----

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

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

| Delaware                        |   | 57-1001177          |
|---------------------------------|--------|---------------------|
| (State or other Jurisdiction of |   | (I.R.S. Employer    |
| Incorporation or Organization)  |   | Identification No.) |

----

| Part I.  | Financial Information                                                                                                        | Page   |
|----------|------------------------------------------------------------------------------------------------------------------------------|--------|
|     |                                                                                                                         |   |
|     | Item 1. Financial Statements                                                                                            |   |
|     |                                                                                                                         |   |
|     | Consolidated Balance Sheets as of  June 30, 2010 and December 31, 2009                                             | 3      |
|     |                                                                                                                         |   |
|     | Consolidated Statements of  Loss for the three and six months ended June 30, 2010 and 2009                         | 4      |
|     |                                                                                                                         |   |
|     | Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009                                        | 5      |
|     |                                                                                                                         |   |
|     | Consolidated Statements of Shareholders’ Equity and Comprehensive Loss for the six months ended June 30, 2010 and 2009 | 6      |
|     |                                                                                                                         |   |
|     | Notes to Consolidated Financial Statements                                                                                   | 7      |
|     |                                                                                                                         |   |
|     | Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations                          | 16     |
|     |                                                                                                                         |   |
|     | Item 3. Quantitative and Qualitative Disclosures about Market Risk                                                           | 35     |
|     |                                                                                                                         |   |
|     | Item 4T. Controls and Procedures                                                                                             | 35     |
|     |                                                                                                                         |   |
| Part II. | Other Information                                                                                                            |   |
|     |                                                                                                                         |   |
|     | Item 1. Legal Proceedings                                                                                                    | 36     |
|     |                                                                                                                         |   |
|     | Item 1A. Risk Factors                                                                                                        | 36     |
|     |                                                                                                                         |   |
|     | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                          | 36     |
|     |                                                                                                                         |   |
|     | Item 3. Defaults Upon Senior Securities                                                                                      | 36     |
|     |                                                                                                                         |   |
|     | Item 4. Reserved                                                                                                             | 36     |
|     |                                                                                                                         |   |
|     | Item 5. Other Information                                                                                                    | 36     |
|     |                                                                                                                         |   |
|     | Item 6. Exhibits                                                                                                             | 37     |
|     |                                                                                                                         |   |
|     | Signatures                                                                                                                   | 37     |

----

| Part 1.    Financial Information                           |
|--------------------------------------------------------------------------------|
| PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES                          |
| CONSOLIDATED BALANCE SHEETS                                                    |
| June 30, 2010 and December 31, 2009                                            |
|                                                                           |   |   |   |   |   |   |
|                                                                           |   | June 30, |   | December 31, |
| ASSETS                                                                         |   | 2010 |   | 2009 |
|                                                                           |   | (Unaudited) |   | (Audited) |
|                                                                           |   | (DOLLARS IN THOUSANDS) |
| Cash and due from banks                                                        |   | $ | 5,507 |   |   |   | 5,103 |   |
| Interest earning balances with the Federal Reserve                             |   |   | 4,989 |   |   |   | 5,241 |   |
| Federal funds sold                                                             |   |   | 8,974 |   |   |   | 5,287 |   |
| Cash and cash equivalents                                                      |   |   | 19,470 |   |   |   | 15,631 |   |
| Investment and mortgage-backed securities                                      |   |   |   |   |   |   |   |   |
|   Held to maturity (market value of $3,976,000 at December 31, 2009) |   |   | -- |   |   |   | 3,934 |   |
|   Available for sale                                                 |   |   | 143,896 |   |   |   | 147,816 |   |
| Total investment and mortgage-backed securities                                |   |   | 143,896 |   |   |   | 151,750 |   |
|                                                                           |   |   |   |   |   |   |   |   |
| Loans, net of unearned fees                                                    |   |   | 235,076 |   |   |   | 255,999 |   |
|    Allowance for loan losses (ALL)                              |   |   | (4,971 | ) |   |   | (5,579 | ) |
| Loans, net of ALL                                                              |   |   | 230,105 |   |   |   | 250,420 |   |
|                                                                           |   |   |   |   |   |   |   |   |
| Real estate acquired through foreclosure                                       |   |   | 6,008 |   |   |   | 5,917 |   |
| Office properties and equipment, net                                           |   |   | 5,275 |   |   |   | 5,447 |   |
| Federal Home Loan Bank stock, at cost                                          |   |   | 3,947 |   |   |   | 3,947 |   |
| Federal Reserve Bank stock, at cost                                            |   |   | 832 |   |   |   | 832 |   |
| Accrued interest receivable                                                    |   |   | 1,750 |   |   |   | 2,238 |   |
| Cash surrender value of life insurance                                         |   |   | 9,526 |   |   |   | 9,332 |   |
| Other assets                                                                   |   |   | 11,415 |   |   |   | 11,489 |   |
| TOTAL ASSETS                                                                   |   | $ | 432,224 |   |   | $ | 457,003 |   |
|                                                                           |   |   |   |   |   |   |   |   |
| LIABILITIES                                                                    |   |   |   |   |   |   |   |   |
|                                                                           |   |   |   |   |   |   |   |   |
| Demand and savings deposits                                                    |   | $ | 165,496 |   |   | $ | 161,911 |   |
| Time deposits                                                                  |   |   | 155,385 |   |   |   | 170,851 |   |
|   Total deposits                                                     |   |   | 320,881 |   |   |   | 332,762 |   |
| Advances from the Federal Home Loan Bank                                       |   |   | 59,500 |   |   |   | 64,500 |   |
| Securities sold under agreements to repurchase                                 |   |   | 11,106 |   |   |   | 18,520 |   |
| Floating rate junior subordinated deferrable interest debentures               |   |   | 12,372 |   |   |   | 12,372 |   |
| Accrued interest payable                                                       |   |   | 515 |   |   |   | 581 |   |
| Other liabilities                                                              |   |   | 2,112 |   |   |   | 2,147 |   |
| TOTAL LIABILITIES                                                              |   |   | 406,486 |   |   |   | 430,882 |   |
|                                                                           |   |   |   |   |   |   |   |   |
| Commitments and contingencies-Note 5                                           |   |   |   |   |   |   |   |   |
|                                                                           |   |   |   |   |   |   |   |   |
| SHAREHOLDERS' EQUITY                                                           |   |   |   |   |   |   |   |   |
|                                                                           |   |   |   |   |   |   |   |   |
| Serial preferred stock - $0.01 par value                                       |   |   |   |   |   |   |   |   |
|   authorized - 500, 000 shares                                       |   |   |   |   |   |   |   |   |
|    issued and outstanding - 9,266 shares                        |   |   | 9,248 |   |   |   | 9,245 |   |
|   at June 30, 2010 and December 31, 2009, respectively               |   |   |   |   |   |   |   |   |
| Common stock - $0.01 par value,                                                |   |   |   |   |   |   |   |   |
|   authorized - 5,000,000 shares,                                     |   |   |   |   |   |   |   |   |
|    issued and outstanding - 1,790,599 shares at June 30, 2010   |   |   | 20 |   |   |   | 20 |   |
|    and 1,790,599 at December 31, 2009                           |   |   |   |   |   |   |   |   |
| Common stock warrants                                                          |   |   | 25 |   |   |   | 25 |   |
| Additional paid-in capital                                                     |   |   | 12,919 |   |   |   | 12,919 |   |
| Accumulated other comprehensive income (loss)                                  |   |   | (845 | ) |   |   | (972 | ) |
| Retained earnings, substantially restricted                                    |   |   | 10,671 |   |   |   | 11,184 |   |
| Treasury stock, at cost                                                        |   |   | (6,300 | ) |   |   | (6,300 | ) |
| TOTAL SHAREHOLDERS' EQUITY                                                     |   |   | 25,738 |   |   |   | 26,121 |   |
|                                                                           |   |   |   |   |   |   |   |   |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                     |   | $ | 432,224 |   |   | $ | 457,003 |   |
|                                                                           |   |   |   |   |   |   |   |   |
| See notes to consolidated financial statements.                                |   |   |   |   |   |   |   |   |

----

| PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES         |
|---------------------------------------------------------------|
| CONSOLIDATED STATEMENTS OF LOSS                               |
| Three and Six Months Ended June 30, 2010 and 2009 (unaudited) |

|                                                                             |   | Three Months Ended                     |      | Six Months Ended                       |
|----------------------------------------------------------------------------------|--------|----------------------------------------|-----------|----------------------------------------|
|                                                                             |   | June 30,                               |      | June 30,                               |   | June 30, |   | June 30, |
|                                                                             |   | 2010                                   |      | 2009                                   |   | 2010 |   | 2009 |
|                                                                             |   | (DOLLARS IN THOUSANDSEXCEPT PER SHARE) |      | (DOLLARS IN THOUSANDSEXCEPT PER SHARE) |
|                                                                             |   |                                   |      |                                   |   |   |   |   |   |   |   |   |
| Interest Income:                                                                 |   |                                   |      |                                   |   |   |   |   |   |   |   |   |
|   Loans                                                                |   | $                                      | 2,875     |                                   |   | $ | 3,644 |   |   | $ | 5,995 |   |   | $ | 7,240 |   |
|   Deposits and federal funds sold                                      |   |                                   | 8         |                                   |   |   | 5 |   |   |   | 13 |   |   |   | 13 |   |
|   Interest and dividends on mortgage-backed securities                 |   |                                   | 218       |                                   |   |   | 1,137 |   |   |   | 647 |   |   |   | 2,032 |   |
|   Interest and dividends on investment securities                      |   |                                   | 1,010     |                                   |   |   | 558 |   |   |   | 1,985 |   |   |   | 1,196 |   |
| Total interest income                                                            |   |                                   | 4,111     |                                   |   |   | 5,344 |   |   |   | 8,640 |   |   |   | 10,481 |   |
|                                                                             |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Expense:                                                                |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Deposit accounts                                                     |   |                                   | 1,294     |                                   |   |   | 2,111 |   |   |   | 2,841 |   |   |   | 4,203 |   |
|   Floating rate junior subordinated deferrable interest debentures     |   |                                   | 120       |                                   |   |   | 135 |   |   |   | 237 |   |   |   | 285 |   |
|   Advances from the FHLB and other borrowings                          |   |                                   | 630       |                                   |   |   | 758 |   |   |   | 1,374 |   |   |   | 1,542 |   |
| Total interest expense                                                           |   |                                   | 2,044     |                                   |   |   | 3,004 |   |   |   | 4,452 |   |   |   | 6,030 |   |
|                                                                             |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Interest Income                                                              |   |                                   | 2,067     |                                   |   |   | 2,340 |   |   |   | 4,188 |   |   |   | 4,451 |   |
|   Provision for loan losses                                            |   |                                   | 1,187     |                                   |   |   | 925 |   |   |   | 2,083 |   |   |   | 3,625 |   |
| Net interest income after                                                        |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|    provision for loan losses                                      |   |                                   | 880       |                                   |   |   | 1,415 |   |   |   | 2,105 |   |   |   | 826 |   |
|                                                                             |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest Income:                                                             |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Fees for financial services                                          |   |                                   | 734       |                                   |   |   | 736 |   |   |   | 1,396 |   |   |   | 1,410 |   |
|   Other fees, net                                                      |   |                                   | 11        |                                   |   |   | 31 |   |   |   | 34 |   |   |   | 53 |   |
|   Other-than-temporary-impairment write-down on securities             |   |                                   | (164      | )                                      |   |   | (782 | ) |   |   | (467 | ) |   |   | (1,091 | ) |
|   Net gain on sale of investments                                      |   |                                   | 528       |                                   |   |   | 285 |   |   |   | 1,205 |   |   |   | 379 |   |
| Total non-interest income                                                        |   |                                   | 1,109     |                                   |   |   | 270 |   |   |   | 2,168 |   |   |   | 751 |   |
|                                                                             |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest Expense:                                                            |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Compensation and employee benefits                                   |   |                                   | 1,060     |                                   |   |   | 1,143 |   |   |   | 2,182 |   |   |   | 2,335 |   |
|   Occupancy and equipment                                              |   |                                   | 604       |                                   |   |   | 613 |   |   |   | 1,203 |   |   |   | 1,224 |   |
|   Deposit insurance premiums                                           |   |                                   | 146       |                                   |   |   | 273 |   |   |   | 290 |   |   |   | 329 |   |
|   Professional services                                                |   |                                   | 98        |                                   |   |   | 85 |   |   |   | 198 |   |   |   | 177 |   |
|   Advertising and public relations                                     |   |                                   | 17        |                                   |   |   | 27 |   |   |   | 30 |   |   |   | 57 |   |
|   Loan operations                                                      |   |                                   | 165       |                                   |   |   | 92 |   |   |   | 258 |   |   |   | 179 |   |
|   Intangible amortization                                              |   |                                   | --        |                                   |   |   | 76 |   |   |   | -- |   |   |   | 171 |   |
|   Items processing                                                     |   |                                   | 83        |                                   |   |   | 78 |   |   |   | 160 |   |   |   | 167 |   |
|   Telephone                                                            |   |                                   | 51        |                                   |   |   | 47 |   |   |   | 87 |   |   |   | 100 |   |
|   Other                                                                |   |                                   | 233       |                                   |   |   | 182 |   |   |   | 388 |   |   |   | 394 |   |
| Total non-interest expense                                                       |   |                                   | 2,457     |                                   |   |   | 2,616 |   |   |   | 4,796 |   |   |   | 5,133 |   |
|                                                                             |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss before income taxes                                                     |   |                                   | (468      | )                                      |   |   | (931 | ) |   |   | (523 | ) |   |   | (3,556 | ) |
| Benefit for income taxes                                                         |   |                                   | (171      | )                                      |   |   | (364 | ) |   |   | (245 | ) |   |   | (1,295 | ) |
| Net loss                                                                         |   |                                   | (297      | )                                      |   |   | (567 | ) |   |   | (278 | ) |   |   | (2,261 | ) |
| Accretion of preferred stock to redemption value and preferred dividends accrued |   |                                   | 117       |                                   |   |   | 118 |   |   |   | 236 |   |   |   | 143 |   |
| Net loss to common shareholders                                                  |   | $                                      | (414      | )                                      |   | $ | (685 | ) |   | $ | (514 | ) |   | $ | (2,404 | ) |
|                                                                             |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss per common share (basic)                                                |   | $                                      | (0.17     | )                                      |   | $ | (0.32 | )  |   | $ | (0.16 | )  |   | $ | (1.26 | )  |
|                                                                             |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss per common share (diluted)                                              |   | $                                      | (0.17     | )                                      |   | $ | (0.32 | )  |   | $ | (0.16 | )  |   | $ | (1.26 | )  |
|                                                                             |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash dividend per common share                                                   |   | $                                      | --        |                                   |   | $ | 0.030 |   |   | $ | -- |   |   | $ | 0.060 |   |
|                                                                             |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of common shares outstanding                             |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |
|                                                                             |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                            |   |                                   | 1,790,599 |                                   |   |   | 1,789,844 |   |   |   | 1,790,599 |   |   |   | 1,788,873 |   |
|                                                                             |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                                                          |   |                                   | 1,790,599 |                                   |   |   | 1,789,844 |   |   |   | 1,790,599 |   |   |   | 1,788,873 |   |
|                                                                             |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| See notes to consolidated financial statements.                                  |   |                                   |      |                                   |   |   |   |   |   |   |   |   |   |

----

| PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES                            |
|----------------------------------------------------------------------------------|
| CONSOLIDATED STATEMENTS OF CASH FLOWS                                            |
| Six Months Ended June 30, 2010 and 2009 (unaudited)                              |
|                                                                             |   |   |   |   |   |   |
|                                                                             |   | Six Months Ended |
|                                                                             |   | June 30, |   | June 30, |
|                                                                             |   | 2010 |   | 2009 |
|                                                                             |   | (IN THOUSANDS) |
|                                                                             |   |   |   |   |   |   |
| OPERATING ACTIVITIES:                                                            |   |   |   |   |   |   |
|                                                                             |   |   |   |   |   |   |
| Net loss                                                                         |   | $ | (278 | ) |   | $ | (2,261 | ) |
| Adjustments to reconcile net loss to                                             |   |   |   |   |   |   |   |   |
|   net cash provided by operating activities:                           |   |   |   |   |   |   |   |   |
|   Provision for loan losses                                            |   |   | 2,083 |   |   |   | 3,625 |   |
|   Amortization of intangibles                                          |   |   | -- |   |   |   | 171 |   |
|   Depreciation expense                                                 |   |   | 235 |   |   |   | 261 |   |
|   Recognition of deferred income, net of costs                         |   |   | (105 | ) |   |   | (205 | ) |
|   Deferral of fee income, net of costs                                 |   |   | 80 |   |   |   | 141 |   |
|   Other than temporary impairment charge on  AFS securities  |   |   | 467 |   |   |   | 1,091 |   |
|   Gain on investment transactions                                      |   |   | (1,205 | ) |   |   | (379 | ) |
|   Gain on sale of assets acquired from foreclosed loans                |   |   | -- |   |   |   | (2 | ) |
|   Changes in operating assets and liabilities:                         |   |   |   |   |   |   |   |   |
|    Decrease in accrued interest receivable                        |   |   | 488 |   |   |   | 168 |   |
|    Increase in cash surrender value of life insurance             |   |   | (194 | ) |   |   | (200 | ) |
|    Increase in other assets                                       |   |   | (17 | ) |   |   | (1,455 | ) |
|    Decrease (increase) in other liabilities                       |   |   | (35 | ) |   |   | 537 |   |
|    Decrease (increase) in accrued interest payable                |   |   | (66 | ) |   |   | 35 |   |
|                                                                             |   |   |   |   |   |   |   |   |
| Net cash  provided by operating activities                             |   |   | 1,453 |   |   |   | 1,527 |   |
|                                                                             |   |   |   |   |   |   |   |   |
| INVESTING ACTIVITIES:                                                            |   |   |   |   |   |   |   |   |
|                                                                             |   |   |   |   |   |   |   |   |
| Purchase of investment and mortgage-backed securities:                           |   |   |   |   |   |   |   |   |
|    Available for sale                                             |   |   | (106,233 | ) |   |   | (87,918 | ) |
|    Held to maturity                                               |   |   | -- |   |   |   | (1,504 | ) |
| Proceeds from sale of investment and mortgage-                                   |   |   |   |   |   |   |   |   |
|     backed securities                                        |   |   |   |   |   |   |   |   |
|    Available for sale                                             |   |   | 47,806 |   |   |   | 20,294 |   |
|    Held to maturity                                               |   |   | 3,934 |   |   |   | -- |   |
| Proceeds from maturity of investment and mortgage-                               |   |   |   |   |   |   |   |   |
|     backed securities:                                       |   |   |   |   |   |   |   |   |
|    Available for sale                                             |   |   | 53,529 |   |   |   | 21,234 |   |
|    Held to maturity                                               |   |   | -- |   |   |   | 250 |   |
| Principal repayments on mortgage-backed securities:                              |   |   |   |   |   |   |   |   |
|    Available for sale                                             |   |   | 9,683 |   |   |   | 11,667 |   |
| Net decrease in loans                                                            |   |   | 17,818 |   |   |   | 5,281 |   |
| Purchase of FHLB/FRB stock                                                       |   |   | -- |   |   |   | (18 | ) |
| Proceeds from sales of foreclosed assets, net of costs and improvements          |   |   | 439 |   |   |   | 69 |   |
| Purchase of office properties and equipment                                      |   |   | (63 | ) |   |   | (74 | ) |
|                                                                             |   |   |   |   |   |   |   |   |
| Net cash provided (used) by investing activities                                 |   |   | 26,913 |   |   |   | (30,719 | ) |
|                                                                             |   |   |   |   |   |   |   |   |
| FINANCING ACTIVITIES:                                                            |   |   |   |   |   |   |   |   |
|                                                                             |   |   |   |   |   |   |   |   |
| Proceeds from the dividend reinvestment plan                                     |   |   | -- |   |   |   | 16 |   |
| Proceeds from issuance of preferred stock                                        |   |   | -- |   |   |   | 9,240 |   |
| Proceeds from issuance of warrants                                               |   |   | -- |   |   |   | 25 |   |
| Proceeds from redemption of life insurance                                       |   |   | -- |   |   |   | 645 |   |
| Dividends paid in cash                                                           |   |   | -- |   |   |   | (107 | ) |
| Dividends paid on preferred stock                                                |   |   | (232 | ) |   |   | (80 | ) |
| Decrease in other borrowings                                                     |   |   | (12,414 | ) |   |   | (6,526 | ) |
| Decrease (increase) in deposit accounts                                          |   |   | (11,881 | ) |   |   | 28,493 |   |
|                                                                             |   |   |   |   |   |   |   |   |
| Net cash provided (used) by financing activities                                 |   |   | (24,527 | ) |   |   | 31,706 |   |
|                                                                             |   |   |   |   |   |   |   |   |
| NET INCREASE IN CASH                                                             |   |   |   |   |   |   |   |   |
|    AND CASH EQUIVALENTS                                           |   |   | 3,839 |   |   |   | 2,514 |   |
|                                                                             |   |   |   |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS                                                        |   |   |   |   |   |   |   |   |
|    AT BEGINNING OF PERIOD                                         |   |   | 15,631 |   |   |   | 21,370 |   |
|                                                                             |   |   |   |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS                                                        |   |   |   |   |   |   |   |   |
|    AT END OF PERIOD                                               |   | $ | 19,470 |   |   | $ | 23,884 |   |
|                                                                             |   |   |   |   |   |   |   |   |
| SUPPLEMENTAL DISCLOSURES:                                                        |   |   |   |   |   |   |   |   |
|                                                                             |   |   |   |   |   |   |   |   |
| Cash paid for:                                                                   |   |   |   |   |   |   |   |   |
|   Income taxes                                                         |   | $ | 28 |   |   | $ | 510 |   |
|   Interest                                                             |   |   | 4,518 |   |   |   | 5,995 |   |
|                                                                             |   |   |   |   |   |   |   |   |
| Non-cash transactions:                                                           |   |   |   |   |   |   |   |   |
|   Loans foreclosed                                                     |   | $ | 559 |   |   | $ | 2,891 |   |
|  Unrealized gain (loss) on securities available for sale, net of income tax |   |   | (390 | ) |   |   | 1,221 |   |
| See notes to consolidated financial statements.                                  |

----

| PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES                  |
|------------------------------------------------------------------------|
| CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS |
| SIX MONTHS ENDED JUNE 30, 2010 and 2009 (unaudited)                    |

|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   | Retained |   | Accumulated |   |   |   |   |   |   |
|-----------------------------------------------------|--------|-------------------------------------------|--------|--------------|--------|--------|--------|--------|-------------------|----------|------------------------|---------|--------------------|------------|----------------|---------------|--------------------|---------|--------|----------|--------|-------------|--------|--------|--------|--------|--------|--------|
|                                                |   | Preferred Stock                           |   | Common Stock |   |   |   |   | AdditionalPaid-in |     | Earnings,Substantially |    | OtherComprehensive |       | Treasury Stock |          | TotalShareholders' |
|                                                |   | Shares                                    |   | Amount       |   | Shares |   | Amount |              | Warrants |                   | Capital |               | Restricted |           | Income (loss) |               | at Cost |   | Equity   |
|                                                |   | (Dollars in Thousands, Except Share Data) |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |
| BALANCE AT DECEMBER 31, 2008                        |   |                                      |   |         |   |   |   |   | 1,787,092         |     |                   | $       | 20                 |       |           |          |               |    | $      | 12,903   |   |        | $      | 18,997 |   |   | $      | (1,696 | ) |   | $ | (6,300 | ) |   | $ | 23,924 |   |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                            |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   | (2,261 | )      |   |   |   |   |   |   |   |   |   |   | (2,261 | ) |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Other comprehensive loss, net of        |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     tax on unrealized holding losses |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| on securities available for sale                    |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| arising during period                               |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   | 1,221  |   |   |   |   |   |   |   | 1,221 |   |
| Less reclassification adjustment for           |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| gains and other than temporary                      |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   | (463   | ) |   |   |   |   |   |   | (463 | ) |
| investment charge in net loss                       |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Comprehensive loss                      |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   | (1,503 | ) |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividend  reinvestment plan contributions |   |                                      |   |         |   |   |   |   | 3,507             |     |                   |    |               |       |           |          |               |    |   | 16       |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   | 16 |   |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of preferred stock                         |   |                                      | 9,266  |         |   |   | 9,240  |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 9,240 |   |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of common stock warrants                   |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    | 25     |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25 |   |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accretion of Preferred Stock to redemption value    |   |                                      |   |         |   |   | 3      |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   | (3     | )      |   |   |   |   |   |   |   |   |   |   | -- |   |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred stock dividend                            |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   | (79    | )      |   |   |   |   |   |   |   |   |   |   | (79 | ) |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash dividend ($.06 per share)                      |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   | (107   | )      |   |   |   |   |   |   |   |   |   |   | (107 | ) |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE AT JUNE 30, 2009                            |   |                                      | 9,266  |         |   | $      | 9,243  |   |              |     | 1,790,599              |    |               | $          | 20             |          |               | $       | 25     |     |   | $           | 12,919 |   |   | $      | 16,547 |   |   | $ | (938 | ) |   | $ | (6,300 | ) |   | $ | 31,516 |   |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE AT DECEMBER 31, 2009                        |   |                                      | 9,266  |         |   | $      | 9,245  |   |              |     | 1,790,599              |    |               | $          | 20             |          |               | $       | 25     |     |   | $           | 12,919 |   |   | $      | 11,184 |   |   | $ | (972 | ) |   | $ | (6,300 | ) |   | $ | 26,121 |   |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                            |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   | (278   | )      |   |   |   |   |   |   |   |   |   |   | (278 | ) |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Other comprehensive loss, net of        |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     tax on unrealized holding losses |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| on securities available for sale                    |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| arising during period                               |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   | (390 | ) |   |   |   |   |   |   | (390 | ) |
|   Less reclassification adjustment for         |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| gains and other than temporary                      |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   | 517 |   |   |   |   |   |   |   | 517 |   |
| investment charge in net income                     |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Comprehensive loss                      |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (151 | ) |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accretion of Preferred Stock to redemption value    |   |                                      |   |         |   |   | 3      |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   | (3     | )      |   |   |   |   |   |   |   |   |   |   | -- |   |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred stock dividend                            |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   | (232   | )      |   |   |   |   |   |   |   |   |   |   | (232 | ) |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                |   |                                      |   |         |   |   |   |   |              |     |                   |    |               |       |           |          |               |    |   |     |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE AT JUNE 30, 2010                            |   |                                      | 9,266  |         |   | $      | 9,248  |   |              |     | 1,790,599              |    |               | $          | 20             |          |               | $       | 25     |     |   | $           | 12,919 |   |   | $      | 10,671 |   |   | $ | (845 | ) |   | $ | (6,300 | ) |   | $ | 25,738 |   |

----

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

----

----

|                                           |   | Amount Outstanding atJune 30, |            |   |   |   |            |                  |   |     |   |
|------------------------------------------------|--------|-------------------------------|-----------------|--------|--------|--------|-----------------|-----------------------|--------|----------|--------|
| Name                                           |   | 2010                          |            | 2009   |   | Rate   |            | PrepaymentOption Date |   | Maturity |   | DistributionPaymentFrequency |
|                                           |   |                          |            |   |   |   |            |                  |   |     |   |   |   |   |   |
| Provident CommunityBancshares Capital Trust I  |   |                          | 4,000,000       |   |   |   | 4,000,000       |                  |   |     | 7.39   | % |   |  October 1, 2011 |   |  October 1, 2036 |   |  Quarterly |
| Provident CommunityBancshares Capital Trust II |   |                          |  8,000,000 |   |   |   |  8,000,000 |                  |   |     | 2.28   | % |   |  March 1, 2012 |   |  March 1, 2037 |   |  Quarterly |
| Total                                          |   | $                             | 12,000,000      |   |   | $      | 12,000,000      |                  |   |     |   |   |   |   |   |   |   |   |

| Loan Commitments:                                     |   | Contract Amount |
|-------------------------------------------------------|--------|-----------------|
|                                                  |   |            |   |
| Approved loan commitments                             |   | $               | 571,000 |   |
| Commitments to fund commercial and construction loans |   |            | 122,000 |   |
| Unused portions of loans and credit lines             |   |            | 31,420,000 |   |
| Total loan commitments                                |   | $               | 32,113,000 |   |

----

| Level 1 | Valuation is based upon quoted prices in active markets for identical assets or liabilities.                                                                                                                                                                              |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                      |
| Level 2 | Valuation is based upon quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
|    |                                                                                                                                                                                                                                                                      |
| Level 3 | Valuation is based upon quoted prices for similar assets or liabilities; quoted prices in markets that are not active; and model-based techniques whose value is determined using pricing models, discounted cash flow methodologies and similar techniques.              |

----

|                                                                                                                                                                                                                                                                                                           |   |     |    |             |                                    |      |                        |      |                    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|---------|------------------|-----------------------------------------|-----------|-----------------------------|-----------|-------------------------|
|                                                                                                                                                                                                                                                                                                           |   |     |    |             | Quoted Prices inActive Markets for |      | Significant OtherObservable |      | SignificantUnobservable |
|                                                                                                                                                                                                                                                                                                           |   | June 30, |    | Identical Assets |                                    | Inputs    |                        | Inputs    |
|                                                                                                                                                                                                                                                                                                           |   | 2010     |    | (Level 1)        |                                    | (Level 2) |                        | (Level 3) |
|  Investment securities:                                                                                                                                                                                                                                                                                   |   |     |    |             |                                    |      |                        |      |                    |   |   |   |
|  U.S. Agency obligations                                                                                                                                                                                                                                                                                  |   | $        | 3       |             |                                    | $         | 3                           |      |                    | $ | -- |   |   | $ | -- |   |
|  Government Sponsored Enterprises                                                                                                                                                                                                                                                                         |   |     | 118,297 |             |                                    |      | 118,297                     |      |                    |   | -- |   |   |   | -- |   |
|  Trust Preferred securities                                                                                                                                                  |   |     | 5,302   |             |                                    |      |  --                    |      |                    |   | 2,645 |   |   |   | 2,657 |   |
|          Total investment securities                                                                                                                                                                                                                              |   |     | 123,602 |             |                                    |      | 118,300                     |      |                    |   | 2,645 |   |   |   | 2,657 |   |
|  Mortgage-backed and related securities                                            |   |     | 20,294  |             |                                    |      |  --                    |      |                    |   | 20,294 |   |   |   |  -- |   |
|          Total                                                                                                        |   | $        | 143,896 |             |                                    | $         | 118,300                     |      |                    | $ | 22,939 |   |   | $ | 2,657 |   |

|                                                                                                                                                                                                                             |   |         |    | Quoted Prices in   |   | Significant Other |     | Significant  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|--------------------|--------|-------------------|----------|--------------|
|                                                                                                                                                                                                                             |   |         |    | Active Markets for |   | Observable        |     | Unobservable |
|                                                                                                                                                                                                                             |   | December 31, |    | Identical Assets   |   | Inputs            |     | Inputs       |
|                                                                                                                                                                                                                             |   | 2009         |    | (Level 1)          |   | (Level 2)         |     | (Level 3)    |
|  Investment securities:                                                                                                                                                                                                     |   |         |    |               |   |              |     |         |   |   |   |   |
|  U.S. Agency obligations                                                                                                                                                                                                    |   | $            | 4       |               |   | $                 | 4        |         |   | $ | -- |   |   | $ | -- |   |
|  Government Sponsored Enterprises                                                                                                                                                                                           |   |         | 78,471  |               |   |              | 78,471   |         |   |   | -- |   |   |   | -- |   |
|  Municipal securities                                                                                                                                                                                                       |   |         | 6,042   |               |   |              | --       |         |   |   | 6,042 |   |   |   | -- |   |
|  Trust Preferred securities                                                                                             |   |         | 5,912   |               |   |              |  -- |         |   |   | 2,802 |   |   |   | 3,110 |   |
|          Total investment securities                                                                                                                                                |   |         | 90,429  |               |   |              | 78,475   |         |   |   | 8,844 |   |   |   | 3,110 |   |
|  Mortgage-backed and related securities                               |   |         | 57,387  |               |   |              |  -- |         |   |   | 57,387 |   |   |   |  -- |   |
|          Total                               |   | $            | 147,816 |               |   | $                 | 78,475   |         |   | $ | 66,231 |   |   | $ | 3,110 |   |

----

|                                             |   | Fair Value MeasurementsUsing Significant |
|--------------------------------------------------|--------|------------------------------------------|
|                                             |   | Unobservable Inputs (Level 3)            |
|                                             |   | Investment Securities                    |
|                                             |   | Available-for-Sale                       |
| Beginning balance at December 31, 2009           |   | $                                        | 3,110,000 |   |
| Transfers into Level 3                           |   |                                     | --  |   |
| Gain/(Loss) realized for the year                |   |                                     | (453,000 | ) |
| Purchases, sales, issuances and settlements, net |   |                                     | --  |   |
| Ending balance at June 30, 2010                  |   | $                                        | 2,657,000 |   |

|                       |   | Total  |            | (Level 1) |   | (Level 2) |   | (Level 3) |
|----------------------------|--------|--------|-----------------|-----------|--------|-----------|--------|-----------|
|                       |   |   |            |      |   |      |   |      |   |   |   |   |   |   |   |   |
| Impaired loans             |   | $      | 27,401,000      |      |   | $         | --     |      |   | $ | 27,401,000 |   |   | $ | -- |   |
| Other real estate owned    |   |   |  6,008,000 |      |   |      | --     |      |   |   |  6,008,000 |   |   |   | -- |   |
| Total assets at fair value |   | $      | 33,409,000      |      |   | $         | --     |      |   | $ | 33,409,000 |   |   | $ | -- |   |

|                       |   | Total  |            | (Level 1) |   | (Level 2) |   | (Level 3) |
|----------------------------|--------|--------|-----------------|-----------|--------|-----------|--------|-----------|
|                       |   |   |            |      |   |      |   |      |   |   |   |   |   |   |   |   |
| Impaired loans             |   | $      | 20,869,000      |      |   | $         | --     |      |   | $ | 20,869,000 |   |   | $ | -- |   |
| Other real estate owned    |   |   |  5,917,000 |      |   |      | --     |      |   |   |  5,917,000 |   |   |   | -- |   |
| Total assets at fair value |   | $      | 26,786,000      |      |   | $         | --     |      |   | $ | 26,786,000 |   |   | $ | -- |   |

----

----

|                                                             |   | June 30, 2010        |
|------------------------------------------------------------------|--------|----------------------|
|                                                             |   | CarryingAmount       |   | FairValue |
| Financial assets                                                 |   |                 |   |   |   |   |
| Cash and cash equivalents                                        |   | $                    | 19,470 |   |   | $ | 19,470 |   |
| Securities available for sale                                    |   |                 | 143,896 |   |   |   | 143,896 |   |
| Federal Home Loan Bank stock, at cost                            |   |                 | 3,947 |   |   |   | 3,947 |   |
| Federal Reserve Bank stock, at cost                              |   |                 | 832 |   |   |   | 832 |   |
| Loans, net                                                       |   |                 | 230,105 |   |   |   | 230,611 |   |
| Accrued interest receivable                                      |   |                 | 1,750 |   |   |   | 1,750 |   |
| Cash surrender value of life insurance                           |   |                 | 9,526 |   |   |   | 9,526 |   |
|                                                             |   |                 |   |   |   |   |   |   |
| Financial liabilities                                            |   |                 |   |   |   |   |   |   |
| Deposits                                                         |   | $                    | 320,881 |   |   | $ | 312,731 |   |
| Advances from FHLB and other borrowings                          |   |                 | 59,500 |   |   |   | 62,610 |   |
| Securities sold under agreements to repurchase                   |   |                 | 11,106 |   |   |   | 11,103 |   |
| Floating rate junior subordinated deferrable interest debentures |   |                 | 12,372 |   |   |   | 12,330 |   |
| Accrued interest payable                                         |   |                 | 515 |   |   |   | 515 |   |
|                                                             |   |                 |   |   |   |   |   |   |
| Off-balance-sheet assets (liabilities)                           |   | Notional Amount |   | Fair Value |
| Commitments to extend credit                                     |   | $                    | 32,113 |   |   | $ | 0 |   |

|                                                             |   | December 31, 2009 |
|------------------------------------------------------------------|--------|-------------------|
|                                                             |   | CarryingAmount    |   | FairValue |
| Financial assets                                                 |   |              |   |   |   |   |
| Cash and cash equivalents                                        |   | $                 | 15,631 |   |   | $ | 15,631 |   |
| Securities available for sale                                    |   |              | 147,816 |   |   |   | 147,816 |   |
| Securities held to maturity                                      |   |              | 3,934 |   |   |   | 3,976 |   |
| Federal Home Loan Bank stock, at cost                            |   |              | 3,947 |   |   |   | 3,947 |   |
| Federal Reserve Bank stock, at cost                              |   |              | 832 |   |   |   | 832 |   |
| Loans, net                                                       |   |              | 250,420 |   |   |   | 250,455 |   |
| Accrued interest receivable                                      |   |              | 2,238 |   |   |   | 2,238 |   |
| Cash surrender value of life insurance                           |   |              | 9,332 |   |   |   | 9,332 |   |
|                                                             |   |              |   |   |   |   |   |   |
| Financial liabilities                                            |   |              |   |   |   |   |   |   |
| Deposits                                                         |   | $                 | 332,762 |   |   | $ | 323,113 |   |
| Advances from FHLB and other borrowings                          |   |              | 64,500 |   |   |   | 67,457 |   |
| Securities sold under agreements to repurchase                   |   |              | 18,520 |   |   |   | 18,544 |   |
| Floating rate junior subordinated deferrable interest debentures |   |              | 12,372 |   |   |   | 10,758 |   |
| Accrued interest payable                                         |   |              | 581 |   |   |   | 581 |   |
|                                                             |   |              |   |   |   |   |   |   |
| Off-balance-sheet assets (liabilities)                           |   | Notional Amount   |   | Fair Value |
| Commitments to extend credit                                     |   | $                 | 40,131 |   |   | $ | 0 |   |

----

----

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

----

|                 | June 30, 2010 |   | December 31, 2009 |
|----------------------|---------------|--------|-------------------|
|                 |          |   |              |   |   |   |   |
|                 | Amortized     |   | Fair              |   | Amortized |   | Fair |
|                 | Cost          |   | Value             |   | Cost |   | Value |
|                 |          |   |              |   |   |   |   |
| Municipal Securities | $--           |   | $--               |   | $3,934 |   | $3,976 |

----

|                                                   |   | June 30, 2010 |    | December 31, 2009 |
|--------------------------------------------------------|--------|---------------|---------|-------------------|
|                                                   |   | Amortized     |    | Fair              |   | Amortized |   | Fair |
|                                                   |   | Cost          |    | Value             |   | Cost |   | Value |
|                                                   |   |          |    |              |   |   |   |   |   |   |   |   |
| Investment Securities:                                 |   |          |    |              |   |   |   |   |   |   |   |   |
|  U.S. Agency Obligations                          |   | $             | 3       |              |   | $ | 3 |   |   | $ | 4 |   |   | $ | 4 |   |
|     Government Sponsored Enterprises    |   |          | 117,740 |              |   |   | 118,297 |   |   |   | 79,162 |   |   |   | 78,471 |   |
|     Municipal Securities                |   |          | --      |              |   |   | -- |   |   |   | 5,781 |   |   |   | 6,042 |   |
|     Trust Preferred Securities          |   |          | 8,133   |              |   |   | 5,302 |   |   |   | 8,570 |   |   |   | 5,912 |   |
| Total Investment Securities                            |   |          | 125,876 |              |   |   | 123,602 |   |   |   | 93,517 |   |   |   | 90,429 |   |
| Mortgage-backed Securities:                            |   |          |    |              |   |   |   |   |   |   |   |   |   |   |   |   |
|     Fannie Mae                          |   |          | 13,496  |              |   |   | 14,219 |   |   |   | 35,561 |   |   |   | 36,723 |   |
|     Ginnie Mae                          |   |          | 4,837   |              |   |   | 5,131 |   |   |   | 16,569 |   |   |   | 17,030 |   |
|     Freddie Mac                         |   |          | 428     |              |   |   | 439 |   |   |   | 3,068 |   |   |   | 3,154 |   |
|     Collateralized Mortgage Obligations |   |          | 559     |              |   |   | 505 |   |   |   | 597 |   |   |   | 480 |   |
| Total Mortgage-backed Securities                       |   |          | 19,320  |              |   |   | 20,294 |   |   |   | 55,795 |   |   |   | 57,387 |   |
| Total Available for Sale                               |   | $             | 145,196 |              |   | $ | 143,896 |   |   | $ | 149,312 |   |   | $ | 147,816 |   |

|                                                                                                                                                                                                                       |   |          |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|
|                                                                                                                                                                                                                       |   | June 30, 2010 |   | December 31, 2009 |
| Available for sale:                                                                                                                                                                                                        |   | FairValue     |   | Percent ofPortfolio |   | FairValue |   | Percent ofPortfolio |
|                                                                                                                                                                                                                       |   |          |   |   |   |   |   |   |   |   |   |   |
|    Investment securities:                                                                                                                                                                                   |   |          |   |   |   |   |   |   |   |   |   |   |
|       U.S. Agency obligations                                                                                                                                                                |   | $             | 3 |   |   |   | 0.01 | % |   | $ | 4 |   |   |   | 0.01 | % |
|       Government Sponsored Enterprises                                                                                                                                                       |   |          | 118,297 |   |   |   | 82.21 |   |   |   | 78,471 |   |   |   | 53.08 |   |
|       Municipal securities                                                                              |   |          | -- |   |   |   | -- |   |   |   | 6,042 |   |   |   | 4.09 |   |
|       Trust Preferred securities                                                                                                                                                             |   |          |  5,302 |   |   |   |  3.68 |   |   |   | 5,912 |   |   |   | 4.00 |   |
|          Total investment securities                                                                                                                                          |   |          | 123,602 |   |   |   | 85.90 |   |   |   | 90,429 |   |   |   | 61.18 |   |
|    Mortgage-backed and related securities                            |   |          |  20,294 |   |   |   |  14.10 |   |   |   | 57,387 |   |   |   | 38.82 |   |
|          Total                                                  |   | $             | 143,896 |   |   |   | 100.00 | % |   | $ | 147,816 |   |   |   | 100.00 | % |

|                                                                                                                                                                                                                                                                                         |   |          |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|
|                                                                                                                                                                                                                                                                                         |   | June 30, 2010 |   | December 31, 2009 |
| Held to maturity:                                                                                                                                                                                                                                                                            |   | CarryingValue |   | Percent ofPortfolio |   | CarryingValue |   | Percent ofPortfolio |
|                                                                                                                                                                                                                                                                                         |   |          |   |   |   |   |   |   |   |   |   |   |
|       Municipal securities                                       |   | $             | -- |   |   |   | -- | % |   | $ | 3,934 |   |   |   | 100.00 | % |

----

|                                                                                                                                                                                                                                                                                                                        |   | As of June 30, 2010 |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|
|                                                                                                                                                                                                                                                                                                                        |   | AmortizedCost       |   | Gross Unrealized |   | FairValue |
|                                                                                                                                                                                                                                                                                                                        | Gains  |                | Losses |
| Investment Securities:                                                                                                                                                                                                                                                                                                      |   |                |   |   |   |   |   |   |   |   |   |   |
| U.S. Agency Obligations                                                               |   | $                   | 3 |   |   | $ | – |   |   | $ | -- |   |   | $ | 3 |   |
|    Government Sponsored Enterprises                                                                                                                                                                                                                                                                          |   |                | 117,740 |   |   |   | 610 |   |   |   | (53 | ) |   |   | 118,297 |   |
| Trust Preferred Securities                                                            |   |                | 8,133 |   |   |   | – |   |   |   | (2,831 | ) |   |   | 5,302 |   |
| Total Investment Securities                                                 |   |                | 125,876 |   |   |   | 610 |   |   |   | (2,884 | ) |   |   | 123,602 |   |
| Mortgage-backed Securities:                                                                                                                                                                                                                                                                                                 |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fannie Mae                                                                            |   |                | 13,496 |   |   |   | 723 |   |   |   | – |   |   |   | 14,219 |   |
| Ginnie Mae                                                                            |   |                | 4,837 |   |   |   | 294 |   |   |   | – |   |   |   | 5,131 |   |
| Freddie Mac                                                                           |   |                | 428 |   |   |   | 11 |   |   |   | – |   |   |   | 439 |   |
| Collateralized Mortgage Obligations                                                                                                                                                                                                                                                                                         |   |                | 559 |   |   |   | – |   |   |   | (54 | ) |   |   | 505 |   |
| Total Mortgage-backed Securities                                                                                                                                                                                                                                                                                            |   |                | 19,320 |   |   |   | 1,028 |   |   |   | (54 | ) |   |   | 20,294 |   |
| Total available for sale                                                    |   | $                   | 145,196 |   |   | $ | 1,638 |   |   | $ | (2,938 | ) |   | $ | 143,896 |   |

|                                                                                                                                                                                                                             |   | As of December 31, 2009 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|
|                                                                                                                                                                                                                             |   | AmortizedCost           |   | Gross Unrealized |   | FairValue |
|                                                                                                                                                                                                                             | Gains  |                    |   | Losses |   |
|                                                                                                                                                                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |
| Municipal Securities                                   |   | $                       | 3,934 |   |   | $ | 52 |   |   | $ | (10 | ) |   | $ | 3,976 |   |

----

|                                               |   | As of December 31, 2009 |
|----------------------------------------------------|--------|-------------------------|
|                                               |   | AmortizedCost           |   | Gross Unrealized |   | Fair Value |
|                                               | Gains  |                    | Losses |
| Investment Securities:                             |   |                    |   |   |   |   |   |   |   |   |   |   |
| U.S. Agency Obligations                            |   | $                       | 4 |   |   | $ | -- |   |   | $ | -- |   |   | $ | 4 |   |
|    Government Sponsored Enterprises |   |                    |  79,162 |   |   |   |  217 |   |   |   |  (908 | ) |   |   |  78,471 |   |
| Municipal Securities                               |   |                    | 5,781 |   |   |   | 261 |   |   |   | -- |   |   |   | 6,042 |   |
| Trust Preferred Securities                         |   |                    |  8,570 |   |   |   |  -- |   |   |   | (2,658 | ) |   |   |  5,912 |   |
| Total Investment Securities                        |   |                    | 93,517 |   |   |   |  478 |   |   |   | (3,566 | ) |   |   | 90,429 |   |
| Mortgage-backed Securities:                        |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                               |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Fannie Mae                      |   |                    |  35,561 |   |   |   |  1,162 |   |   |   |  -- |   |   |   |  36,723 |   |
| Ginnie Mae                                         |   |                    | 16,569 |   |   |   | 461 |   |   |   | -- |   |   |   | 17,030 |   |
| Freddie Mac                                        |   |                    | 3,068 |   |   |   | 86 |   |   |   | -- |   |   |   | 3,154 |   |
| Collateralized Mortgage Obligations                |   |                    |   597 |   |   |   |   -- |   |   |   |   (117 | ) |   |   |   480 |   |
| Total Mortgage-backed Securities                   |   |                    |  55,795 |   |   |   |  1,709 |   |   |   |  (117 | ) |   |   |  57,387 |   |
| Total available for sale                           |   | $                       | 149,312 |   |   | $ | 2,187 |   |   | $ | (3,683 | ) |   | $ | 147,816 |   |

|                                                                                                                                        |   | Held to Maturity |     | Available for Sale |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|----------|--------------------|
|                                                                                                                                        |   | AmortizedCost    |     | FairValue          |   | Amortized Cost |   | FairValue |
|                                                                                                                                        |   |             |     |               |   |   |   |   |   |   |   |   |
| Due in one year or less                                                                                                                     |   | $                | --       |               |   | $ | -- |   |   | $ | 10 |   |   | $ | 10 |   |
| Due after one year through five years                                                                                                       |   |             | --       |               |   |   | -- |   |   |   | 50 |   |   |   | 53 |   |
| Due after five years through ten years                                                                                                      |   |             | --       |               |   |   | -- |   |   |   | 51,575 |   |   |   | 51,798 |   |
| Due after ten years                     |   |             |  -- |               |   |   |  -- |   |   |   | 93,561 |   |   |   | 92,035 |   |
| Total investment and mortgage-backed securities                                                                                             |   | $                |  -- |               |   | $ |  -- |   |   | $ | 145,196 |   |   | $ | 143,896 |   |

|                             |   | Less than 12 Months |            | 12 Months or More |   | Total     |
|----------------------------------|--------|---------------------|-----------------|-------------------|--------|-----------|
|                             |   | FairValue           |            | UnrealizedLosses  |   | FairValue |   | UnrealizedLosses |   | FairValue |   | UnrealizedLosses |
| Securities Available for Sale    |   |                |            |              |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
|                             |   |                |            |              |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Agency Obligations          |   | $                   | –         |              |   | $         | – |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |
| Government Sponsored Enterprises |   |                |   20,522   |              |   |      |   53 |   |   |   |    – |   |   |   |    – |   |   |   |   20,522 |   |   |   |   53 |   |
| Trust Preferred Securities       |   |                | –         |              |   |      | – |   |   |   | 5,302 |   |   |   | 2,831 |   |   |   | 5,302 |   |   |   | 2,831 |   |
| Mortgage-backed Securities       |   |                |    -- |              |   |      |    – |   |   |   |    544 |   |   |   |     54 |   |   |   |    544 |   |   |   |   54 |   |
| Total                            |   | $                   | 20,522          |              |   | $         | 53 |   |   | $ | 5,846 |   |   | $ | 2,885 |   |   | $ | 26,368 |   |   | $ | 2,938 |   |

----

|                 |   | Less than 12 Months |   | 12 Months or More |   | Total     |
|----------------------|--------|---------------------|--------|-------------------|--------|-----------|
|                 |   | FairValue           |   | UnrealizedLosses  |   | FairValue |   | UnrealizedLosses |   | FairValue |   | UnrealizedLosses |
| Held to Maturity     |   |                |   |              |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Municipal Securities |   | $                   | 494    |              |   | $         | 9 |   |   | $ | 833 |   |   | $ | 1 |   |   | $ | 1,326 |   |   | $ | 10 |   |
| Total                |   | $                   | 494    |              |   | $         | 9 |   |   | $ | 833 |   |   | $ | 1 |   |   | $ | 1,326 |   |   | $ | 10 |   |

|                             |   | Less than 12 Months |            | 12 Months or More |   | Total     |
|----------------------------------|--------|---------------------|-----------------|-------------------|--------|-----------|
|                             |   | FairValue           |            | UnrealizedLosses  |   | FairValue |   | UnrealizedLosses |   | FairValue |   | UnrealizedLosses |
| Securities Available for Sale    |   |                |            |              |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
|                             |   |                |            |              |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Agency Obligations          |   | $                   | –         |              |   | $         | – |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |
| Government Sponsored Enterprises |   |                | 41,040          |              |   |      | 908 |   |   |   |  – |   |   |   |  – |   |   |   | 41,040 |   |   |   | 908 |   |
| Municipal Securities             |   |                | –         |              |   |      | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Trust Preferred Securities       |   |                | –         |              |   |      | – |   |   |   | 5,912 |   |   |   | 2,658 |   |   |   | 5,912 |   |   |   | 2,658 |   |
| Mortgage-backed Securities       |   |                |    -- |              |   |      |    -- |   |   |   |    532 |   |   |   |     117 |   |   |   |    532 |   |   |   |    117 |   |
| Total                            |   | $                   | 41,040          |              |   | $         | 908 |   |   | $ | 6,444 |   |   | $ | 2,775 |   |   | $ | 47,484 |   |   | $ | 3,683 |   |

----

|                                                   |   | June 30, |    | December 31, |
|--------------------------------------------------------|--------|----------|---------|--------------|
|                                                   |   | 2010     |    | 2009         |
|                                                   |   |     |    |         |   |   |
| Mortgage loans:                                        |   |     |    |         |   |   |
| Fixed-rate residential                                 |   | $        | 10,096  |         |   | $ | 10,675 |   |
| Adjustable-rate residential                            |   |     | 5,879   |         |   |   | 6,202 |   |
| Commercial real estate                                 |   |     | 110,030 |         |   |   | 110,901 |   |
| Construction                                           |   |     | 1,464   |         |   |   | 2,923 |   |
| Total mortgage loans                                   |   |     | 127,469 |         |   |   | 130,701 |   |
| Commercial loans:                                      |   |     |    |         |   |   |   |   |
| Commercial non-real estate                             |   |     | 24,367  |         |   |   | 34,429 |   |
| Commercial lines of credit                             |   |     | 35,124  |         |   |   | 39,096 |   |
| Total commercial loans                                 |   |     | 59,491  |         |   |   | 73,525 |   |
| Consumer loans:                                        |   |     |    |         |   |   |   |   |
| Home equity                                            |   |     | 16,748  |         |   |   | 17,395 |   |
| Consumer and installment                               |   |     | 31,339  |         |   |   | 34,578 |   |
| Consumer lines of credit                               |   |     | 292     |         |   |   | 314 |   |
| Total consumer loans                                   |   |     | 48,379  |         |   |   | 52,287 |   |
| Total loans                                            |   |     | 235,339 |         |   |   | 256,513 |   |
| Less:                                                  |   |     |    |         |   |   |   |   |
| Undisbursed portion of interim construction loans |   |     | (122    | )            |   |   | (320 | ) |
| Unamortized loan discount                              |   |     | (287    | )            |   |   | (309 | ) |
| Allowance for loan losses                              |   |     | (4,971  | )            |   |   | (5,579 | ) |
| Net deferred loan origination costs                    |   |     | 146     |         |   |   | 115 |   |
| Total, net                                             |   | $        | 230,105 |         |   | $ | 250,420 |   |
|                                                   |   |     |    |         |   |   |   |   |
| Weighted-average interest rate of loans                |   |     | 4.92    | %            |   |   | 4.87 | % |

----

|                                                            |   | June 30, 2010 |        | December 31, 2009 |
|-----------------------------------------------------------------|--------|---------------|-------------|-------------------|
|                                                            |   |          |        |              |   |   |
| Non-accruing loans which are                                    |   |          |        |              |   |   |
| contractually past due 90 days                                  |   |          |        |              |   |   |
| or more:                                                        |   |          |        |              |   |   |
|                                                            |   |          |        |              |   |   |
| Residential real estate                                         |   | $             | 1,154       |              |   | $ | 649 |   |
| Commercial                                                      |   |          | 25,063      |              |   |   | 19,045 |   |
| Consumer                                                        |   |          |  1,184 |              |   |   |  1,175 |   |
| Total nonperforming loans                                       |   |          | 27,401      |              |   |   | 20,869 |   |
|                                                            |   |          |        |              |   |   |   |   |
| Real estate acquired through foreclosure and repossessed assets |   |          | 6,008       |              |   |   | 5,917 |   |
| Total nonperforming assets                                      |   | $             | 33,409      |              |   | $ | 26,786 |   |
|                                                            |   |          |        |              |   |   |   |   |
| Troubled debt restructurings                                    |   | $             | 2,694       |              |   | $ | 3,320 |   |
|                                                            |   |          |        |              |   |   |   |   |
| Nonperforming loans to total loans                              |   |          | 11.65       | %                 |   |   | 8.13 | % |
| Nonperforming assets to total assets                            |   |          | 7.73        | %                 |   |   | 5.86 | % |
| Allowance for loan losses to total  loans outstanding |   |          | 2.12        | %                 |   |   | 2.18 | % |
| Allowance for loan losses to nonperforming loans                |   |          | 18.14       | %                 |   |   | 26.73 | % |
| Allowance for loan losses                                       |   | $             | 4,971       |              |   | $ | 5,579 |   |

----

|                                 |   | June 30, |     | December 31, |
|--------------------------------------|--------|----------|----------|--------------|
|                                 |   | 2010     |     |         | 2009 |   |
|                                 |   |     |     |         |   |   |
| Balance at beginning of period       |   | $        | 5,917    |         |   | $ | 667 |   |
| Foreclosures added during the period |   |     | 530      |         |   |   | 5,959 |   |
| Sales of foreclosed property         |   |     | (439     | )            |   |   | (69 | ) |
| Provision charged as a write-down    |   |     |  -- |         |   |   |  (640 | ) |
| Balance at the end of period         |   | $        | 6,008    |         |   | $ | 5,917 |   |

----

|                              |   | June 30, 2010 |   | December 31, 2009 |
|-----------------------------------|--------|---------------|--------|-------------------|
|                              |   | Rate          |   | Balance           |   | % |   | Rate |   | Balance |   | % |
|                              |   |          |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Account Type                      |   |          |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW accounts:                     |   |          |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial non-interest-bearing   |   |          | --     |              |   | $ | 17,918 |   |   |   | 5.58 | % |   |   | -- |   |   | $ | 18,015 |   |   |   | 5.42 | % |
| Non-commercial                    |   |          | 1.84   | %                 |   |   | 96,197 |   |   |   | 29.98 | % |   |   | 2.30 | % |   |   | 98,274 |   |   |   | 29.53 | % |
| Money market checking accounts    |   |          | 0.72   | %                 |   |   | 23,545 |   |   |   | 7.34 | % |   |   | 1.57 | % |   |   | 32,239 |   |   |   | 9.69 | % |
| Regular savings                   |   |          | 1.03   | %                 |   |   | 27,836 |   |   |   | 8.68 | % |   |   | 0.51 | % |   |   | 13,383 |   |   |   | 4.02 | % |
| Total demand and savings deposits |   |          | 1.34   | %                 |   |   | 165,496 |   |   |   | 51.58 | % |   |   | 1.74 | % |   |   | 161,911 |   |   |   | 48.66 | % |
| Time deposits:                    |   |          |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Up to 2.00%                       |   |          |   |              |   |   | 86,464 |   |   |   | 26.95 | % |   |   |   |   |   |   | 79,098 |   |   |   | 23.77 | % |
| 2.01 %- 3.00%                     |   |          |   |              |   |   | 58,314 |   |   |   | 18.17 | % |   |   |   |   |   |   | 55,966 |   |   |   | 16.82 | % |
| 3.01 %- 4.00%                     |   |          |   |              |   |   | 802 |   |   |   | 0.25 | % |   |   |   |   |   |   | 20,885 |   |   |   | 6.27 | % |
| 4.01 %- 5.00%                     |   |          |   |              |   |   | 8,803 |   |   |   | 2.74 | % |   |   |   |   |   |   | 13,744 |   |   |   | 4.13 | % |
| 5.01 %- 6.00%                     |   |          |   |              |   |   | 1,002 |   |   |   | 0.31 | % |   |   |   |   |   |   | 1,158 |   |   |   | 0.35 | % |
| Total time deposits               |   |          | 1.82   | %                 |   |   | 155,385 |   |   |   | 48.42 | % |   |   | 2.27 | % |   |   | 170,851 |   |   |   | 51.34 | % |
| Total deposit accounts            |   |          | 1.57   | %                 |   | $ | 320,881 |   |   |   | 100.00 | % |   |   | 2.02 | % |   | $ | 332,762 |   |   |   | 100.00 | % |

|                                                |   | June 30, 2010 |   | December 31, 2009 |
|-----------------------------------------------------|--------|---------------|--------|-------------------|
|                                                |   | Balance       |   | Wtd Avg Rate      |   | Balance |   | Wtd Avg Rate |
|                                                |   |          |   |              |   |   |   |   |   |   |   |   |
| Contractual Maturity:                          |   |          |   |              |   |   |   |   |   |   |   |   |
| Within one year - fixed rate                   |   | $             | --     |              |   |   | -- | %  |   | $ | 5,000 |   |   |   | 4.93 | %  |
| After one but within three years - fixed rate  |   |          | --     |              |   |   | -- | %  |   |   | -- |   |   |   | -- | %  |
| After one but within three years - adjustable rate  |   |          | 22,000 |              |   |   | 4.58 | % |   |   | 22,000 |   |   |   | 4.58 | % |
| Greater than five years - adjustable rate      |   |          | 37,500 |              |   |   | 3.89 | % |   |   | 37,500 |   |   |   | 3.89 | % |
| Total advances                                 |   | $             | 59,500 |              |   |   | 4.15 | % |   | $ | 64,500 |   |   |   | 4.20 | % |

----

----

----

|                           | June 30, 2010 |
|--------------------------------|---------------|
|                           |          |   |   |
|                           | Actual        | Regulatory Minimum | “Well Capitalized” |
|                           |          |   |   |   |   |   |
|                           | Amount        | Ratio | Amount | Ratio | Amount | Ratio |
|                           | $             | % | $ | % | $ | % |
| Leverage ratio                 |          |   |   |   |   |   |
| Corporation                    | 31,432        | 7.29% | 17,248 | 4.00% | n/a | n/a |
| Bank                           | 33,412        | 7.75% | 17,240 | 4.00% | 21,550 | 5.00% |
|                           |          |   |   |   |   |   |
| Tier 1 capital ratio           |          |   |   |   |   |   |
| Corporation                    | 31,432        | 11.07% | 11,357 | 4.00% | n/a | n/a |
| Bank                           | 33,412        | 11.78% | 11,348 | 4.00% | 17,022 | 6.00% |
|                           |          |   |   |   |   |   |
| Total risk-based capital ratio |          |   |   |   |   |   |
| Corporation                    | 38,135        | 13.43% | 22,713 | 8.00% | n/a | n/a |
| Bank                           | 36,976        | 13.03% | 22,696 | 8.00% | 28,370 | 10.00% |

----

|                                                             |   | Three Months Ended June 30, |
|------------------------------------------------------------------|--------|-----------------------------|
|                                                             |   | 2010                        |   | 2009 |
|                                                             |   | Average                     |   |   |   |   | Average |   | Average |   |   |   |   | Average |
|                                                             |   | Balance                     |   | Interest |   | Yield/Cost(2) |   | Balance |   | Interest |   | Yield/Cost(2) |
| Interest-earning assets:                                         |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans (1)                                                        |   | $                           | 235,433 |   |   | $ | 2,875 |   |   |   | 4.88 | % |   | $ | 281,347 |   |   | $ | 3,644 |   |   |   | 5.18 | % |
| Mortgage-backed securities                                       |   |                        | 23,773 |   |   |   | 218 |   |   |   | 3.67 | % |   |   | 91,130 |   |   |   | 1,137 |   |   |   | 4.99 | % |
| Investment securities                                            |   |                        | 116,011 |   |   |   | 1,010 |   |   |   | 3.48 | % |   |   | 44,648 |   |   |   | 543 |   |   |   | 4.87 | % |
| Other interest-earning assets                                    |   |                        |  19,660 |   |   |   |  7 |   |   |   | 0.14 | % |   |   |  15,776 |   |   |   |  20 |   |   |   | 0.49 | % |
| Total interest-earning assets                                    |   |                        | 394,877 |   |   |   | 4,110 |   |   |   | 4.16 | % |   |   | 432,901 |   |   |   | 5,344 |   |   |   | 4.94 | % |
| Non-interest-earning assets                                      |   |                        |  40,113 |   |   |   |   |   |   |   |   |   |   |   |  30,172 |   |   |   |   |   |   |   |   |   |
| Total assets                                                     |   | $                           | 434,990 |   |   |   |   |   |   |   |   |   |   | $ | 463,073 |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                    |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                         |   |                        | 303,237 |   |   |   | 1,294 |   |   |   | 1.71 | % |   |   | 314,075 |   |   |   | 2,111 |   |   |   | 2.69 | % |
| Floating rate junior subordinated deferrable interest debentures |   |                        |   12,372 |   |   |   |   119 |   |   |   | 3.85 | % |   |   |   12,372 |   |   |   |   135 |   |   |   | 4.36 | % |
| FHLB advances and other borrowings                               |   |                        |  71,192 |   |   |   |   630 |   |   |   | 3.54 | % |   |   |  83,105 |   |   |   |   758 |   |   |   | 3.65 | % |
| Total interest-bearing liabilities                               |   |                        | 386,801 |   |   |   | 2,043 |   |   |   | 2.11 | % |   |   | 409,552 |   |   |   | 3,004 |   |   |   | 2.93 | % |
| Non-interest-bearing sources:                                    |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing deposits                                    |   |                        |  19,075 |   |   |   |   |   |   |   |   |   |   |   |  18,278 |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing liabilities                                 |   |                        |  3,071 |   |   |   |   |   |   |   |   |   |   |   |  3,530 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                |   |                        | 408,947 |   |   |   |   |   |   |   |   |   |   |   | 431,360 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                       |   |                        |   26,043 |   |   |   |   |   |   |   |   |   |   |   |   31,713 |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity                 |   | $                           | 434,990 |   |   |   |   |   |   |   |   |   |   | $ | 463,073 |   |   |   |   |   |   |   |   |   |
| Net interest income                                              |   |                        |   |   |   | $ | 2,067 |   |   |   |   |   |   |   |   |   |   | $ | 2,340 |   |   |   |   |   |
| Interest rate spread                                             |   |                        |   |   |   |   |   |   |   |   | 2.05 | % |   |   |   |   |   |   |   |   |   |   | 2.01 | % |
| Impact of non-interest-bearing deposits                          |   |                        |   |   |   |   |   |   |   |   | 0.04 |   |   |   |   |   |   |   |   |   |   |   | 0.15 |   |
| Net interest margin                                              |   |                        |   |   |   |   |   |   |   |   | 2.09 | % |   |   |   |   |   |   |   |   |   |   | 2.16 | % |

----

----

----

----

|                                                            |   |           |               |   | Six Months Ended June 30, |   |        |                 |   |
|-----------------------------------------------------------------|--------|----------------|--------------------|--------|---------------------------|--------|-------------|----------------------|--------|
|                                                            |   |           |               |   | 2010                      |   |        |                 |   |   |   |   |   | 2009 |   |   |   |   |
|                                                            |   | AverageBalance |               |   |  Interest            |   |        | AverageYield/Cost(2) |   |   | AverageBalance |   |   |  Interest |   |   | AverageYield/Cost(2) |   |
| Interest-earning assets:                                        |   |           |               |   |                      |   |        |                 |   |   |   |   |   |   |   |   |   |   |
| Loans (1)                                                       |   | $              | 241,696            |   |                      | $      | 5,995       |                 |   |   | 4.96 | % |   | $ | 282,936 |   |   | $ | 7,240 |   |   |   | 5.12 | % |
| Mortgage-backed securities                                      |   |           | 33,756             |   |                      |   | 647         |                 |   |   | 3.83 | % |   |   | 78,292 |   |   |   | 2,032 |   |   |   | 5.19 | % |
| Investment securities                                           |   |           | 106,518            |   |                      |   | 1,935       |                 |   |   | 3.73 | % |   |   | 46,107 |   |   |   | 1,167 |   |   |   | 5.06 | % |
| Other interest-earning assets                                   |   |           |  22,468       |   |                      |   |  13    |                 |   |   | 0.12 | % |   |   |  18,452 |   |   |   |  42 |   |   |   | 0.46 | % |
| Total interest-earning assets                                   |   |           | 404,438            |   |                      |   | 8,640       |                 |   |   | 4.27 | % |   |   | 425,787 |   |   |   | 10,481 |   |   |   | 4.92 | % |
| Non-interest-earning assets                                     |   |           |  40,470       |   |                      |   |        |                 |   |   |   |   |   |   |  29,964 |   |   |   |   |   |   |   |   |   |
| Total assets                                                    |   | $              | 444,908            |   |                      |   |        |                 |   |   |   |   |   | $ | 455,751 |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                   |   |           |               |   |                      |   |        |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                        |   | $              | 307,890            |   |                      |   | 2,841       |                 |   |   | 1.85 | % |   | $ | 308,403 |   |   |   | 4,203 |   |   |   | 2.73 | % |
| Floating rate junior subordinateddeferrable interest debentures |   |           |   12,372      |   |                      |   |   237  |                 |   |   | 3.83 | % |   |   |   12,372 |   |   |   |   285 |   |   |   | 4.61 | % |
| FHLB advances and other borrowings                              |   |           |  76,333       |   |                      |   |  1,374 |                 |   |   | 3.60 | % |   |   |  85,604 |   |   |   |  1,542 |   |   |   | 3.60 | % |
| Total interest-bearing liabilities                              |   |           | 396,595            |   |                      |   | 4,452       |                 |   |   | 2.25 | % |   |   | 406,379 |   |   |   | 6,030 |   |   |   | 2.97 | % |
|                                                            |   |           |               |   |                      |   |        |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing sources:                                   |   |           |               |   |                      |   |        |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing deposits                                   |   |           |  18,905       |   |                      |   |        |                 |   |   |   |   |   |   |  18,671 |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing liabilities                                |   |           |  3,149        |   |                      |   |        |                 |   |   |   |   |   |   |  2,981 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                               |   |           | 418,649            |   |                      |   |        |                 |   |   |   |   |   |   | 428,031 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                      |   |           |   26,259 |   |                      |   |        |                 |   |   |   |   |   |   |   27,720 |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity                |   | $              | 444,908            |   |                      |   |        |                 |   |   |   |   |   | $ | 455,751 |   |   |   |   |   |   |   |   |   |
| Net interest income                                             |   |           |               |   |                      | $      | 4,188       |                 |   |   |   |   |   |   |   |   |   | $ | 4,451 |   |   |   |   |   |
| Interest rate spread                                            |   |           |               |   |                      |   |        |                 |   |   | 2.02 | % |   |   |   |   |   |   |   |   |   |   | 1.95 | % |
| Impact of non-interest-bearing deposits                         |   |           |               |   |                      |   |        |                 |   |   | 0.04 |   |   |   |   |   |   |   |   |   |   |   |  0.14 |   |
| Net interest margin                                             |   |           |               |   |                      |   |        |                 |   |   | 2.06 | % |   |   |   |   |   |   |   |   |   |   | 2.09 | % |

----

|                           |   | June 30, 2010 |   |   | June 30, 2009 |   |
|--------------------------------|--------|---------------|--------|--------|---------------|--------|
| Balance at beginning of period |   | $             | 5,579  |   |          | $      | 6,778 |   |
|                           |   |          |   |   |          |   |   |   |
| Provision for loan losses      |   |          | 2,083  |   |          |   | 3,625 |   |
|                           |   |          |   |   |          |   |   |   |
| Charge-offs, net               |   |          | (2,691 | )      |          |   | (2,561 | ) |
|                           |   |          |   |   |          |   |   |   |
| Balance at end of period       |   | $             | 4,971  |   |          | $      | 7,842 |   |

----

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

----

Item  1.                           Legal Proceedings

| Item  3. | Defaults upon Senior Securities |
|--------------------|---------------------------------|
|               |                            |
|               | Not applicable.                 |
|               |                            |
| Item  4. | Reserved                        |
|               |                            |
| Item 5.            | Other Information               |
|               |                            |
|               | None                            |

----

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

|   | 31(a)  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer                               |
|--------|--------|-------------------------------------------------------------------------------------------------|
|   |   |                                                                                            |
|   | 31(b)  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer                               |
|   |   |                                                                                            |
|   | 32(a)  | Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                            |
|   | 32(b)  | Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

| Date: August 11, 2010 | By:    | /s/ Dwight V. Neese            |   |
|-----------------------|--------|--------------------------------|--------|
|                  |   | Dwight V. Neese, President and |
|                  |   | Chief Executive Officer        |

| Date: August 11, 2010 | By:    | /s/ Richard H. Flake                       |   |
|-----------------------|--------|--------------------------------------------|--------|
|                  |   | Richard H. Flake, Executive Vice President |
|                  |   | and Chief Financial Officer                |