | 268 |   |
| Construction                         |   |           | 39,062 |   |   |   | 42,750 |   |   |   | 6,636 |   |   |   | 41,568 |   |   |   | 580 |   |
| Consumer                             |   |           | 37     |   |   |   | 37 |   |   |   | 35 |   |   |   | 37 |   |   |   | 1 |   |
| Residential real estate              |   |           | 13,772 |   |   |   | 16,161 |   |   |   | 2,475 |   |   |   | 12,912 |   |   |   | 190 |   |
|                                 |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Grand Total                          |   | $              | 74,975 |   |   | $ | 81,947 |   |   | $ | 14,019 |   |   | $ | 74,819 |   |   | $ | 1,090 |   |

----

----

|                                 |   | December 31, 2010 |   |
|--------------------------------------|--------|-----------------------------|--------|
|                                 |   |                        |   |   | Unpaid |   |   |   |   |   | Average |   |   | Interest |   |
|                                 |   | Recorded                    |   |   | Principal |   |   | Related |   |   | Recorded |   |   | Income |   |
|                                 |   | Investment                  |   |   | Balance |   |   | Allowance |   |   | Investment |   |   | Recognized |   |
|                                 |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| With no related allowance recorded:  |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consumer                             |   | $                           | -      |   |   | $ | - |   |   | $ | - |   |   | $ | 49 |   |   | $ | 1 |   |
| Commercial & industrial          |   |                        | 83     |   |   |   | 92 |   |   |   | - |   |   |   | 1,200 |   |   |   | 3 |   |
| Commercial construction              |   |                        | 2,649  |   |   |   | 4,475 |   |   |   | - |   |   |   | 11,132 |   |   |   | 354 |   |
| Commercial real estate - other       |   |                        | 3,366  |   |   |   | 3,366 |   |   |   | - |   |   |   | 6,154 |   |   |   | 226 |   |
| Consumer construction                |   |                        | 45     |   |   |   | 133 |   |   |   | - |   |   |   | 258 |   |   |   | 15 |   |
| Home equity lines/loans              |   |                        | 1,883  |   |   |   | 2,032 |   |   |   | - |   |   |   | 1,780 |   |   |   | 74 |   |
| Residential real estate - other      |   |                        | 2,820  |   |   |   | 2,820 |   |   |   | - |   |   |   | 1,894 |   |   |   | 58 |   |
| Sub-Total                            |   |                        | 10,846 |   |   |   | 12,918 |   |   |   | - |   |   |   | 22,467 |   |   |   | 731 |   |
| With an allowance recorded:          |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consumer                             |   |                        | 13     |   |   |   | 13 |   |   |   | 10 |   |   |   | 220 |   |   |   | 8 |   |
| Commercial & industrial          |   |                        | 2,093  |   |   |   | 2,093 |   |   |   | 984 |   |   |   | 2,261 |   |   |   | 96 |   |
| Commercial construction              |   |                        | 29,488 |   |   |   | 30,529 |   |   |   | 7,251 |   |   |   | 17,409 |   |   |   | 677 |   |
| Commercial real estate – other |   |                        | 6,658  |   |   |   | 7,328 |   |   |   | 1,780 |   |   |   | 9,730 |   |   |   | 230 |   |
| Consumer construction                |   |                        | 221    |   |   |   | 221 |   |   |   | 20 |   |   |   | 367 |   |   |   | 9 |   |
| Home equity lines/loans              |   |                        | 1,652  |   |   |   | 1,879 |   |   |   | 547 |   |   |   | 1,099 |   |   |   | 14 |   |
| Residential real estate - other      |   |                        | 3,471  |   |   |   | 5,197 |   |   |   | 446 |   |   |   | 6,107 |   |   |   | 223 |   |
|                                 |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sub-Total                            |   |                        | 43,596 |   |   |   | 47,260 |   |   |   | 11,038 |   |   |   | 37,193 |   |   |   | 1,257 |   |
| Totals:                              |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                           |   |                        | 2,176  |   |   |   | 2,185 |   |   |   | 984 |   |   |   | 3,461 |   |   |   | 99 |   |
| Commercial real estate               |   |                        | 10,024 |   |   |   | 10,694 |   |   |   | 1,780 |   |   |   | 15,884 |   |   |   | 456 |   |
| Construction                         |   |                        | 32,403 |   |   |   | 35,358 |   |   |   | 7,271 |   |   |   | 29,166 |   |   |   | 1,055 |   |
| Consumer                             |   |                        | 13     |   |   |   | 13 |   |   |   | 10 |   |   |   | 269 |   |   |   | 9 |   |
| Residential real estate              |   |                        | 9,826  |   |   |   | 11,928 |   |   |   | 993 |   |   |   | 10,880 |   |   |   | 369 |   |
|                                 |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Grand Total                          |   | $                           | 54,442 |   |   | $ | 60,178 |   |   | $ | 11,038 |   |   | $ | 59,660 |   |   | $ | 1,988 |   |

----

----

|                                  |   | March 31, 2011 |   |
|---------------------------------------|--------|--------------------------|--------|
| Commercial                            |   |                     |   |
| Commercial & industrial           |   | $                        | 1,044  |   |
| Commercial LOC                        |   |                     | 4      |   |
| Commercial other                      |   |                     | -      |   |
| Commercial real estate                |   |                     |   |   |
| Commercial construction               |   |                     | 26,277 |   |
| Commercial real estate – other  |   |                     | 13,035 |   |
| Consumer                              |   |                     |   |   |
| Consumer LOC                          |   |                     | -      |   |
| Consumer other                        |   |                     | -      |   |
| Residential real estate               |   |                     |   |   |
| Consumer construction                 |   |                     | -      |   |
| Home equity loans/lines               |   |                     | 1,909  |   |
| Residential real estate – other |   |                     | 4,401  |   |
|                                  |   |                     |   |   |
| Total                                 |   | $                        | 46,670 |   |
|                                  |   |                     |   |   |
|                                  |   | Dec 31, 2010   |   |
| Commercial                            |   |                     |   |   |
| Commercial & industrial           |   | $                        | 616    |   |
| Commercial LOC                        |   |                     | -      |   |
| Commercial other                      |   |                     | -      |   |
| Commercial real estate                |   |                     |   |   |
| Commercial construction               |   |                     | 16,614 |   |
| Commercial real estate – other  |   |                     | 7,633  |   |
| Consumer                              |   |                     |   |   |
| Consumer LOC                          |   |                     | 5      |   |
| Consumer other                        |   |                     | -      |   |
| Residential real estate               |   |                     |   |   |
| Consumer construction                 |   |                     | 221    |   |
| Home equity loans/lines               |   |                     | 1,314  |   |
| Residential real estate – other |   |                     | 4,166  |   |
|                                  |   |                     |   |   |
| Total                                 |   | $                        | 30,569 |   |

----

----

----

----

|                               |   | March 31, 2011    |   |
|------------------------------------|--------|-----------------------------|--------|
|                               |   |                        |   |   |   |   | Estimated Fair |   |
|                               |   | Balance Sheet          |   | Notional |   |   | Value of |   |
|                               |   | Location                    |   | Amount |   |   | Asset (Liability) |   |
|                               |   |                        |   |   |   |   |   |   |
| Trust preferred securities:        |   |                        |   |   |   |   |   |   |
| Interest rate swap                 |   | Other liabilities           |   | $ | 4,000,000 |   |   | $ | (95,387 | ) |
| Interest rate swap                 |   | Other liabilities           |   |   | 4,000,000 |   |   |   | (162,871 | ) |
|                               |   |                        |   |   |   |   |   |   |   |   |
| Subordinated term loan agreements: |   |                        |   |   |   |   |   |   |   |   |
| Interest rate swap                 |   | Other liabilities           |   |   | 3,750,000 |   |   |   | (88,422 | ) |
| Interest rate swap                 |   | Other liabilities           |   |   | 3,750,000 |   |   |   | (152,308 | ) |
|                               |   |                        |   | $ | 15,500,000 |   |   | $ | (498,988 | ) |
|                               |   |                        |   |   |   |   |   |   |   |   |
|                               |   | December 31, 2010 |   |
|                               |   |                        |   |   |   |   |   | Estimated Fair |   |
|                               |   | Balance Sheet          |   | Notional |   |   | Value of |   |
|                               |   | Location                    |   | Amount |   |   | Asset(Liability) |   |
|                               |   |                        |   |   |   |   |   |   |   |   |
| Trust preferred securities:        |   |                        |   |   |   |   |   |   |   |   |
| Interest rate swap                 |   | Other liabilities           |   | $ | 4,000,000 |   |   | $ | (111,444 | ) |
| Interest rate swap                 |   | Other liabilities           |   |   | 4,000,000 |   |   |   | (188,166 | ) |
|                               |   |                        |   |   |   |   |   |   |   |   |
| Subordinated term loan agreements: |   |                        |   |   |   |   |   |   |   |   |
| Interest rate swap                 |   | Other liabilities           |   |   | 3,750,000 |   |   |   | (103,529 | ) |
| Interest rate swap                 |   | Other liabilities           |   |   | 3,750,000 |   |   |   | (175,899 | ) |
|                               |   |                        |   | $ | 15,500,000 |   |   | $ | (579,038 | ) |

----

----

|                                                                                               |   | March 31, 2011 |     |
|----------------------------------------------------------------------------------------------------|--------|--------------------------|----------|
|                                                                                               |   |                     |     |
| Accumulated OCI resulting from interest rate swaps as of January 1, 2011, net of tax               |   | $                        | (355,818 | ) |
| Other comprehensive gain recognized during the three month period ended March 31, 2011, net of tax |   |                     | 49,190   |   |
| Accumulated OCI resulting from interest rate swaps as of March 31, 2011, net of tax                |   | $                        | (306,628 | ) |

|                                                                                   |   | December 31, 2010 |     |
|----------------------------------------------------------------------------------------|--------|-----------------------------|----------|
|                                                                                   |   |                        |     |
| Accumulated OCI resulting from interest rate swaps as of January 1, 2010, net of tax   |   | $                           | (181,237 | ) |
| Other comprehensive loss recognized, net of tax                                        |   |                        | (174,581 | ) |
| Accumulated OCI resulting from interest rate swaps as of December 31, 2010, net of tax |   | $                           | (355,818 | ) |

----

----

----

----

----

----

|                                   |   |                 |       |   | Fair Value Measurements at |   |
|----------------------------------------|--------|----------------------|------------|--------|-------------------------------------------|--------|
|                                   |   |                 |       |   | March 31, 2011, Using      |   |
|                                   |   |                 |       |   | Quoted Prices                        |   |   | Significant |   |   |   |   |
|                                   |   | Assets/(Liabilities) |       |   | in Active                            |   |   | Other |   |   | Significant |   |
|                                   |   | Measured at     |       |   | Markets for                          |   |   | Observable |   |   | Unobservable |   |
|                                   |   | Fair Value      |       |   | Identical Assets                     |   |   | Inputs |   |   | Inputs |   |
| Description                            |   | 3/31/2011            |       |   | (Level 1)                            |   |   | (Level 2) |   |   | (Level 3) |   |
|                                   |   |                 |       |   |                                      |   |   |   |   |   |   |   |
| Securities available for sale:         |   |                 |       |   |                                      |   |   |   |   |   |   |   |
| U.S. Government obligations and agency |   | $                    | 10,944,952 |   |                                      | $      | - |   |   | $ | 10,944,952 |   |   | $ | - |   |
| Mortgage-backed                        |   |                 | 34,195,815 |   |                                      |   | - |   |   |   | 34,195,815 |   |   |   | - |   |
| Collateralized mortgage obligations    |   |                 | 92,940,064 |   |                                      |   | - |   |   |   | 92,940,064 |   |   |   | - |   |
| Municipals                             |   |                 | 46,546,711 |   |                                      |   | - |   |   |   | 46,546,711 |   |   |   | - |   |
| Corporate bonds                        |   |                 | 2,857,970  |   |                                      |   | - |   |   |   | 2,857,970 |   |   |   | - |   |
| Marketable equity                      |   |                 | 510,904    |   |                                      |   | 510,904 |   |   |   | - |   |   |   | - |   |
|                                   |   |                 |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Foreclosed assets                      |   |                 | 14,112,547 |   |                                      |   | - |   |   |   | - |   |   |   | 14,112,547 |   |
| Impaired loans                         |   |                 | 60,956,699 |   |                                      |   | - |   |   |   | - |   |   |   | 60,956,699 |   |
| Interest rate lock commitments         |   |                 | 62,414     |   |                                      |   | - |   |   |   | - |   |   |   | 62,414 |   |
| Derivative liabilities                 |   |                 | (498,988   | )      |                                      |   | - |   |   |   | (498,988 | ) |   |   | - |   |

|                                   |   |                 |       |   | Fair Value Measurements at |   |
|----------------------------------------|--------|----------------------|------------|--------|-------------------------------------------|--------|
|                                   |   |                 |       |   | December 31, 2010, Using   |   |
|                                   |   |                 |       |   | Quoted Prices                        |   |   | Significant |   |   |   |   |
|                                   |   | Assets/(Liabilities) |       |   | in Active                            |   |   | Other |   |   | Significant |   |
|                                   |   | Measured at     |       |   | Markets for                          |   |   | Observable |   |   | Unobservable |   |
|                                   |   | Fair Value      |       |   | Identical Assets                     |   |   | Inputs |   |   | Inputs |   |
| Description                            |   | 12/31/2010           |       |   | (Level 1)                            |   |   | (Level 2) |   |   | (Level 3) |   |
|                                   |   |                 |       |   |                                      |   |   |   |   |   |   |   |
| Securities available for sale:         |   |                 |       |   |                                      |   |   |   |   |   |   |   |
| U.S. Government obligations and agency |   | $                    | 9,838,400  |   |                                      | $      | - |   |   | $ | 9,838,400 |   |   | $ | - |   |
| Mortgage-backed                        |   |                 | 39,724,845 |   |                                      |   | - |   |   |   | 39,724,845 |   |   |   | - |   |
| Collateralized mortgage obligations    |   |                 | 78,449,684 |   |                                      |   | - |   |   |   | 78,449,684 |   |   |   | - |   |
| Municipals                             |   |                 | 50,618,363 |   |                                      |   | - |   |   |   | 50,618,363 |   |   |   | - |   |
| Corporate bonds                        |   |                 | 2,768,800  |   |                                      |   | - |   |   |   | 2,768,800 |   |   |   | - |   |
| Marketable equity                      |   |                 | 516,137    |   |                                      |   | 516,137 |   |   |   | - |   |   |   | - |   |
|                                   |   |                 |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Foreclosed assets                      |   |                 | 15,523,592 |   |                                      |   | - |   |   |   | - |   |   |   | 15,523,592 |   |
| Impaired loans                         |   |                 | 43,404,439 |   |                                      |   | - |   |   |   | - |   |   |   | 43,404,439 |   |
| Interest rate lock commitments         |   |                 | 53,185     |   |                                      |   | - |   |   |   | - |   |   |   | 53,185 |   |
| Derivative liabilities                 |   |                 | (579,038   | )      |                                      |   | - |   |   |   | (579,038 | ) |   |   | - |   |

----

----

|                                |   | Level 3          |    |
|-------------------------------------|--------|-----------------------|---------|
|                                |   | Interest Rate    |    |
|                                |   | Lock Commitments |    |
|                                |   |                  |    |
| Beginning balance December 31, 2010 |   | $                     | 53,185  |   |
| Realized gain on commitments        |   |                  | (85,120 | ) |
| Expired commitments                 |   |                  | (16,680 | ) |
| New commitments entered into        |   |                  | 111,029 |   |
| Ending balance March 31, 2011       |   | $                     | 62,414  |   |

----

----

|                           |   | March 31, 2011 |        |   | December 31, 2010 |   |
|--------------------------------|--------|--------------------------|-------------|--------|-----------------------------|--------|
|                           |   | Carrying                 |        |   | Estimated                   |   |   | Carrying |   |   | Estimated |   |
|                           |   | amount                   |        |   | fair value             |   |   | amount |   |   | fair value |   |
| Financial assets:              |   |                     |        |   |                        |   |   |   |   |   |   |   |
| Cash and cash equivalents      |   | $                        | 66,382,666  |   |                        | $      | 66,382,666 |   |   | $ | 49,106,179 |   |   | $ | 49,106,179 |   |
| Investment securities          |   |                     | 187,996,416 |   |                        |   | 187,996,416 |   |   |   | 184,455,418 |   |   |   | 184,455,418 |   |
| Federal Home Loan Bank stock   |   |                     | 10,521,700  |   |                        |   | 10,521,700 |   |   |   | 10,521,700 |   |   |   | 10,521,700 |   |
| Loans held for sale            |   |                     | 805,334     |   |                        |   | 805,334 |   |   |   | 5,689,853 |   |   |   | 5,689,853 |   |
| Loans held for investment, net |   |                     | 629,298,299 |   |                        |   | 594,734,673 |   |   |   | 656,101,069 |   |   |   | 621,983,795 |   |
| Investment in life insurance   |   |                     | 18,677,135  |   |                        |   | 18,677,135 |   |   |   | 18,482,993 |   |   |   | 18,482,993 |   |
| Accrued interest receivable    |   |                     | 3,385,428   |   |                        |   | 3,385,428 |   |   |   | 3,995,242 |   |   |   | 3,995,242 |   |
|                           |   |                     |        |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:         |   |                     |        |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                       |   |                     | 725,205,194 |   |                        |   | 742,555,231 |   |   |   | 724,383,323 |   |   |   | 742,610,196 |   |
| Short-term borrowings          |   |                     | 5,000,000   |   |                        |   | 5,128,591 |   |   |   | 7,000,000 |   |   |   | 7,232,221 |   |
| Long-term borrowings           |   |                     | 152,748,000 |   |                        |   | 152,858,409 |   |   |   | 157,748,000 |   |   |   | 158,661,779 |   |
| Interest rate swaps            |   |                     | 498,988     |   |                        |   | 498,988 |   |   |   | 579,038 |   |   |   | 579,038 |   |
| Accrued interest payable       |   |                     | 1,325,759   |   |                        |   | 1,325,759 |   |   |   | 1,350,326 |   |   |   | 1,350,326 |   |

----

----

| Risk-free interest rate   |   |     | 2.49   | % |
|---------------------------|--------|----------|--------|---|
| Expected life of warrants |   | 10 years |   |
| Expected dividend yield   |   |     | 0.00   | % |
| Expected volatility       |   |     | 37.27  | % |

----

----

|   | · | Total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and a description of where those gain or losses included in earnings are reported in the Standard of income; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Purchases, sales, issuances and settlements (net); and |
|--------|--------|--------------------------------------------------------|

|   | · | Transfers in and / or out of Level 3 (e.g. transfers due to changes in the observability of significant inputs). |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

|   | · | The nature of credit risk inherent in the entity’s portfolio of financing receivables; |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | · | How that risk is analyzed and assessed in arriving at the allowance for credit losses; and |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | The changes and reasons for those changes in the allowance for credit losses. |
|--------|--------|-------------------------------------------------------------------------------|

|   | · | A roll forward of the allowance for credit losses related to financing receivables from the beginning to the end of the reporting period by portfolio segment; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Credit quality indicators of financing receivables at the end of the reporting period by class of financing receivables; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | · | The aging of past due financing receivables at the end of the reporting period by class of financing receivables; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

----

----

----

----

|                                   |   | Total Aggregate |    |
|----------------------------------------|--------|----------------------|---------|
|                                   |   | Exposure             |    |
| Loan Type                         |   | (in thousands)  |    |
| Non owner occupied investment property |   | $                    | 185,191 |   |
| Owner occupied commercial property     |   |                 | 133,118 |   |
| Multi-family investment property       |   |                 | 17,083  |   |
| Agriculture/Farmland                   |   |                 | 614     |   |
| Subtotal                               |   |                 | 336,006 |   |
| Deferred unearned interest             |   |                 | (442    | ) |
| Total commercial real estate loans     |   | $                    | 335,564 |   |

|                                                    |   | Total Aggregate |    |
|---------------------------------------------------------|--------|----------------------|---------|
|                                                    |   | Exposure             |    |
| Loan Type                                          |   | (in thousands)  |    |
| Land acquisition and development - commercial purposes  |   | $                    | 64,285  |   |
| Land acquisition and development - residential purposes |   |                 | 38,652  |   |
| 1 to 4 family residential construction                  |   |                 | 13,533  |   |
| Commercial construction                                 |   |                 | 16,600  |   |
| Subtotal                                                |   |                 | 133,070 |   |
| Deferred unearned interest                              |   |                 | (116    | ) |
| Total construction, acquistition & development      |   | $                    | 132,954 |   |

----

----

----

----

----

----

|                                                                                  |   | For the Three Months Ended March 31, |    |
|---------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|---------|
|                                                                                  |   | 2011                                                               |    |   | 2010 |   |
|                                                                                  |   | Average                                                            |    |   |   |   |   | Average |   |   | Average |   |   |   |   |   | Average |   |
|                                                                                  |   | Balance                                                            |    |   | Interest |   |   | Yield/Cost |   |   | Balance |   |   | Interest |   |   | Yield/Cost |   |
|                                                                                  |   |                                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earnings assets                                                              |   |                                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan portfolio                                                                        |   | $                                                                  | 668,152 |   |   | $ | 9,078 |   |   |   | 5.51 | % |   | $ | 752,131 |   |   | $ | 11,484 |   |   |   | 6.19 | % |
| Investment securities                                                                 |   |                                                               | 190,187 |   |   |   | 1,663 |   |   |   | 4.08 | % * |   |   | 199,542 |   |   |   | 1,936 |   |   |   | 4.44 | % |
| Fed funds and other interest-earning assets                                           |   |                                                               | 49,454  |   |   |   | 29 |   |   |   | 0.23 | % |   |   | 9,270 |   |   |   | 5 |   |   |   | 0.22 | % |
| Total interest-earning assets                                                         |   |                                                               | 907,793 |   |   |   | 10,770 |   |   |   | 4.93 | % |   |   | 960,943 |   |   |   | 13,425 |   |   |   | 5.78 | % |
| Noninterest-earning assets                                                            |   |                                                               | 56,312  |   |   |   |   |   |   |   |   |   |   |   | 51,131 |   |   |   |   |   |   |   |   |   |
| Total Assets                                                                          |   | $                                                                  | 964,105 |   |   |   |   |   |   |   |   |   |   | $ | 1,012,074 |   |   |   |   |   |   |   |   |   |
|                                                                                  |   |                                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                                          |   |                                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing NOW                                                                  |   | $                                                                  | 150,431 |   |   |   | 760 |   |   |   | 2.05 | % |   | $ | 96,841 |   |   |   | 625 |   |   |   | 2.62 | % |
| Money market and savings                                                              |   |                                                               | 133,501 |   |   |   | 315 |   |   |   | 0.96 | % |   |   | 130,300 |   |   |   | 405 |   |   |   | 1.26 | % |
| Time deposits                                                                         |   |                                                               | 379,877 |   |   |   | 2,274 |   |   |   | 2.43 | % |   |   | 422,701 |   |   |   | 3,316 |   |   |   | 3.18 | % |
| Short-term borrowings                                                                 |   |                                                               | 3,633   |   |   |   | 15 |   |   |   | 1.67 | % |   |   | 65,300 |   |   |   | 206 |   |   |   | 1.26 | % |
| Long-term debt                                                                        |   |                                                               | 154,970 |   |   |   | 1,371 |   |   |   | 3.59 | % |   |   | 147,259 |   |   |   | 1,412 |   |   |   | 3.84 | % |
| Total interest-bearing liabilities                                                    |   |                                                               | 822,412 |   |   |   | 4,735 |   |   |   | 2.33 | % |   |   | 862,401 |   |   |   | 5,964 |   |   |   | 2.80 | % |
| Non-interest bearing deposits                                                         |   |                                                               | 59,085  |   |   |   |   |   |   |   |   |   |   |   | 55,206 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                                                     |   |                                                               | 4,346   |   |   |   |   |   |   |   |   |   |   |   | 3,687 |   |   |   |   |   |   |   |   |   |
| Total Liabilities                                                                     |   |                                                               | 885,843 |   |   |   |   |   |   |   |   |   |   |   | 921,294 |   |   |   |   |   |   |   |   |   |
| Stockholders' Equity                                                                  |   |                                                               | 78,262  |   |   |   |   |   |   |   |   |   |   |   | 90,780 |   |   |   |   |   |   |   |   |   |
| Total Liabilities & Stockholders' Equity                                          |   | $                                                                  | 964,105 |   |   |   |   |   |   |   |   |   |   | $ | 1,012,074 |   |   |   |   |   |   |   |   |   |
|                                                                                  |   |                                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                                   |   |                                                               |    |   |   | $ | 6,035 |   |   |   |   |   |   |   |   |   |   | $ | 7,461 |   |   |   |   |   |
| Interest rate spread                                                                  |   |                                                               |    |   |   |   |   |   |   |   | 2.60 | % |   |   |   |   |   |   |   |   |   |   | 2.98 | % |
| Net interest-margin                                                                   |   |                                                               |    |   |   |   |   |   |   |   | 2.82 | % * |   |   |   |   |   |   |   |   |   |   | 3.27 | % |
|                                                                                  |   |                                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Percentage of average interest-earning assets to average interest-bearing liabilities |   |                                                               |    |   |   |   |   |   |   |   | 110.38 | % |   |   |   |   |   |   |   |   |   |   | 111.43 | % |

| * | Shown as a tax-adjusted yield |
|---|-------------------------------|

----

|                                        |   | Three Months Ended March 31, |   |
|---------------------------------------------|--------|--------------------------------------------------|--------|
|                                        |   | 2011 vs. 2010                          |   |
|                                        |   | (in Thousands)                              |   |
|                                        |   | Increase (Decrease) Due to        |   |
|                                        |   | Volume                                           |   |   | Rate |   |   | Total |   |
| Interest Income                             |   |                                             |   |   |   |   |   |   |   |
| Loan portfolio                              |   |                                             | (1,212 | ) |   |   | (1,194 | ) |   |   | (2,406 | ) |
| Investment Securities                       |   |                                             | (98    | ) |   |   | (175 | ) |   |   | (273 | ) |
| Fed funds and other interest-earning assets |   |                                             | 23     |   |   |   | 1 |   |   |   | 24 |   |
| Total interest-earning assets               |   |                                             | (1,287 | ) |   |   | (1,368 | ) |   |   | (2,655 | ) |
|                                        |   |                                             |   |   |   |   |   |   |   |   |   |   |
| Interest Expense                            |   |                                             |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing NOW                        |   |                                             | 314    |   |   |   | (179 | ) |   |   | 135 |   |
| Money market and savings                    |   |                                             | 10     |   |   |   | (100 | ) |   |   | (90 | ) |
| Time deposits                               |   |                                             | (291   | ) |   |   | (751 | ) |   |   | (1,042 | ) |
| Short-term borrowings                       |   |                                             | (228   | ) |   |   | 37 |   |   |   | (191 | ) |
| Long-term debt                              |   |                                             | 72     |   |   |   | (113 | ) |   |   | (41 | ) |
| Total interest-bearing liabilities          |   |                                             | (123   | ) |   |   | (1,106 | ) |   |   | (1,229 | ) |
|                                        |   |                                             |   |   |   |   |   |   |   |   |   |   |
| Net interest income                         |   |                                             | (1,164 | ) |   |   | (262 | ) |   |   | (1,426 | ) |

----

|                                                                |   | At March 31,           |   |   | At December 31, |   |
|---------------------------------------------------------------------|--------|----------------------------------|--------|--------|---------------------------|--------|
|                                                                |   | 2011                             |   |   | 2010                      |   |   | 2010 |   |   | 2009 |   |
|                                                                |   | (Dollars in thousands) |   |
| Nonaccrual loans                                                    |   |                             |   |   |                      |   |   |   |   |   |   |   |
| Construction and A&D                                            |   | $                                | 26,277 |   |                      | $      | 5,435 |   |   | $ | 16,835 |   |   | $ | 6,692 |   |
| Commercial real estate                                              |   |                             | 13,035 |   |                      |   | 14,025 |   |   |   | 7,633 |   |   |   | 4,655 |   |
| Residential mortgage                                                |   |                             | 4,401  |   |                      |   | 5,301 |   |   |   | 4,166 |   |   |   | 2,758 |   |
| Home equity lines and loans                                         |   |                             | 1,909  |   |                      |   | 1,540 |   |   |   | 1,314 |   |   |   | 1,314 |   |
| Commercial and industrial                                           |   |                             | 1,048  |   |                      |   | 3,097 |   |   |   | 616 |   |   |   | 2,706 |   |
| Consumer                                                            |   |                             | -      |   |                      |   | 12 |   |   |   | 5 |   |   |   | 9 |   |
| Total nonaccrual loans                                              |   | $                                | 46,670 |   |                      | $      | 29,410 |   |   | $ | 30,569 |   |   | $ | 18,134 |   |
|                                                                |   |                             |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Accruing loans past due 90 days or more                             |   |                             | -      |   |                      |   | - |   |   |   | - |   |   |   | 381 |   |
|                                                                |   |                             |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Total nonperforming loans                                           |   |                             | 46,670 |   |                      |   | 29,410 |   |   |   | 30,569 |   |   |   | 18,515 |   |
|                                                                |   |                             |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Real estate owned                                                   |   |                             | 12,163 |   |                      |   | 8,122 |   |   |   | 13,574 |   |   |   | 6,306 |   |
| Repossessed assets                                                  |   |                             | 1,950  |   |                      |   | 6 |   |   |   | 1,950 |   |   |   | - |   |
|                                                                |   |                             |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Total nonperforming assets                                          |   | $                                | 60,783 |   |                      | $      | 37,538 |   |   | $ | 46,093 |   |   | $ | 24,821 |   |
|                                                                |   |                             |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Restructured loans in accrual status not in categories listed above |   | $                                | 5,755  |   |                      | $      | 10,685 |   |   | $ | 8,601 |   |   | $ | 13,691 |   |
|                                                                |   |                             |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses                                           |   |                             | 23,485 |   |                      |   | 16,807 |   |   |   | 20,702 |   |   |   | 17,567 |   |
| Nonperforming loans to period end loans held for investment         |   |                             | 7.15   | %      |                      |   | 3.95 | % |   |   | 4.52 | % |   |   | 2.39 | % |
| Allowance for loan losses to period end loans held for investment   |   |                             | 3.60   | %      |                      |   | 2.26 | % |   |   | 3.06 | % |   |   | 2.31 | % |
| Allowance for loan losses to nonperforming loans                    |   |                             | 50     | %      |                      |   | 57 | % |   |   | 68 | % |   |   | 95 | % |
| Nonperforming loans to period end total assets                      |   |                             | 4.86   | %      |                      |   | 2.91 | % |   |   | 3.14 | % |   |   | 1.79 | % |
| Nonperforming assets to period end total assets                     |   |                             | 6.33   | %      |                      |   | 3.71 | % |   |   | 4.74 | % |   |   | 2.40 | % |

----

|              |   | As of March 31, 2011 |    |
|-------------------|--------|------------------------------------------|---------|
|              |   |                                     |    |   |   |   |   |   |   |   | Nonperforming |   |
|              |   |                                     |    |   | % of Total |   |   |   |   |   | Loans to |   |
|              |   | Loans                                    |    |   | Loans |   |   | Nonperforming |   |   | Loans |   |
|              |   | Outstanding                              |    |   | Outstanding |   |   | Loans |   |   | Outstanding |   |
|              |   | (Dollars in thousands)                   |    |
|              |   |                                     |    |   |   |   |   |   |   |   |   |   |
| Triangle Region   |   | $                                        | 376,293 |   |   |   | 57.59 | % |   | $ | 23,062 |   |   |   | 6.13 | % |
| Sandhills Region  |   |                                     | 104,833 |   |   |   | 16.04 | % |   |   | 7,644 |   |   |   | 7.29 | % |
| Wilmington Region |   |                                     | 172,324 |   |   |   | 26.37 | % |   |   | 15,964 |   |   |   | 9.26 | % |
|              |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total allowance   |   | $                                        | 653,450 |   |   |   | 100.00 | % |   | $ | 46,670 |   |   |   | 7.15 | % |

|                                |   | At March 31,           |   |   | At December 31, |   |
|-------------------------------------|--------|----------------------------------|--------|--------|---------------------------|--------|
|                                |   | 2011                             |   |   | 2010                      |   |   | 2010 |   |   | 2009 |   |
|                                |   | (Dollars in thousands) |   |
|                                |   |                             |   |   |                      |   |   |   |   |   |   |   |
| Performing restructured loans:      |   |                             |   |   |                      |   |   |   |   |   |   |   |
| Construction and A&D            |   | $                                | 1,593  |   |                      | $      | - |   |   | $ | 4,896 |   |   | $ | 1,097 |   |
| Commercial real estate              |   |                             | 2,727  |   |                      |   | 5,879 |   |   |   | 2,257 |   |   |   | 6,286 |   |
| Residential mortgage                |   |                             | 1,372  |   |                      |   | 4,654 |   |   |   | 1,383 |   |   |   | 5,935 |   |
| Home equity lines and loans         |   |                             | -      |   |                      |   | - |   |   |   | - |   |   |   | - |   |
| Commercial and industrial           |   |                             | 63     |   |                      |   | 152 |   |   |   | 64 |   |   |   | 372 |   |
| Consumer                            |   |                             | -      |   |                      |   | - |   |   |   | - |   |   |   | - |   |
| Total performing restructured loans |   | $                                | 5,755  |   |                      | $      | 10,685 |   |   | $ | 8,600 |   |   | $ | 13,691 |   |

----

----

----

|                            |   | At March 31,           |   |   | At December 31, |   |
|---------------------------------|--------|----------------------------------|--------|--------|---------------------------|--------|
|                            |   | 2011                             |   |   | 2010                      |   |
|                            |   |                             |   |   | % of Total      |   |   |   |   |   | % of Total |   |
|                            |   | Amount                           |   |   | Loans (1)            |   |   | Amount |   |   | Loans (1) |   |
|                            |   | (Dollars in thousands) |   |
|                            |   |                             |   |   |                      |   |   |   |   |   |   |   |
| Residential real estate loans   |   | $                                | 1,614  |   |                      |   | 12.56 | % |   | $ | 1,360 |   |   |   | 12.05 | % |
| Home equity loans and lines     |   |                             | 2,751  |   |                      |   | 8.41 | % |   |   | 1,453 |   |   |   | 8.43 | % |
| Commercial real estate loans    |   |                             | 7,263  |   |                      |   | 51.42 | % |   |   | 5,345 |   |   |   | 51.06 | % |
| Construction loans              |   |                             | 9,077  |   |                      |   | 20.36 | % |   |   | 9,775 |   |   |   | 20.79 | % |
| Commercial and industrial loans |   |                             | 2,709  |   |                      |   | 6.69 | % |   |   | 2,689 |   |   |   | 7.10 | % |
| Loans to individuals            |   |                             | 71     |   |                      |   | 0.56 | % |   |   | 80 |   |   |   | 0.57 | % |
|                            |   |                             |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Total allowance                 |   | $                                | 23,485 |   |                      |   | 100.00 | % |   | $ | 20,702 |   |   |   | 100.00 | % |

----

|                                                                                 |   | For the Three-Month Period Ended March 31, |    |
|--------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|---------|
|                                                                                 |   | 2011                                                                     |    |   | 2010 |   |
|                                                                                 |   | (Dollars in thousands)                                         |    |
|                                                                                 |   |                                                                     |    |   |   |   |
| Balance at the beginning of the year                                                 |   | $                                                                        | 20,702  |   |   | $ | 17,567 |   |
| Charge-offs:                                                                         |   |                                                                     |    |   |   |   |   |   |
| Commercial and industrial loans                                                      |   |                                                                     | 269     |   |   |   | 67 |   |
| Commercial real estate loans                                                         |   |                                                                     | 216     |   |   |   | 1,026 |   |
| Construction, acquisition and development                                            |   |                                                                     | 3,761   |   |   |   | 1,425 |   |
| Residential mortgage loans                                                           |   |                                                                     | 227     |   |   |   | 29 |   |
| Home equity lines and loans                                                          |   |                                                                     | 112     |   |   |   | 112 |   |
| Consumer loans                                                                       |   |                                                                     | 14      |   |   |   | 8 |   |
|                                                                                 |   |                                                                     |    |   |   |   |   |   |
| Total charge-offs                                                                    |   |                                                                     | 4,599   |   |   |   | 2,667 |   |
|                                                                                 |   |                                                                     |    |   |   |   |   |   |
| Recoveries                                                                           |   |                                                                     |    |   |   |   |   |   |
| Commercial and industrial loans                                                      |   |                                                                     | 36      |   |   |   | 105 |   |
| Commercial real estate                                                               |   |                                                                     | -       |   |   |   | - |   |
| Construction, acquisition and development                                            |   |                                                                     | 312     |   |   |   | - |   |
| Residential mortgage loans                                                           |   |                                                                     | 2       |   |   |   | - |   |
| Home equity lines and loans                                                          |   |                                                                     | 8       |   |   |   | 1 |   |
| Consumer loans                                                                       |   |                                                                     | -       |   |   |   | - |   |
|                                                                                 |   |                                                                     |    |   |   |   |   |   |
| Total recoveries                                                                     |   |                                                                     | 358     |   |   |   | 106 |   |
|                                                                                 |   |                                                                     |    |   |   |   |   |   |
| Net charge-offs                                                                      |   |                                                                     | 4,241   |   |   |   | 2,561 |   |
|                                                                                 |   |                                                                     |    |   |   |   |   |   |
| Provision for loan losses                                                            |   |                                                                     | 7,024   |   |   |   | 1,801 |   |
|                                                                                 |   |                                                                     |    |   |   |   |   |   |
| Balance at the end of the period                                                     |   | $                                                                        | 23,485  |   |   | $ | 16,807 |   |
|                                                                                 |   |                                                                     |    |   |   |   |   |   |
| Total loans held for investment outstanding at period-end                            |   | $                                                                        | 652,783 |   |   | $ | 744,484 |   |
|                                                                                 |   |                                                                     |    |   |   |   |   |   |
| Average loans held for investment outstanding for the period                         |   | $                                                                        | 666,448 |   |   | $ | 752,131 |   |
|                                                                                 |   |                                                                     |    |   |   |   |   |   |
| Allowance for loan losses to total loans outstanding                                 |   |                                                                     | 3.60    | % |   |   | 2.26 | % |
|                                                                                 |   |                                                                     |    |   |   |   |   |   |
| Annualized ratio of net charge-offs to average loans held for investment outstanding |   |                                                                     | 2.57    | % |   |   | 1.38 | % |

----

----

----

----

| Part II. | OTHER INFORMATION |
|---------------|-------------------|

| Item 1. | Legal Proceedings. |
|--------------|--------------------|

| Item 1a. | Risk Factors. |
|---------------|---------------|

| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
|--------------|--------------------------------------------------------------|

| Item 3. | Defaults Upon Senior Debt. |
|--------------|----------------------------|

| Item 4. | (Removed and Reserved) |
|--------------|------------------------|

| Item 5. | Other Information. |
|--------------|--------------------|

| Item 6.  | Exhibits |
|--------------------|----------|

| 31.1   |         | Certification of Principal Executive Officer pursuant to Rule 13a – 14(a)                                                                         |
|--------|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |         |                                                                                                                                                    |
| 31.2   |         | Certification of Principal Financial Officer pursuant to Rule 13a – 14(a)                                                                         |
|   |         |                                                                                                                                                    |
| 32.1   |         | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002     |
|   |         |                                                                                                                                                    |
| 32.2   |    | Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |

----

|               | CRESCENT FINANCIAL CORPORATION |
|--------------------|--------------------------------|
|               |                           |   |
| Date: May 12, 2011 | By:                            | /s/ Michael G. Carlton |
|               |                           | Michael G. Carlton |
|               |                           | President and Chief Executive Officer |
|               |                           |   |
| Date: May 12, 2011 | By:                            | /s/ Bruce W. Elder |
|               |                           | Bruce W. Elder |
|               |                           | Principal Financial Officer |

----