|  Delaware                           | 54-2069979             |
|------------------------------------------|------------------------|
| (State or other jurisdiction of          | (I.R.S. Employer       |
| incorporation or organization)           | Identification Number) |
|                                     |                   |
| 519 South New Hope Road, Gastonia, NC    | 28054                  |
| (Address of principal executive offices) | (Zip code)             |

----

| Common Stock, par value $0.01 per share | The NASDAQ Stock Market, LLC           |
|-----------------------------------------|----------------------------------------|
| (Title of class)                        | (Name of exchange on which registered) |

----

----

|       |                                                                                        | Page   |
|------------|---------------------------------------------------------------------------------------------|--------|
|       |                                                                                        |   |
| Part I     |                                                                                        |   |
|       |                                                                                        |   |
| Item 1.    | Business                                                                                    | 1      |
| Item 1A.   | Risk Factors                                                                                | 10     |
| Item 1B.   | Unresolved Staff Comments                                                                   | 16     |
| Item 2.    | Properties                                                                                  | 16     |
| Item 3.    | Legal Proceedings                                                                           | 16     |
| Item 4.    | [Reserved]                                                                                  | 16     |
|       |                                                                                        |   |
| Part II    |                                                                                        |   |
|       |                                                                                        |   |
| Item 5.    | Market for Registrant’s Common Stock, Related Stockholder Matters                     |   |
|       |    and Issuer Purchases of Equity Securities                                 | 17     |
| Item 6.    | Selected Financial Data                                                                     | 19     |
| Item 7.    | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21     |
| Item 7A.   | Quantitative and Qualitative Disclosures About Market Risk                                  | 38     |
| Item 8.    | Financial Statements and Supplementary Data                                                 | 49     |
|       | Report of Independent Registered Public Accounting Firm                                     | 49     |
|       | Consolidated Statements of Financial Condition                                              | 50     |
|       | Consolidated Statements of Operations                                                       | 51     |
|       | Consolidated Statements of Changes in Shareholders’ Equity                            | 52     |
|       | Consolidated Statements of Cash Flows                                                       | 53     |
|       | Notes to Consolidated Financial Statements                                                  | 54     |
| Item 9.    | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure        | 86     |
| Item 9A.   | Controls and Procedures                                                                     | 86     |
| Item 9B.   | Other Information                                                                           | 86     |
|       |                                                                                        |   |
| Part III   |                                                                                        |   |
|       |                                                                                        |   |
| Item 10.   | Directors, Executive Officers and Corporate Governance                                      | 87     |
| Item 11.   | Executive Compensation                                                                      | 87     |
| Item 12.   | Security Ownership of Certain Beneficial Owners and Management and                          |   |
|       |    Related Stockholder Matters                                               | 87     |
| Item 13.   | Certain Relationships, Related Transactions and Director Independence                       | 87     |
| Item 14.   | Principal Accountant Fees and Services                                                      | 87     |
|       |                                                                                        |   |
| Part IV    |                                                                                        |   |
|       |                                                                                        |   |
| Item 15.   | Exhibits and Financial Statement Schedules                                                  | 88     |
|       |                                                                                        |   |
| Signatures |                                                                                        |   |

----

PART 

| Item 1. | Business |
|---------|----------|

----

|   | ·  | $285.8 million of total assets at book value, which were decreased by $8.8 million to $276.9 million after applying purchase accounting fair market adjustments; |
|--------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ·  | $229.9 million of total loans at book value, which were decreased by $46.7 million to $183.2 million after applying purchase accounting fair market adjustments; |
|--------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ·  | $291.5 million of total deposits at book value, which were increased by $768,000 to $292.2 million after applying purchase accounting fair market adjustments; |
|--------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ·  | $30.0 million of total borrowings at book value, which were increased by $1.6 million to $31.6 million after applying purchase accounting fair market adjustments. |
|--------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

|              |   | Well        |   |   | At December 31 |   |
|-------------------|--------|-------------|--------|--------|----------------|--------|
|              |   | Capitalized |   |   | 2010           |   |   | 2009 |   |
| Leverage capital  |   |        | 5.00   | %      |           |   | 9.74 | % |   |   | 10.44 | % |
| Tier 1 risk-based |   |        | 6.00   | %      |           |   | 15.54 | % |   |   | 12.98 | % |
| Total risk-based  |   |        | 10.00  | %      |           |   | 16.80 | % |   |   | 14.07 | % |

----

----

----

----

| Item 1A. | Risk Factors |
|----------|--------------|

----

----

----

|   | · | the time and costs associated with identifying and evaluating potential acquisitions and merger partners; |
|--------|--------|-----------------------------------------------------------------------------------------------------------|

|   | · | the ability to finance an acquisition and possible ownership and economic dilution to existing stockholders; |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | ·  | diversion of management’s attention to the negotiation of a transaction, and the integration of the operations and personnel of the acquired institution; |
|--------|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ·  | the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on results of operations; and |
|--------|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ·  | the risk of loss of key employees and customers. |
|--------|--------------|--------------------------------------------------|

----

----

----

| Item 1B. | Unresolved Staff Comments |
|----------|---------------------------|

| Item 2. | Properties |
|---------|------------|

| Item 3. | Legal Proceedings |
|---------|-------------------|

| Item 4. | [Reserved] |
|---------|------------|

----

PART 

| Item 5. | Market for Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities |
|---------|-------------------------------------------------------------------------------------------------------------|

|    |   | Year Ending December 31, 2010 |   |   | Year Ending December 31, 2009 |   |
|---------|--------|-------------------------------|--------|--------|-------------------------------|--------|
| Quarter |   | High                          |   |   | Low                           |   |   | Dividend |   |   | High |   |   | Low |   |   | Dividend |   |
| 1st     |   | $                             | 6.19   |   |                          | $      | 4.19 |   |   | $ | 0.04 |   |   | $ | 6.85 |   |   | $ | 3.86 |   |   | $ | 0.04 |   |
| 2nd     |   |                          | 6.90   |   |                          |   | 4.76 |   |   |   | 0.04 |   |   |   | 6.00 |   |   |   | 4.65 |   |   |   | 0.04 |   |
| 3rd     |   |                          | 6.33   |   |                          |   | 4.46 |   |   |   | 0.04 |   |   |   | 6.50 |   |   |   | 4.35 |   |   |   | 0.04 |   |
| 4th     |   |                          | 5.10   |   |                          |   | 3.90 |   |   |   | 0.01 |   |   |   | 6.35 |   |   |   | 4.50 |   |   |   | 0.04 |   |

----

----

| Item 6. | Selected Financial Data |
|---------|-------------------------|

| Table 1 - Selected Consolidated Financial Information and Other Data |   |                       |       |   |   |   |      |   |   |   |
|----------------------------------------------------------------------|--------|----------------------------|------------|--------|--------|--------|-----------|--------|--------|--------|
|                                                                 |   |                       |       |   |   |   |      |   |   |   |   |   |   |   |   |
|                                                                 |   | At and for the years ended |       |
|                                                                 |   | 2010                       |       |   | 2009   |   |      | 2008   |   |   | 2007 |   |   | 2006 |   |
| (Dollars in thousands, except per share and nonfinancial data)       |   |                       |       |   |   |   |      |   |   |   |   |   |   |
|                                                                 |   |                       |       |   |   |   |      |   |   |   |   |   |   |   |   |
| Summary of Operations:                                               |   |                       |       |   |   |   |      |   |   |   |   |   |   |   |   |
| Interest income                                                      |   | $                          | 43,915     |   |   | $      | 38,301    |   |   | $      | 42,991 |   |   | $ | 46,735 |   |   | $ | 42,919 |   |
| Interest expense                                                     |   |                       | 14,678     |   |   |   | 16,527    |   |   |   | 22,351 |   |   |   | 26,500 |   |   |   | 22,279 |   |
| Net interest income                                                  |   |                       | 29,237     |   |   |   | 21,774    |   |   |   | 20,640 |   |   |   | 20,235 |   |   |   | 20,640 |   |
| Provision for loan losses                                            |   |                       | 14,050     |   |   |   | 10,980    |   |   |   | 3,275 |   |   |   | 1,290 |   |   |   | 1,165 |   |
| Net interest income after loan loss provision                        |   |                       | 15,187     |   |   |   | 10,794    |   |   |   | 17,365 |   |   |   | 18,945 |   |   |   | 19,475 |   |
| Noninterest income                                                   |   |                       | 27,136     |   |   |   | 7,972     |   |   |   | 5,635 |   |   |   | 6,562 |   |   |   | 6,141 |   |
| Noninterest expense                                                  |   |                       | 29,335     |   |   |   | 50,272    |   |   |   | 19,226 |   |   |   | 17,895 |   |   |   | 17,544 |   |
| Net income (loss) before income taxes                                |   |                       | 12,988     |   |   |   | (31,506   | )      |   |   | 3,774 |   |   |   | 7,612 |   |   |   | 8,072 |   |
| Income tax expense (benefit)                                         |   |                       | 4,349      |   |   |   | (1,499    | )      |   |   | 639 |   |   |   | 1,947 |   |   |   | 2,617 |   |
| Net income (loss)                                                    |   |                       | 8,639      |   |   |   | (30,007   | )      |   |   | 3,135 |   |   |   | 5,665 |   |   |   | 5,455 |   |
| Dividends on preferred stock                                         |   |                       | 1,025      |   |   |   | 1,034     |   |   |   | 54 |   |   |   | - |   |   |   | - |   |
| Net income (loss) available to common shareholders                   |   | $                          | 7,614      |   |   | $      | (31,041   | )      |   | $      | 3,081 |   |   | $ | 5,665 |   |   | $ | 5,455 |   |
|                                                                 |   |                       |       |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per Common Share Data:                                               |   |                       |       |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss):                                                   |   |                       |       |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                |   | $                          | 0.78       |   |   | $      | (4.19     | )      |   | $      | 0.42 |   |   | $ | 0.74 |   |   | $ | 0.68 |   |
| Diluted                                                              |   |                       | 0.78       |   |   |   | (4.19     | )      |   |   | 0.42 |   |   |   | 0.73 |   |   |   | 0.67 |   |
| Weighted average shares outstanding:                                 |   |                       |       |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                |   |                       | 9,742,330  |   |   |   | 7,410,692 |   |   |   | 7,374,051 |   |   |   | 7,688,022 |   |   |   | 8,017,956 |   |
| Diluted                                                              |   |                       | 9,742,330  |   |   |   | 7,410,692 |   |   |   | 7,374,051 |   |   |   | 7,753,940 |   |   |   | 8,095,276 |   |
| End of year shares outstanding                                       |   |                       | 11,508,750 |   |   |   | 7,526,854 |   |   |   | 7,515,957 |   |   |   | 7,610,017 |   |   |   | 8,111,659 |   |
| Cash dividends paid                                                  |   | $                          | 0.13       |   |   | $      | 0.16      |   |   | $      | 0.34 |   |   | $ | 0.32 |   |   | $ | 0.30 |   |
| Book value                                                           |   |                       | 6.32       |   |   |   | 6.87      |   |   |   | 11.21 |   |   |   | 11.05 |   |   |   | 10.61 |   |
| Tangible book value                                                  |   |                       | 6.17       |   |   |   | 6.80      |   |   |   | 7.14 |   |   |   | 6.96 |   |   |   | 6.69 |   |
|                                                                 |   |                       |       |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selected End of Year Balances:                                       |   |                       |       |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                         |   | $                          | 1,064,487  |   |   | $      | 791,532   |   |   | $      | 817,213 |   |   | $ | 779,140 |   |   | $ | 743,370 |   |
| Loans, net                                                           |   |                       | 736,510    |   |   |   | 610,201   |   |   |   | 626,688 |   |   |   | 559,956 |   |   |   | 515,402 |   |
| Allowance for loan losses                                            |   |                       | 11,924     |   |   |   | 9,189     |   |   |   | 8,026 |   |   |   | 6,144 |   |   |   | 5,764 |   |
| Investment securities                                                |   |                       | 111,586    |   |   |   | 83,370    |   |   |   | 109,180 |   |   |   | 116,412 |   |   |   | 126,017 |   |
| Deposits                                                             |   |                       | 850,456    |   |   |   | 609,345   |   |   |   | 581,488 |   |   |   | 590,765 |   |   |   | 562,802 |   |
| Shareholders' equity                                                 |   |                       | 93,443     |   |   |   | 72,322    |   |   |   | 104,720 |   |   |   | 84,033 |   |   |   | 85,961 |   |
|                                                                 |   |                       |       |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selected Average Balances:                                           |   |                       |       |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                         |   | $                          | 1,018,716  |   |   | $      | 830,244   |   |   | $      | 799,869 |   |   | $ | 753,085 |   |   | $ | 716,934 |   |
| Loans, net                                                           |   |                       | 729,202    |   |   |   | 621,949   |   |   |   | 593,404 |   |   |   | 526,913 |   |   |   | 493,324 |   |
| Investment securities                                                |   |                       | 95,452     |   |   |   | 99,837    |   |   |   | 111,473 |   |   |   | 126,639 |   |   |   | 115,086 |   |
| Deposits                                                             |   |                       | 798,009    |   |   |   | 609,034   |   |   |   | 580,811 |   |   |   | 575,302 |   |   |   | 535,935 |   |
| Shareholders' equity                                                 |   |                       | 90,304     |   |   |   | 104,222   |   |   |   | 85,232 |   |   |   | 84,784 |   |   |   | 85,035 |   |
|                                                                 |   |                       |       |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selected Financial Performance Ratios:                               |   |                       |       |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return on average assets  (1)  (2)               |   |                       | 0.75       | %      |   |   | -3.74     | %      |   |   | 0.39 | % |   |   | 0.75 | % |   |   | 0.76 | % |
| Return on average common equity  (1)  (2)        |   |                       | 8.15       | %      |   |   | -42.92    | %      |   |   | 2.94 | % |   |   | 6.74 | % |   |   | 6.35 | % |
| Noninterest income to average total assets  (1)            |   |                       | 2.66       | %      |   |   | 0.96      | %      |   |   | 0.70 | % |   |   | 0.87 | % |   |   | 0.86 | % |
| Noninterest expense to average total assets (2)                      |   |                       | 2.88       | %      |   |   | 6.06      | %      |   |   | 2.40 | % |   |   | 2.38 | % |   |   | 2.45 | % |
| Efficiency ratio  (1) (2)                                  |   |                       | 52.04      | %      |   |   | 169.00    | %      |   |   | 73.17 | % |   |   | 66.78 | % |   |   | 65.51 | % |

----

| Table 1 - Selected Consolidated Financial Information and Other Data (continued)        |   |                       |   |   |   |   |   |   |   |
|-----------------------------------------------------------------------------------------|--------|----------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                    |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                    |   | At and for the years ended |   |   |
|                                                                                    |   |                       | 2010   |   |   |   | 2009   |   |   |   | 2008 |   |   |   | 2007 |   |   |   | 2006 |   |
| (Dollars in thousands, except per share and nonfinancial data)                          |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                    |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Interest Margin:                                                                    |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Yield on earning assets                                                                 |   |                       | 4.81   | %      |   |   | 5.19   | %      |   |   | 6.11 | % |   |   | 7.13 | % |   |   | 6.90 | % |
| Cost of funds                                                                           |   |                       | 1.73   | %      |   |   | 2.44   | %      |   |   | 3.36 | % |   |   | 4.29 | % |   |   | 3.80 | % |
| Net Interest spread                                                                     |   |                       | 3.08   | %      |   |   | 2.75   | %      |   |   | 2.75 | % |   |   | 2.84 | % |   |   | 3.10 | % |
| Net interest margin (taxable equivalent)                                                |   |                       | 3.21   | %      |   |   | 2.98   | %      |   |   | 2.97 | % |   |   | 3.14 | % |   |   | 3.33 | % |
|                                                                                    |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Credit Quality Information and Ratios:                                                  |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses - beginning of year                                           |   | $                          | 9,189  |   |   | $      | 8,026  |   |   | $ | 6,144 |   |   | $ | 5,764 |   |   | $ | 5,104 |   |
| Add:  Provision for loan losses                                               |   |                       | 14,050 |   |   |   | 10,980 |   |   |   | 3,275 |   |   |   | 1,290 |   |   |   | 1,165 |   |
| Less:  Net charge-offs                                                        |   |                       | 11,315 |   |   |   | 9,817  |   |   |   | 1,393 |   |   |   | 910 |   |   |   | 505 |   |
| Allowance for loan losses - end of year                                                 |   |                       | 11,924 |   |   |   | 9,189  |   |   |   | 8,026 |   |   |   | 6,144 |   |   |   | 5,764 |   |
|                                                                                    |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses to total non-covered loans                                    |   |                       | 2.02   | %      |   |   | 1.51   | %      |   |   | 1.28 | % |   |   | 1.10 | % |   |   | 1.12 | % |
| Net charge-offs to average non-covered loans                                            |   |                       | 1.88   | %      |   |   | 1.58   | %      |   |   | 0.23 | % |   |   | 0.17 | % |   |   | 0.10 | % |
| Non-covered nonperforming loans to non-covered loans                                    |   |                       | 2.79   | %      |   |   | 1.96   | %      |   |   | 0.48 | % |   |   | 0.32 | % |   |   | 0.58 | % |
| Non-covered nonperforming assets to total assets                                        |   |                       | 2.26   | %      |   |   | 2.15   | %      |   |   | 0.69 | % |   |   | 0.30 | % |   |   | 0.42 | % |
| Non-covered nonperforming assets to total non-covered loans and other real estate owned |   |                       | 4.03   | %      |   |   | 2.77   | %      |   |   | 0.90 | % |   |   | 0.42 | % |   |   | 0.61 | % |
|                                                                                    |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonperforming Assets:                                                                   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-covered nonperforming loans                                                         |   |                       | 16,414 |   |   |   | 11,990 |   |   |   | 3,032 |   |   |   | 1,812 |   |   |   | 3,011 |   |
| Nonperforming loans covered by FDIC loss-share  (3)                           |   |                       | 25,543 |   |   |   | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Other real estate owned - non-covered                                                   |   |                       | 7,650  |   |   |   | 5,067  |   |   |   | 2,601 |   |   |   | 529 |   |   |   | 139 |   |
| Other real estate owned - covered by FDIC loss-share                                    |   |                       | 7,002  |   |   |   | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total nonperforming assets                                                              |   | $                          | 56,609 |   |   | $      | 17,057 |   |   | $ | 5,633 |   |   | $ | 2,341 |   |   | $ | 3,150 |   |
|                                                                                    |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital Ratios:                                                                         |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tangible common equity                                                                  |   |                       | 6.69   | %      |   |   | 6.47   | %      |   |   | 0.00 | % |   |   | 0.00 | % |   |   | 0.00 | % |
| Leverage Capital (Bank only)                                                            |   |                       | 9.74   | %      |   |   | 10.44  | %      |   |   | 10.40 | % |   |   | 8.74 | % |   |   | 9.11 | % |
| Tier 1 Risk-Based Capital (Bank only)                                                   |   |                       | 15.54  | %      |   |   | 12.98  | %      |   |   | 12.01 | % |   |   | 10.25 | % |   |   | 10.81 | % |
| Total Risk-Based Capital (Bank only)                                                    |   |                       | 16.80  | %      |   |   | 14.07  | %      |   |   | 13.07 | % |   |   | 11.21 | % |   |   | 11.81 | % |
|                                                                                    |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Data:                                                                             |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number of banking offices                                                               |   |                       | 21     |   |   |   | 16     |   |   |   | 15 |   |   |   | 15 |   |   |   | 14 |   |
| Number of employees (full-time equivalents)                                             |   |                       | 230    |   |   |   | 138    |   |   |   | 149 |   |   |   | 153 |   |   |   | 143 |   |
|                                                                                    |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (1)  | Includes the gain on acquisition of Bank of Hiawassee of $19.7 million for the year ended December 31, 2010. |
|-----------|--------------------------------------------------------------------------------------------------------------|

| (2)  | Includes $29.6 million impairment of goodwill for the year ended December 31, 2009. Also includes acquisition and integration expenses of $1.1million for the year ended December 31, 2010, and $220,000 for the year ended December 31, 2008. |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)  | The contractual balance of nonperforming loans covered by FDIC loss-share agreements totaled $31.2 million at December 31, 2010. |
|-----------|----------------------------------------------------------------------------------------------------------------------------------|

----

| Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
|---------|---------------------------------------------------------------------------------------|

|   | ·  | In March 2010 the Company acquired $276.9 million in assets and assumed $331.8 million of liabilities from Bank of Hiawassee in a FDIC-assisted transaction, net of fair value adjustments.  As a result of this transaction, the Company posted an initial $18.7 million pre-tax gain from acquisition which was later adjusted to $19.7 million.  Also, as a part of the acquisition, the Company acquired $183.2 million in loans, net of fair value adjustments.  This contributed to the $5.6 million increase in interest income. |
|--------|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ·  | In December 2009 the Company recognized a non-cash goodwill impairment charge of $29.6 million which was the result of the Company’s annual goodwill impairment test.  In performing the impairment test, the Company estimated the fair value of the reporting unit (which was determined to be the Company) using a market value approach that utilizes the Company’s current stock price as the primary indicator of fair market value.  The results of the impairment test indicated that the $29.6 million in outstanding goodwill was fully impaired and had a fair value of $0. |
|--------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ·  | The Company increased its provision for loan losses by $3.1 million to $14.1 million in 2010 as compared to $11.0 million in 2009. The increased provision reflected the continued weakness of the overall economy in the Company’s local markets and the associated increased level of delinquent loans, as well as net charge offs for the year of $11.3  million, or 1.91% of average non-covered loans.  At December 31, 2010, non-covered nonperforming assets, which included non-covered loans that were 90 days or more delinquent, or in nonaccrual status, and other non-covered real estate owned, amounted to $24.1 million, or 2.79% of total assets. |
|--------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ·  | The Company’s net interest margin was 3.21% for the year ended December 31, 2010 compared to 2.98% for the year ended December 31, 2009.  This 23 basis point improvement was primarily due to the Company’s cost of funds decreasing at a faster rate than its yield on assets.  During 2010, the Company’s cost of funds decreased 71 basis points, while its yield on assets decreased only 38 basis points. |
|--------|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ·  | Total shareholders’ equity increased by $21.1 million to $93.4 million at December 31, 2010. This increase was primarily due to a $15 million capital raise during the year and $7.6 million of net earnings for 2010. |
|--------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
|----------|------------------------------------------------------------|

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| Table 2 - Average Balances and Net Interest Income                                  |   |                             |      |   |     |   |   |    |   |   |    |   |   |     |    |   |    |   |   |
|-------------------------------------------------------------------------------------|--------|----------------------------------|-----------|--------|----------|--------|--------|---------|--------|--------|---------|--------|--------|----------|---------|--------|---------|--------|--------|
| (Dollars in thousands)                                                              |   |                             |      |   |     |   |   |    |   |   |    |   |   |     |    |   |    |   |   |   |   |   |   |   |   |   |   |
|                                                                                |   | For the years ended December 31, |      |
|                                                                                |   | 2010                             |      |   | 2009     |   |   | 2008    |   |
|                                                                                |   | Average                          |      |   |     |   |   | Average |   |   | Average |   |   |     |    |   | Average |   |   | Average |   |   |   |   |   | Average |   |
|                                                                                |   | Balance                          |      |   | Interest |   |   | Rate    |   |   | Balance |   |   | Interest |    |   | Rate    |   |   | Balance |   |   | Interest |   |   | Rate |   |
| Interest-earning assets: (1)                                                   |   |                             |      |   |     |   |   |    |   |   |    |   |   |     |    |   |    |   |   |   |   |   |   |   |   |
| Loans  (2)                                                                |   | $                                | 729,202   |   |     | $      | 40,690 |    |   |   | 5.58    | %      |   | $        | 621,949 |   |    | $      | 33,801 |   |   |   | 5.43 | % |   | $ | 593,404 |   |   | $ | 37,725 |   |   |   | 6.36 | % |
| Investment securities, tax effected                                                 |   |                             | 95,452    |   |     |   | 3,262  |    |   |   | 3.42    | %      |   |     | 99,837  |   |    |   | 4,931  |   |   |   | 4.94 | % |   |   | 111,473 |   |   |   | 5,627 |   |   |   | 5.05 | % |
| Interest-earning bank deposits                                                      |   |                             | 95,922    |   |     |   | 314    |    |   |   | 0.33    | %      |   |     | 27,001  |   |    |   | 100    |   |   |   | 0.37 | % |   |   | 6,819 |   |   |   | 157 |   |   |   | 2.30 | % |
| Total interest-earning assets                                                       |   |                             | 920,576   |   |     |   | 44,266 |    |   |   | 4.81    | %      |   |     | 748,787 |   |    |   | 38,832 |   |   |   | 5.19 | % |   |   | 711,696 |   |   |   | 43,509 |   |   |   | 6.11 | % |
| Other assets                                                                        |   |                             | 98,140    |   |     |   |   |    |   |   |    |   |   |     | 81,457  |   |    |   |   |   |   |   |   |   |   |   | 88,173 |   |   |   |   |   |   |   |   |   |
| Total assets                                                                        |   | $                                | 1,018,716 |   |     |   |   |    |   |   |    |   |   | $        | 830,244 |   |    |   |   |   |   |   |   |   |   | $ | 799,869 |   |   |   |   |   |   |   |   |   |
|                                                                                |   |                             |      |   |     |   |   |    |   |   |    |   |   |     |    |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                |   |                             |      |   |     |   |   |    |   |   |    |   |   |     |    |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                                       |   |                             |      |   |     |   |   |    |   |   |    |   |   |     |    |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                           |   |                             |      |   |     |   |   |    |   |   |    |   |   |     |    |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                                                     |   | $                                | 149,915   |   |     | $      | 1,221  |    |   |   | 0.81    | %      |   | $        | 98,425  |   |    | $      | 1,112  |   |   |   | 1.13 | % |   | $ | 67,588 |   |   | $ | 1,019 |   |   |   | 1.51 | % |
| Money market deposits                                                               |   |                             | 136,997   |   |     |   | 1,367  |    |   |   | 1.00    | %      |   |     | 112,996 |   |    |   | 1,521  |   |   |   | 1.35 | % |   |   | 115,613 |   |   |   | 2,652 |   |   |   | 2.29 | % |
| Savings deposits                                                                    |   |                             | 15,477    |   |     |   | 37     |    |   |   | 0.24    | %      |   |     | 10,997  |   |    |   | 34     |   |   |   | 0.31 | % |   |   | 11,663 |   |   |   | 42 |   |   |   | 0.36 | % |
| Time deposits                                                                       |   |                             | 428,032   |   |     |   | 7,637  |    |   |   | 1.78    | %      |   |     | 341,323 |   |    |   | 9,251  |   |   |   | 2.71 | % |   |   | 344,344 |   |   |   | 13,519 |   |   |   | 3.93 | % |
| Borrowed money                                                                      |   |                             | 116,760   |   |     |   | 4,416  |    |   |   | 3.78    | %      |   |     | 112,703 |   |    |   | 4,608  |   |   |   | 4.09 | % |   |   | 126,624 |   |   |   | 5,119 |   |   |   | 4.04 | % |
| Total interest-bearing liabilities                                                  |   |                             | 847,181   |   |     |   | 14,678 |    |   |   | 1.73    | %      |   |     | 676,444 |   |    |   | 16,526 |   |   |   | 2.44 | % |   |   | 665,832 |   |   |   | 22,351 |   |   |   | 3.36 | % |
| Noninterest-bearing deposits                                                        |   |                             | 67,588    |   |     |   |   |    |   |   |    |   |   |     | 45,293  |   |    |   |   |   |   |   |   |   |   |   | 41,603 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                                                   |   |                             | 13,643    |   |     |   |   |    |   |   |    |   |   |     | 4,285   |   |    |   |   |   |   |   |   |   |   |   | 7,202 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                                   |   |                             | 928,412   |   |     |   |   |    |   |   |    |   |   |     | 726,022 |   |    |   |   |   |   |   |   |   |   |   | 714,637 |   |   |   |   |   |   |   |   |   |
| Shareholders' equity                                                                |   |                             | 90,304    |   |     |   |   |    |   |   |    |   |   |     | 104,222 |   |    |   |   |   |   |   |   |   |   |   | 85,232 |   |   |   |   |   |   |   |   |   |
| Total liabilities andshareholders' equity                                           |   | $                                | 1,018,716 |   |     |   |   |    |   |   |    |   |   | $        | 830,244 |   |    |   |   |   |   |   |   |   |   | $ | 799,869 |   |   |   |   |   |   |   |   |   |
|                                                                                |   |                             |      |   |     |   |   |    |   |   |    |   |   |     |    |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                                 |   |                             |      |   |     | $      | 29,588 |    |   |   |    |   |   |     |    |   |    | $      | 22,306 |   |   |   |   |   |   |   |   |   |   | $ | 21,158 |   |   |   |   |   |
| Interest rate spread  (3)                                                 |   |                             |      |   |     |   |   |    |   |   | 3.08    | %      |   |     |    |   |    |   |   |   |   |   | 2.75 | % |   |   |   |   |   |   |   |   |   |   | 2.75 | % |
| Net interest margin  (4)                                                  |   |                             |      |   |     |   |   |    |   |   | 3.21    | %      |   |     |    |   |    |   |   |   |   |   | 2.98 | % |   |   |   |   |   |   |   |   |   |   | 2.97 | % |
| Percentage of average interest-earningassets to average interest-bearingliabilities |   |                             |      |   |     |   |   |    |   |   | 108.66  | %      |   |     |    |   |    |   |   |   |   |   | 110.69 | % |   |   |   |   |   |   |   |   |   |   | 106.89 | % |
|                                                                                |   |                             |      |   |     |   |   |    |   |   |    |   |   |     |    |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1)    | Yields and interest income on tax-exempt investments and loans have been adjusted on a tax equivalent basis using a tax rate of 34%. |   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | The taxable equivalent adjustments were $351, $531, and $517 for 2010, 2009, and 2008, respectively.                                 |   |   |   |   |   |
| (2)    | Average loan balances include nonaccrual loans.                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (3)    | Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of funds on |   |
|   | interest-bearing liabilities.                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (4)    | Net interest margin is calculated by dividing net interest income by average interest-earning assets for the period.                 |   |

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| Table 3 - Volume and Rate Variance Analysis |   |                       |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |
|---------------------------------------------|--------|----------------------------|--------|--------|----------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| (Dollars in thousands)                      |   |                       |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                        |   |                       |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                        |   | 2010 Compared to 2009      |   |   | 2009 Compared to 2008      |   |
|                                        |   | Increase (Decrease) due to |   |   | Increase (Decrease) due to |   |
|                                        |   | Volume                     |   |   | Rate                       |   |   | Total  |   |   | Volume |   |   | Rate   |   |   | Total |   |
| Interest income:                            |   |                       |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                       |   | $                          | 5,964  |   |                       | $      | 925    |   |   | $      | 6,889  |   |   | $      | (3,661 | )      |   | $ | (263 | ) |   | $ | (3,924 | ) |
| Investment securities, tax effected         |   |                       | (208   | )      |                       |   | (1,461 | )      |   |   | (1,669 | )      |   |   | (709   | )      |   |   | 13 |   |   |   | (696 | ) |
| Interest-earning bank deposits              |   |                       | 224    |   |                       |   | (10    | )      |   |   | 214    |   |   |   | 333    |   |   |   | (390 | ) |   |   | (57 | ) |
| Total interest income                       |   |                       | 5,980  |   |                       |   | (546   | )      |   |   | 5,434  |   |   |   | (4,037 | )      |   |   | (640 | ) |   |   | (4,677 | ) |
|                                        |   |                       |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense:                           |   |                       |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                    |   |                       |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                             |   |                       | 234    |   |                       |   | (125   | )      |   |   | 109    |   |   |   | 210    |   |   |   | (116 | ) |   |   | 94 |   |
| Money market deposits                       |   |                       | 707    |   |                       |   | (861   | )      |   |   | (154   | )      |   |   | (1,156 | )      |   |   | 25 |   |   |   | (1,131 | ) |
| Savings deposits                            |   |                       | 7      |   |                       |   | (4     | )      |   |   | 3      |   |   |   | (8     | )      |   |   | - |   |   |   | (8 | ) |
| Time deposits                               |   |                       | 4,677  |   |                       |   | (6,291 | )      |   |   | (1,614 | )      |   |   | (4,304 | )      |   |   | 36 |   |   |   | (4,268 | ) |
| Borrowed money                              |   |                       | 177    |   |                       |   | (369   | )      |   |   | (192   | )      |   |   | (506   | )      |   |   | (6 | ) |   |   | (512 | ) |
| Total interest expense                      |   |                       | 5,802  |   |                       |   | (7,650 | )      |   |   | (1,848 | )      |   |   | (5,764 | )      |   |   | (61 | ) |   |   | (5,825 | ) |
| Net interest income increase (decrease)     |   | $                          | 178    |   |                       | $      | 7,104  |   |   | $      | 7,282  |   |   | $      | 1,727  |   |   | $ | (579 | ) |   | $ | 1,148 |   |

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| Table 4 - Noninterest Income                    |   |                    |   |   |   |   |   |   |   |
|-------------------------------------------------|--------|-------------------------|--------|--------|--------|--------|--------|--------|--------|
| (Dollars in thousands)                          |   |                    |   |   |   |   |   |   |   |
|                                            |   | Year Ended December 31, |   |
|                                            |   | 2010                    |   |   | 2009   |   |   | 2008   |   |
| Noninterest income:                             |   |                    |   |   |   |   |   |   |   |
| Service charges on deposit accounts             |   | $                       | 3,932  |   |   | $      | 3,256  |   |   | $ | 3,031 |   |
| Mortgage banking income                         |   |                    | 1,525  |   |   |   | 1,202  |   |   |   | 829 |   |
| Commissions on sales of financial products      |   |                    | 426    |   |   |   | 191    |   |   |   | 260 |   |
| Income from bank-owned life insurance           |   |                    | 832    |   |   |   | 770    |   |   |   | 766 |   |
| Gain from acquisition                           |   |                    | 19,679 |   |   |   | -      |   |   |   | - |   |
| Gain on sale of investments, available for sale |   |                    | 349    |   |   |   | 2,198  |   |   |   | 284 |   |
| Loss on sale of other assets                    |   |                    | (490   | )      |   |   | (285   | )      |   |   | (120 | ) |
| Other income                                    |   |                    | 883    |   |   |   | 640    |   |   |   | 585 |   |
| Total noninterest income                        |   | $                       | 27,136 |   |   | $      | 7,972  |   |   | $ | 5,635 |   |

| Table 5 - Noninterest Expense                       |   |                    |   |   |   |   |   |   |   |
|-----------------------------------------------------|--------|-------------------------|--------|--------|--------|--------|--------|--------|--------|
| (Dollars in thousands)                              |   |                    |   |   |   |   |   |   |   |
|                                                |   | Year Ended December 31, |   |
|                                                |   | 2010                    |   |   | 2009   |   |   | 2008   |   |
| Noninterest Expense:                                |   |                    |   |   |   |   |   |   |   |
| Compensation and benefits                           |   | $                       | 13,598 |   |   | $      | 9,818  |   |   | $ | 9,964 |   |
| Occupancy and equipment expense                     |   |                    | 3,302  |   |   |   | 2,571  |   |   |   | 2,660 |   |
| Office supplies                                     |   |                    | 240    |   |   |   | 142    |   |   |   | 232 |   |
| Advertising and business development                |   |                    | 333    |   |   |   | 365    |   |   |   | 402 |   |
| Professional services                               |   |                    | 981    |   |   |   | 1,059  |   |   |   | 867 |   |
| Telephone and communications                        |   |                    | 406    |   |   |   | 274    |   |   |   | 258 |   |
| Data processing                                     |   |                    | 702    |   |   |   | 525    |   |   |   | 461 |   |
| Deposit insurance                                   |   |                    | 1,326  |   |   |   | 1,076  |   |   |   | 117 |   |
| Amortization of intangible assets                   |   |                    | 517    |   |   |   | 314    |   |   |   | 512 |   |
| Valuation adjustment on other real estate owned     |   |                    | 1,382  |   |   |   | 338    |   |   |   | - |   |
| Impairment on investment securities                 |   |                    | 435    |   |   |   | 754    |   |   |   | 468 |   |
| Impairment of goodwill                              |   |                    | -      |   |   |   | 29,641 |   |   |   | - |   |
| Acquisition, integration and restructuring expenses |   |                    | 1,064  |   |   |   | -      |   |   |   | 220 |   |
| Other expenses                                      |   |                    | 5,049  |   |   |   | 3,395  |   |   |   | 3,065 |   |
| Total noninterest expense                           |   | $                       | 29,335 |   |   | $      | 50,272 |   |   | $ | 19,226 |   |

----

| Table 6 - Commitments                  |   |              |   |   |   |   |
|----------------------------------------|--------|-------------------|--------|--------|--------|--------|
| (Dollars in thousands)                 |   |              |   |   |   |   |
|                                   |   | As of December 31 |   |
|                                   |   | 2010              |   |   | 2009   |   |
|                                   |   |              |   |   |   |   |
| Loan commitments:                      |   |              |   |   |   |   |
| Residential mortgage loans             |   | $                 | 14,530 |   |   | $      | 12,560 |   |
| Non-residential mortgage loans         |   |              | 2,500  |   |   |   | 13,656 |   |
| Commercial loans                       |   |              | 731    |   |   |   | 1,435 |   |
| Consumer loans                         |   |              | 765    |   |   |   | 849 |   |
| Total loan commitments                 |   | $                 | 18,526 |   |   | $      | 28,500 |   |
|                                   |   |              |   |   |   |   |   |   |
| Unused lines of credit:                |   |              |   |   |   |   |   |   |
| Commercial                             |   | $                 | 13,000 |   |   | $      | 18,448 |   |
| Consumer                               |   |              | 73,655 |   |   |   | 75,261 |   |
| Total unused lines of credit           |   | $                 | 86,655 |   |   | $      | 93,709 |   |
|                                   |   |              |   |   |   |   |   |   |
| Undisbursed Construction Loan Proceeds |   | $                 | 524    |   |   | $      | 1,100 |   |

| Table 7 - Contractual Obligations           |   |                    |    |   |        |   |    |      |   |   |      |   |   |    |   |
|---------------------------------------------|--------|-------------------------|---------|--------|-------------|--------|---------|-----------|--------|--------|-----------|--------|--------|---------|--------|
| (Dollars in thousands)                      |   |                    |    |   |        |   |    |      |   |   |      |   |   |    |   |
|                                        |   |                    |    |   |        |   |    |      |   |   |      |   |   |    |   |
|                                        |   | As of December 31, 2010 |    |
|                                        |   |                    |    |   | Less Than 1 |   |    |      |   |   |      |   |   | After 5 |   |
|                                        |   | Total                   |    |   | year        |   |    | 2-3 Years |   |   | 3-5 Years |   |   | Years   |   |
| Deposits                                    |   | $                       | 850,456 |   |        | $      | 728,099 |      |   | $      | 116,382   |   |   | $       | 5,975  |   |   | $ | - |   |
| Securities sold under repurchase agreements |   |                    | 9,432   |   |        |   | 9,432   |      |   |   | -         |   |   |    | -      |   |   |   | - |   |
| Borrowings                                  |   |                    | 101,246 |   |        |   | 1,972   |      |   |   | 30,810    |   |   |    | 6,000  |   |   |   | 62,464 |   |
| Total contractual cash obligations          |   | $                       | 961,134 |   |        | $      | 739,503 |      |   | $      | 147,192   |   |   | $       | 11,975 |   |   | $ | 62,464 |   |

----

| Table 8 - Loan Portfolio Composition |   |                            |    |   |           |   |   |   |   |   |           |   |   |   |   |   |           |   |    |   |   |   |           |   |   |   |    |   |
|--------------------------------------|--------|---------------------------------|---------|--------|----------------|--------|--------|--------|--------|--------|----------------|--------|--------|--------|--------|--------|----------------|--------|---------|--------|--------|--------|----------------|--------|--------|--------|---------|--------|
| (Dollars in thousands)               |   |                            |    |   |           |   |   |   |   |   |           |   |   |   |   |   |           |   |    |   |   |   |           |   |   |   |    |   |   |   |
|                                 |   | For the Years Ended December 31 |    |
|                                 |   | 2010                            |    |   | 2009           |   |   | 2008   |   |   | 2007           |   |   | 2006   |   |
|                                 |   | Amount                          |    |   | % ofTotalLoans |   |   | Amount |   |   | % ofTotalLoans |   |   | Amount |   |   | % ofTotalLoans |   |    | Amount |   |   | % ofTotalLoans |   |   | Amount |    |   | % ofTotalLoans |   |
|                                 |   |                            |    |   |           |   |   |   |   |   |           |   |   |   |   |   |           |   |    |   |   |   |           |   |   |   |    |   |   |   |
| One-to-four family residential       |   | $                               | 143,820 |   |           |   | 19.5   | %      |   | $      | 90,289         |   |   |   | 14.8   | %      |           | $      | 84,777  |   |   |   | 13.5           | %      |   | $      | 78,572  |   |   |   | 14.0 | % |   | $ | 83,265 |   |   |   | 16.2 | % |
| Multifamily residential              |   |                            | 23,667  |   |           |   | 3.2    | %      |   |   | 25,577         |   |   |   | 4.2    | %      |           |   | 23,359  |   |   |   | 3.7            | %      |   |   | 19,717  |   |   |   | 3.5 | % |   |   | 21,726 |   |   |   | 4.2 | % |
| Construction                         |   |                            | 10,370  |   |           |   | 1.4    | %      |   |   | 22,325         |   |   |   | 3.7    | %      |           |   | 71,454  |   |   |   | 11.4           | %      |   |   | 90,949  |   |   |   | 16.2 | % |   |   | 76,505 |   |   |   | 14.8 | % |
| Nonresidential real estate           |   |                            | 379,325 |   |           |   | 51.6   | %      |   |   | 315,563        |   |   |   | 51.7   | %      |           |   | 298,255 |   |   |   | 47.7           | %      |   |   | 254,782 |   |   |   | 45.6 | % |   |   | 231,265 |   |   |   | 44.9 | % |
| Commercial business                  |   |                            | 48,053  |   |           |   | 6.5    | %      |   |   | 38,442         |   |   |   | 6.3    | %      |           |   | 34,451  |   |   |   | 5.5            | %      |   |   | 33,583  |   |   |   | 6.0 | % |   |   | 32,202 |   |   |   | 6.3 | % |
| Consumer                             |   |                            | 131,275 |   |           |   | 17.8   | %      |   |   | 118,005        |   |   |   | 19.3   | %      |           |   | 114,287 |   |   |   | 18.2           | %      |   |   | 82,363  |   |   |   | 14.7 | % |   |   | 70,209 |   |   |   | 13.6 | % |
| Total loans                          |   | $                               | 736,510 |   |           |   | 100.0  | %      |   | $      | 610,201        |   |   |   | 100.0  | %      |           | $      | 626,583 |   |   |   | 100.0          | %      |   | $      | 559,966 |   |   |   | 100.0 | % |   | $ | 515,172 |   |   |   | 100.0 | % |

| Table 9 - Loan Maturities      |   |                   |    |   |                    |   |    |               |   |   |    |   |
|--------------------------------|--------|------------------------|---------|--------|-------------------------|--------|---------|--------------------|--------|--------|---------|--------|
| (Dollars in thousands)         |   |                   |    |   |                    |   |    |               |   |   |    |   |
|                           |   |                   |    |   |                    |   |    |               |   |   |    |   |
|                           |   | Due in OneYear or Less |    |   | Due in One toFive Years |   |    | Due OverFive Years |   |   | Total   |   |
| By Loan Type:                  |   |                   |    |   |                    |   |    |               |   |   |    |   |
| One-to-four family residential |   | $                      | 15,228  |   |                    | $      | 22,938  |               |   | $      | 105,654 |   |   | $ | 143,820 |   |
| Multifamily residential        |   |                   | 1,625   |   |                    |   | 6,552   |               |   |   | 15,490  |   |   |   | 23,667 |   |
| Construction                   |   |                   | 5,869   |   |                    |   | 4,265   |               |   |   | 236     |   |   |   | 10,370 |   |
| Nonresidential real estate     |   |                   | 114,875 |   |                    |   | 227,330 |               |   |   | 37,120  |   |   |   | 379,325 |   |
| Commercial business            |   |                   | 30,223  |   |                    |   | 14,906  |               |   |   | 2,924   |   |   |   | 48,053 |   |
| Consumer                       |   |                   | 11,132  |   |                    |   | 32,378  |               |   |   | 87,765  |   |   |   | 131,275 |   |
| Total                          |   | $                      | 178,952 |   |                    | $      | 308,369 |               |   | $      | 249,189 |   |   | $ | 736,510 |   |
|                           |   |                   |    |   |                    |   |    |               |   |   |    |   |   |   |   |   |
|                           |   |                   |    |   |                    |   |    |               |   |   |    |   |   |   |   |   |
| By Interest Rate Type:         |   |                   |    |   |                    |   |    |               |   |   |    |   |   |   |   |   |
| Fixed rate loans               |   | $                      | 87,902  |   |                    | $      | 187,264 |               |   | $      | 61,329  |   |   | $ | 336,495 |   |
| Adjustable rate loans          |   |                   | 91,051  |   |                    |   | 123,582 |               |   |   | 185,382 |   |   |   | 400,015 |   |
| Total                          |   | $                      | 178,953 |   |                    | $      | 310,846 |               |   | $      | 246,711 |   |   | $ | 736,510 |   |

----

| Table 10 - Nonperforming Assets                                               |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|-------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| (Dollars in thousands)                                                        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                          |   | At and for the Year Ended December 31 |   |
|                                                                          |   | 2010                                  |   |   | 2009   |   |   | 2008   |   |   | 2007   |   |   | 2006   |   |
| Non-covered nonaccrual loans:                                                 |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential                                                |   | $                                     | 1,864  |   |   | $      | 898    |   |   | $      | 199    |   |   | $      | 159    |   |   | $ | 473 |   |
| Construction loans                                                            |   |                                  | 14     |   |   |   | 1,048  |   |   |   | 693    |   |   |   | -      |   |   |   | - |   |
| Nonresidential real estate                                                    |   |                                  | 9,720  |   |   |   | 5,114  |   |   |   | 1,310  |   |   |   | 520    |   |   |   | 888 |   |
| Commercial business                                                           |   |                                  | 287    |   |   |   | 71     |   |   |   | -      |   |   |   | 146    |   |   |   | 78 |   |
| Consumer                                                                      |   |                                  | 2,529  |   |   |   | 1,004  |   |   |   | 698    |   |   |   | 221    |   |   |   | 360 |   |
| Total non-covered nonaccrual loans                                            |   |                                  | 14,414 |   |   |   | 8,135  |   |   |   | 2,900  |   |   |   | 1,046  |   |   |   | 1,799 |   |
| FDIC-covered nonaccrual loans                                                 |   |                                  | 25,016 |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | - |   |
| Total nonaccrual loans                                                        |   |                                  | 39,430 |   |   |   | 8,135  |   |   |   | 2,900  |   |   |   | 1,046  |   |   |   | 1,799 |   |
|                                                                          |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-covered accruing loans past due 90 days or more :                         |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonresidential real estate                                                    |   |                                  | 2,000  |   |   |   | 3,786  |   |   |   | 132    |   |   |   | 766    |   |   |   | 1,212 |   |
| Commercial business                                                           |   |                                  | -      |   |   |   | 69     |   |   |   | -      |   |   |   | -      |   |   |   | - |   |
| Total non-covered accruing loans past due 90 daysor more                      |   |                                  | 2,000  |   |   |   | 3,855  |   |   |   | 132    |   |   |   | 766    |   |   |   | 1,212 |   |
| FDIC-covered loans past due 90 days or more                                   |   |                                  | 527    |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | - |   |
| Total accruing loans past due 90 days or more                                 |   |                                  | 2,527  |   |   |   | 3,855  |   |   |   | 132    |   |   |   | 766    |   |   |   | 1,212 |   |
| Total nonperforming loans                                                     |   |                                  | 41,957 |   |   |   | 11,990 |   |   |   | 3,032  |   |   |   | 1,812  |   |   |   | 3,011 |   |
|                                                                          |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-covered other real estate owned                                           |   |                                  | 7,650  |   |   |   | 5,067  |   |   |   | 2,601  |   |   |   | 529    |   |   |   | 139 |   |
| FDIC-covered other real estate owned                                          |   |                                  | 7,002  |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | - |   |
| Total other real estate owned                                                 |   |                                  | 14,652 |   |   |   | 5,067  |   |   |   | 2,601  |   |   |   | 529    |   |   |   | 139 |   |
| Total nonperforming assets                                                    |   | $                                     | 56,609 |   |   | $      | 17,057 |   |   | $      | 5,633  |   |   | $      | 2,341  |   |   | $ | 3,150 |   |
|                                                                          |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratios:                                                                       |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-covered nonperforming loans to year end non-covered loans                 |   |                                  | 2.79   | %      |   |   | 1.96   | %      |   |   | 0.48   | %      |   |   | 0.32   | % |   |   | 0.58 | % |
| Non-covered nonperforming assets to total assets                              |   |                                  | 2.26   | %      |   |   | 2.15   | %      |   |   | 0.69   | %      |   |   | 0.30   | % |   |   | 0.42 | % |
| Non-covered nonperforming assets to year end loansand other real estate owned |   |                                  | 4.03   | %      |   |   | 2.77   | %      |   |   | 0.90   | %      |   |   | 0.42   | % |   |   | 0.61 | % |

----

| Table 11 - Summary of Loan Loss and Recovery Experience   |   |                                  |    |   |   |   |   |   |   |   |   |   |   |
|-----------------------------------------------------------|--------|---------------------------------------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| (Dollars in thousands)                                    |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                      |   | At and for the Year Ended December 31 |    |
|                                                      |   | 2010                                  |    |   | 2009   |   |   | 2008   |   |   | 2007   |   |   | 2006 |   |
|                                                      |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowances for loan losses at beginning of period         |   | $                                     | 9,189   |   |   | $      | 8,026  |   |   | $      | 6,144  |   |   | $ | 5,764 |   |   | $ | 5,104 |   |
|                                                      |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan chargeoffs:                                          |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential                            |   |                                  | (325    | )      |   |   | (1     | )      |   |   | (185   | )      |   |   | (1 | ) |   |   | - |   |
| Construction                                              |   |                                  | (481    | )      |   |   | (1,352 | )      |   |   | (203   | )      |   |   | - |   |   |   | - |   |
| Nonresidential real estate                                |   |                                  | (8,259  | )      |   |   | (6,115 | )      |   |   | (319   | )      |   |   | (309 | ) |   |   | - |   |
| Commercial business                                       |   |                                  | (683    | )      |   |   | (235   | )      |   |   | (586   | )      |   |   | (861 | ) |   |   | (484 | ) |
| Consumer                                                  |   |                                  | (2,044  | )      |   |   | (2,268 | )      |   |   | (167   | )      |   |   | (83 | ) |   |   | (89 | ) |
| Total loan chargeoffs                                     |   |                                  | (11,792 | )      |   |   | (9,971 | )      |   |   | (1,460 | )      |   |   | (1,254 | ) |   |   | (573 | ) |
|                                                      |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan recoveries:                                          |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential                            |   |                                  | 4       |   |   |   | -      |   |   |   | -      |   |   |   | - |   |   |   | - |   |
| Construction                                              |   |                                  | 48      |   |   |   | -      |   |   |   | -      |   |   |   | - |   |   |   | - |   |
| Nonresidential real estate                                |   |                                  | 364     |   |   |   | 137    |   |   |   | 11     |   |   |   | - |   |   |   | 50 |   |
| Commercial business                                       |   |                                  | 4       |   |   |   | 10     |   |   |   | 46     |   |   |   | 296 |   |   |   | 8 |   |
| Consumer                                                  |   |                                  | 57      |   |   |   | 7      |   |   |   | 10     |   |   |   | 48 |   |   |   | 10 |   |
| Total loan recoveries                                     |   |                                  | 477     |   |   |   | 154    |   |   |   | 67     |   |   |   | 344 |   |   |   | 68 |   |
|                                                      |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loan chargeoffs                                       |   |                                  | (11,315 | )      |   |   | (9,817 | )      |   |   | (1,393 | )      |   |   | (910 | ) |   |   | (505 | ) |
|                                                      |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses                                 |   |                                  | 14,050  |   |   |   | 10,980 |   |   |   | 3,275  |   |   |   | 1,290 |   |   |   | 1,165 |   |
|                                                      |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses at end of period                |   | $                                     | 11,924  |   |   | $      | 9,189  |   |   | $      | 8,026  |   |   | $ | 6,144 |   |   | $ | 5,764 |   |
|                                                      |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratios:                                                   |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses to non-covered  loans |   |                                  | 2.02    | %      |   |   | 1.51   | %      |   |   | 1.28   | %      |   |   | 1.10 | % |   |   | 1.12 | % |
| Net chargeoffs to average non-covered loans               |   |                                  | 1.88    | %      |   |   | 1.58   | %      |   |   | 0.23   | %      |   |   | 0.17 | % |   |   | 0.10 | % |

| Table 12 - Allocation of the Allowance for Loan Losses |   |                                  |   |   |           |   |   |   |   |           |   |   |   |   |           |   |   |   |   |           |   |   |   |   |           |
|--------------------------------------------------------|--------|---------------------------------------|--------|--------|----------------|--------|--------|--------|--------|----------------|--------|--------|--------|--------|----------------|--------|--------|--------|--------|----------------|--------|--------|--------|--------|----------------|
| (Dollars in thousands)                                 |   |                                  |   |   |           |   |   |   |   |           |   |   |   |   |           |   |   |   |   |           |   |   |   |   |           |   |   |   |   |   |
|                                                   |   | At and for the Year Ended December 31 |   |
|                                                   |   | 2010                                  |   |   | 2009           |   |   | 2008   |   |           | 2007   |   |   | 2006   |           |
|                                                   |   | Amount                                |   |   | % ofTotalLoans |   | Amount |   |   | % ofTotalLoans |   | Amount |   |   | % ofTotalLoans |   | Amount |   |   | % ofTotalLoans |   | Amount |   |   | % ofTotalLoans |   |
|                                                   |   |                                  |   |   |           |   |   |   |   |           |   |   |   |   |           |   |   |   |   |           |   |   |   |   |           |   |   |   |   |   |
| One-to-four family residential                         |   | $                                     | 500    |   |           |   | 19.5   | %      |   | $              | 250    |   |   |   | 14.8           | %      |   | $      | 275    |           |   |   | 13.5   | %      |           | $ | 250 |   |   |   | 14.0 | % |   | $ | 300 |   |   |   | 16.2 | % |
| Multifamily residential                                |   |                                  | 200    |   |           |   | 3.2    | %      |   |           | 200    |   |   |   | 4.2            | %      |   |   | 225    |           |   |   | 3.7    | %      |           |   | 200 |   |   |   | 3.5 | % |   |   | 250 |   |   |   | 4.2 | % |
| Construction                                           |   |                                  | 1,000  |   |           |   | 1.4    | %      |   |           | 1,775  |   |   |   | 3.7            | %      |   |   | 1,500  |           |   |   | 11.4   | %      |           |   | 900 |   |   |   | 16.2 | % |   |   | 750 |   |   |   | 14.8 | % |
| Nonresidential real estate                             |   |                                  | 5,724  |   |           |   | 51.6   | %      |   |           | 3,964  |   |   |   | 51.7           | %      |   |   | 3,026  |           |   |   | 47.7   | %      |           |   | 2,494 |   |   |   | 45.6 | % |   |   | 2,264 |   |   |   | 44.9 | % |
| Commercial business                                    |   |                                  | 2,500  |   |           |   | 6.5    | %      |   |           | 1,000  |   |   |   | 6.3            | %      |   |   | 1,250  |           |   |   | 5.5    | %      |           |   | 1,000 |   |   |   | 6.0 | % |   |   | 1,000 |   |   |   | 6.3 | % |
| Consumer                                               |   |                                  | 2,000  |   |           |   | 17.8   | %      |   |           | 2,000  |   |   |   | 19.3           | %      |   |   | 1,750  |           |   |   | 18.2   | %      |           |   | 1,300 |   |   |   | 14.7 | % |   |   | 1,200 |   |   |   | 13.6 | % |
| Total                                                  |   | $                                     | 11,924 |   |           |   | 100.0  | %      |   | $              | 9,189  |   |   |   | 100.0          | %      |   | $      | 8,026  |           |   |   | 100.0  | %      |           | $ | 6,144 |   |   |   | 100.0 | % |   | $ | 5,764 |   |   |   | 100.0 | % |

----

| Table 13 - Investments             |   |       |    |   |       |   |   |       |   |   |       |   |
|------------------------------------|--------|------------|---------|--------|------------|--------|--------|------------|--------|--------|------------|--------|
| (Dollars in thousands)             |   |       |    |   |       |   |   |       |   |   |       |   |
|                               |   |       |    |   | Gross      |   |   | Gross      |   |   |       |   |
|                               |   |       |    |   | Unrealized |   |   | Unrealized |   |   | Estimated  |   |
|                               |   | Book Value |    |   | Gains      |   |   | Losses     |   |   | Fair Value |   |
|                               |   |       |    |   |       |   |   |       |   |   |       |   |
|                               |   |       |    |   |       |   |   |       |   |   |       |   |
| 2010                               |   |       |    |   |       |   |   |       |   |   |       |   |
| Available for sale:                |   |       |    |   |       |   |   |       |   |   |       |   |
| U.S. Government agency obligations |   | $          | 19,297  |   |       | $      | 23     |       |   | $      | 122        |   |   | $ | 19,198 |   |
| Municipal bonds                    |   |       | 11,602  |   |       |   | 40     |       |   |   | 128        |   |   |   | 11,514 |   |
| Mortgage-backed securities         |   |       | 40,655  |   |       |   | 293    |       |   |   | 175        |   |   |   | 40,773 |   |
| Other securities                   |   |       | 2,781   |   |       |   | 110    |       |   |   | 68         |   |   |   | 2,823 |   |
| Subtotal                           |   |       | 74,335  |   |       |   | 466    |       |   |   | 493        |   |   |   | 74,308 |   |
|                               |   |       |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Held to maturity:                  |   |       |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| U.S. Government agency obligations |   |       | 18,464  |   |       |   | 4      |       |   |   | 166        |   |   |   | 18,302 |   |
| Mortgage-backed securities         |   |       | 14,814  |   |       |   | 641    |       |   |   | 37         |   |   |   | 15,418 |   |
| Other securities                   |   |       | 4,000   |   |       |   | -      |       |   |   | 81         |   |   |   | 3,919 |   |
| Subtotal                           |   |       | 37,278  |   |       |   | 645    |       |   |   | 284        |   |   |   | 37,639 |   |
|                               |   |       |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Total at December 31, 2010         |   | $          | 111,613 |   |       | $      | 1,111  |       |   | $      | 777        |   |   | $ | 111,947 |   |
|                               |   |       |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| 2009                               |   |       |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Available for sale:                |   |       |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| U.S. Government agency obligations |   | $          | 9,000   |   |       | $      | 32     |       |   | $      | 13         |   |   | $ | 9,019 |   |
| Municipal bonds                    |   |       | 20,118  |   |       |   | 98     |       |   |   | 345        |   |   |   | 19,871 |   |
| Mortgage-backed securities         |   |       | 19,258  |   |       |   | 216    |       |   |   | 115        |   |   |   | 19,359 |   |
| Other securities                   |   |       | 3,098   |   |       |   | 141    |       |   |   | 498        |   |   |   | 2,741 |   |
| Subtotal                           |   |       | 51,474  |   |       |   | 487    |       |   |   | 971        |   |   |   | 50,990 |   |
|                               |   |       |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Held to maturity:                  |   |       |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| U.S. Government agency obligations |   |       | 26,464  |   |       |   | 84     |       |   |   | 305        |   |   |   | 26,243 |   |
| Mortgage-backed securities         |   |       | 5,916   |   |       |   | 117    |       |   |   | -          |   |   |   | 6,033 |   |
| Subtotal                           |   |       | 32,380  |   |       |   | 201    |       |   |   | 305        |   |   |   | 32,276 |   |
|                               |   |       |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Total at December 31, 2009         |   | $          | 83,854  |   |       | $      | 688    |       |   | $      | 1,276      |   |   | $ | 83,266 |   |

----

| Table 14 - Deposit Portfolio Composition |   |                           |    |   |              |   |   |   |   |              |    |   |   |   |              |   |
|------------------------------------------|--------|--------------------------------|---------|--------|-------------------|--------|--------|--------|--------|-------------------|---------|--------|--------|--------|-------------------|--------|
| (Dollars in thousands)                   |   |                           |    |   |              |   |   |   |   |              |    |   |   |   |              |   |   |   |
|                                     |   | For the Year Ended December 31 |    |
|                                     |   | 2010                           |    |   | 2009              |   |   | 2008   |   |
|                                     |   | Amount                         |    |   | % ofTotalDeposits |   | Amount |   |   | % ofTotalDeposits |    | Amount |   |   | % ofTotalDeposits |   |
| Noninterest-bearing demand               |   | $                              | 70,056  |   |              |   | 8.2    | %      |   | $                 | 45,830  |   |   |   | 7.5               | %      |   | $ | 44,971 |   |   |   | 7.7 | % |
| Interest-bearing demand                  |   |                           | 172,414 |   |              |   | 20.3   | %      |   |              | 113,564 |   |   |   | 18.7              | %      |   |   | 77,760 |   |   |   | 13.4 | % |
| Money market deposit                     |   |                           | 142,538 |   |              |   | 16.8   | %      |   |              | 118,687 |   |   |   | 19.5              | %      |   |   | 103,271 |   |   |   | 17.8 | % |
| Savings                                  |   |                           | 17,004  |   |              |   | 2.0    | %      |   |              | 10,584  |   |   |   | 1.7               | %      |   |   | 10,708 |   |   |   | 1.8 | % |
| Time deposits                            |   |                           | 448,444 |   |              |   | 52.7   | %      |   |              | 320,680 |   |   |   | 52.6              | %      |   |   | 344,778 |   |   |   | 59.3 | % |
| Total deposits                           |   | $                              | 850,456 |   |              |   | 100.0  | %      |   | $                 | 609,345 |   |   |   | 100.0             | %      |   | $ | 581,488 |   |   |   | 100.0 | % |

| Table 15 - Maturity of Time Deposits > $100,000 |   |                           |    |   |   |   |    |
|----------------------------------------------------|--------|--------------------------------|---------|--------|--------|--------|---------|
| (Dollars in thousands)                             |   |                           |    |   |   |   |    |   |   |
|                                               |   | For the Year Ended December 31 |    |
|                                               |   | 2010                           |    |   | 2009   |   |    | % Change |   |
| Within three months                                |   | $                              | 49,996  |   |   | $      | 45,830  |   |   |   | 9.1 | % |
| After three months through six months              |   |                           | 36,799  |   |   |   | 113,564 |   |   |   | -67.6 | % |
| After six months through twelve months             |   |                           | 59,342  |   |   |   | 118,687 |   |   |   | -50.0 | % |
| After twelve months                                |   |                           | 48,495  |   |   |   | 10,584  |   |   |   | 358.2 | % |
| Total                                              |   | $                              | 194,632 |   |   | $      | 288,665 |   |   |   | -32.6 | % |

| Table 16 - Borrowed Money |   |                            |    |   |         |   |   |    |   |   |         |   |
|---------------------------|--------|---------------------------------|---------|--------|--------------|--------|--------|---------|--------|--------|--------------|--------|
| (Dollars in thousands)    |   |                            |    |   |         |   |   |    |   |   |         |   |
|                      |   |                            |    |   |         |   |   |    |   |   |         |   |
|                      |   | For the Years Ended December 31 |    |
|                      |   | 2010                            |    |   | 2009         |   |
|                      |   | Balance                         |    |   | Average Rate |   |   | Balance |   |   | Average Rate |   |
|                      |   |                            |    |   |         |   |   |    |   |   |         |   |
| FHLB Advances             |   | $                               | 67,782  |   |         |   | 3.64   | %       |   | $      | 56,165       |   |   |   | 3.80 | % |
| Repurchase Agreements     |   | $                               | 18,000  |   |         |   | 3.28   | %       |   | $      | 26,000       |   |   |   | 3.38 | % |
| Subordinated Debt         |   | $                               | 15,464  |   |         |   | 1.87   | %       |   | $      | 15,464       |   |   |   | 6.09 | % |
| Total Borrowed Money      |   | $                               | 101,246 |   |         |   | 3.30   | %       |   | $      | 97,629       |   |   |   | 4.05 | % |

----

| Table 17 - Quarterly Financial Data               |   |                         |   |   |                         |   |   |          |   |   |         |   |   |          |   |   |         |   |    |          |   |   |
|---------------------------------------------------|--------|------------------------------|--------|--------|------------------------------|--------|--------|---------------|--------|--------|--------------|--------|--------|---------------|--------|--------|--------------|--------|---------|---------------|--------|--------|
| (Dollars in thousands, except per share data)     |   |                         |   |   |                         |   |   |          |   |   |         |   |   |          |   |   |         |   |    |
|                                              |   | Year Ended December 31, 2010 |   |   | Year Ended December 31, 2009 |   |
|                                              |   | FourthQuarter                |   |   | ThirdQuarter                 |   |   | SecondQuarter |   |   | FirstQuarter |   |   | FourthQuarter |   |   | ThirdQuarter |   |    | SecondQuarter |   |   | FirstQuarter |   |
|                                              |   |                         |   |   |                         |   |   |          |   |   |         |   |   |          |   |   |         |   |    |          |   |   |   |   |
| Summary of Operations:                            |   |                         |   |   |                         |   |   |          |   |   |         |   |   |          |   |   |         |   |    |          |   |   |   |   |
| Interest income                                   |   | $                            | 10,985 |   |                         | $      | 11,596 |          |   | $      | 12,194       |   |   | $             | 9,112  |   |         | $      | 9,281   |          |   | $      | 9,517 |   |   | $ | 9,758 |   |   | $ | 9,743 |   |
| Interest expense                                  |   |                         | 3,411  |   |                         |   | 3,790  |          |   |   | 4,083        |   |   |          | 3,393  |   |         |   | 3,531   |          |   |   | 3,947 |   |   |   | 4,346 |   |   |   | 4,702 |   |
| Net interest income                               |   |                         | 7,574  |   |                         |   | 7,806  |          |   |   | 8,111        |   |   |          | 5,719  |   |         |   | 5,750   |          |   |   | 5,570 |   |   |   | 5,412 |   |   |   | 5,041 |   |
| Provision for loan losses                         |   |                         | 5,000  |   |                         |   | 3,000  |          |   |   | 3,000        |   |   |          | 3,050  |   |         |   | 4,155   |          |   |   | 3,975 |   |   |   | 1,950 |   |   |   | 900 |   |
| Net interest income after loan loss provision     |   |                         | 2,574  |   |                         |   | 4,806  |          |   |   | 5,111        |   |   |          | 2,669  |   |         |   | 1,595   |          |   |   | 1,595 |   |   |   | 3,462 |   |   |   | 4,141 |   |
| Noninterest income                                |   |                         | 2,274  |   |                         |   | 2,290  |          |   |   | 2,415        |   |   |          | 20,185 |   |         |   | 2,381   |          |   |   | 2,465 |   |   |   | 1,936 |   |   |   | 1,191 |   |
| Noninterest expense                               |   |                         | 7,918  |   |                         |   | 7,781  |          |   |   | 7,279        |   |   |          | 6,356  |   |         |   | 34,867  |          |   |   | 5,229 |   |   |   | 5,239 |   |   |   | 4,937 |   |
| Net income (loss) before income taxes             |   |                         | (3,070 | )      |                         |   | (685   | )             |   |   | 247          |   |   |          | 16,498 |   |         |   | (30,891 | )             |   |   | (1,169 | ) |   |   | 159 |   |   |   | 395 |   |
| Income tax expense (benefit)                      |   |                         | (1,331 | )      |                         |   | (413   | )             |   |   | (108         | )      |   |          | 6,201  |   |         |   | (611    | )             |   |   | (672 | ) |   |   | (155 | ) |   |   | (61 | ) |
| Net income (loss)                                 |   |                         | (1,739 | )      |                         |   | (272   | )             |   |   | 355          |   |   |          | 10,297 |   |         |   | (30,280 | )             |   |   | (497 | ) |   |   | 314 |   |   |   | 456 |   |
| Dividends on preferred stock                      |   |                         | 256    |   |                         |   | 256    |          |   |   | 257          |   |   |          | 257    |   |         |   | 259     |          |   |   | 262 |   |   |   | 259 |   |   |   | 253 |   |
| Net income (loss) available to commonshareholders |   | $                            | (1,995 | )      |                         | $      | (528   | )             |   | $      | 98           |   |   | $             | 10,040 |   |         | $      | (30,539 | )             |   | $      | (759 | ) |   | $ | 55 |   |   | $ | 203 |   |
|                                              |   |                         |   |   |                         |   |   |          |   |   |         |   |   |          |   |   |         |   |    |          |   |   |   |   |   |   |   |   |   |   |   |   |
| Per Common Share Data:                            |   |                         |   |   |                         |   |   |          |   |   |         |   |   |          |   |   |         |   |    |          |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss):                                |   |                         |   |   |                         |   |   |          |   |   |         |   |   |          |   |   |         |   |    |          |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                             |   | $                            | (0.18  | )      |                         | $      | (0.05  | )             |   | $      | 0.01         |   |   | $             | 1.29   |   |         | $      | (4.11   | )             |   | $      | (0.10 | ) |   | $ | 0.01 |   |   | $ | 0.03 |   |
| Diluted                                           |   |                         | (0.18  | )      |                         |   | (0.05  | )             |   |   | 0.01         |   |   |          | 1.29   |   |         |   | (4.11   | )             |   |   | (0.10 | ) |   |   | 0.01 |   |   |   | 0.03 |   |

| Table 18 - Interest Rate Risk |   |                  |   |   |                  |   |   |   |   |   |     |   |
|-------------------------------|--------|-----------------------|--------|--------|-----------------------|--------|--------|--------|--------|--------|----------|--------|
| (Dollars in thousands)        |   |                  |   |   |                  |   |   |   |   |   |     |   |
|                          |   |                  |   |   |                  |   |   |   |   |   |     |   |
|                          |   |                  |   |   |                  |   |   |   |   |   |     |   |
| Hypothetical, Immediate and   |   | Estimated Theoretical |   |   | Estimated Theoretical |   |
| Sustained Changes in          |   | Net Interest Income   |   |   | Net Portfolio Value   |   |
| Interest Rates                |   | Amount                |   |   | % Change              |   |   | Amount |   |   | % Change |   |
|                          |   |                  |   |   |                  |   |   |   |   |   |     |   |
| 300 basis point rise          |   | $                     | 33,055 |   |                  |   | 18.2   | %      |   | $      | 153,168  |   |   |   | 2.2 | % |
| 200 basis point rise          |   |                  | 31,019 |   |                  |   | 10.9   | %      |   |   | 151,837  |   |   |   | 1.3 | % |
| 100 basis point rise          |   |                  | 29,177 |   |                  |   | 4.3    | %      |   |   | 151,057  |   |   |   | 0.8 | % |
| No change                     |   |                  | 27,968 |   |                  |   | 0.0    | %      |   |   | 149,933  |   |   |   | 0.0 | % |
| 100 basis point decline       |   |                  | 27,717 |   |                  |   | -0.9   | %      |   |   | 149,639  |   |   |   | -0.2 | % |
| 200 basis point decline       |   |                  | 26,464 |   |                  |   | -5.4   | %      |   |   | 154,456  |   |   |   | 3.0 | % |
| 300 basis point decline       |   |                  | 25,689 |   |                  |   | -8.2   | %      |   |   | 162,520  |   |   |   | 8.4 | % |

----

| ITEM 8. | Financial Statements and Supplementary Data |
|---------|---------------------------------------------|

 

----

| CITIZENS SOUTH BANKING CORPORATION                                                         |   |   |      |   |   |   |
|--------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
| CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION                                             |   |   |      |   |
| December 31, 2010 and 2009                                                                 |   |   |      |   |   |   |
|                                                                                       |   | 2010   |      |   | 2009   |   |
| (Dollars in thousands, except per share)                                                   |   |   |      |   |   |   |
|                                                                                       |   |   |      |   |   |   |
| ASSETS                                                                                     |   |   |      |   |   |   |
| Cash and cash equivalents:                                                                 |   |   |      |   |   |   |
|     Cash and due from banks                                            |   | $      | 15,110    |   |   | $      | 8,925 |   |
|     Interest-earning bank balances                                     |   |   | 105,789   |   |   |   | 44,255 |   |
|        Cash and cash equivalents                        |   |   | 120,899   |   |   |   | 53,180 |   |
| Investment securities available for sale, at fair value                                    |   |   | 74,308    |   |   |   | 50,990 |   |
| Investment securities held to maturity, at amortized cost                                  |   |   | 37,278    |   |   |   | 32,380 |   |
| Federal Home Loan Bank stock, at cost                                                      |   |   | 5,715     |   |   |   | 4,149 |   |
| Presold loans in process of settlement                                                     |   |   | 4,034     |   |   |   | - |   |
| Loans:                                                                                     |   |   |      |   |   |   |   |   |
|     Covered by FDIC loss-share agreements                              |   |   | 147,576   |   |   |   | - |   |
|     Not covered by FDIC loss-share agreements                          |   |   | 588,934   |   |   |   | 610,201 |   |
|     Allowance for loan losses                                          |   |   | (11,924   | )      |   |   | (9,189 | ) |
|        Net loans                                        |   |   | 724,586   |   |   |   | 601,012 |   |
| Other real estate owned                                                                    |   |   | 14,652    |   |   |   | 5,067 |   |
| Premises and equipment, net                                                                |   |   | 23,785    |   |   |   | 15,436 |   |
| FDIC loss share receivable                                                                 |   |   | 24,848    |   |   |   | - |   |
| Accrued interest receivable                                                                |   |   | 3,001     |   |   |   | 2,430 |   |
| Bank-owned life insurance                                                                  |   |   | 18,230    |   |   |   | 17,522 |   |
| Intangible assets                                                                          |   |   | 1,690     |   |   |   | 570 |   |
| Other assets                                                                               |   |   | 11,461    |   |   |   | 8,796 |   |
|           Total assets                   |   | $      | 1,064,487 |   |   | $      | 791,532 |   |
|                                                                                       |   |   |      |   |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS' EQUITY                                                       |   |   |      |   |   |   |   |   |
| Deposits                                                                                   |   | $      | 850,456   |   |   | $      | 609,345 |   |
| Securities sold under repurchase agreements                                                |   |   | 9,432     |   |   |   | 8,970 |   |
| Borrowed money                                                                             |   |   | 101,246   |   |   |   | 97,629 |   |
| Other liabilities                                                                          |   |   | 9,910     |   |   |   | 3,266 |   |
|      Total liabilities                                            |   |   | 971,044   |   |   |   | 719,210 |   |
| Commitments and contingencies                                                              |   |   |      |   |   |   |   |   |
| Shareholders' Equity                                                                       |   |   |      |   |   |   |   |   |
| Preferred stock, $0.01 par value, Authorized: 1,000,000 shares;                            |   |   |      |   |   |
|    Issued and outstanding: 20,500 shares                                    |   |   | 20,672    |   |   |   | 20,589 |   |
| Common stock, $0.01 par value, Authorized: 20,000,000 shares;                              |   |   |      |   |   |
|    Issued: 11,561,464 and 9,062,727 shares respectively;                    |   |   |      |   |   |   |   |   |
|    Outstanding: 11,508,750 and 7,526,854 shares respectively                |   |   | 124       |   |   |   | 91 |   |
| Additional paid-in-capital                                                                 |   |   | 63,000    |   |   |   | 48,528 |   |
| Retained earnings, substantially restricted                                                |   |   | 9,663     |   |   |   | 3,411 |   |
| Accumulated other comprehensive loss                                                       |   |   | (16       | )      |   |   | (297 | ) |
|      Total shareholders' equity                                   |   |   | 93,443    |   |   |   | 72,322 |   |
|         Total liabilities and shareholders' equity |   | $      | 1,064,487 |   |   | $      | 791,532 |   |
|                                                                                       |   |   |      |   |   |   |   |   |
| See accompanying notes to consolidated financial statements.                               |   |   |      |   |   |   |   |   |

----

| CITIZENS SOUTH BANKING CORPORATION                           |   |   |   |   |   |   |    |
|--------------------------------------------------------------|--------|--------|--------|--------|--------|--------|---------|
| CONSOLIDATED STATEMENTS OF OPERATIONS                        |   |   |   |   |   |   |    |
| For the Years Ended December 31, 2010, 2009, and 2008        |   |   |   |   |   |   |    |
|                                                         |   |   |   |   |   |   |    |   |   |
|                                                         |   | 2010   |   |   | 2009   |   |    | 2008 |   |
| (Dollars in thousands, except per share data)                |   |   |   |   |   |   |    |
|                                                         |   |   |   |   |   |   |    |   |   |
| Interest Income:                                             |   |   |   |   |   |   |    |   |   |
| Interest and fees on loans                                   |   | $      | 40,540 |   |   | $      | 33,676  |   |   | $ | 37,613 |   |
| Investment securities:                                       |   |   |   |   |   |   |    |   |   |   |   |   |
| Taxable interest income                                      |   |   | 2,517  |   |   |   | 3,397   |   |   |   | 4,085 |   |
| Tax-exempt interest income                                   |   |   | 544    |   |   |   | 1,127   |   |   |   | 1,136 |   |
| Other interest income                                        |   |   | 314    |   |   |   | 100     |   |   |   | 157 |   |
| Total interest income                                        |   |   | 43,915 |   |   |   | 38,300  |   |   |   | 42,991 |   |
| Interest Expense:                                            |   |   |   |   |   |   |    |   |   |   |   |   |
| Deposits                                                     |   |   | 10,262 |   |   |   | 11,918  |   |   |   | 17,232 |   |
| Securities sold under repurchase agreements                  |   |   | 107    |   |   |   | 178     |   |   |   | 263 |   |
| Borrowed money                                               |   |   | 4,309  |   |   |   | 4,430   |   |   |   | 4,856 |   |
| Total interest expense                                       |   |   | 14,678 |   |   |   | 16,526  |   |   |   | 22,351 |   |
|                                                         |   |   |   |   |   |   |    |   |   |   |   |   |
| Net interest income                                          |   |   | 29,237 |   |   |   | 21,774  |   |   |   | 20,640 |   |
| Provision for loan losses                                    |   |   | 14,050 |   |   |   | 10,980  |   |   |   | 3,275 |   |
| Net interest income after provision for loan losses          |   |   | 15,187 |   |   |   | 10,794  |   |   |   | 17,365 |   |
| Noninterest Income:                                          |   |   |   |   |   |   |    |   |   |   |   |   |
| Service charges on deposit accounts                          |   |   | 3,932  |   |   |   | 3,256   |   |   |   | 3,031 |   |
| Mortgage banking income                                      |   |   | 1,525  |   |   |   | 1,202   |   |   |   | 829 |   |
| Commissions on sales of financial products                   |   |   | 426    |   |   |   | 191     |   |   |   | 260 |   |
| Income from bank-owned life insurance                        |   |   | 832    |   |   |   | 770     |   |   |   | 766 |   |
| Gain from acquisition                                        |   |   | 19,679 |   |   |   | -       |   |   |   | - |   |
| Gain on sale of investments, available for sale              |   |   | 349    |   |   |   | 2,198   |   |   |   | 284 |   |
| Loss on sale of other assets                                 |   |   | (490   | )      |   |   | (285    | ) |   |   | (120 | ) |
| Other income                                                 |   |   | 883    |   |   |   | 640     |   |   |   | 585 |   |
| Total noninterest income                                     |   |   | 27,136 |   |   |   | 7,972   |   |   |   | 5,635 |   |
| Noninterest Expense:                                         |   |   |   |   |   |   |    |   |   |   |   |   |
| Compensation and benefits                                    |   |   | 13,598 |   |   |   | 9,818   |   |   |   | 9,964 |   |
| Occupancy and equipment expense                              |   |   | 3,302  |   |   |   | 2,571   |   |   |   | 2,660 |   |
| Office supplies                                              |   |   | 240    |   |   |   | 142     |   |   |   | 232 |   |
| Advertising and business development                         |   |   | 333    |   |   |   | 365     |   |   |   | 402 |   |
| Professional services                                        |   |   | 981    |   |   |   | 1,059   |   |   |   | 867 |   |
| Telephone and communications                                 |   |   | 406    |   |   |   | 274     |   |   |   | 258 |   |
| Data processing                                              |   |   | 702    |   |   |   | 525     |   |   |   | 461 |   |
| Deposit insurance                                            |   |   | 1,326  |   |   |   | 1,076   |   |   |   | 117 |   |
| Amortization of intangible assets                            |   |   | 517    |   |   |   | 314     |   |   |   | 512 |   |
| Valuation adjustment on other real estate owned              |   |   | 1,382  |   |   |   | 338     |   |   |   | - |   |
| Impairment on investment securities                          |   |   | 435    |   |   |   | 754     |   |   |   | 468 |   |
| Impairment of goodwill                                       |   |   | -      |   |   |   | 29,641  |   |   |   | - |   |
| Acquisition, integration and restructuring expenses          |   |   | 1,064  |   |   |   | -       |   |   |   | 220 |   |
| Other expenses                                               |   |   | 5,049  |   |   |   | 3,395   |   |   |   | 3,065 |   |
| Total noninterest expense                                    |   |   | 29,335 |   |   |   | 50,272  |   |   |   | 19,226 |   |
| Income before income tax expense (benefit)                   |   |   | 12,988 |   |   |   | (31,506 | ) |   |   | 3,774 |   |
| Income tax expense (benefit)                                 |   |   | 4,349  |   |   |   | (1,499  | ) |   |   | 639 |   |
| Net income (loss)                                            |   |   | 8,639  |   |   |   | (30,007 | ) |   |   | 3,135 |   |
| Dividends on preferred stock                                 |   |   | 1,025  |   |   |   | 1,034   |   |   |   | 54 |   |
|                                                         |   |   |   |   |   |   |    |   |   |   |   |   |
| Net income (loss) available to common shareholders           |   | $      | 7,614  |   |   | $      | (31,041 | ) |   | $ | 3,081 |   |
|                                                         |   |   |   |   |   |   |    |   |   |   |   |   |
| Basic earnings (loss) per common share                       |   | $      | 0.78   |   |   | $      | (4.19   | ) |   | $ | 0.42 |   |
| Diluted earnings (loss) per common share                     |   |   | 0.78   |   |   |   | (4.19   | ) |   |   | 0.42 |   |
|                                                         |   |   |   |   |   |   |    |   |   |   |   |   |
| See accompanying notes to consolidated financial statements. |   |   |   |   |   |

----

| CITIZENS SOUTH BANKING CORPORATION                                    |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |
|-----------------------------------------------------------------------|--------|-----------|--------|--------|--------|--------|--------|------------|--------|--------|---------------|--------|--------|---------------|---------|--------|
| CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY                       |   |      |   |   |   |   |   |       |   |   |
| For the Years Ended December 31, 2010, 2009, and 2008                 |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |
|                                                                  |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |   |   |
|                                                                  |   |      |   |   |   |   |   |       |   |   | Retained      |   |   | Accumulated   |    |   |   |   |
|                                                                  |   |      |   |   |   |   |   | Additional |   |   | Earnings      |   |   | Other         |    |   | Total |   |
|                                                                  |   | Preferred |   |   | Common |   |   | Paid-in    |   |   | Substantially |   |   | Comprehensive |    |   | Shareholders' |   |
|                                                                  |   | Stock     |   |   | Stock  |   |   | Capital    |   |   | Restricted    |   |   | Income (Loss) |    |   | Equity |   |
| (Dollars in thousands)                                                |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |   |   |
|                                                                  |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |   |   |
|  Balances, January 1, 2008                                       |   | $         | -      |   |   | $      | 91     |       |   | $      | 48,257        |   |   | $             | 36,029  |   |   | $ | (343 | ) |   | $ | 84,034 |   |
|                                                                  |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |   |   |   |   |   |   |   |   |
|  Comprehensive results:                                          |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |   |   |   |   |   |   |   |   |
|       Net income                        |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | 3,135   |   |   |   | - |   |   |   | 3,135 |   |
|      Other comprehensive results, net of tax |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | -       |   |   |   | 368 |   |   |   | 368 |   |
|  Issuance of preferred stock and warrants                        |   |      | 20,500 |   |   |   | -      |       |   |   | -             |   |   |          | -       |   |   |   | - |   |   |   | 20,500 |   |
|  Accretion of discount on preferred stock                        |   |      | 7      |   |   |   | -      |       |   |   | -             |   |   |          | (7      | )      |   |   | - |   |   |   | - |   |
|  Allocation from shares purchased with loan to ESOP              |   |      | -      |   |   |   | -      |       |   |   | 138           |   |   |          | -       |   |   |   | - |   |   |   | 138 |   |
|  Repurchase of common stock                                      |   |      | -      |   |   |   | -      |       |   |   | (1,020        | )      |   |          | -       |   |   |   | - |   |   |   | (1,020 | ) |
|  Vesting of Recognition and Retention Plan ("RRP")               |   |      | -      |   |   |   | -      |       |   |   | 342           |   |   |          | -       |   |   |   | - |   |   |   | 342 |   |
|  Stock-based compensation                                        |   |      | -      |   |   |   | -      |       |   |   | 71            |   |   |          | -       |   |   |   | - |   |   |   | 71 |   |
|  Stock options exercised                                         |   |      | -      |   |   |   | -      |       |   |   | 220           |   |   |          | (155    | )      |   |   | - |   |   |   | 65 |   |
|  Post retirement liability on split dollar arrangements          |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | (349    | )      |   |   | - |   |   |   | (349 | ) |
|  Preferred stock dividends                                       |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | (54     | )      |   |   | - |   |   |   | (54 | ) |
|  Cash dividends declared on common stock                         |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | (2,510  | )      |   |   | - |   |   |   | (2,510 | ) |
|                                                                  |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |   |   |   |   |   |   | - |   |
|  Balances, December 31, 2008                                     |   | $         | 20,507 |   |   | $      | 91     |       |   | $      | 48,008        |   |   | $             | 36,089  |   |   | $ | 25 |   |   | $ | 104,720 |   |
|                                                                  |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |   |   |   |   |   |   |   |   |
|  Comprehensive results:                                          |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |   |   |   |   |   |   |   |   |
|       Net loss                          |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | (30,007 | )      |   |   | - |   |   |   | (30,007 | ) |
|      Other comprehensive results, net of tax |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | -       |   |   |   | (322 | ) |   |   | (322 | ) |
|  Accretion of discount on preferred stock                        |   |      | 82     |   |   |   | -      |       |   |   | -             |   |   |          | (82     | )      |   |   | - |   |   |   | - |   |
|  Allocation from shares purchased with loan to ESOP              |   |      | -      |   |   |   | -      |       |   |   | 63            |   |   |          | -       |   |   |   | - |   |   |   | 63 |   |
|  Vesting of RRP                                                  |   |      | -      |   |   |   | -      |       |   |   | 331           |   |   |          | -       |   |   |   | - |   |   |   | 331 |   |
|  Stock-based compensation                                        |   |      | -      |   |   |   | -      |       |   |   | 106           |   |   |          | -       |   |   |   | - |   |   |   | 106 |   |
|  Stock options exercised                                         |   |      | -      |   |   |   | -      |       |   |   | 20            |   |   |          | (20     | )      |   |   | - |   |   |   | - |   |
|  Preferred stock dividends                                       |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | (1,034  | )      |   |   | - |   |   |   | (1,034 | ) |
|  Cash dividends declared on common stock                         |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | (1,535  | )      |   |   | - |   |   |   | (1,535 | ) |
|                                                                  |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |   |   |   |   |   |   | - |   |
|  Balances, December 31, 2009                                     |   | $         | 20,589 |   |   | $      | 91     |       |   | $      | 48,528        |   |   | $             | 3,411   |   |   | $ | (297 | ) |   | $ | 72,322 |   |
|                                                                  |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |   |   |   |   |   |   |   |   |
|  Comprehensive results:                                          |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |   |   |   |   |   |   |   |   |
|       Net income                        |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | 8,639   |   |   |   | - |   |   |   | 8,639 |   |
|      Other comprehensive results, net of tax |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | -       |   |   |   | 281 |   |   |   | 281 |   |
|  Issuance of common stock                                        |   |      | -      |   |   |   | 33     |       |   |   | 14,007        |   |   |          | -       |   |   |   | - |   |   |   | 14,040 |   |
|  Accretion of discount on preferred stock                        |   |      | 83     |   |   |   | -      |       |   |   | -             |   |   |          | (83     | )      |   |   | - |   |   |   | - |   |
|  Allocation from shares purchased with loan to ESOP              |   |      | -      |   |   |   | -      |       |   |   | 50            |   |   |          | -       |   |   |   | - |   |   |   | 50 |   |
|  Vesting of RRP                                                  |   |      | -      |   |   |   | -      |       |   |   | 316           |   |   |          | -       |   |   |   | - |   |   |   | 316 |   |
|  Stock-based compensation                                        |   |      | -      |   |   |   | -      |       |   |   | 99            |   |   |          | -       |   |   |   | - |   |   |   | 99 |   |
|  Preferred stock dividends                                       |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | (1,025  | )      |   |   | - |   |   |   | (1,025 | ) |
|  Cash dividends declared on common stock                         |   |      | -      |   |   |   | -      |       |   |   | -             |   |   |          | (1,279  | )      |   |   | - |   |   |   | (1,279 | ) |
|                                                                  |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |   |   |   |   |   |   | - |   |
|  Balances, December 31, 2010                                     |   | $         | 20,672 |   |   | $      | 124    |       |   | $      | 63,000        |   |   | $             | 9,663   |   |   | $ | (16 | ) |   | $ | 93,443 |   |
|                                                                  |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |   |   |   |   |   |   |   |   |
| See accompanying notes to consolidated financial statements.          |   |      |   |   |   |   |   |       |   |   |          |   |   |          |    |   |   |

----

| CITIZENS SOUTH BANKING CORPORATION                                           |   |   |    |   |   |   |    |   |   |
|------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
| CONSOLIDATED STATEMENTS OF CASH FLOWS                                        |   |   |    |   |   |   |    |   |   |
| For the Years Ended December 31, 2010, 2009, and 2008                        |   |   |    |   |   |   |    |   |   |
|                                                                         |   |   |    |   |   |   |    |   |   |
|                                                                         |   | 2010   |    |   | 2009   |   |    | 2008   |   |
|  (Dollars in thousands)                                                 |   |   |    |   |   |   |    |   |   |
|                                                                         |   |   |    |   |   |   |    |   |   |
|  Cash flows from operating activities:                                  |   |   |    |   |   |   |    |   |   |
|  Net income (loss)                                                      |   | $      | 8,639   |   |   | $      | (30,007 | )      |   | $ | 3,135 |   |
| Reconciliation of net income to net cash provided by operating activities:   |   |   |    |   |   |   |    |   |   |
|  Provision for loan losses                                              |   |   | 14,050  |   |   |   | 10,980  |   |   |   | 3,275 |   |
|  Depreciation of premises and equipment                                 |   |   | 1,254   |   |   |   | 1,026   |   |   |   | 1,112 |   |
|  Goodwill impairment charge                                             |   |   | -       |   |   |   | 29,641  |   |   |   | - |   |
|  Impairment of securities                                               |   |   | 435     |   |   |   | 754     |   |   |   | 468 |   |
|  Deferred income tax expense (benefit)                                  |   |   | 4,058   |   |   |   | (1,273  | )      |   |   | (974 | ) |
|  Gain on sale of investment securities available for sale               |   |   | (349    | )      |   |   | (2,198  | )      |   |   | (284 | ) |
|  Loss on sale of other assets                                           |   |   | 490     |   |   |   | 285     |   |   |   | 120 |   |
|  Gain on acquisition                                                    |   |   | (19,679 | )      |   |   | -       |   |   |   | - |   |
|  Valuation adjustment on other real estate owned                        |   |   | 1,382   |   |   |   | 338     |   |   |   | - |   |
|  Net purchase accounting adjustments - discount accretion               |   |   | 20,299  |   |   |   | -       |   |   |   | - |   |
|  Deferred loan origination fees                                         |   |   | 81      |   |   |   | 41      |   |   |   | 109 |   |
|  Amortization of intangible assets                                      |   |   | 517     |   |   |   | 314     |   |   |   | 512 |   |
|  Allocation of shares to the ESOP                                       |   |   | 50      |   |   |   | 63      |   |   |   | 138 |   |
|  Stock-based compensation expense                                       |   |   | 99      |   |   |   | 106     |   |   |   | 71 |   |
|  Vesting of shares issued for the RRP                                   |   |   | 316     |   |   |   | 331     |   |   |   | 342 |   |
|  Decrease in accrued interest receivable                                |   |   | 610     |   |   |   | 179     |   |   |   | 645 |   |
|  Increase in other assets                                               |   |   | (4,216  | )      |   |   | (8,397  | )      |   |   | (1,730 | ) |
|  Decrease in other liabilities                                          |   |   | (1,425  | )      |   |   | (3,399  | )      |   |   | (1,433 | ) |
|  Net cash provided by (used in) operating activities                    |   |   | 26,611  |   |   |   | (1,216  | )      |   |   | 5,506 |   |
|                                                                         |   |   |    |   |   |   |    |   |   |   |   |   |
|  Cash flows from investing activities:                                  |   |   |    |   |   |   |    |   |   |   |   |   |
|  Net (increase) decrease in loans made to customers                     |   |   | 25,203  |   |   |   | 6,630   |   |   |   | (68,234 | ) |
|  Net increase in loans available for sale                               |   |   | (4,034  | )      |   |   | -       |   |   |   | - |   |
|  Proceeds from sales of investment securities available for sale        |   |   | 43,302  |   |   |   | 69,349  |   |   |   | 31,692 |   |
|  Proceeds from sales of premises and equipment                          |   |   | 1       |   |   |   | 815     |   |   |   | 330 |   |
|  Proceeds from sales of other real estate owned                         |   |   | 5,955   |   |   |   | 2,418   |   |   |   | 537 |   |
|  Proceeds from maturities/issuer calls of securities available for sale |   |   | 12,198  |   |   |   | 23,352  |   |   |   | 16,695 |   |
|  Proceeds from maturities/issuer calls of securities held to maturity   |   |   | 43,874  |   |   |   | 36      |   |   |   | - |   |
|  Purchases of investment securities available for sale                  |   |   | (56,139 | )      |   |   | (33,591 | )      |   |   | (40,740 | ) |
|  Purchases of securities held to maturity                               |   |   | (48,773 | )      |   |   | (32,415 | )      |   |   | - |   |
|  Net cash received in acquisition of Bank of Hiawassee                  |   |   | 95,058  |   |   |   | -       |   |   |   | - |   |
|  (Purchase) redemption of FHLB stock                                    |   |   | 682     |   |   |   | 644     |   |   |   | (557 | ) |
|  Purchases of premises and equipment                                    |   |   | (9,396  | )      |   |   | (445    | )      |   |   | (362 | ) |
|  Net cash provided by (used in) investment activities                   |   |   | 107,931 |   |   |   | 36,793  |   |   |   | (60,639 | ) |
|                                                                         |   |   |    |   |   |   |    |   |   |   |   |   |
|  Cash flows from financing activities:                                  |   |   |    |   |   |   |    |   |   |   |   |   |
|  Net increase (decrease) in deposits                                    |   |   | (51,109 | )      |   |   | 27,857  |   |   |   | (9,277 | ) |
|  Cash dividends paid to common stockholders                             |   |   | (1,279  | )      |   |   | (1,535  | )      |   |   | (2,510 | ) |
|  Cash dividends paid to preferred stockholders                          |   |   | (1,025  | )      |   |   | (1,034  | )      |   |   | (54 | ) |
|  Issuance of common stock                                               |   |   | 14,040  |   |   |   | -       |   |   |   | - |   |
|  Repayment of borrowed money                                            |   |   | (27,504 | )      |   |   | (17,766 | )      |   |   | 28,081 |   |
|  Increase in advances from borrowers for insurance and taxes            |   |   | 54      |   |   |   | 24      |   |   |   | 15 |   |
|  Net cash provided by (used in) financing activities                    |   |   | (66,823 | )      |   |   | 7,546   |   |   |   | 35,451 |   |
|                                                                         |   |   |    |   |   |   |    |   |   |   |   |   |
|  Net increase (decrease) in cash and cash equivalents                   |   |   | 67,719  |   |   |   | 43,123  |   |   |   | (19,682 | ) |
|  Cash and cash equivalents at beginning of year                         |   |   | 53,180  |   |   |   | 10,057  |   |   |   | 29,739 |   |
|  Cash and cash equivalents at end of year                               |   | $      | 120,899 |   |   | $      | 53,180  |   |   | $ | 10,057 |   |
|                                                                         |   |   |    |   |   |   |    |   |   |   |   |   |
|  Supplemental non-cash investing activity:                              |   |   |    |   |   |   |    |   |   |   |   |   |
|  Foreclosed loans transferred to other real estate owned                |   | $      | 15,846  |   |   | $      | 5,222   |   |   | $ | 2,379 |   |
|                                                                         |   |   |    |   |   |   |    |   |   |   |   |   |
| See accompanying notes to consolidated financial statements.                 |   |   |    |   |   |   |    |   |   |   |   |   |

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CITIZENS 

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|                                                                           |   | 2010                                             |      |   | 2009   |   |      | 2008   |   |
|--------------------------------------------------------------------------------|--------|--------------------------------------------------|-----------|--------|--------|--------|-----------|--------|--------|
|                                                                           |   | (Dollars in thousands, except per share amounts) |      |
|                                                                           |   |                                             |      |   |   |   |      |   |   |
| Net income (loss) available to common shareholders                             |   | $                                                | 7,614     |   |   | $      | (31,041   | )      |   | $ | 3,081 |   |
|                                                                           |   |                                             |      |   |   |   |      |   |   |   |   |   |
| Weighted average common shares outstanding                                     |   |                                             | 9,742,330 |   |   |   | 7,410,692 |   |   |   | 7,374,051 |   |
|                                                                           |   |                                             |      |   |   |   |      |   |   |   |   |   |
| Basic earnings (loss) per share                                                |   | $                                                | 0.78      |   |   | $      | (4.19     | )      |   | $ | 0.42 |   |
|                                                                           |   |                                             |      |   |   |   |      |   |   |   |   |   |
| Shares used in the computation of diluted EPS:                                 |   |                                             |      |   |   |   |      |   |   |   |   |   |
|                                                                           |   |                                             |      |   |   |   |      |   |   |   |   |   |
| Weighted average common shares outstanding                                     |   |                                             | 9,742,330 |   |   |   | 7,410,692 |   |   |   | 7,374,051 |   |
| Incremental shares from assumed exercise of stock options and restricted stock |   |                                             | -         |   |   |   | -         |   |   |   | - |   |
| Weighted average diluted common shares outstanding                             |   |                                             | 9,742,330 |   |   |   | 7,410,692 |   |   |   | 7,374,051 |   |
|                                                                           |   |                                             |      |   |   |   |      |   |   |   |   |   |
| Diluted earnings (loss) per common share                                       |   | $                                                | 0.78      |   |   | $      | (4.19     | )      |   | $ | 0.42 |   |

----

|                                                       |   | 2010                   |   |   | 2009   |   |    | 2008   |   |
|------------------------------------------------------------|--------|------------------------|--------|--------|--------|--------|---------|--------|--------|
|                                                       |   | (Dollars in thousands) |   |
|                                                       |   |                   |   |   |   |   |    |   |   |
| Net income (loss)                                          |   | $                      | 8,639  |   |   | $      | (30,007 | )      |   | $ | 3,135 |   |
|                                                       |   |                   |   |   |   |   |    |   |   |   |   |   |
| Other comprehensive income:                                |   |                   |   |   |   |   |    |   |   |   |   |   |
| Investment securities, available for sale:                 |   |                   |   |   |   |   |    |   |   |   |   |   |
| Unrealized holding gains arising during period             |   |                   | 806    |   |   |   | 1,674   |   |   |   | 883 |   |
| Tax expense                                                |   |                   | (311   | )      |   |   | (645    | )      |   |   | (340 | ) |
| Reclassification for realized gains included in net income |   |                   | (349   | )      |   |   | (2,198  | )      |   |   | (284 | ) |
| Tax benefit                                                |   |                   | 135    |   |   |   | 847     |   |   |   | 109 |   |
| Other comprehensive income (loss)                          |   |                   | 281    |   |   |   | (322    | )      |   |   | 368 |   |
| Total comprehensive income (loss)                          |   | $                      | 8,920  |   |   | $      | (30,329 | )      |   | $ | 3,503 |   |

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|                                               |   | As Recorded by Bank of Hiawassee |    |   | Fair Value Adjustments |   | As Recorded by the Company |   |
|----------------------------------------------------|--------|----------------------------------|---------|--------|------------------------|--------|----------------------------|--------|
|                                               |   | (Dollars in thousands)           |    |
|                                               |   |                             |    |   |                   |   |                       |   |   |   |
| Assets Acquired                                    |   |                             |    |   |                   |   |                       |   |   |   |
| Cash and due from banks                            |   | $                                | 28,658  |   |                   | $      | -                          |   |   |   | $ | 28,658 |   |
| Investment securities, available for sale          |   |                             | 22,309  |   |                   |   | -                          |   |   |   |   | 22,309 |   |
| Loans                                              |   |                             | 229,909 |   |                   |   | (46,702                    | )      | (a) |   |   | 183,207 |   |
| FDIC indemnification asset                         |   |                             | -       |   |                   |   | 36,301                     |   | (b) |   |   | 36,301 |   |
| Other real estate owned                            |   |                             | 1,159   |   |                   |   | (83                        | )      | (c) |   |   | 1,076 |   |
| Core deposit intangible                            |   |                             | -       |   |                   |   | 1,637                      |   | (d) |   |   | 1,637 |   |
| Other assets                                       |   |                             | 3,741   |   |                   |   | -                          |   |   |   |   | 3,741 |   |
| Total assets acquired                              |   | $                                | 285,776 |   |                   | $      | (8,847                     | )      |   |   | $ | 276,929 |   |
|                                               |   |                             |    |   |                   |   |                       |   |   |   |   |   |   |
| Liabilities Assumed                                |   |                             |    |   |                   |   |                       |   |   |   |   |   |   |
| Deposits                                           |   | $                                | 291,451 |   |                   | $      | 768                        |   | (c) |   | $ | 292,219 |   |
| Borrowings                                         |   |                             | 30,000  |   |                   |   | 1,582                      |   | (c) |   |   | 31,582 |   |
| Deferred tax liabilities                           |   |                             | -       |   |                   |   | 7,222                      |   | (e) |   |   | 7,222 |   |
| Other liabilities                                  |   |                             | (423    | )      |                   |   | 1,218                      |   | (c) |   |   | 795 |   |
| Total liabilities assumed                          |   | $                                | 321,028 |   |                   | $      | 10,790                     |   |   |   | $ | 331,818 |   |
| Excess of assets acquired over liabilities assumed |   |                             | (35,252 | )      |                   |   | (19,637                    | )      |   |   |   | (54,889 | ) |
| Less: Net asset discount received from FDIC        |   |                             | (31,148 | )      |                   |   |                       |   |   |   |   |   |   |
| Cash received from FDIC at closing                 |   |                             | 66,400  |   |                   |   |                       |   |   |   |   | 66,400 |   |
|                                               |   |                             |    |   |                   |   |                       |   |   |   |   |   |   |
| Total gain recorded                                |   |                             |    |   |                   |   |                       |   |   |   | $ | 11,511 |   |

| a.   | The fair value adjustment on loans represents the estimated amount of future loan losses expected in the Bank of Hiawassee loan portfolio at the acquisition date.  This estimate was based on a review of a sample of the acquired loan files, a review of various appraisal reports and other relevant local real estate market data, and discussions with loan officers and other personnel familiar with the local market. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | The FDIC indemnification asset represents the estimated funds received from the FDIC under it loss share agreements discounted back to the acquisition date. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | The fair value adjustment represents the estimated amount necessary to write down Bank of Hiawassee’s book value to its estimated fair value at the acquisition date based on market information available at the time of the acquisition. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | The core deposit intangible represents the estimated fair value of  the Bank of Hiawassee’s  core deposits based on a study prepared by an independent third party. This core deposit intangible is being amortized over an eight year period on an accelerated basis. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.   | The deferred tax liability represents 38.55% of the amount of the initial $18.7 million acquisition date gain. |
|----------------|----------------------------------------------------------------------------------------------------------------|

----

|                               |   |                   |    |   | Gross      |   |   | Gross      |   |   |       |   |
|------------------------------------|--------|------------------------|---------|--------|------------|--------|--------|------------|--------|--------|------------|--------|
|                               |   |                   |    |   | Unrealized |   |   | Unrealized |   |   | Estimated  |   |
|                               |   | Book Value             |    |   | Gains      |   |   | Losses     |   |   | Fair Value |   |
|                               |   | (Dollars in thousands) |    |
|                               |   |                   |    |   |       |   |   |       |   |   |       |   |
| 2010                               |   |                   |    |   |       |   |   |       |   |   |       |   |
| Available for sale:                |   |                   |    |   |       |   |   |       |   |   |       |   |
| U.S. Government Agency obligations |   | $                      | 19,297  |   |       | $      | 23     |       |   | $      | 122        |   |   | $ | 19,198 |   |
| Municipal bonds                    |   |                   | 11,602  |   |       |   | 40     |       |   |   | 128        |   |   |   | 11,514 |   |
| Mortgage-backed securities         |   |                   | 40,655  |   |       |   | 293    |       |   |   | 175        |   |   |   | 40,773 |   |
| Other securities                   |   |                   | 2,781   |   |       |   | 110    |       |   |   | 68         |   |   |   | 2,823 |   |
| Subtotal                           |   |                   | 74,335  |   |       |   | 466    |       |   |   | 493        |   |   |   | 74,308 |   |
|                               |   |                   |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Held to maturity:                  |   |                   |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| U.S. Treasury obligations          |   |                   | 9,955   |   |       |   | -      |       |   |   | 38         |   |   |   | 9,917 |   |
| U.S. Government Agency obligations |   |                   | 8,509   |   |       |   | 4      |       |   |   | 129        |   |   |   | 8,384 |   |
| Mortgage-backed securities         |   |                   | 14,814  |   |       |   | 641    |       |   |   | 37         |   |   |   | 15,418 |   |
| Other securities                   |   |                   | 4,000   |   |       |   | -      |       |   |   | 81         |   |   |   | 3,919 |   |
| Subtotal                           |   |                   | 37,278  |   |       |   | 645    |       |   |   | 285        |   |   |   | 37,638 |   |
|                               |   |                   |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Total at December 31, 2010         |   | $                      | 111,613 |   |       | $      | 1,111  |       |   | $      | 778        |   |   | $ | 111,946 |   |
|                               |   |                   |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| 2009                               |   |                   |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Available for sale:                |   |                   |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| U.S. Government agency obligations |   | $                      | 9,000   |   |       | $      | 32     |       |   | $      | 13         |   |   | $ | 9,019 |   |
| Municipal bonds                    |   |                   | 20,118  |   |       |   | 98     |       |   |   | 345        |   |   |   | 19,871 |   |
| Mortgage-backed securities         |   |                   | 19,258  |   |       |   | 216    |       |   |   | 115        |   |   |   | 19,359 |   |
| Other securities                   |   |                   | 3,098   |   |       |   | 141    |       |   |   | 498        |   |   |   | 2,741 |   |
| Subtotal                           |   |                   | 51,474  |   |       |   | 487    |       |   |   | 971        |   |   |   | 50,990 |   |
|                               |   |                   |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Held to maturity:                  |   |                   |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| U.S. Government agency obligations |   |                   | 26,464  |   |       |   | 84     |       |   |   | 305        |   |   |   | 26,243 |   |
| Mortgage-backed securities         |   |                   | 5,916   |   |       |   | 117    |       |   |   | -          |   |   |   | 6,033 |   |
| Subtotal                           |   |                   | 32,380  |   |       |   | 201    |       |   |   | 305        |   |   |   | 32,276 |   |
|                               |   |                   |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| Total at December 31, 2009         |   | $                      | 83,854  |   |       | $      | 688    |       |   | $      | 1,276      |   |   | $ | 83,266 |   |

----

|                                   |   |                   |   |   | Estimated  |   |
|----------------------------------------|--------|------------------------|--------|--------|------------|--------|
|                                   |   | Book Value             |   |   | Fair Value |   |
|                                   |   | (Dollars in thousands) |   |
|                                   |   |                   |   |   |       |   |
| Available for sale:                    |   |                   |   |   |       |   |
| Due in one year or less                |   | $                      | 9,220  |   |       | $      | 9,242 |   |
| Due after one year through five years  |   |                   | 36,899 |   |       |   | 36,907 |   |
| Due after five years through ten years |   |                   | 14,455 |   |       |   | 14,399 |   |
| Due after ten years                    |   |                   | 12,559 |   |       |   | 12,521 |   |
| Equities                               |   |                   | 1,202  |   |       |   | 1,239 |   |
| Total                                  |   | $                      | 74,335 |   |       | $      | 74,308 |   |
|                                   |   |                   |   |   |       |   |   |   |
| Held to Maturity                       |   |                   |   |   |       |   |   |   |
| Due in one year or less                |   | $                      | 533    |   |       | $      | 534 |   |
| Due after one year through five years  |   |                   | 15,077 |   |       |   | 15,003 |   |
| Due after five years through ten years |   |                   | 12,176 |   |       |   | 12,045 |   |
| Due after ten years                    |   |                   | 9,492  |   |       |   | 10,056 |   |
| Total                                  |   | $                      | 37,278 |   |       | $      | 37,638 |   |

----

|                               |   | Less than 12 months    |   |   | 12 months or more |   |   | Total      |   |
|------------------------------------|--------|------------------------|--------|--------|-------------------|--------|--------|------------|--------|
|                               |   | Estimated              |   |   | Unrealized        |   |   | Estimated  |   |   | Unrealized |   |   | Estimated |   |   | Unrealized |   |
|                               |   | Fair Value             |   |   | Loss              |   |   | Fair Value |   |   | Loss |   |   | Fair Value |   |   | Loss |   |
|                               |   | (Dollars in thousands) |   |
| 2010                               |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |
| Available for sale:                |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |
| U.S. Government Agency obligations |   | $                      | 18,113 |   |              | $      | 122    |       |   | $ | - |   |   | $ | - |   |   | $ | 18,113 |   |   | $ | 122 |   |
| Municipals bonds                   |   |                   | 8,376  |   |              |   | 128    |       |   |   | - |   |   |   | - |   |   |   | 8,376 |   |   |   | 128 |   |
| Mortgage-backed securities         |   |                   | 9,395  |   |              |   | 174    |       |   |   | 108 |   |   |   | 1 |   |   |   | 9,503 |   |   |   | 175 |   |
| Other securities                   |   |                   | -      |   |              |   | -      |       |   |   | 104 |   |   |   | 68 |   |   |   | 104 |   |   |   | 68 |   |
|                               |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Subtotal         |   | $                      | 35,884 |   |              | $      | 424    |       |   | $ | 212 |   |   | $ | 69 |   |   | $ | 36,096 |   |   | $ | 493 |   |
|                               |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Held to maturity:                  |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Treasury obligations          |   | $                      | 9,917  |   |              | $      | 38     |       |   | $ | - |   |   | $ | - |   |   | $ | 9,917 |   |   | $ | 38 |   |
| U.S. Government Agency obligations |   |                   | 5,881  |   |              |   | 129    |       |   |   | - |   |   |   | - |   |   |   | 5,881 |   |   |   | 129 |   |
| Mortgage-backed securities         |   |                   | 3,049  |   |              |   | 37     |       |   |   | - |   |   |   | - |   |   |   | 3,049 |   |   |   | 37 |   |
| Other securities                   |   |                   | 3,919  |   |              |   | 81     |       |   |   | - |   |   |   | - |   |   |   | 3,919 |   |   |   | 81 |   |
|                               |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Subtotal         |   | $                      | 22,766 |   |              | $      | 285    |       |   | $ | - |   |   | $ | - |   |   | $ | 22,766 |   |   | $ | 285 |   |
|                               |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total at December 30, 2010         |   | $                      | 58,650 |   |              | $      | 709    |       |   | $ | 212 |   |   | $ | 69 |   |   | $ | 58,862 |   |   | $ | 778 |   |
|                               |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                               |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2009                               |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available for sale:                |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government Agency obligations |   | $                      | 1,987  |   |              | $      | 13     |       |   | $ | - |   |   | $ | - |   |   | $ | 1,987 |   |   | $ | 13 |   |
| Municipals bonds                   |   |                   | 7,340  |   |              |   | 70     |       |   |   | 3,889 |   |   |   | 275 |   |   |   | 11,229 |   |   |   | 345 |   |
| Mortgage-backed securities         |   |                   | 9,312  |   |              |   | 113    |       |   |   | 167 |   |   |   | 2 |   |   |   | 9,479 |   |   |   | 115 |   |
| Other securities                   |   |                   | 61     |   |              |   | 9      |       |   |   | 1,113 |   |   |   | 489 |   |   |   | 1,174 |   |   |   | 498 |   |
|                               |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Subtotal         |   | $                      | 18,700 |   |              | $      | 205    |       |   | $ | 5,169 |   |   | $ | 766 |   |   | $ | 23,869 |   |   | $ | 971 |   |
|                               |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Held to maturity:                  |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government Agency obligations |   | $                      | 14,165 |   |              | $      | 305    |       |   | $ | - |   |   | $ | - |   |   | $ | 14,165 |   |   | $ | 305 |   |
|                               |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Subtotal         |   | $                      | 14,165 |   |              | $      | 305    |       |   | $ | - |   |   | $ | - |   |   | $ | 14,165 |   |   | $ | 305 |   |
|                               |   |                   |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total at December 31, 2009         |   | $                      | 32,865 |   |              | $      | 510    |       |   | $ | 5,169 |   |   | $ | 766 |   |   | $ | 38,034 |   |   | $ | 1,276 |   |

----

|                           |   | 2010                   |    |   | 2009       |   |
|--------------------------------|--------|------------------------|---------|--------|------------|--------|
|                           |   |                   |    |   | % of Total |   |   |   |   |   | % of Total |   |
|                           |   | Amount                 |    |   | Loans      |   |   | Amount |   |   | Loans |   |
|                           |   | (Dollars in thousands) |    |   |       |   |   |   |   |
|                           |   |                   |    |   |       |   |   |   |   |   |   |   |
| Real estate:                   |   |                   |    |   |       |   |   |   |   |   |   |   |
| One-to-four family residential |   | $                      | 143,820 |   |       |   | 20 | % |   | $ | 90,289 |   |   |   | 15 | % |
| Multifamily residential        |   |                   | 23,667  |   |       |   | 3 | % |   |   | 25,577 |   |   |   | 4 | % |
| Construction                   |   |                   | 10,370  |   |       |   | 1 | % |   |   | 22,325 |   |   |   | 4 | % |
| Land and development           |   |                   | 92,724  |   |       |   | 13 | % |   |   | 75,885 |   |   |   | 12 | % |
| Other commercial real estate   |   |                   | 286,601 |   |       |   | 39 | % |   |   | 239,678 |   |   |   | 39 | % |
| Consumer real estate           |   |                   | 118,021 |   |       |   | 16 | % |   |   | 113,075 |   |   |   | 19 | % |
| Total real estate              |   |                   | 675,203 |   |       |   | 92 | % |   |   | 566,829 |   |   |   | 93 | % |
| Commercial business            |   |                   | 48,053  |   |       |   | 6 | % |   |   | 38,442 |   |   |   | 6 | % |
| Other consumer                 |   |                   | 13,254  |   |       |   | 2 | % |   |   | 4,930 |   |   |   | 1 | % |
| Total loans                    |   | $                      | 736,510 |   |       |   | 100 | % |   | $ | 610,201 |   |   |   | 100 | % |

|                                                  |   | 30 to 89 Days Past Due |   |   | 90+ Days Past Due (Still Accruing) |   |   | Loans on Nonaccrual |   |   | Current |   |   | Total Outstanding |    |
|-------------------------------------------------------|--------|------------------------|--------|--------|------------------------------------|--------|--------|---------------------|--------|--------|---------|--------|--------|-------------------|---------|
|                                                  |   | (Dollars in thousands) |   |
|                                                  |   |                   |   |   |                               |   |   |                |   |   |    |   |   |              |    |
| Not covered by FDIC loss-share agreements             |   |                   |   |   |                               |   |   |                |   |   |    |   |   |              |    |
| Real estate:                                          |   |                   |   |   |                               |   |   |                |   |   |    |   |   |              |    |
| One-to-four family residential                        |   | $                      | 1,299  |   |                               | $      | -      |                |   | $      | 1,864   |   |   | $                 | 107,902 |   |   | $ | 111,065 |   |
| Multifamily residential                               |   |                   | -      |   |                               |   | -      |                |   |   | -       |   |   |              | 20,674  |   |   |   | 20,674 |   |
| Construction                                          |   |                   | 630    |   |                               |   | -      |                |   |   | 14      |   |   |              | 9,519   |   |   |   | 10,163 |   |
| Land and development                                  |   |                   | 2,801  |   |                               |   | 2,000  |                |   |   | 559     |   |   |              | 57,527  |   |   |   | 62,887 |   |
| Other commercial real estate                          |   |                   | 7,899  |   |                               |   | -      |                |   |   | 9,161   |   |   |              | 217,423 |   |   |   | 234,483 |   |
| Consumer real estate                                  |   |                   | 1,047  |   |                               |   | -      |                |   |   | 2,513   |   |   |              | 105,634 |   |   |   | 109,194 |   |
| Total real estate                                     |   |                   | 13,676 |   |                               |   | 2,000  |                |   |   | 14,111  |   |   |              | 518,679 |   |   |   | 548,466 |   |
| Commercial business                                   |   |                   | 61     |   |                               |   | -      |                |   |   | 287     |   |   |              | 34,645  |   |   |   | 34,993 |   |
| Other consumer                                        |   |                   | 50     |   |                               |   | -      |                |   |   | 16      |   |   |              | 5,409   |   |   |   | 5,475 |   |
| Total loans not covered by FDIC loss-share agreements |   | $                      | 13,787 |   |                               | $      | 2,000  |                |   | $      | 14,414  |   |   | $                 | 558,733 |   |   | $ | 588,934 |   |

----

|                                              |   | 30 to 89 Days Past Due |   |   | 90+ Days Past Due (Still Accruing) |   |   | Loans on Nonaccrual |   |   | Current |   |   | Total Outstanding |    |
|---------------------------------------------------|--------|------------------------|--------|--------|------------------------------------|--------|--------|---------------------|--------|--------|---------|--------|--------|-------------------|---------|
|                                              |   | (Dollars in thousands) |   |
|                                              |   |                   |   |   |                               |   |   |                |   |   |    |   |   |              |    |
| Covered by FDIC loss-share agreements             |   |                   |   |   |                               |   |   |                |   |   |    |   |   |              |    |
| Real estate:                                      |   |                   |   |   |                               |   |   |                |   |   |    |   |   |              |    |
| One-to-four family residential                    |   | $                      | 1,973  |   |                               | $      | -      |                |   | $      | 3,468   |   |   | $                 | 27,314  |   |   | $ | 32,755 |   |
| Multifamily residential                           |   |                   | -      |   |                               |   | -      |                |   |   | -       |   |   |              | 2,993   |   |   |   | 2,993 |   |
| Construction                                      |   |                   | -      |   |                               |   | -      |                |   |   | 49      |   |   |              | 158     |   |   |   | 207 |   |
| Land and development                              |   |                   | 549    |   |                               |   | -      |                |   |   | 9,904   |   |   |              | 19,385  |   |   |   | 29,838 |   |
| Other commercial real estate                      |   |                   | 2,090  |   |                               |   | 472    |                |   |   | 9,471   |   |   |              | 40,084  |   |   |   | 52,117 |   |
| Consumer real estate                              |   |                   | 51     |   |                               |   | 37     |                |   |   | 213     |   |   |              | 8,526   |   |   |   | 8,827 |   |
| Total real estate                                 |   |                   | 4,663  |   |                               |   | 509    |                |   |   | 23,105  |   |   |              | 98,460  |   |   |   | 126,737 |   |
| Commercial business                               |   |                   | 376    |   |                               |   | 17     |                |   |   | 1,051   |   |   |              | 11,616  |   |   |   | 13,060 |   |
| Other consumer                                    |   |                   | 728    |   |                               |   | -      |                |   |   | 860     |   |   |              | 6,191   |   |   |   | 7,779 |   |
| Total loans covered by FDIC loss-share agreements |   | $                      | 5,767  |   |                               | $      | 526    |                |   | $      | 25,016  |   |   | $                 | 116,267 |   |   | $ | 147,576 |   |

|                                              |   | 30 to 89 Days Past Due |   |   | 90+ Days Past Due (Still Accruing) |   |   | Loans on Nonaccrual |   |   | Current |   |   | Total Outstanding |    |
|---------------------------------------------------|--------|------------------------|--------|--------|------------------------------------|--------|--------|---------------------|--------|--------|---------|--------|--------|-------------------|---------|
|                                              |   | (Dollars in thousands) |   |
|                                              |   |                   |   |   |                               |   |   |                |   |   |    |   |   |              |    |
| Total loans                                       |   |                   |   |   |                               |   |   |                |   |   |    |   |   |              |    |
| Real estate:                                      |   |                   |   |   |                               |   |   |                |   |   |    |   |   |              |    |
| One-to-four family residential                    |   | $                      | 3,272  |   |                               | $      | -      |                |   | $      | 5,332   |   |   | $                 | 135,216 |   |   | $ | 143,820 |   |
| Multifamily residential                           |   |                   | -      |   |                               |   | -      |                |   |   | -       |   |   |              | 23,667  |   |   |   | 23,667 |   |
| Construction                                      |   |                   | 630    |   |                               |   | -      |                |   |   | 63      |   |   |              | 9,677   |   |   |   | 10,370 |   |
| Land and development                              |   |                   | 3,350  |   |                               |   | 2,000  |                |   |   | 10,463  |   |   |              | 76,912  |   |   |   | 92,725 |   |
| Other commercial real estate                      |   |                   | 9,989  |   |                               |   | 472    |                |   |   | 18,632  |   |   |              | 257,507 |   |   |   | 286,600 |   |
| Consumer real estate                              |   |                   | 1,098  |   |                               |   | 37     |                |   |   | 2,726   |   |   |              | 114,160 |   |   |   | 118,021 |   |
| Total real estate                                 |   |                   | 18,339 |   |                               |   | 2,509  |                |   |   | 37,216  |   |   |              | 617,139 |   |   |   | 675,203 |   |
| Commercial business                               |   |                   | 437    |   |                               |   | 17     |                |   |   | 1,338   |   |   |              | 46,261  |   |   |   | 48,053 |   |
| Other consumer                                    |   |                   | 778    |   |                               |   | -      |                |   |   | 876     |   |   |              | 11,600  |   |   |   | 13,254 |   |
| Total loans covered by FDIC loss-share agreements |   | $                      | 19,554 |   |                               | $      | 2,526  |                |   | $      | 39,430  |   |   | $                 | 675,000 |   |   | $ | 736,510 |   |

|                           |   | Legal Balance of Impaired Loan |   |   | Book Balance of Impaired Loan |   |   | Related Allowance |   |
|--------------------------------|--------|--------------------------------|--------|--------|-------------------------------|--------|--------|-------------------|--------|
|                           |   | (Dollars in thousands)         |   |
|                           |   |                           |   |   |                          |   |   |              |   |
| One-to-four family residential |   | $                              | 964    |   |                          | $      | 764    |              |   | $ | - |   |
| Land and development           |   |                           | 10,982 |   |                          |   | 8,820  |              |   |   | 416 |   |
| Other commercial real estate   |   |                           | 9,147  |   |                          |   | 6,125  |              |   |   | - |   |
| Consumer real estate           |   |                           | 692    |   |                          |   | 206    |              |   |   | - |   |
| Total impaired loans           |   | $                              | 21,785 |   |                          | $      | 15,915 |              |   | $ | 416 |   |

----

|                           |   |                   |    |   | Criticized Loans |   |   |        |   |
|--------------------------------|--------|------------------------|---------|--------|------------------|--------|--------|-------------|--------|
|                           |   | Not Criticized         |    |   | Special Mention  |   |   | Substandard |   |   | Doubtful |   |   | Total Outstanding |   |
|                           |   | (Dollars in thousands) |    |
|                           |   |                   |    |   |             |   |   |        |   |   |   |   |   |   |   |
| Real estate:                   |   |                   |    |   |             |   |   |        |   |   |   |   |   |   |   |
| One-to-four family residential |   | $                      | 141,123 |   |             | $      | 1,167  |        |   | $ | 1,530 |   |   | $ | - |   |   | $ | 143,820 |   |
| Multifamily residential        |   |                   | 23,394  |   |             |   | 273    |        |   |   | - |   |   |   | - |   |   |   | 23,667 |   |
| Construction                   |   |                   | 8,437   |   |             |   | 1,933  |        |   |   | - |   |   |   | - |   |   |   | 10,370 |   |
| Land and development           |   |                   | 66,104  |   |             |   | 10,533 |        |   |   | 16,012 |   |   |   | 75 |   |   |   | 92,724 |   |
| Other commercial real estate   |   |                   | 257,770 |   |             |   | 7,882  |        |   |   | 20,949 |   |   |   | - |   |   |   | 286,601 |   |
| Consumer real estate           |   |                   | 113,036 |   |             |   | 1,327  |        |   |   | 3,523 |   |   |   | 135 |   |   |   | 118,021 |   |
| Total real estate              |   |                   | 609,864 |   |             |   | 23,115 |        |   |   | 42,014 |   |   |   | 210 |   |   |   | 675,203 |   |
| Commercial business            |   |                   | 47,423  |   |             |   | 376    |        |   |   | 254 |   |   |   | - |   |   |   | 48,053 |   |
| Other consumer                 |   |                   | 11,200  |   |             |   | -      |        |   |   | 2,054 |   |   |   | - |   |   |   | 13,254 |   |
| Total loans                    |   | $                      | 668,487 |   |             | $      | 23,491 |        |   | $ | 44,322 |   |   | $ | 210 |   |   | $ | 736,510 |   |

----

|                                        |   | 2010                   |    |   | 2009   |   |   | 2008   |   |
|---------------------------------------------|--------|------------------------|---------|--------|--------|--------|--------|--------|--------|
|                                        |   | (Dollars in thousands) |    |
|                                        |   |                   |    |   |   |   |   |   |   |
| Balance at beginning of year                |   | $                      | 9,189   |   |   | $      | 8,026  |   |   | $ | 6,144 |   |
| Loans charged-off:                          |   |                   |    |   |   |   |   |   |   |   |   |   |
| One-to-four residential                     |   |                   | (324    | )      |   |   | (1     | )      |   |   | (185 | ) |
| Construction                                |   |                   | (482    | )      |   |   | (1,352 | )      |   |   | (203 | ) |
| Land and development                        |   |                   | (3,378  | )      |   |   | (4,139 | )      |   |   | (142 | ) |
| Other commercial real estate                |   |                   | (4,882  | )      |   |   | (1,976 | )      |   |   | (177 | ) |
| Consumer real estate                        |   |                   | (1,860  | )      |   |   | (2,143 | )      |   |   | (144 | ) |
| Commercial business                         |   |                   | (682    | )      |   |   | (235   | )      |   |   | (587 | ) |
| Other consumer                              |   |                   | (184    | )      |   |   | (125   | )      |   |   | (22 | ) |
| Total loan charge-offs                      |   |                   | (11,792 | )      |   |   | (9,971 | )      |   |   | (1,460 | ) |
| Recoveries on loans previously charged-off: |   |                   |    |   |   |   |   |   |   |   |   |   |
| One-to-four residential                     |   |                   | 4       |   |   |   | -      |   |   |   | - |   |
| Construction                                |   |                   | 48      |   |   |   | -      |   |   |   | - |   |
| Land and development                        |   |                   | -       |   |   |   | 135    |   |   |   | - |   |
| Other commercial real estate                |   |                   | 364     |   |   |   | 2      |   |   |   | 11 |   |
| Consumer real estate                        |   |                   | 30      |   |   |   | -      |   |   |   | - |   |
| Commercial business                         |   |                   | 4       |   |   |   | 10     |   |   |   | 46 |   |
| Other consumer                              |   |                   | 27      |   |   |   | 7      |   |   |   | 10 |   |
| Total loan recoveries                       |   |                   | 477     |   |   |   | 154    |   |   |   | 67 |   |
| Provision for loan losses                   |   |                   | 14,050  |   |   |   | 10,980 |   |   |   | 3,275 |   |
| Balance at end of year                      |   | $                      | 11,924  |   |   | $      | 9,189  |   |   | $ | 8,026 |   |

| ·   | Portfolio risk; |
|--------------------|-----------------|

| ·   | Loan policy, procedures and monitoring risk; |
|--------------------|----------------------------------------------|

| ·   | National and local economic trends and conditions; |
|--------------------|----------------------------------------------------|

| ·   | Concentration risk; |
|--------------------|---------------------|

----

| ·   | Acquisition and development loan portfolio risks; |
|--------------------|---------------------------------------------------|

| ·   | Impaired loan portfolio additional risks. |
|--------------------|-------------------------------------------|

|                         |   | 2010                   |   |   | 2009   |   |
|------------------------------|--------|------------------------|--------|--------|--------|--------|
|                         |   | (Dollars in thousands) |   |
|                         |   |                   |   |   |   |   |
| Residential properties       |   | $                      | 2,872  |   |   | $      | 2,244 |   |
| Undeveloped land and lots    |   |                   | 6,064  |   |   |   | 2,295 |   |
| Other commercial real estate |   |                   | 5,716  |   |   |   | 528 |   |
| Other real estate owned      |   | $                      | 14,652 |   |   | $      | 5,067 |   |

|                                   |   | 2010                   |   |   | 2009   |   |
|----------------------------------------|--------|------------------------|--------|--------|--------|--------|
|                                   |   | (Dollars in thousands) |   |
|                                   |   |                   |   |   |   |   |
| Balance at beginning of year           |   | $                      | 5,067  |   |   | $      | 2,601 |   |
| Additions to other real estate owned:  |   |                   |   |   |   |   |   |   |
| Acquisition of other real estate owned |   |                   | 1,076  |   |   |   | - |   |
| New foreclosed properties              |   |                   | 15,846 |   |   |   | 5,222 |   |
| Reductions of other real estate owned: |   |                   |   |   |   |   |   |   |
| Sales                                  |   |                   | (5,955 | )      |   |   | (2,418 | ) |
| Writedowns                             |   |                   | (1,382 | )      |   |   | (338 | ) |
| Balance at end of year                 |   | $                      | 14,652 |   |   | $      | 5,067 |   |

----

|                           |   | 2010                   |   |   | 2009   |   |
|--------------------------------|--------|------------------------|--------|--------|--------|--------|
|                           |   | (Dollars in thousands) |   |
|                           |   |                   |   |   |   |   |
| Land                           |   | $                      | 6,023  |   |   | $      | 4,184 |   |
| Buildings                      |   |                   | 20,103 |   |   |   | 13,333 |   |
| Leasehold improvements         |   |                   | 344    |   |   |   | 307 |   |
| Land improvements              |   |                   | 387    |   |   |   | 285 |   |
| Furniture and equipment        |   |                   | 6,274  |   |   |   | 5,433 |   |
| Premises and equipment, gross  |   |                   | 33,131 |   |   |   | 23,542 |   |
| Less: Accumulated depreciation |   |                   | (9,346 | )      |   |   | (8,106 | ) |
| Premises and equipment, net    |   | $                      | 23,785 |   |   | $      | 15,436 |   |

|                           |   | 2010                   |   |   | 2009   |   |
|--------------------------------|--------|------------------------|--------|--------|--------|--------|
|                           |   | (Dollars in thousands) |   |
|                           |   |                   |   |   |   |   |
| Core deposit intangible        |   | $                      | 6,404  |   |   | $      | 4,767 |   |
| Less: Accumulated amortization |   |                   | (4,714 | )      |   |   | (4,197 | ) |
| Intangible assets, net         |   | $                      | 1,690  |   |   | $      | 570 |   |

----

|                       |   | 2010                   |    |   | 2009                |   |
|----------------------------|--------|------------------------|---------|--------|---------------------|--------|
|                       |   | Amount                 |    |   | % of Total Deposits |   |   | Amount |   |   | % of Total Deposits |   |
|                       |   | (Dollars in thousands) |    |   |                |   |   |   |   |
|                       |   |                   |    |   |                |   |   |   |   |   |   |   |
| Noninterest-bearing demand |   | $                      | 70,056  |   |                |   | 8 | % |   | $ | 45,830 |   |   |   | 7 | % |
| Interest-bearing demand    |   |                   | 172,414 |   |                |   | 20 | % |   |   | 113,564 |   |   |   | 19 | % |
| Money market deposit       |   |                   | 142,538 |   |                |   | 17 | % |   |   | 118,687 |   |   |   | 19 | % |
| Savings                    |   |                   | 17,004  |   |                |   | 2 | % |   |   | 10,584 |   |   |   | 2 | % |
| Time deposits              |   |                   | 448,444 |   |                |   | 53 | % |   |   | 320,680 |   |   |   | 53 | % |
| Total deposits             |   | $                      | 850,456 |   |                |   | 100 | % |   | $ | 609,345 |   |   |   | 100 | % |

|                |                |   | 2010                   |    |   | 2009   |   |
|---------------------|---------------------|--------|------------------------|---------|--------|--------|--------|
|                |                |   | (Dollars in thousands) |    |
|                |                |   |                   |    |   |   |   |
| 2011                |                |   | $                      | 326,087 |   |   | $      | 300,020 |   |
| 2012                |                |   |                   | 113,103 |   |   |   | 18,653 |   |
| 2013                |                |   |                   | 3,279   |   |   |   | 1,157 |   |
| 2014                |                |   |                   | 3,079   |   |   |   | 470 |   |
| 2015 and thereafter |                |   | 2,896                  |    |   |   | 380    |   |
|                | Total time deposits |   | $                      | 448,444 |   |   | $      | 320,680 |   |

----

|                  |   | 2010                   |    |   |         |   |   | 2009    |   |   |         |   |
|-----------------------|--------|------------------------|---------|--------|--------------|--------|--------|---------|--------|--------|--------------|--------|
|                  |   | Balance                |    |   | Average Rate |   |   | Balance |   |   | Average Rate |   |
|                  |   | (Dollars in thousands) |    |
|                  |   |                   |    |   |         |   |   |    |   |   |         |   |
| FHLB Advances         |   | $                      | 67,782  |   |         |   | 3.64   | %       |   | $      | 56,165       |   |   |   | 3.80 | % |
| Repurchase Agreements |   | $                      | 18,000  |   |         |   | 3.28   | %       |   | $      | 26,000       |   |   |   | 3.38 | % |
| Subordinated Debt     |   | $                      | 15,464  |   |         |   | 1.87   | %       |   | $      | 15,464       |   |   |   | 6.09 | % |
| Total Borrowed Money  |   | $                      | 101,246 |   |         |   | 3.30   | %       |   | $      | 97,629       |   |   |   | 4.05 | % |

|                 |   | 2010                   |    |   | 2009   |   |
|----------------------|--------|------------------------|---------|--------|--------|--------|
| Borrowed money due:  |   | (Dollars in thousands) |    |
|                 |   |                   |    |   |   |   |
| Less than one year   |   | $                      | 1,972   |   |   | $      | 10,000 |   |
| 1 to 2 years         |   |                   | 17,814  |   |   |   | 1,943 |   |
| 2 to 3 years         |   |                   | 12,996  |   |   |   | 17,722 |   |
| 3 to 4 years         |   |                   | 3,000   |   |   |   | 12,500 |   |
| 4 to 5 years         |   |                   | 3,000   |   |   |   | - |   |
| 5 to 10 years        |   |                   | 47,000  |   |   |   | 40,000 |   |
| After 10 years       |   |                   | 15,464  |   |   |   | 15,464 |   |
|                 |   |                   |    |   |   |   |   |   |
| Total borrowed money |   | $                      | 101,246 |   |   | $      | 97,629 |   |

----

----

|               |   | 2010                   |   |   | 2009   |   |   | 2008   |   |
|--------------------|--------|------------------------|--------|--------|--------|--------|--------|--------|--------|
|               |   | (Dollars in thousands) |   |
|               |   |                   |   |   |   |   |   |   |   |
| Currently payable: |   |                   |   |   |   |   |   |   |   |
| Federal            |   | $                      | 226    |   |   | $      | (189   | )      |   | $ | 1,281 |   |
| State              |   |                   | 65     |   |   |   | (37    | )      |   |   | 332 |   |
| Total current      |   |                   | 291    |   |   |   | (226   | )      |   |   | 1,613 |   |
|               |   |                   |   |   |   |   |   |   |   |   |   |   |
|               |   |                   |   |   |   |   |   |   |   |   |   |   |
| Deferred:          |   |                   |   |   |   |   |   |   |   |   |   |   |
| Federal            |   |                   | 3,308  |   |   |   | (1,080 | )      |   |   | (788 | ) |
| State              |   |                   | 750    |   |   |   | (193   | )      |   |   | (186 | ) |
| Total deferred     |   |                   | 4,058  |   |   |   | (1,273 | )      |   |   | (974 | ) |
|               |   |                   |   |   |   |   |   |   |   |   |   |   |
| Total income taxes |   | $                      | 4,349  |   |   | $      | (1,499 | )      |   | $ | 639 |   |

|                                       |   | 2010                   |   |   | 2009   |   |    | 2008   |   |
|--------------------------------------------|--------|------------------------|--------|--------|--------|--------|---------|--------|--------|
|                                       |   | (Dollars in thousands) |   |
|                                       |   |                   |   |   |   |   |    |   |   |
| Federal income taxes at statutory rate     |   | $                      | 4,067  |   |   | $      | (11,063 | )      |   | $ | 1,265 |   |
|                                       |   |                   |   |   |   |   |    |   |   |   |   |   |
| Effect of federal tax exempt interest      |   |                   | (326   | )      |   |   | (475    | )      |   |   | (444 | ) |
| State income taxes, net of federal benefit |   |                   | 538    |   |   |   | (152    | )      |   |   | 90 |   |
| Non deductible preferred dividends         |   |                   | 349    |   |   |   | 351     |   |   |   | - |   |
| Goodwill impairment                        |   |                   | -      |   |   |   | 10,078  |   |   |   | - |   |
| Increase in cash value of life insurance   |   |                   | (259   | )      |   |   | (238    | )      |   |   | (251 | ) |
| Other                                      |   |                   | (20    | )      |   |   | -       |   |   |   | (21 | ) |
|                                       |   | $                      | 4,349  |   |   | $      | (1,499  | )      |   | $ | 639 |   |
|                                       |   |                   |   |   |   |   |    |   |   |   |   |   |
| Effective tax rate                         |   |                   | 36.3   | %      |   |   | 4.6     | %      |   |   | 17.2 | % |

----

|                                                    |   | 2010                   |   |   | 2009   |   |
|---------------------------------------------------------|--------|------------------------|--------|--------|--------|--------|
|                                                    |   | (Dollars in thousands) |   |
|                                                    |   |                   |   |   |   |   |
| Deferred tax assets:                                    |   |                   |   |   |   |   |
| Deferred compensation                                   |   | $                      | 1,179  |   |   | $      | 1,177 |   |
| Unrealized (gain) loss on securities available for sale |   |                   | 12     |   |   |   | 187 |   |
| Allowance for loan losses                               |   |                   | 4,334  |   |   |   | 3,415 |   |
| Alternative minimum tax credits                         |   |                   | 272    |   |   |   | 150 |   |
| Capital loss carryforward                               |   |                   | 27     |   |   |   | 180 |   |
| Other                                                   |   |                   | 2,984  |   |   |   | 916 |   |
|     Gross deferred tax assets       |   |                   | 8,808  |   |   |   | 6,025 |   |
|                                                    |   |                   |   |   |   |   |   |   |
| Deferred tax liabilities:                               |   |                   |   |   |   |   |   |   |
| Excess carrying value of assets acquired over tax basis |   |                   | 526    |   |   |   | 825 |   |
| FDIC assisted book gain                                 |   |                   | 7,065  |   |   |   | - |   |
| Deferred loan fees                                      |   |                   | 33     |   |   |   | 60 |   |
| Other                                                   |   |                   | 2      |   |   |   | 1 |   |
|     Gross deferred tax liabilities  |   |                   | 7,626  |   |   |   | 886 |   |
|                                                    |   |                   |   |   |   |   |   |   |
|     Net deferred tax asset          |   | $                      | 1,182  |   |   | $      | 5,139 |   |

----

|                                   |   | 2010                   |   |   | 2009   |   |
|----------------------------------------|--------|------------------------|--------|--------|--------|--------|
|                                   |   | (Dollars in thousands) |   |
|                                   |   |                   |   |   |   |   |
| Loan commitments                       |   |                   |   |   |   |   |
| Residential mortgage loans             |   | $                      | 14,530 |   |   | $      | 12,560 |   |
| Non-residential mortgage loans         |   |                   | 2,500  |   |   |   | 13,656 |   |
| Commercial loans                       |   |                   | 731    |   |   |   | 1,435 |   |
| Consumer loans                         |   |                   | 765    |   |   |   | 849 |   |
| Total loan commitments                 |   | $                      | 18,526 |   |   | $      | 28,500 |   |
|                                   |   |                   |   |   |   |   |   |   |
| Unused lines of credit                 |   |                   |   |   |   |   |   |   |
| Commercial                             |   | $                      | 13,000 |   |   | $      | 18,448 |   |
| Consumer                               |   |                   | 73,655 |   |   |   | 75,261 |   |
| Total unused lines of credit           |   | $                      | 86,655 |   |   | $      | 93,709 |   |
|                                   |   |                   |   |   |   |   |   |   |
| Undisbursed Construction Loan Proceeds |   | $                      | 524    |   |   | $      | 1,100 |   |

----

|                                               |   | Actual                 |    |   | Minimum for capital adequacy purposes |   |   | Minimum to be well capitalized under prompt corrective action provisions |   |
|----------------------------------------------------|--------|------------------------|---------|--------|---------------------------------------|--------|--------|--------------------------------------------------------------------------|--------|
|                                               |   | Amount                 |    |   | Ratio                                 |   |   | Amount                                                                   |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
|                                               |   | (Dollars in thousands) |    |
|                                               |   |                   |    |   |                                  |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
| As of December 31, 2010:                           |   |                   |    |   |                                  |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
| Total risk-based capital (to risk-weighted assets) |   | $                      | 111,623 |   |                                  |   | 16.80  | %                                                                        |   | $ | 53,139 |   |   |   | 8.00 | % |   | $ | 66,424 |   |   |   | 10.00 | % |
| Tier 1 capital (to risk-weighted assets)           |   |                   | 103,233 |   |                                  |   | 15.54  | %                                                                        |   |   | 26,570 |   |   |   | 4.00 | % |   |   | 39,855 |   |   |   | 6.00 | % |
| Tier 1 capital (to adjusted total assets)          |   |                   | 103,233 |   |                                  |   | 9.74   | %                                                                        |   |   | 42,383 |   |   |   | 4.00 | % |   |   | 52,979 |   |   |   | 5.00 | % |
| Tangible capital (to adjusted total assets)        |   |                   | 103,233 |   |                                  |   | 9.74   | %                                                                        |   |   | 15,894 |   |   |   | 1.50 | % |   |   | 31,787 |   |   |   | 3.00 | % |
|                                               |   |                   |    |   |                                  |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| As of December 31, 2009:                           |   |                   |    |   |                                  |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total risk-based capital (to risk-weighted assets) |   | $                      | 89,737  |   |                                  |   | 14.07  | %                                                                        |   | $ | 51,029 |   |   |   | 8.00 | % |   | $ | 63,786 |   |   |   | 10.00 | % |
| Tier 1 capital (to risk-weighted assets)           |   |                   | 82,791  |   |                                  |   | 12.98  | %                                                                        |   |   | 25,514 |   |   |   | 4.00 | % |   |   | 38,271 |   |   |   | 6.00 | % |
| Tier 1 capital (to adjusted total assets)          |   |                   | 82,791  |   |                                  |   | 10.44  | %                                                                        |   |   | 31,712 |   |   |   | 4.00 | % |   |   | 39,640 |   |   |   | 5.00 | % |
| Tangible capital (to adjusted total assets)        |   |                   | 82,791  |   |                                  |   | 10.44  | %                                                                        |   |   | 11,892 |   |   |   | 1.50 | % |   |   | 23,784 |   |   |   | 3.00 | % |

----

----

----

|                                                           |   | 2010   |    |   | 2009                            |   |   | 2008   |   |
|----------------------------------------------------------------|--------|--------|---------|--------|---------------------------------|--------|--------|--------|--------|
|                                                           |   | Shares |    |   | Weighted Average Exercise Price |   |   | Shares |   |   | Weighted Average Exercise Price |   |   | Shares |   |   | Weighted Average Exercise Price |   |
| Outstanding at January 1                                       |   |   | 738,038 |   |                            | $      | 12.25  |   |   |   | 922,024 |   |   | $ | 11.51 |   |   |   | 769,530 |   |   | $ | 12.44 |   |
| Granted                                                        |   |   | 36,625  |   |                            |   | 4.92   |   |   |   | 2,217 |   |   |   | 4.75 |   |   |   | 185,850 |   |   |   | 7.58 |   |
| Exercised                                                      |   |   | -       |   |                            |   | -      |   |   |   | (24,702 | ) |   |   | 5.33 |   |   |   | (12,356 | ) |   |   | 5.24 |   |
| Forfeited                                                      |   |   | (4,725  | )      |                            |   | 7.62   |   |   |   | (12,600 | ) |   |   | 12.92 |   |   |   | (21,000 | ) |   |   | 14.49 |   |
| Expired                                                        |   |   | -       |   |                            |   | -      |   |   |   | (148,901 | ) |   |   | 8.68 |   |   |   | - |   |   |   | - |   |
| Outstanding at December 31                                     |   |   | 769,938 |   |                            |   | 11.97  |   |   |   | 738,038 |   |   |   | 12.25 |   |   |   | 922,024 |   |   |   | 11.51 |   |
| Exercisable at December 31                                     |   |   | 623,021 |   |                            |   | 13.17  |   |   |   | 584,722 |   |   |   | 13.47 |   |   |   | 718,848 |   |   |   | 12.52 |   |
| Weighted average fair value of options granted during the year |   |   | $       | 1.83   |                            |   |   |   |   |   | $ | 1.65 |   |   |   |   |   |   | $ | 2.04 |   |

----

| Level 1: | Inputs to the valuation methodology are based on quoted prices in active markets for identical instruments. |
|----------|-------------------------------------------------------------------------------------------------------------|

| Level 2: | Inputs to the valuation methodology are derived from readily available pricing sources for market transactions involving similar types of instruments in active markets. |
|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| Level 3: | Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
|----------|-----------------------------------------------------------------------------------------------------|

----

|                                      |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |   | Total  |   |
|-------------------------------------------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|--------|--------|
|                                      |   |    |   |   |    |   |   |    |   |   |   |   |
| (Dollars in thousands)                    |   |    |   |   |    |   |   |    |   |   |   |   |
|                                      |   |    |   |   |    |   |   |    |   |   |   |   |
| December 31, 2010                         |   |    |   |   |    |   |   |    |   |   |   |   |
| Investment securities, available-for-sale |   | $       | -      |   |    | $      | 71,285 |    |   | $      | 3,023  |   |   | $ | 74,308 |   |
| Investment securities, held-to-maturity   |   |    | -      |   |    |   | 37,278 |    |   |   | -      |   |   |   | 37,278 |   |
| Investment securities, rabbi trusts       |   |    | -      |   |    |   | 731    |    |   |   | -      |   |   |   | 731 |   |
|                                      |   |    |   |   |    |   |   |    |   |   |   |   |   |   |   |   |
| December 31, 2009                         |   |    |   |   |    |   |   |    |   |   |   |   |   |   |   |   |
| Investment securities, available-for-sale |   | $       | -      |   |    | $      | 48,049 |    |   | $      | 2,941  |   |   | $ | 50,990 |   |
| Investment securities, held-to-maturity   |   |    | -      |   |    |   | 32,380 |    |   |   | -      |   |   |   | 32,380 |   |
| Investment securities, rabbi trusts       |   |    | -      |   |    |   | 990    |    |   |   | -      |   |   |   | 990 |   |

|                                                                          |   | Investmentsecurities,available for sale |   |
|-------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                          |   |                                    |   |
| Balance at December 31, 2009                                                  |   | $                                       | 2,941  |   |
| Total net gains (losses) for the year included in:                            |   |                                    |   |   |
| Net income                                                                    |   |                                    | 35     |   |
| Other comprehensive income                                                    |   |                                    | 399    |   |
| Purchases, sales, issuances and settlements, net                              |   |                                    | 83     |   |
| Impairments                                                                   |   |                                    | (435   | ) |
| Transfers in and/or out of Level 3                                            |   |                                    | -      |   |
| Balance at December 31, 2010                                                  |   | $                                       | 3,023  |   |
|                                                                          |   |                                    |   |   |
| Net unrealized (losses) gains included in net income for the year relating to |   |                                    |   |   |
| assets and liabilities held at December 31, 2010                              |   | $                                       | -      |   |
|                                                                          |   |                                    |   |   |
|                                                                          |   |                                    |   |   |
| Balance at December 31, 2008                                                  |   | $                                       | 2,597  |   |
| Total net gains (losses) for the year included in:                            |   |                                    |   |   |
| Net income                                                                    |   |                                    | -      |   |
| Other comprehensive income                                                    |   |                                    | 350    |   |
| Purchases, sales, issuances and settlements, net                              |   |                                    | 542    |   |
| Impairments                                                                   |   |                                    | (748   | ) |
| Transfers in and/or out of Level 3                                            |   |                                    | 200    |   |
| Balance at December 31, 2009                                                  |   | $                                       | 2,941  |   |
|                                                                          |   |                                    |   |   |
| Net unrealized (losses) gains included in net income for the year relating to |   |                                    |   |   |
| assets and liabilities held at December 31, 2009                              |   | $                                       | -      |   |

----

|                    |   |    |   |   |    |   |   |    |   |   |   |   |
|-------------------------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|--------|--------|
|                    |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |   | Total  |   |
|                    |   |    |   |   |    |   |   |    |   |   |   |   |
| (Dollars in thousands)  |   |    |   |   |    |   |   |    |   |   |   |   |
|                    |   |    |   |   |    |   |   |    |   |   |   |   |
| December 31, 2010       |   |    |   |   |    |   |   |    |   |   |   |   |
| Impaired loans          |   | $       | -      |   |    | $      | 15,916 |    |   | $      | -      |   |   | $ | 15,916 |   |
| Other real estate owned |   |    | -      |   |    |   | 14,652 |    |   |   | -      |   |   |   | 14,652 |   |
|                    |   |    |   |   |    |   |   |    |   |   |   |   |   |   |   |   |
| December 31, 2009       |   |    |   |   |    |   |   |    |   |   |   |   |   |   |   |   |
| Impaired loans          |   | $       | -      |   |    | $      | 20,678 |    |   | $      | -      |   |   | $ | 20,678 |   |
| Other real estate owned |   |    | -      |   |    |   | 5,067  |    |   |   | -      |   |   |   | 5,067 |   |

----

|                                        |   | 2010                   |    |   | 2009       |   |
|---------------------------------------------|--------|------------------------|---------|--------|------------|--------|
|                                        |   | Carrying               |    |   | Estimated  |   |   | Carrying |   |   | Estimated |   |
|                                        |   | Amount                 |    |   | Fair Value |   |   | Amount |   |   | Fair Value |   |
|                                        |   | (Dollars in thousands) |    |
|                                        |   |                   |    |   |       |   |   |   |   |   |   |   |
| Financial assets:                           |   |                   |    |   |       |   |   |   |   |   |   |   |
| Cash and due from banks                     |   | $                      | 15,110  |   |       | $      | 15,110 |   |   | $ | 8,925 |   |   | $ | 8,925 |   |
| Interest-earning bank balances              |   |                   | 105,789 |   |       |   | 105,789 |   |   |   | 44,255 |   |   |   | 44,255 |   |
| Investment securities                       |   |                   | 111,586 |   |       |   | 111,946 |   |   |   | 83,370 |   |   |   | 83,266 |   |
| Federal Home Loan Bank stock                |   |                   | 5,715   |   |       |   | 5,715 |   |   |   | 4,149 |   |   |   | 4,149 |   |
| Presold loans in process of settlement      |   |                   | 4,034   |   |       |   | 4,034 |   |   |   | - |   |   |   | - |   |
| Net loans receivable                        |   |                   | 736,510 |   |       |   | 751,219 |   |   |   | 610,201 |   |   |   | 596,371 |   |
| Accrued interest receivable                 |   |                   | 3,001   |   |       |   | 3,001 |   |   |   | 2,430 |   |   |   | 2,430 |   |
| Bank-owned life insurance                   |   |                   | 18,230  |   |       |   | 18,230 |   |   |   | 17,522 |   |   |   | 17,522 |   |
|                                        |   |                   |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:                      |   |                   |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                             |   | $                      | 242,470 |   |       | $      | 242,470 |   |   | $ | 159,394 |   |   | $ | 159,394 |   |
| Money market accounts                       |   |                   | 142,538 |   |       |   | 142,538 |   |   |   | 118,687 |   |   |   | 118,687 |   |
| Savings                                     |   |                   | 17,004  |   |       |   | 17,004 |   |   |   | 10,584 |   |   |   | 10,584 |   |
| Time deposits                               |   |                   | 448,444 |   |       |   | 451,853 |   |   |   | 320,680 |   |   |   | 322,122 |   |
| Securities sold under repurchase agreements |   |                   | 9,432   |   |       |   | 9,432 |   |   |   | 8,970 |   |   |   | 8,970 |   |
| Borrowings                                  |   |                   | 101,246 |   |       |   | 109,092 |   |   |   | 97,629 |   |   |   | 93,039 |   |

----

| Condensed Statements of Financial Condition |   |                   |    |   |   |   |
|---------------------------------------------|--------|------------------------|---------|--------|--------|--------|
|                                        |   |                   |    |   |   |   |
|                                        |   | 2010                   |    |   | 2009   |   |
|                                        |   | (Dollars in thousands) |    |
|                                        |   |                   |    |   |   |   |
| Assets                                      |   |                   |    |   |   |   |
|                                        |   |                   |    |   |   |   |
| Cash and cash equivalents                   |   | $                      | 1,901   |   |   | $      | 2,455 |   |
| Investment securities, available for sale   |   |                   | 1,369   |   |   |   | 1,893 |   |
| Investment in subsidiary                    |   |                   | 104,759 |   |   |   | 83,591 |   |
| Other assets                                |   |                   | 1,689   |   |   |   | 205 |   |
| Total assets                                |   | $                      | 109,718 |   |   | $      | 88,144 |   |
|                                        |   |                   |    |   |   |   |   |   |
| Liabilities and Shareholders' Equity        |   |                   |    |   |   |   |   |   |
|                                        |   |                   |    |   |   |   |   |   |
| Liabilities                                 |   | $                      | 16,275  |   |   | $      | 15,822 |   |
| Shareholders' equity                        |   |                   | 93,443  |   |   |   | 72,322 |   |
| Total liabilities and shareholders' equity  |   | $                      | 109,718 |   |   | $      | 88,144 |   |

| Condensed Statements of Operations                        |   |                   |   |   |   |   |    |   |   |
|-----------------------------------------------------------|--------|------------------------|--------|--------|--------|--------|---------|--------|--------|
|                                                      |   |                   |   |   |   |   |    |   |   |
|                                                      |   | 2010                   |   |   | 2009   |   |    | 2008   |   |
|                                                      |   | (Dollars in thousands) |   |
|                                                      |   |                   |   |   |   |   |    |   |   |
| Interest income                                           |   | $                      | 148    |   |   | $      | 233     |   |   | $ | 143 |   |
| Interest expense                                          |   |                   | (914   | )      |   |   | (952    | )      |   |   | (1,003 | ) |
| Other noninterest income                                  |   |                   | 35     |   |   |   | 54      |   |   |   | 1 |   |
| Other noninterest expense                                 |   |                   | (1,625 | )      |   |   | (1,366  | )      |   |   | (964 | ) |
| Loss before income taxes and earnings from subsidiaries   |   |                   | (2,356 | )      |   |   | (2,031  | )      |   |   | (1,823 | ) |
| Income taxes                                              |   |                   | 926    |   |   |   | 794     |   |   |   | 703 |   |
| Loss before earnings from subsidiaries                    |   |                   | (1,430 | )      |   |   | (1,237  | )      |   |   | (1,120 | ) |
| Earnings in undistributed earnings (loss) of subsidiaries |   |                   | 10,069 |   |   |   | (28,770 | )      |   |   | 4,255 |   |
| Net income (loss)                                         |   |                   | 8,639  |   |   |   | (30,007 | )      |   |   | 3,135 |   |
| Dividends on preferred stock                              |   |                   | (1,025 | )      |   |   | (1,034  | )      |   |   | (54 | ) |
| Net income (loss) available to common shareholders        |   | $                      | 7,614  |   |   | $      | (31,041 | )      |   | $ | 3,081 |   |

----

| Condensed Statements of Cash Flows                                                  |   |                   |    |   |   |   |
|-------------------------------------------------------------------------------------|--------|------------------------|---------|--------|--------|--------|
|                                                                                |   |                   |    |   |   |   |
|                                                                                |   | 2010                   |    |   | 2009   |   |
|                                                                                |   | (Dollars in thousands) |    |
|                                                                                |   |                   |    |   |   |   |
| Cash flows from operating activities:                                               |   |                   |    |   |   |   |
| Net income (loss)                                                                   |   | $                      | 8,639   |   |   | $      | (30,007 | ) |
| Adjustments to reconcile net income (loss) to net cashused in operating activities: |   |
| Gain on sale of investments                                                         |   |                   | (35     | )      |   |   | (54 | ) |
| Impairment of investment securities                                                 |   |                   | 435     |   |   |   | 52 |   |
| Equity in undistributed earnings (losses) of subsidiaries                           |   |                   | (10,069 | )      |   |   | 28,770 |   |
| Allocation of shares to ESOP                                                        |   |                   | 50      |   |   |   | 63 |   |
| Stock option expense                                                                |   |                   | 99      |   |   |   | 106 |   |
| Vesting of shares issued for the RRP                                                |   |                   | 316     |   |   |   | 331 |   |
| Increase (decrease) in other operating liabilities                                  |   |                   | (1,154  | )      |   |   | 129 |   |
|                                                                                |   |                   |    |   |   |   |   |   |
| Net cash used in operating activities                                               |   |                   | (1,719  | )      |   |   | (610 | ) |
|                                                                                |   |                   |    |   |   |   |   |   |
| Cash flows from investing activities:                                               |   |                   |    |   |   |   |   |   |
| Proceeds from the sale of investments                                               |   |                   | 517     |   |   |   | 983 |   |
| Maturities and prepayments of investments                                           |   |                   | -       |   |   |   | 111 |   |
| Purchase of investment securities                                                   |   |                   | -       |   |   |   | (1,500 | ) |
|                                                                                |   |                   |    |   |   |   |   |   |
| Net cash provided by (used in) investing activities                                 |   |                   | 517     |   |   |   | (406 | ) |
|                                                                                |   |                   |    |   |   |   |   |   |
| Cash flows from financing activities:                                               |   |                   |    |   |   |   |   |   |
| Issuance of common stock                                                            |   |                   | 14,040  |   |   |   | - |   |
| Contributed capital to bank subsidiary                                              |   |                   | (11,088 | )      |   |   | - |   |
| Dividends on preferred stock                                                        |   |                   | (1,025  | )      |   |   | (1,034 | ) |
| Dividends to common stockholders                                                    |   |                   | (1,279  | )      |   |   | (1,535 | ) |
|                                                                                |   |                   |    |   |   |   |   |   |
| Net cash provided by (used in) financing activities                                 |   |                   | 648     |   |   |   | (2,569 | ) |
|                                                                                |   |                   |    |   |   |   |   |   |
| Net decrease in cash and cash equivalents                                           |   |                   | (554    | )      |   |   | (3,585 | ) |
| Cash and cash equivalents, beginning of year                                        |   |                   | 2,455   |   |   |   | 6,040 |   |
| Cash and cash equivalents, end of year                                              |   | $                      | 1,901   |   |   | $      | 2,455 |   |

----

Item 

Item 

| ·   | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that material receipts and expenditures of the Company are being made only in accordance with the authorizations of management and directors of the Company; and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements of the Company. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Item 

----

PART 

Item 

Item 

| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
|----------|------------------------------------------------------------------------------------------------|

Item 

Item 

----

PART 

Item 

| (a)(1)                                                                                  | Financial Statements                                                                                                                                                                                                                                   |
|-----------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                    |                                                                                                                                                                                                                                                   |
|                                                                                    | The following documents are filed as Item 8. of this Annual Report on Form 10-K.                                                                                                                                                                       |
|                                                                                    |                                                                                                                                                                                                                                                   |
| (A)                                                                                     | Report of Independent Registered Public Accounting Firm                                                                                                                                                                                                |
| (B)                                                                                     | Consolidated Statements of Financial Condition - at December 31, 2010 and 2009                                                                                                                                                                         |
| (C)                                                                                     | Consolidated Statements of Income - Years Ended December 31, 2010, 2009 and 2008                                                                                                                                                                       |
| (D)                                                                                     | Consolidated Statements of Comprehensive Income -  Years Ended December 31, 2010, 2009 and 2008                                                                                                                                              |
| (E)               | Consolidated Statements of Changes in Shareholders’ Equity - Years Ended December 31, 2010, 2009 and 2008                                                                                                                                        |
|                                                                                    |                                                                                                                                                                                                                                                   |
| (F)                                                                                     | Consolidated Statements of Cash Flows - Years ended December 31, 2010, 2009 and 2008                                                                                                                                                                   |
| (G)                                                                                     | Notes to Consolidated Financial Statements.                                                                                                                                                                                                            |
|                                                                                    |                                                                                                                                                                                                                                                   |
| (a)(2)                                                                                  | Financial Statement Schedules   None.                                                                                                                                                                                                   |
|                                                                                    |                                                                                                                                                                                                                                                   |
| (a)(3)                                                                                  | None.                                                                                                                                                                                                                                                  |
|                                                                                    |                                                                                                                                                                                                                                                   |
| (b)                                                                                     |  Exhibits – set forth below.                                                                                                                                                                                                                |
|                                                                                    |                                                                                                                                                                                                                                                   |
| (c)                                                                                     | Not applicable.                                                                                                                                                                                                                                        |
|                                                                                    |                                                                                                                                                                                                                                                   |
| Exhibits                                                                                |                                                                                                                                                                                                                                                   |
|                                                                                    |                                                                                                                                                                                                                                                   |
| 3.1                    | Certificate of Incorporation of Citizens South Banking Corporation (incorporated herein by reference to the Registration Statement on Form S-1 (File No. 333-91498), originally filed with the Commission on June 28, 2002)                            |
|                                                                                    |                                                                                                                                                                                                                                                   |
| 3.2                         |   Amended Bylaws of Citizens South Banking Corporation                                                                                                                                                                                            |
|                                                                                    |                                                                                                                                                                                                                                                   |
| 4.1                                                                                     | Form of Common Stock Certificate of Citizens South Banking Corporation (incorporated herein by reference to the Registration Statement on Form S-1 (File No. 333-91498), originally filed with the Commission on June 28, 2002)                        |
|                                                                                    |                                                                                                                                                                                                                                                   |
| 4.2                    | Indenture between Citizens South Banking Corporation and Wilmington Trust Company, as trustee, dated October 28, 2005. (Incorporated by reference to the Current Report on Form 8-K (File No. 0-23971), filed with the Commission on November 3, 2005) |
|                                                                                    |                                                                                                                                                                                                                                                   |
| 4.3                                                                                     | Certificate of Designations of Fixed-Rate Cumulative Perpetual Preferred Stock (incorporated herein by reference to the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on December 16, 2008)                                  |
|                                                                                    |                                                                                                                                                                                                                                                   |
| 4.4                                                                                     | Warrant to Purchase Common Stock of Citizens South Banking Corporation (incorporated herein by reference to the Current Report on Form 8-K (File No. 0-23971), filed with the Commission on December 12, 2008)                                         |
|                                                                                    |                                                                                                                                                                                                                                                   |
| 10.1                                                                                    | Amended and Restated Employment Agreement with Kim S. Price dated November 17, 2008 (incorporated herein by reference to the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008)                             |

----

| 10.2                                                       | Deferred Compensation and Income Continuation Agreement (incorporated by reference to the Registration Statement on Form SB-2 (File No. 333-42951), originally filed with the Commission on December 22, 1997)                                                                                                                  |
|------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                       |                                                                                                                                                                                                                                                                                                                            |
| 10.3          |  Employee Stock Option Plan (incorporated by reference to the Registration Statement on Form SB-2 (File No. 333-42951), originally filed with the Commission on December 22, 1997)                                                                                                                                         |
|                                                       |                                                                                                                                                                                                                                                                                                                            |
| 10.4               |   Supplemental Executive Retirement Plan (incorporated by reference to the Registration Statement on Form SB-2 (File No. 333-42951) filed with the Commission on December 22, 1997)                                                                                                                                        |
|                                                       |                                                                                                                                                                                                                                                                                                                            |
| 10.5          |  Amended and Restated Severance Agreement with Gary F. Hoskins dated November 17, 2008 (incorporated by reference to the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008)                                                                                                     |
|                                                       |                                                                                                                                                                                                                                                                                                                            |
| 10.6          | Amended and Restated Severance Agreement with Paul L. Teem, Jr. dated November 17, 2008 (incorporated by reference to the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008)                                                                                                         |
|                                                       |                                                                                                                                                                                                                                                                                                                            |
| 10.7          | Amended and Restated Severance Agreement with Michael R. Maguire dated November 17, 2008 (incorporated by reference to the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008)                                                                                                        |
|                                                       |                                                                                                                                                                                                                                                                                                                            |
| 10.8          | Amended and Restated Severance Agreement with Daniel M. Boyd, IV dated November 17, 2008 (incorporated by reference to the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008)                                                                                                        |
|                                                       |                                                                                                                                                                                                                                                                                                                            |
| 10.9          |  Salary Continuation Agreement with Kim S. Price dated January 1, 2004, as amended (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971), filed with the Commission on March 16, 2005 and the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008)      |
|                                                       |                                                                                                                                                                                                                                                                                                                            |
| 10.10                             | Salary Continuation Agreement with Gary F. Hoskins dated January 1, 2004, as amended (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971), filed with the Commission on March 16, 2005 and the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008)         |
|                                                       |                                                                                                                                                                                                                                                                                                                            |
| 10.11                             | Salary Continuation Agreement with Paul L. Teem, Jr. dated January 1, 2004, as amended (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005 and the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008)        |
|                                                       |                                                                                                                                                                                                                                                                                                                            |
| 10.12                             |  Salary Continuation Agreement with Michael R. Maguire dated January 1, 2004, as amended (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005 and the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008) |
|                                                       |                                                                                                                                                                                                                                                                                                                            |
| 10.13                             |  Salary Continuation Agreement with Daniel M. Boyd, IV dated January 1, 2004, as amended (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005 and the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008) |
|                                                       |                                                                                                                                                                                                                                                                                                                            |
| 10.14                                                      | Endorsement Split Dollar Agreement with Kim S. Price dated January 1, 2004 (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005)                                                                                                                         |

----

| 10.15  | Endorsement Split Dollar Agreement with Gary F. Hoskins dated January 1, 2004 (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005)                                                                                                                                      |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                            |
| 10.16  |  Endorsement Split Dollar Agreement with Paul L. Teem, Jr. dated January 1, 2004 (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005)                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                            |
| 10.17  | Endorsement Split Dollar Agreement with Michael R. Maguire dated January 1, 2004 (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005)                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                            |
| 10.18  | Endorsement Split Dollar Agreement with Daniel M. Boyd, IV dated January 1, 2004 (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005)                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                            |
| 10.19  | Endorsement Split Dollar Agreement with V. Burton Brinson, Jr. dated January 1, 2004 (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005)                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                            |
| 10.20  | Amended Deferred Compensation and Income Continuation Agreement with David W. Hoyle, Sr. dated March 15, 2004 (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005 and the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008) |
|   |                                                                                                                                                                                                                                                                                                                                            |
| 10.21  | Amended Deferred Compensation and Income Continuation Agreement with Ben R. Rudisill, II dated March 15, 2005 (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005 and the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008) |
|   |                                                                                                                                                                                                                                                                                                                                            |
| 10.22  | Amended Deferred Compensation and Income Continuation Agreement with James J. Fuller dated March 15, 2004 (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005 and the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008)     |
|   |                                                                                                                                                                                                                                                                                                                                            |
| 10.23  | Amended Deferred Compensation and Income Continuation Agreement with Charles D. Massey dated March 15, 2004 (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005 and the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008)   |
|   |                                                                                                                                                                                                                                                                                                                                            |
| 10.24  |  Amended Director Retirement Agreement with David W. Hoyle, Sr. dated March 15, 2004 (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005 and the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008)                     |
|   |                                                                                                                                                                                                                                                                                                                                            |
| 10.25  | Amended Director Retirement Agreement with Ben R. Rudisill, II dated March 15, 2004 (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971, filed with the Commission on March 16, 2005 and the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008)                           |
|   |                                                                                                                                                                                                                                                                                                                                            |
| 10.26  | Amended Director Retirement Agreement with James J. Fuller dated March 15, 2004 (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005 and the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008)                               |

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| 10.27                                                                                        | Amended Director Retirement Agreement with Charles D. Massey dated March 15, 2004 (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971), filed with the Commission on March 16, 2005 and the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008)                                                                                                                                   |
|----------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.28                                                                                        | Amended Director Retirement Agreement with Eugene R. Matthews, II dated March 15, 2004 (incorporated by reference to the Annual Report on Form 10-K (File No. 0-23971) filed with the Commission on March 16, 2005 and the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 20, 2008)                                                                                                                               |
|                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10                                                                                           | Amended and Restated Declaration of Trust among Citizens South Banking Corporation, Wilmington Trust Company, as Delaware and Institutional Trustee, and the Administrative Trustees named therein, dated October 28, 2005 (incorporated by reference to the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on November 3, 2005)                                                                                              |
|                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.32                                                                                        | Citizens South Banking Corporation 2008 Equity Incentive Plan (incorporated herein by reference to the Appendix A of the Definitive Proxy Statement for the 2008 Annual Meeting of Stockholders, filed with the Commission on April 10, 2008)                                                                                                                                                                                                          |
|                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.33                                                                                        | Letter Agreement, dated December 12, 2008, between Citizens South Banking Corporation and the United States Department of the Treasury, which includes the Securities Purchase Agreement-Standard Terms attached thereto, with respect to the issuance and sale of the Series A Preferred Stock and the Warrant (incorporated herein by reference to the Current Report on Form 8-K (File No. 0-23971) filed with the Commission on December 16, 2008) |
|                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 14                                                                                           | Code of Ethics Policy (incorporated herein by reference to the policy maintained on Company’s website which is located at www.citizenssouth.com )                                                                                                                                                                                                                                                                                                |
|                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 21                                                                                           | Subsidiaries of Registrant (incorporated herein by reference to the Registration Statement on Form S-1 (File No. 333-91498), originally filed with the Commission on June 28, 2002)                                                                                                                                                                                                                                                                    |
|                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 23                                                                                           | Consent of Cherry, Bekaert & Holland, L.L.P.                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 24                | Power of Attorney (set forth on signature page)                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 31                                                                                           | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                 |
|                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 32                                                                                           | Statement of Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                   |

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Signatures

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