| x      | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934                                                         |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|
|   | For the period ended September 30, 2010.                                                                                                        |
|   |                                                                                                                                            |
|   |                                                                                                                                            |
| o      | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the Quarterly Transition Period From to ___________ |

| NORTH VALLEY BANCORP                                   |
|--------------------------------------------------------|
| (Exact name of registrant as specified in its charter) |
|                                                   |   |   |
| California                                             |   | 94-2751350 |
| (State or other jurisdiction                           |   | (IRS Employer ID Number) |
| of incorporation or organization)                      |   |   |
|                                                   |   |   |
| 300 Park Marina Circle, Redding, CA                    |   | 96001 |
| (Address of principal executive offices)               |   | (Zip code) |

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

----

|                          |                                                                                                                 |   | Page    |
|-------------------------------|----------------------------------------------------------------------------------------------------------------------|--------|---------|
| PART I. FINANCIAL INFORMATION |                                                                                                                 |   |    |
|                          |                                                                                                                 |   |    |
| Item 1.                       | Financial Statements (Unaudited)                                                                                     |   | 3       |   |
|                          |                                                                                                                 |   |    |   |
|                          | Condensed Consolidated Balance Sheets—September 30, 2010 and December 31, 2009                                 |   |  3 |   |
|                          |                                                                                                                 |   |    |   |
|                          | Condensed Consolidated Statement of Operations—For the three and nine months ended September 30, 2010 and 2009 |   | 4       |   |
|                          |                                                                                                                 |   |    |   |
|                          | Condensed Consolidated Statements of Cash Flows—For the nine months ended September 30, 2010 and 2009          |   | 6       |   |
|                          |                                                                                                                 |   |    |   |
|                          | Notes to Condensed Consolidated Financial Statements                                                                 |   | 7       |   |
|                          |                                                                                                                 |   |    |   |
| Item 2.                       | Management’s Discussion and Analysis of Financial Condition and Results of Operations                          |   | 17      |   |
|                          |                                                                                                                 |   |    |   |
| Item 3.                       | Quantitative and Qualitative Disclosures about Market Risk                                                           |   | 32      |   |
|                          |                                                                                                                 |   |    |   |
| Item 4.                       | Controls and Procedures                                                                                              |   | 32      |   |
|                          |                                                                                                                 |   |    |   |
| PART II. OTHER INFORMATION    |                                                                                                                 |   |    |
|                          |                                                                                                                 |   |    |
| Item 1.                       | Legal Proceedings                                                                                                    |   | 33      |   |
|                          |                                                                                                                 |   |    |   |
| Item 1A.                      | Risk Factors                                                                                                         |   | 33      |   |
|                          |                                                                                                                 |   |    |   |
| Item 2.                       | Unregistered Sales of Equity Securities and Use of Proceeds                                                          |   | 33      |   |
|                          |                                                                                                                 |   |    |   |
| Item 3.                       | Defaults Upon Senior Securities                                                                                      | 33     |    |
|                          |                                                                                                                 |   |    |
| Item 4.                       | (removed and reserved)                                                                                               |   | 33      |   |
|                          |                                                                                                                 |   |    |   |
| Item 5.                       | Other Information                                                                                                    |   | 33      |   |
|                          |                                                                                                                 |   |    |   |
| Item 6.                       | Exhibits                                                                                                             |   | 33      |   |
|                          |                                                                                                                 |   |    |   |
| SIGNATURES                    |                                                                                                                 | 34     |    |

----

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

| NORTH VALLEY BANCORP AND SUBSIDIARIES             |
|---------------------------------------------------|
| CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) |
| (In thousands except share data)                  |

|                                                                                                                                               |   | September 30, |    |   | December 31, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|---------|--------|--------------|--------|
|                                                                                                                                               |   | 2010          |    |   | 2009         |   |
| ASSETS                                                                                                                                             |   |          |    |   |         |   |
| Cash and cash equivalents:                                                                                                                         |   |          |    |   |         |   |
| Cash and due from banks                                                                                                                            |   | $             | 20,465  |   |         | $      | 19,378 |   |
| Federal funds sold                                                                                                                                 |   |          | 21,035  |   |         |   | 48,250 |   |
| Total cash and cash equivalents                                                                                                                    |   |          | 41,500  |   |         |   | 67,628 |   |
|                                                                                                                                               |   |          |    |   |         |   |   |   |
| Time deposits at other financial institutions                                                                                                      |   |          | 425     |   |         |   | 425 |   |
| Investment securities available for sale, at fair value                                                                                            |   |          | 241,987 |   |         |   | 146,335 |   |
| Investment securities held to maturity, at amortized cost                                                                                          |   |          | 6       |   |         |   | 9 |   |
|                                                                                                                                               |   |          |    |   |         |   |   |   |
| Loans and leases                                                                                                                                   |   |          | 536,296 |   |         |   | 602,417 |   |
| Less: Allowance for loan and lease losses                                                                                                          |   |          | (15,249 | )      |         |   | (18,539 | ) |
| Net loans and leases                                                                                                                               |   |          | 521,047 |   |         |   | 583,878 |   |
|                                                                                                                                               |   |          |    |   |         |   |   |   |
| Premises and equipment, net                                                                                                                        |   |          | 9,194   |   |         |   | 10,319 |   |
| Accrued interest receivable                                                                                                                        |   |          | 2,695   |   |         |   | 2,565 |   |
| Other real estate owned                                                                                                                            |   |          | 18,850  |   |         |   | 12,377 |   |
| FHLB and FRB stock and other nonmarketable securities                                                                                              |   |          | 6,134   |   |         |   | 5,833 |   |
| Bank-owned life insurance policies                                                                                                                 |   |          | 33,642  |   |         |   | 32,745 |   |
| Core deposit intangibles, net                                                                                                                      |   |          | 583     |   |         |   | 692 |   |
| Other assets                                                                                                                                       |   |          | 18,930  |   |         |   | 21,556 |   |
|                                                                                                                                               |   |          |    |   |         |   |   |   |
| TOTAL ASSETS                                                                                                                                       |   | $             | 894,993 |   |         | $      | 884,362 |   |
|                                                                                                                                               |   |          |    |   |         |   |   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                         |   |          |    |   |         |   |   |   |
|                                                                                                                                               |   |          |    |   |         |   |   |   |
| LIABILITIES:                                                                                                                                       |   |          |    |   |         |   |   |   |
| Deposits:                                                                                                                                          |   |          |    |   |         |   |   |   |
| Noninterest-bearing                                                                                                                                |   | $             | 150,433 |   |         | $      | 152,421 |   |
| Interest-bearing                                                                                                                                   |   |          | 615,220 |   |         |   | 635,388 |   |
| Total deposits                                                                                                                                     |   |          | 765,653 |   |         |   | 787,809 |   |
|                                                                                                                                               |   |          |    |   |         |   |   |   |
| Subordinated debentures                                                                                                                            |   |          | 31,961  |   |         |   | 31,961 |   |
| Accrued interest payable and other liabilities                                                                                                     |   |          | 14,067  |   |         |   | 12,290 |   |
| Total liabilities                                                                                                                                  |   |          | 811,681 |   |         |   | 832,060 |   |
|                                                                                                                                               |   |          |    |   |         |   |   |   |
| Commitments and Contingencies (Note H)                                                                                                             |   |          |    |   |         |   |   |   |
|                                                                                                                                               |   |          |    |   |         |   |   |   |
| STOCKHOLDERS’ EQUITY:                                                                                                                        |   |          |    |   |         |   |   |   |
| Preferred stock, no par value: authorized 5,000,000 shares; no shares outstanding at September 30, 2010 (Note K)                                   |   |          | — |   |         |   | — |   |
| Common stock, no par value: authorized 60,000,000 shares; outstanding 34,162,463 at September 30, 2010 and 7,495,817 at December 31, 2009 (Note K) |   |          | 98,085  |   |         |   | 41,781 |   |
| (Accumulated deficit) retained earnings                                                                                                            |   |          | (15,606 | )      |         |   | 11,578 |   |
| Accumulated other comprehensive income (loss), net of tax                                                                                          |   |          | 833     |   |         |   | (1,057 | ) |
| Total stockholders’ equity                                                                                                                   |   |          | 83,312  |   |         |   | 52,302 |   |
|                                                                                                                                               |   |          |    |   |         |   |   |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                   |   | $             | 894,993 |   |         | $      | 884,362 |   |

----

| NORTH VALLEY BANCORP AND SUBSIDIARIES                       |
|-------------------------------------------------------------|
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) |
| (In thousands except per share data)                        |

|                                                        |   | For the three months ended September 30, |    |
|-------------------------------------------------------------|--------|------------------------------------------|---------|
|                                                        |   | 2010                                     |    |   | 2009 |   |
| INTEREST INCOME:                                            |   |                                     |    |   |   |   |
| Interest and fees on loans and leases                       |   | $                                        | 8,297   |   |   | $ | 9,465 |   |
| Interest on investments:                                    |   |                                     |    |   |   |   |   |   |
| Taxable interest income                                     |   |                                     | 1,265   |   |   |   | 1,225 |   |
| Nontaxable interest income                                  |   |                                     | 174     |   |   |   | 180 |   |
| Interest on federal funds sold and repurchase agreements    |   |                                     | 37      |   |   |   | 26 |   |
| Total interest income                                       |   |                                     | 9,773   |   |   |   | 10,896 |   |
|                                                        |   |                                     |    |   |   |   |   |   |
| INTEREST EXPENSE:                                           |   |                                     |    |   |   |   |   |   |
| Deposits                                                    |   |                                     | 1,640   |   |   |   | 2,712 |   |
| Subordinated debentures                                     |   |                                     | 543     |   |   |   | 513 |   |
| Other borrowings                                            |   |                                     | — |   |   |   | 1 |   |
| Total interest expense                                      |   |                                     | 2,183   |   |   |   | 3,226 |   |
|                                                        |   |                                     |    |   |   |   |   |   |
| NET INTEREST INCOME                                         |   |                                     | 7,590   |   |   |   | 7,670 |   |
|                                                        |   |                                     |    |   |   |   |   |   |
| PROVISION FOR CREDIT LOSSES                                 |   |                                     | 4,600   |   |   |   | 1,500 |   |
|                                                        |   |                                     |    |   |   |   |   |   |
| NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES       |   |                                     | 2,990   |   |   |   | 6,170 |   |
|                                                        |   |                                     |    |   |   |   |   |   |
| NONINTEREST INCOME:                                         |   |                                     |    |   |   |   |   |   |
| Service charges on deposit accounts                         |   |                                     | 1,489   |   |   |   | 1,724 |   |
| Other fees and charges                                      |   |                                     | 1,181   |   |   |   | 1,170 |   |
| Earnings on cash surrender value of life insurance policies |   |                                     | 365     |   |   |   | 356 |   |
| Gain on sale of loans                                       |   |                                     | 108     |   |   |   | 46 |   |
| Gain on sales and calls of securities                       |   |                                     | — |   |   |   | 655 |   |
| Loss on sale of other assets                                |   |                                     | — |   |   |   | (1 | ) |
| Other                                                       |   |                                     | 220     |   |   |   | 192 |   |
| Total noninterest income                                    |   |                                     | 3,363   |   |   |   | 4,142 |   |
|                                                        |   |                                     |    |   |   |   |   |   |
| NONINTEREST EXPENSES:                                       |   |                                     |    |   |   |   |   |   |
| Salaries and employee benefits                              |   |                                     | 4,223   |   |   |   | 4,425 |   |
| Occupancy expense                                           |   |                                     | 726     |   |   |   | 768 |   |
| Furniture and equipment expense                             |   |                                     | 336     |   |   |   | 457 |   |
| FDIC and state assessments                                  |   |                                     | 438     |   |   |   | 503 |   |
| Professional services                                       |   |                                     | 322     |   |   |   | 299 |   |
| Other real estate owned expense                             |   |                                     | 3,241   |   |   |   | 265 |   |
| Other                                                       |   |                                     | 2,493   |   |   |   | 2,282 |   |
| Total noninterest expenses                                  |   |                                     | 11,779  |   |   |   | 8,999 |   |
|                                                        |   |                                     |    |   |   |   |   |   |
| (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES             |   |                                     | (5,426  | ) |   |   | 1,313 |   |
|                                                        |   |                                     |    |   |   |   |   |   |
| PROVISION FOR INCOME TAXES                                  |   |                                     | 2,207   |   |   |   | 629 |   |
|                                                        |   |                                     |    |   |   |   |   |   |
| NET (LOSS) INCOME                                           |   |                                     | (7,633  | ) |   |   | 684 |   |
|                                                        |   |                                     |    |   |   |   |   |   |
| Preferred stock discount                                    |   |                                     | (18,667 | ) |   |   | — |   |
|                                                        |   |                                     |    |   |   |   |   |   |
| NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS          |   | $                                        | (26,300 | ) |   | $ | 684 |   |
|                                                        |   |                                     |    |   |   |   |   |   |
| Per Share Amounts                                           |   |                                     |    |   |   |   |   |   |
| Basic and Diluted (Loss) Earnings Per Share                 |   | $                                        | (0.94   | ) |   | $ | 0.09 |   |

----

| NORTH VALLEY BANCORP AND SUBSIDIARIES                       |
|-------------------------------------------------------------|
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) |
| (In thousands except per share data)                        |

|                                                        |   | For the nine months ended September 30, |    |
|-------------------------------------------------------------|--------|-----------------------------------------|---------|
|                                                        |   | 2010                                    |    |   | 2009 |   |
| INTEREST INCOME:                                            |   |                                    |    |   |   |   |
| Interest and fees on loans and leases                       |   | $                                       | 25,376  |   |   | $ | 30,030 |   |
| Interest on investments:                                    |   |                                    |    |   |   |   |   |   |
| Taxable interest income                                     |   |                                    | 3,456   |   |   |   | 2,936 |   |
| Nontaxable interest income                                  |   |                                    | 529     |   |   |   | 541 |   |
| Interest on federal funds sold and repurchase agreements    |   |                                    | 124     |   |   |   | 49 |   |
| Total interest income                                       |   |                                    | 29,485  |   |   |   | 33,556 |   |
|                                                        |   |                                    |    |   |   |   |   |   |
| INTEREST EXPENSE:                                           |   |                                    |    |   |   |   |   |   |
| Deposits                                                    |   |                                    | 5,588   |   |   |   | 8,286 |   |
| Subordinated debentures                                     |   |                                    | 1,579   |   |   |   | 1,581 |   |
| Other borrowings                                            |   |                                    | — |   |   |   | 2 |   |
| Total interest expense                                      |   |                                    | 7,167   |   |   |   | 9,869 |   |
|                                                        |   |                                    |    |   |   |   |   |   |
| NET INTEREST INCOME                                         |   |                                    | 22,318  |   |   |   | 23,687 |   |
|                                                        |   |                                    |    |   |   |   |   |   |
| PROVISION FOR CREDIT LOSSES                                 |   |                                    | 8,200   |   |   |   | 17,500 |   |
|                                                        |   |                                    |    |   |   |   |   |   |
| NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES       |   |                                    | 14,118  |   |   |   | 6,187 |   |
|                                                        |   |                                    |    |   |   |   |   |   |
| NONINTEREST INCOME:                                         |   |                                    |    |   |   |   |   |   |
| Service charges on deposit accounts                         |   |                                    | 4,516   |   |   |   | 4,892 |   |
| Other fees and charges                                      |   |                                    | 3,370   |   |   |   | 3,213 |   |
| Earnings on cash surrender value of life insurance policies |   |                                    | 1,084   |   |   |   | 1,037 |   |
| Gain on sale of loans                                       |   |                                    | 190     |   |   |   | 271 |   |
| Gain on sales and calls of securities                       |   |                                    | — |   |   |   | 655 |   |
| (Loss) gain on sale of other assets                         |   |                                    | (147    | ) |   |   | 29 |   |
| Other                                                       |   |                                    | 739     |   |   |   | 647 |   |
| Total noninterest income                                    |   |                                    | 9,752   |   |   |   | 10,744 |   |
|                                                        |   |                                    |    |   |   |   |   |   |
| NONINTEREST EXPENSES:                                       |   |                                    |    |   |   |   |   |   |
| Salaries and employee benefits                              |   |                                    | 12,648  |   |   |   | 14,394 |   |
| Occupancy expense                                           |   |                                    | 2,155   |   |   |   | 2,330 |   |
| Furniture and equipment expense                             |   |                                    | 1,111   |   |   |   | 1,385 |   |
| FDIC and state assessments                                  |   |                                    | 1,840   |   |   |   | 1,819 |   |
| Professional services                                       |   |                                    | 1,316   |   |   |   | 970 |   |
| Other real estate owned expense                             |   |                                    | 5,344   |   |   |   | 1,835 |   |
| Other                                                       |   |                                    | 7,256   |   |   |   | 7,383 |   |
| Total noninterest expenses                                  |   |                                    | 31,670  |   |   |   | 30,116 |   |
|                                                        |   |                                    |    |   |   |   |   |   |
| LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES            |   |                                    | (7,800  | ) |   |   | (13,185 | ) |
|                                                        |   |                                    |    |   |   |   |   |   |
| PROVISION (BENEFIT) FOR INCOME TAXES                        |   |                                    | 717     |   |   |   | (6,673 | ) |
|                                                        |   |                                    |    |   |   |   |   |   |
| NET LOSS                                                    |   |                                    | (8,517  | ) |   |   | (6,512 | ) |
|                                                        |   |                                    |    |   |   |   |   |   |
| Preferred stock discount                                    |   |                                    | (18,667 | ) |   |   | — |   |
|                                                        |   |                                    |    |   |   |   |   |   |
| NET LOSS AVAILABLE TO COMMON SHAREHOLDERS                   |   | $                                       | (27,184 | ) |   | $ | (6,512 | ) |
|                                                        |   |                                    |    |   |   |   |   |   |
| Per Share Amounts                                           |   |                                    |    |   |   |   |   |   |
| Basic and Diluted Loss Per Share                            |   | $                                       | (1.89   | ) |   | $ | (0.87 | ) |

----

| NORTH VALLEY BANCORP AND SUBSIDIARIES                       |
|-------------------------------------------------------------|
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
| (In thousands except per share data)                        |

|                                                                                  |   | For the nine months ended September 30, |     |
|---------------------------------------------------------------------------------------|--------|-----------------------------------------|----------|
|                                                                                  |   | 2010                                    |     |   | 2009 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                 |   |                                    |     |   |   |   |
| Net Loss                                                                              |   | $                                       | (8,517   | ) |   | $ | (6,512 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activities:       |   |                                    |     |   |   |   |   |   |
| Depreciation and amortization                                                         |   |                                    | 1,185    |   |   |   | 1,476 |   |
| Amortization of premium on securities, net                                            |   |                                    | 792      |   |   |   | 306 |   |
| Amortization of core deposit intangible                                               |   |                                    | 109      |   |   |   | 109 |   |
| Provision for credit losses                                                           |   |                                    | 8,200    |   |   |   | 17,500 |   |
| Net losses on sale and writedown of other real estate owned                           |   |                                    | 4,879    |   |   |   | 1,536 |   |
| Gain on sale, calls and impairment of securities                                      |   |                                    | —  |   |   |   | (655 | ) |
| Gain on sale of loans                                                                 |   |                                    | (190     | ) |   |   | (271 | ) |
| Loss (gain) on sale of premises and equipment                                         |   |                                    | 147      |   |   |   | (29 | ) |
| Stock-based compensation expense                                                      |   |                                    | 137      |   |   |   | 173 |   |
| Effect of changes in:                                                                 |   |                                    |     |   |   |   |   |   |
| Accrued interest receivable                                                           |   |                                    | (130     | ) |   |   | 233 |   |
| Other assets                                                                          |   |                                    | 416      |   |   |   | (6,036 | ) |
| Accrued interest payable and other liabilities                                        |   |                                    | 1,777    |   |   |   | (799 | ) |
| Net cash provided by operating activities                                             |   |                                    | 8,805    |   |   |   | 7,031 |   |
|                                                                                  |   |                                    |     |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                 |   |                                    |     |   |   |   |   |   |
| Purchases of time deposits at other financial institutions                            |   |                                    | —  |   |   |   | (425 | ) |
| Purchases of available for sale securities                                            |   |                                    | (133,083 | ) |   |   | (117,847 | ) |
| Proceeds from maturities/calls of available for sale securities                       |   |                                    | 39,843   |   |   |   | 37,960 |   |
| Proceeds from maturities/calls of held to maturity securities                         |   |                                    | 2        |   |   |   | 12 |   |
| Purchases of FHLB and FRB stock and other securities                                  |   |                                    | (301     | ) |   |   | (7 | ) |
| Net decrease in loans and leases                                                      |   |                                    | 37,962   |   |   |   | 48,780 |   |
| Proceeds from sales of other real estate owned                                        |   |                                    | 5,507    |   |   |   | 7,380 |   |
| Proceeds from sales of premises and equipment                                         |   |                                    | —  |   |   |   | 36 |   |
| Purchases of premises and equipment                                                   |   |                                    | (207     | ) |   |   | (747 | ) |
| Net cash used in investing activities                                                 |   |                                    | (50,277  | ) |   |   | (24,858 | ) |
|                                                                                  |   |                                    |     |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                 |   |                                    |     |   |   |   |   |   |
| (Decrease) increase in deposits                                                       |   |                                    | (22,156  | ) |   |   | 44,051 |   |
| Net change in other borrowed funds                                                    |   |                                    | —  |   |   |   | (3,516 | ) |
| Proceeds from issuance of preferred stock, net of costs                               |   |                                    | 37,500   |   |   |   | — |   |
| Net cash provided by financing activities                                             |   |                                    | 15,344   |   |   |   | 40,535 |   |
|                                                                                  |   |                                    |     |   |   |   |   |   |
| NET (DECREASE) INCREASE CASH AND CASH EQUIVALENTS                                     |   |                                    | (26,128  | ) |   |   | 22,708 |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                          |   |                                    | 67,628   |   |   |   | 27,153 |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                              |   | $                                       | 41,500   |   |   | $ | 49,861 |   |
|                                                                                  |   |                                    |     |   |   |   |   |   |
| Supplemental Disclosures of Cash Flow Information                                     |   |                                    |     |   |   |   |   |   |
| Cash paid during the year for:                                                        |   |                                    |     |   |   |   |   |   |
| Interest                                                                              |   | $                                       | 5,714    |   |   | $ | 10,312 |   |
| Income taxes refunded                                                                 |   |                                    | —  |   |   |   | (1,880 | ) |
| Noncash investing and financing activities:                                           |   |                                    |     |   |   |   |   |   |
| Net change in unrealized gain on available for sale investment securities, net of tax |   |                                    | 1,890    |   |   |   | 955 |   |
| Transfer from loans to other real estate owned                                        |   |                                    | 16,859   |   |   |   | 6,433 |   |
| Conversion of preferred stock to common stock                                         |   |                                    | 37,500   |   |   |   | — |   |

----

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

----

|                                            |   |      |    |   | Gross      |   |    | Gross      |   |   | Estimated |   |
|-------------------------------------------------|--------|-----------|---------|--------|------------|--------|---------|------------|--------|--------|-----------|--------|
|                                            |   | Amortized |    |   | Unrealized |   |    | Unrealized |   |   | Fair      |   |
|                                            |   | Cost      |    |   | Gains      |   |    | Losses     |   |   | Value     |   |
| September 30, 2010                              |   |      |    |   |       |   |    |       |   |   |      |   |
| Available-for-Sale:                             |   |      |    |   |       |   |    |       |   |   |      |   |
| Obligations of U.S. government agencies         |   | $         | 31,118  |   |       | $      | 268     |       |   | $      | (4        | )      |   | $ | 31,382 |   |
| Obligations of state and political subdivisions |   |      | 15,073  |   |       |   | 793     |       |   |   | (72       | )      |   |   | 15,794 |   |
| Mortgage-backed securities                      |   |      | 184,580 |   |       |   | 3,669   |       |   |   | (681      | )      |   |   | 187,568 |   |
| Corporate debt securities                       |   |      | 6,000   |   |       |   | — |       |   |   | (1,757    | )      |   |   | 4,243 |   |
| Equity securities                               |   |      | 3,000   |   |       |   | — |       |   |   | —   |   |   |   | 3,000 |   |
|                                            |   | $         | 239,771 |   |       | $      | 4,730   |       |   | $      | (2,514    | )      |   | $ | 241,987 |   |
| Held-to-Maturity:                               |   |      |    |   |       |   |    |       |   |   |      |   |   |   |   |   |
| Mortgage-backed securities                      |   | $         | 6       |   |       | $      | — |       |   | $      | —   |   |   | $ | 6 |   |
|                                            |   |      |    |   |       |   |    |       |   |   |      |   |   |   |   |   |
| December 31, 2009                               |   |      |    |   |       |   |    |       |   |   |      |   |   |   |   |   |
| Available-for-Sale:                             |   |      |    |   |       |   |    |       |   |   |      |   |   |   |   |   |
| Obligations of U.S. government agencies         |   | $         | 11,507  |   |       | $      | 59      |       |   | $      | (95       | )      |   | $ | 11,471 |   |
| Obligations of state and political subdivisions |   |      | 15,633  |   |       |   | 520     |       |   |   | (164      | )      |   |   | 15,989 |   |
| Mortgage-backed securities                      |   |      | 111,182 |   |       |   | 961     |       |   |   | (366      | )      |   |   | 111,777 |   |
| Corporate debt securities                       |   |      | 6,000   |   |       |   | — |       |   |   | (1,902    | )      |   |   | 4,098 |   |
| Equity securities                               |   |      | 3,000   |   |       |   | — |       |   |   | —   |   |   |   | 3,000 |   |
|                                            |   | $         | 147,322 |   |       | $      | 1,540   |       |   | $      | (2,527    | )      |   | $ | 146,335 |   |
| Held-to-Maturity:                               |   |      |    |   |       |   |    |       |   |   |      |   |   |   |   |   |
| Mortgage-backed securities                      |   | $         | 9       |   |       | $      | — |       |   | $      | —   |   |   | $ | 9 |   |

----

----

|                                               |   |   |    |   |     |   | Weighted    |   |     |   |               |   |
|----------------------------------------------------|--------|--------|---------|--------|----------|--------|-------------|--------|----------|--------|--------------------|--------|
|                                               |   |   |    |   | Weighted |   | Average     |   |     |   |               |   |
|                                               |   |   |    |   | Average  |   | Remaining   |   | Exercise |   | Aggregate          |   |
|                                               |   |   |    |   | Exercise |   | Contractual |   | Price    |   | Intrinsic          |   |
|                                               |   | Shares |    |   | Price    |   | Term        |   | Range    |   | Value ($000)       |   |
|                                               |   |   |    |   |     |   |        |   |     |   |               |   |
| Outstanding at January 1, 2010                     |   |   | 768,965 |   |     | $      | 10.16       |   | 6 years  |   | $3.15–$24.75 |   |   |   |   |
|                                               |   |   |    |   |     |   |        |   |     |   |               |   |   |   |   |
| Granted                                            |   |   | — |   |     |   | —     |   |     |   | —            |   |   |   |   |
| Exercised                                          |   |   | — |   |     |   | —     |   |     |   | —            |   |   |   |   |
| Expired or Forfeited                               |   |   | (5,000  | )      |     |   | 6.67        |   |     |   | 6.67               |   |   |   |   |
|                                               |   |   |    |   |     |   |        |   |     |   |               |   |   |   |   |
| Outstanding at September 30, 2010                  |   |   | 763,965 |   |     | $      | 10.18       |   | 5 years  |   | $3.15–$24.75 |   |   | $ | — |   |
| Fully vested and exercisable at September 30, 2010 |   |   | 487,082 |   |     | $      | 12.06       |   | 4 years  |   | $3.15–$24.75 |   |   | $ | — |   |
| Options expected to vest                           |   |   | 276,883 |   |     | $      | 6.88        |   | 8 years  |   | $3.15–$24.75 |   |   | $ | — |   |

|                                         |   | Three months ended September 30, |   |   | Nine months ended September 30, |   |
|----------------------------------------------|--------|----------------------------------|--------|--------|---------------------------------|--------|
|                                         |   | 2010                             |   |   | 2009                            |   |   | 2010 |   |   | 2009 |   |
|                                         |   |                             |   |   |                            |   |   |   |   |   |   |   |
| Net (loss) income                            |   | $                                | (7,633 | )      |                            | $      | 684 |   |   | $ | (8,517 | ) |   | $ | (6,512 | ) |
| Other comprehensive (loss) gain, net of tax: |   |                             |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Holding (loss) gain arising during period    |   |                             | (317   | )      |                            |   | 1,085 |   |   |   | 1,890 |   |   |   | 955 |   |
| Total comprehensive (loss) income            |   | $                                | (7,950 | )      |                            | $      | 1,769 |   |   | $ | (6,627 | ) |   | $ | (5,557 | ) |

----

|                                                           |   | September 30, |    |   | December 31, |   |
|----------------------------------------------------------------|--------|---------------|---------|--------|--------------|--------|
|                                                           |   | 2010          |    |   | 2009         |   |
|                                                           |   |          |    |   |         |   |
| Nonaccrual loans and leases                                    |   | $             | 29,643  |   |         | $      | 46,598 |   |
| Loans and leases past due 90 days and accruing interest        |   |          | — |   |         |   | — |   |
| Other real estate owned                                        |   |          | 18,850  |   |         |   | 12,377 |   |
| Total nonperforming assets                                     |   | $             | 48,493  |   |         | $      | 58,975 |   |
|                                                           |   |          |    |   |         |   |   |   |
| Nonaccrual loans and leases to total gross loans and leases    |   |          | 5.53    | %      |         |   | 7.74 | % |
| Nonperforming loans and leases to total gross loans and leases |   |          | 5.53    | %      |         |   | 7.74 | % |
| Total nonperforming assets to total assets                     |   |          | 5.42    | %      |         |   | 6.67 | %  |

|                                      |   | Three months ended September 30, |    |   | Nine months ended September 30, |   |
|-------------------------------------------|--------|----------------------------------|---------|--------|---------------------------------|--------|
|                                      |   | 2010                             |    |   | 2009                            |   |   | 2010 |   |   | 2009 |   |
| Components of net periodic benefits cost: |   |                             |    |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Service cost                              |   | $                                | — |   |                            | $      | 135 |   |   | $ | — |   |   | $ | 405 |   |
| Interest cost                             |   |                             | 85      |   |                            |   | 83 |   |   |   | 255 |   |   |   | 251 |   |
| Prior service amortization                |   |                             | 8       |   |                            |   | 8 |   |   |   | 23 |   |   |   | 23 |   |
| Recognized net actuarial loss             |   |                             | 4       |   |                            |   | 5 |   |   |   | 12 |   |   |   | 15 |   |
| Total components of net periodic cost     |   | $                                | 97      |   |                            | $      | 231 |   |   | $ | 290 |   |   | $ | 694 |   |

----

----

|                                            |   | At September 30, 2010 |    |
|-------------------------------------------------|--------|-----------------------|---------|
|                                            |   | Fair Value            |    |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
| Available for sale securities:                  |   |                  |    |   |   |   |   |   |   |   |   |   |
| Obligations of U.S. government agencies         |   | $                     | 31,382  |   |   |   | — |   |   | $ | 31,382 |   |   |   | — |   |
| Obligations of state and political subdivisions |   |                  | 15,794  |   |   |   | — |   |   |   | 15,794 |   |   |   | — |   |
| Mortgage-backed securities                      |   |                  | 187,568 |   |   |   | — |   |   |   | 187,568 |   |   |   | — |   |
| Corporate debt securities                       |   |                  | 4,243   |   |   |   | — |   |   |   | 4,243 |   |   |   | — |   |
| Equity securities                               |   |                  | 3,000   |   |   |   | — |   |   |   | 3,000 |   |   |   | — |   |
|                                            |   | $                     | 241,987 |   |   | $ | — |   |   | $ | 241,987 |   |   | $ | — |   |

|                                            |   | At December 31, 2009 |    |
|-------------------------------------------------|--------|----------------------|---------|
|                                            |   | Fair Value           |    |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
| Available for sale securities:                  |   |                 |    |   |   |   |   |   |   |   |   |   |
| Obligations of U.S. government agencies         |   | $                    | 11,471  |   |   |   | — |   |   | $ | 11,471 |   |   |   | — |   |
| Obligations of state and political subdivisions |   |                 | 15,989  |   |   |   | — |   |   |   | 15,989 |   |   |   | — |   |
| Mortgage-backed securities                      |   |                 | 111,777 |   |   |   | — |   |   |   | 111,777 |   |   |   | — |   |
| Corporate debt securities                       |   |                 | 4,098   |   |   |   | — |   |   |   | 4,098 |   |   |   | — |   |
| Equity securities                               |   |                 | 3,000   |   |   |   | — |   |   |   | 3,000 |   |   |   | — |   |
|                                            |   | $                    | 146,335 |   |   | $ | — |   |   | $ | 146,335 |   |   | $ | — |   |

----

|                                                        |   |                  |    |   |                     |   |    |    |   |   |    |   |   | Total Losses       |    |
|-------------------------------------------------------------|--------|-----------------------|---------|--------|--------------------------|--------|---------|---------|--------|--------|---------|--------|--------|--------------------|---------|
|                                                        |   | At September 30, 2010 |    |   | For the NineMonths Ended |   |
|                                                        |   | Fair Value            |    |   | Level 1                  |   |    | Level 2 |   |   | Level 3 |   |   | September 30, 2010 |    |
|                                                        |   |                  |    |   |                     |   |    |    |   |   |    |   |   |               |    |
| Impaired loans                                              |   |                  |    |   |                     |   |    |    |   |   |    |   |   |               |    |
| Commercial                                                  |   | $                     | 775     |   |                     | $      | — |    |   | $      | 775     |   |   | $                  | — |   |   | $ | 484 |   |
| Real estate - commercial                                    |   |                  | 862     |   |                     |   | — |    |   |   | 862     |   |   |               | — |   |   |   | 106 |   |
| Real estate - construction                                  |   |                  | 13,219  |   |                     |   | — |    |   |   | 6,311   |   |   |               | 6,908   |   |   |   | 4,509 |   |
| Real estate - mortgage                                      |   |                  | 698     |   |                     |   | — |    |   |   | 698     |   |   |               | — |   |   |   | 151 |   |
| Installment                                                 |   |                  | 39      |   |                     |   | — |    |   |   | 39      |   |   |               | — |   |   |   | 10 |   |
| Direct financing leases                                     |   |                  | — |   |                     |   | — |    |   |   | — |   |   |               | — |   |   |   | — |   |
| Other                                                       |   |                  | 192     |   |                     |   | — |    |   |   | 192     |   |   |               | — |   |   |   | 4 |   |
| Other real estate owned                                     |   | $                     | 18,850  |   |                     |   | — |    |   |   | 18,702  |   |   |               | 148     |   |   |   | 6,252 |   |
| Total assets measured at fair value on a nonrecurring basis |   | $                     | 34,635  |   |                     | $      | — |    |   | $      | 27,579  |   |   | $                  | 7,056   |   |   | $ | 11,516 |   |

|                                                        |   |                 |    |   |                        |   |    |    |   |   |    |   |   | Total Losses      |    |
|-------------------------------------------------------------|--------|----------------------|---------|--------|-----------------------------|--------|---------|---------|--------|--------|---------|--------|--------|-------------------|---------|
|                                                        |   | At December 31, 2009 |    |   | For the Twelve Months Ended |   |
|                                                        |   | Fair Value           |    |   | Level 1                     |   |    | Level 2 |   |   | Level 3 |   |   | December 31, 2009 |    |
|                                                        |   |                 |    |   |                        |   |    |    |   |   |    |   |   |              |    |
| Impaired loans                                              |   |                 |    |   |                        |   |    |    |   |   |    |   |   |              |    |
| Commercial                                                  |   | $                    | — |   |                        | $      | — |    |   | $      | — |   |   | $                 | — |   |   | $ | 215 |   |
| Real estate - commercial                                    |   |                 | 6,938   |   |                        |   | — |    |   |   | 5,237   |   |   |              | 1,701   |   |   |   | 3,433 |   |
| Real estate - construction                                  |   |                 | 13,565  |   |                        |   | — |    |   |   | 5,126   |   |   |              | 8,439   |   |   |   | 9,083 |   |
| Real estate - mortgage                                      |   |                 | 503     |   |                        |   | — |    |   |   | 503     |   |   |              | — |   |   |   | 45 |   |
| Installment                                                 |   |                 | 32      |   |                        |   | — |    |   |   | 32      |   |   |              | — |   |   |   | 8 |   |
| Direct financing leases                                     |   |                 | — |   |                        |   | — |    |   |   | — |   |   |              | — |   |   |   | — |   |
| Other                                                       |   |                 | 204     |   |                        |   | — |    |   |   | 204     |   |   |              | — |   |   |   | 144 |   |
| Other real estate owned                                     |   |                 | 12,377  |   |                        |   | — |    |   |   | 11,987  |   |   |              | 390     |   |   |   | 1,518 |   |
| Total assets measured at fair value on a nonrecurring basis |   | $                    | 33,619  |   |                        | $      | — |    |   | $      | 23,089  |   |   | $                 | 10,530  |   |   | $ | 14,446 |   |

|   |   | a)     | Cash and Due From Banks - The carrying amount represents a reasonable estimate of fair value.                                                                                                                                                                                                         |
|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                  |
|   |   | b)     | Federal Funds Sold - The carrying amount represents a reasonable estimate of fair value.                                                                                                                                                                                                              |
|   |   |   |                                                                                                                                                                                                                                                                                                  |
|   |   | c)     | Time deposits at other financial institutions - The carrying amount represents a reasonable estimate of fair value due to the short-term nature of such deposits.                                                                                                                                     |
|   |   |   |                                                                                                                                                                                                                                                                                                  |
|   |   | d)     | FHLB, FRB Stock and Other Securities - The carrying amount represents a reasonable estimate of fair value.                                                                                                                                                                                            |
|   |   |   |                                                                                                                                                                                                                                                                                                  |
|   |   | e)     | Investment Securities – The fair value of investment securities are based on quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Available for sale securities are carried at fair value. |

----

|   |   | f)     | Loans and Leases - Commercial loans, residential mortgages, construction loans and direct financing leases are segmented by fixed and adjustable rate interest terms, by maturity, and by performing and nonperforming categories.                                                                                                                                                                                                                                                                      |
|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   |   | The fair value of performing loans and leases is estimated by discounting contractual cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Assumptions regarding credit risk, cash flow, and discount rates are determined using available market information.                                                                                                                              |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   |   | The fair value of nonperforming loans and leases is estimated by discounting estimated future cash flows using current interest rates with an additional risk adjustment reflecting the individual characteristics of the loans, or using the fair value of underlying collateral for collateral dependent loans as a practical expedient.                                                                                                                                                              |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | g)     | Bank-owned Life Insurance - The carrying amount and estimated fair values are based on current cash surrender values at each reporting date provided by the insurers.                                                                                                                                                                                                                                                                                                                                   |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | h)     | Mortgage servicing assets – The fair value of mortgage servicing assets is estimated using projected cash flows adjusted for the effects of anticipated prepayments, using a market discount rate.                                                                                                                                                                                                                                                                                                |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | i)     | Deposits – Noninterest-bearing and interest-bearing demand deposits and savings accounts are payable on demand and their carrying values are assumed to be at fair value. The fair value of the core deposit intangible has not been included as a component of the fair value estimate. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is based on rates currently offered for deposits of similar size and remaining maturities. |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | j)     | Other Borrowed Funds - The fair value of other borrowed funds is estimated by discounting the contractual cash flows using the current interest rate at which similar borrowings for the same remaining maturities could be made.                                                                                                                                                                                                                                                                       |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | k)     | Subordinated Debentures - The fair value of the subordinated debentures is estimated by discounting the contractual cash flows using the current interest rate at which similar securities with the same remaining expected life could be made.                                                                                                                                                                                                                                                         |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | l)     | Commitments to Fund Loans/Standby Letters of Credit - The fair values of commitments are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The differences between the carrying value of commitments to fund loans or stand by letters of credit and their fair value are not significant and therefore not included in the following table.               |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | m)     | Accrued Interest Receivable/Payable – The carrying amount of accrued interest receivable and accrued interest payable represents a reasonable estimate of fair value.                                                                                                                                                                                                                                                                                                                             |

----

|                                          |   | September 30, 2010 |    |   | December 31, 2009 |   |
|-----------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
|                                          |   | Carrying           |    |   | Fair              |   |   | Carrying |   |   | Fair |   |
|                                          |   | Amount             |    |   | Value             |   |   | Amount |   |   | Value |   |
| FINANCIAL ASSETS                              |   |               |    |   |              |   |   |   |   |   |   |   |
| Cash and due from banks                       |   | $                  | 20,465  |   |              | $      | 20,465 |   |   | $ | 19,378 |   |   | $ | 19,378 |   |
| Federal funds sold                            |   |               | 21,035  |   |              |   | 21,035 |   |   |   | 48,250 |   |   |   | 48,250 |   |
| Time deposits at other financial institutions |   |               | 425     |   |              |   | 425 |   |   |   | 425 |   |   |   | 425 |   |
| FHLB, FRB and other securities                |   |               | 6,134   |   |              |   | 6,134 |   |   |   | 5,833 |   |   |   | 5,833 |   |
| Securities:                                   |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Available for sale                            |   |               | 241,987 |   |              |   | 241,987 |   |   |   | 146,335 |   |   |   | 146,335 |   |
| Held to maturity                              |   |               | 6       |   |              |   | 6 |   |   |   | 9 |   |   |   | 9 |   |
| Loans and leases                              |   |               | 521,047 |   |              |   | 538,184 |   |   |   | 583,878 |   |   |   | 593,278 |   |
| Bank owned life insurance                     |   |               | 33,642  |   |              |   | 33,642 |   |   |   | 32,745 |   |   |   | 32,745 |   |
| Mortgage servicing assets                     |   |               | 669     |   |              |   | 669 |   |   |   | 712 |   |   |   | 642 |   |
| Accrued interest receivable                   |   |               | 2,695   |   |              |   | 2,695 |   |   |   | 2,565 |   |   |   | 2,565 |   |
|                                          |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| FINANCIAL LIABILITIES                         |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                      |   | $                  | 765,653 |   |              | $      | 767,962 |   |   | $ | 787,809 |   |   | $ | 790,803 |   |
| Subordinated debentures                       |   |               | 31,961  |   |              |   | 20,565 |   |   |   | 31,961 |   |   |   | 22,005 |   |
| Accrued interest payable                      |   |               | 2,553   |   |              |   | 2,553 |   |   |   | 1,100 |   |   |   | 1,100 |   |

----

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

----

----

----

| (in thousands except per share amounts)            |   | Three months ended September 30, |    |   | Nine months ended September 30, |   |
|----------------------------------------------------|--------|----------------------------------|---------|--------|---------------------------------|--------|
|                                               |   | 2010                             |    |   | 2009                            |   |   | 2010 |   |   | 2009 |   |
| Net interest income                                |   | $                                | 7,590   |   |                            | $      | 7,670 |   |   | $ | 22,318 |   |   | $ | 23,687 |   |
| Provision for credit losses                        |   |                             | 4,600   |   |                            |   | 1,500 |   |   |   | 8,200 |   |   |   | 17,500 |   |
| Noninterest income                                 |   |                             | 3,363   |   |                            |   | 4,142 |   |   |   | 9,752 |   |   |   | 10,744 |   |
| Noninterest expense                                |   |                             | 11,779  |   |                            |   | 8,999 |   |   |   | 31,670 |   |   |   | 30,116 |   |
| Provision (benefit) for income taxes               |   |                             | 2,207   |   |                            |   | 629 |   |   |   | 717 |   |   |   | (6,673 | ) |
| Net (loss) income                                  |   |                             | (7,633  | )      |                            |   | 684 |   |   |   | (8,517 | ) |   |   | (6,512 | ) |
| Preferred stock discount                           |   |                             | (18,667 | )      |                            |   | — |   |   |   | (18,667 | ) |   |   | — |   |
| Net (loss) income available to common shareholders |   | $                                | (26,300 | )      |                            | $      | 684 |   |   | $ | (27,184 | ) |   | $ | (6,512 | ) |
|                                               |   |                             |    |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Per share amounts                                  |   |                             |    |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted (loss) earnings per share        |   | $                                | (0.94   | )      |                            | $      | 0.09 |   |   | $ | (1.89 | ) |   | $ | (0.87 | ) |
|                                               |   |                             |    |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Annualized (Loss) Income on Average Assets         |   |                             | (3.29   | %)     |                            |   | 0.29 | % |   |   | (1.26 | %) |   |   | (0.96 | %) |
| Annualized (Loss) Income on Average Equity         |   |                             | (33.23  | %)     |                            |   | 3.82 | % |   |   | (15.00 | %) |   |   | (11.66 | %) |

----

----

|                                             |   | Three months ended September 30, 2010 |    |   | Three months ended September 30, 2009 |   |
|--------------------------------------------------|--------|---------------------------------------|---------|--------|---------------------------------------|--------|
|                                             |   | Average                               |    |   | Yield/                                |   |   | Interest |   |   | Average |   |   | Yield/ |   |   | Interest |   |
|                                             |   | Balance                               |    |   | Rate                                  |   |   | Amount |   |   | Balance |   |   | Rate |   |   | Amount |   |
|                                             |   |                                  |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Assets                                           |   |                                  |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earning assets:                                  |   |                                  |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold                               |   | $                                     | 62,037  |   |                                  |   | 0.24 | % |   | $ | 37 |   |   | $ | 39,763 |   |   |   | 0.26 | % |   | $ | 26 |   |
| Investment securities:                           |   |                                  |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                          |   |                                  | 203,741 |   |                                  |   | 2.46 | % |   |   | 1,265 |   |   |   | 140,114 |   |   |   | 3.47 | % |   |   | 1,225 |   |
| Non-taxable (1)                                  |   |                                  | 15,155  |   |                                  |   | 6.91 | % |   |   | 264 |   |   |   | 15,812 |   |   |   | 6.67 | % |   |   | 266 |   |
| Total investments                                |   |                                  | 218,896 |   |                                  |   | 2.77 | % |   |   | 1,529 |   |   |   | 155,926 |   |   |   | 3.79 | % |   |   | 1,491 |   |
| Loans and leases (2)(3)                          |   |                                  | 554,471 |   |                                  |   | 5.94 | % |   |   | 8,297 |   |   |   | 641,603 |   |   |   | 5.85 | % |   |   | 9,465 |   |
| Total earning assets                             |   |                                  | 835,404 |   |                                  |   | 4.68 | % |   |   | 9,863 |   |   |   | 837,292 |   |   |   | 5.20 | % |   |   | 10,982 |   |
|                                             |   |                                  |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non earning assets                               |   |                                  | 101,900 |   |                                  |   |   |   |   |   |   |   |   |   | 110,454 |   |   |   |   |   |   |   |   |   |
| Allowance for loan and lease losses              |   |                                  | (16,969 | )      |                                  |   |   |   |   |   |   |   |   |   | (21,943 | ) |   |   |   |   |   |   |   |   |
| Total non-earning assets                         |   |                                  | 84,931  |   |                                  |   |   |   |   |   |   |   |   |   | 88,511 |   |   |   |   |   |   |   |   |   |
|                                             |   |                                  |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                     |   | $                                     | 920,335 |   |                                  |   |   |   |   |   |   |   |   | $ | 925,803 |   |   |   |   |   |   |   |   |   |
|                                             |   |                                  |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and Shareholders’ Equity       |   |                                  |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                    |   |                                  |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Transaction accounts                             |   | $                                     | 159,027 |   |                                  |   | 0.25 | % |   | $ | 102 |   |   | $ | 153,123 |   |   |   | 0.29 | % |   | $ | 111 |   |
| Savings and money market                         |   |                                  | 218,048 |   |                                  |   | 0.70 | % |   |   | 385 |   |   |   | 182,295 |   |   |   | 0.87 | % |   |   | 400 |   |
| Time certificates                                |   |                                  | 254,183 |   |                                  |   | 1.80 | % |   |   | 1,153 |   |   |   | 327,817 |   |   |   | 2.66 | % |   |   | 2,201 |   |
| Other borrowed funds                             |   |                                  | 31,961  |   |                                  |   | 6.74 | % |   |   | 543 |   |   |   | 31,961 |   |   |   | 6.38 | % |   |   | 514 |   |
| Total interest bearing liabilities               |   |                                  | 663,219 |   |                                  |   | 1.31 | % |   |   | 2,183 |   |   |   | 695,196 |   |   |   | 1.84 | % |   |   | 3,226 |   |
| Demand deposits                                  |   |                                  | 147,920 |   |                                  |   |   |   |   |   |   |   |   |   | 145,316 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                |   |                                  | 18,070  |   |                                  |   |   |   |   |   |   |   |   |   | 14,189 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                |   |                                  | 829,209 |   |                                  |   |   |   |   |   |   |   |   |   | 854,701 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                       |   |                                  | 91,126  |   |                                  |   |   |   |   |   |   |   |   |   | 71,102 |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity |   | $                                     | 920,335 |   |                                  |   |   |   |   |   |   |   |   | $ | 925,803 |   |   |   |   |   |   |   |   |   |
| Net interest income                              |   |                                  |    |   |                                  |   |   |   |   | $ | 7,680 |   |   |   |   |   |   |   |   |   |   | $ | 7,756 |   |
| Net interest spread                              |   |                                  |    |   |                                  |   | 3.37 | % |   |   |   |   |   |   |   |   |   |   | 3.36 | % |   |   |   |   |
| Net interest margin                              |   |                                  |    |   |                                  |   | 3.65 | % |   |   |   |   |   |   |   |   |   |   | 3.68 | % |   |   |   |   |

----

| (1) | Tax-equivalent basis; non-taxable securities are exempt from federal taxation.                            |
|-----|-----------------------------------------------------------------------------------------------------------|
| (2) | Loans on nonaccrual status have been included in the computations of averages balances.                   |
| (3) | Includes loan fees of $139 and $173 for the three months ended September 30, 2010 and 2009, respectively. |

----

|                                             |   | Nine months ended September 30, 2010 |    |   | Nine months ended September 30, 2009 |   |
|--------------------------------------------------|--------|--------------------------------------|---------|--------|--------------------------------------|--------|
|                                             |   | Average                              |    |   | Yield/                               |   |   | Interest |   |   | Average |   |   | Yield/ |   |   | Interest |   |
|                                             |   | Balance                              |    |   | Rate                                 |   |   | Amount |   |   | Balance |   |   | Rate |   |   | Amount |   |
|                                             |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Assets                                           |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earning assets:                                  |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold                               |   | $                                    | 71,063  |   |                                 |   | 0.23 | % |   | $ | 124 |   |   | $ | 29,010 |   |   |   | 0.23 | % |   | $ | 49 |   |
| Investment securities:                           |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                          |   |                                 | 164,858 |   |                                 |   | 2.80 | % |   |   | 3,456 |   |   |   | 108,625 |   |   |   | 3.61 | % |   |   | 2,936 |   |
| Non-taxable (1)                                  |   |                                 | 15,393  |   |                                 |   | 6.97 | % |   |   | 802 |   |   |   | 15,853 |   |   |   | 6.75 | % |   |   | 800 |   |
| Total investments                                |   |                                 | 180,251 |   |                                 |   | 3.16 | % |   |   | 4,258 |   |   |   | 124,478 |   |   |   | 4.01 | % |   |   | 3,736 |   |
| Loans and leases (2)(3)                          |   |                                 | 572,127 |   |                                 |   | 5.93 | % |   |   | 25,376 |   |   |   | 660,025 |   |   |   | 6.08 | % |   |   | 30,030 |   |
| Total earning assets                             |   |                                 | 823,441 |   |                                 |   | 4.83 | % |   |   | 29,758 |   |   |   | 813,513 |   |   |   | 5.56 | % |   |   | 33,815 |   |
|                                             |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non earning assets                               |   |                                 | 99,925  |   |                                 |   |   |   |   |   |   |   |   |   | 106,607 |   |   |   |   |   |   |   |   |   |
| Allowance for loan and lease losses              |   |                                 | (17,935 | )      |                                 |   |   |   |   |   |   |   |   |   | (16,543 | ) |   |   |   |   |   |   |   |   |
| Total non-earning assets                         |   |                                 | 81,990  |   |                                 |   |   |   |   |   |   |   |   |   | 90,064 |   |   |   |   |   |   |   |   |   |
|                                             |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                     |   | $                                    | 905,431 |   |                                 |   |   |   |   |   |   |   |   | $ | 903,577 |   |   |   |   |   |   |   |   |   |
|                                             |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and Shareholders’ Equity       |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                    |   |                                 |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Transaction accounts                             |   | $                                    | 157,625 |   |                                 |   | 0.26 | % |   | $ | 310 |   |   | $ | 152,646 |   |   |   | 0.32 | % |   | $ | 369 |   |
| Savings and money market                         |   |                                 | 210,943 |   |                                 |   | 0.73 | % |   |   | 1,154 |   |   |   | 174,086 |   |   |   | 0.98 | % |   |   | 1,275 |   |
| Time certificates                                |   |                                 | 265,764 |   |                                 |   | 2.07 | % |   |   | 4,124 |   |   |   | 311,485 |   |   |   | 2.85 | % |   |   | 6,643 |   |
| Other borrowed funds                             |   |                                 | 31,961  |   |                                 |   | 6.61 | % |   |   | 1,579 |   |   |   | 32,412 |   |   |   | 6.53 | % |   |   | 1,582 |   |
| Total interest bearing liabilities               |   |                                 | 666,293 |   |                                 |   | 1.44 | % |   |   | 7,167 |   |   |   | 670,629 |   |   |   | 1.97 | % |   |   | 9,869 |   |
| Demand deposits                                  |   |                                 | 146,735 |   |                                 |   |   |   |   |   |   |   |   |   | 146,537 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                |   |                                 | 16,505  |   |                                 |   |   |   |   |   |   |   |   |   | 11,756 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                |   |                                 | 829,533 |   |                                 |   |   |   |   |   |   |   |   |   | 828,922 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                       |   |                                 | 75,898  |   |                                 |   |   |   |   |   |   |   |   |   | 74,655 |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity |   | $                                    | 905,431 |   |                                 |   |   |   |   |   |   |   |   | $ | 903,577 |   |   |   |   |   |   |   |   |   |
| Net interest income                              |   |                                 |    |   |                                 |   |   |   |   | $ | 22,591 |   |   |   |   |   |   |   |   |   |   | $ | 23,946 |   |
| Net interest spread                              |   |                                 |    |   |                                 |   | 3.39 | % |   |   |   |   |   |   |   |   |   |   | 3.59 | % |   |   |   |   |
| Net interest margin                              |   |                                 |    |   |                                 |   | 3.67 | % |   |   |   |   |   |   |   |   |   |   | 3.94 | % |   |   |   |   |

----

| (1) | Tax-equivalent basis; non-taxable securities are exempt from federal taxation.                           |
|-----|----------------------------------------------------------------------------------------------------------|
| (2) | Loans on nonaccrual status have been included in the computations of averages balances.                  |
| (3) | Includes loan fees of $295 and $649 for the nine months ended September 30, 2010 and 2009, respectively. |

----

| Changes in Volume/Rate              |   |                                  |    |   |                                 |   |   |       |   |   |    |   |   |    |   |   |       |   |
|-------------------------------------|--------|---------------------------------------|---------|--------|--------------------------------------|--------|--------|------------|--------|--------|---------|--------|--------|---------|--------|--------|------------|--------|
| (Dollars in thousands)              |   | Three months ended September 30, 2010 |    |   | Nine months ended September 30, 2010 |   |
|                                |   | compared with                         |    |   | compared with                        |   |
|                                |   | Three months ended September 30, 2009 |    |   | Nine months ended September 30, 2009 |   |
|                                |   |                                  |    |   |                                 |   |   | Total      |   |   |    |   |   |    |   |   | Total      |   |
|                                |   | Average                               |    |   | Average                              |   |   | Increase   |   |   | Average |   |   | Average |   |   | Increase   |   |
|                                |   | Volume                                |    |   | Rate                                 |   |   | (Decrease) |   |   | Volume  |   |   | Rate    |   |   | (Decrease) |   |
| Interest Income                     |   |                                  |    |   |                                 |   |   |       |   |   |    |   |   |    |   |   |       |   |
| Interest on Federal funds sold      |   | $                                     | 14      |   |                                 | $      | (3     | )          |   | $      | 11      |   |   | $       | 73     |   |       | $      | 2 |   |   | $ | 75 |   |
| Interest on investments:            |   |                                  |    |   |                                 |   |   |       |   |   |    |   |   |    |   |   |       |   |   |   |   |   |   |   |
| Taxable securities                  |   |                                  | 552     |   |                                 |   | (512   | )          |   |   | 40      |   |   |    | 1,523  |   |       |   | (1,003 | ) |   |   | 520 |   |
| Nontaxable securities (1)           |   |                                  | (11     | )      |                                 |   | 9      |       |   |   | (2      | )      |   |    | (23    | )      |       |   | 25 |   |   |   | 2 |   |
| Total investments                   |   |                                  | 541     |   |                                 |   | (503   | )          |   |   | 38      |   |   |    | 1,500  |   |       |   | (978 | ) |   |   | 522 |   |
| Interest on loans and leases        |   |                                  | (1,274  | )      |                                 |   | 106    |       |   |   | (1,168  | )      |   |    | (4,008 | )      |       |   | (646 | ) |   |   | (4,654 | ) |
| Total interest income               |   |                                  | (719    | )      |                                 |   | (400   | )          |   |   | (1,119  | )      |   |    | (2,435 | )      |       |   | (1,622 | ) |   |   | (4,057 | ) |
|                                |   |                                  |    |   |                                 |   |   |       |   |   |    |   |   |    |   |   |       |   |   |   |   |   |   |   |
| Interest Expense                    |   |                                  |    |   |                                 |   |   |       |   |   |    |   |   |    |   |   |       |   |   |   |   |   |   |   |
| Transaction accounts                |   | $                                     | 4       |   |                                 | $      | (13    | )          |   | $      | (9      | )      |   |    | 12     |   |       | $      | (71 | ) |   | $ | (59 | ) |
| Savings and money market            |   |                                  | 78      |   |                                 |   | (93    | )          |   |   | (15     | )      |   |    | 271    |   |       |   | (392 | ) |   |   | (121 | ) |
| Time deposits                       |   |                                  | (490    | )      |                                 |   | (558   | )          |   |   | (1,048  | )      |   |    | (977   | )      |       |   | (1,542 | ) |   |   | (2,519 | ) |
| Other borrowed funds                |   |                                  | — |   |                                 |   | 29     |       |   |   | 29      |   |   |    | (22    | )      |       |   | 19 |   |   |   | (3 | ) |
| Total interest expense              |   |                                  | (408    | )      |                                 |   | (635   | )          |   |   | (1,043  | )      |   |    | (716   | )      |       |   | (1,986 | ) |   |   | (2,702 | ) |
|                                |   |                                  |    |   |                                 |   |   |       |   |   |    |   |   |    |   |   |       |   |   |   |   |   |   |   |
| Total change in net interest income |   | $                                     | (311    | )      |                                 | $      | 235    |       |   | $      | (76     | )      |   | $       | (1,719 | )      |       | $      | 364 |   |   | $ | (1,355 | ) |

----

| (1) | Taxable equivalent |
|-----|--------------------|

|                                     |   | Three months ended September 30, |    |   | Nine months ended September 30, |   |
|------------------------------------------|--------|----------------------------------|---------|--------|---------------------------------|--------|
|                                     |   | 2010                             |    |   | 2009                            |   |   | 2010 |   |   | 2009 |   |
| Service charges on deposit accounts      |   | $                                | 1,489   |   |                            | $      | 1,724 |   |   | $ | 4,516 |   |   | $ | 4,892 |   |
| Other fees and charges                   |   |                             | 1,181   |   |                            |   | 1,170 |   |   |   | 3,370 |   |   |   | 3,213 |   |
| Increase in cash value of life insurance |   |                             | 365     |   |                            |   | 356 |   |   |   | 1,084 |   |   |   | 1,037 |   |
| Gain on sale of loans                    |   |                             | 108     |   |                            |   | 46 |   |   |   | 190 |   |   |   | 271 |   |
| Gain on sales and calls of securities    |   |                             | — |   |                            |   | 655 |   |   |   | — |   |   |   | 655 |   |
| (Loss) gain on sale other assets         |   |                             | — |   |                            |   | (1 | ) |   |   | (147 | ) |   |   | 29 |   |
| Other                                    |   |                             | 220     |   |                            |   | 192 |   |   |   | 739 |   |   |   | 647 |   |
| Total                                    |   | $                                | 3,363   |   |                            | $      | 4,142 |   |   | $ | 9,752 |   |   | $ | 10,744 |   |

----

|                            |   | Three months ended September 30, |   |   | Nine months ended September 30, |   |
|---------------------------------|--------|----------------------------------|--------|--------|---------------------------------|--------|
|                            |   | 2010                             |   |   | 2009                            |   |   | 2010 |   |   | 2009 |   |
| Salaries and benefits           |   | $                                | 4,223  |   |                            | $      | 4,425 |   |   | $ | 12,648 |   |   | $ | 14,394 |   |
| Other real estate owned expense |   |                             | 3,241  |   |                            |   | 265 |   |   |   | 5,344 |   |   |   | 1,835 |   |
| Occupancy                       |   |                             | 726    |   |                            |   | 768 |   |   |   | 2,155 |   |   |   | 2,330 |   |
| Data processing                 |   |                             | 499    |   |                            |   | 534 |   |   |   | 1,524 |   |   |   | 1,663 |   |
| FDIC and state assessments      |   |                             | 438    |   |                            |   | 503 |   |   |   | 1,840 |   |   |   | 1,819 |   |
| Furniture and equipment         |   |                             | 336    |   |                            |   | 457 |   |   |   | 1,111 |   |   |   | 1,385 |   |
| Professional services           |   |                             | 322    |   |                            |   | 299 |   |   |   | 1,316 |   |   |   | 970 |   |
| ATM and online banking          |   |                             | 282    |   |                            |   | 265 |   |   |   | 828 |   |   |   | 836 |   |
| Loan expense                    |   |                             | 208    |   |                            |   | 96 |   |   |   | 499 |   |   |   | 740 |   |
| Operations expense              |   |                             | 173    |   |                            |   | 154 |   |   |   | 432 |   |   |   | 428 |   |
| Messenger                       |   |                             | 146    |   |                            |   | 174 |   |   |   | 439 |   |   |   | 382 |   |
| Postage                         |   |                             | 143    |   |                            |   | 144 |   |   |   | 450 |   |   |   | 444 |   |
| Marketing                       |   |                             | 127    |   |                            |   | 140 |   |   |   | 436 |   |   |   | 403 |   |
| Director                        |   |                             | 123    |   |                            |   | 81 |   |   |   | 341 |   |   |   | 348 |   |
| Printing and supplies           |   |                             | 105    |   |                            |   | 113 |   |   |   | 313 |   |   |   | 369 |   |
| Amortization of intangibles     |   |                             | 36     |   |                            |   | 36 |   |   |   | 109 |   |   |   | 109 |   |
| Other                           |   |                             | 651    |   |                            |   | 545 |   |   |   | 1,885 |   |   |   | 1,661 |   |
|                            |   | $                                | 11,779 |   |                            | $      | 8,999 |   |   | $ | 31,670 |   |   | $ | 30,116 |   |

----

|                                |   | September 30, |    |   | December 31, |   |
|-------------------------------------|--------|---------------|---------|--------|--------------|--------|
| (in thousands)                      |   | 2010          |    |   | 2009         |   |
| Commercial                          |   | $             | 57,385  |   |         | $      | 66,513 |   |
| Real estate - commercial            |   |          | 290,117 |   |         |   | 313,917 |   |
| Real estate - construction          |   |          | 72,316  |   |         |   | 92,111 |   |
| Real estate - mortgage              |   |          | 51,858  |   |         |   | 59,816 |   |
| Installment                         |   |          | 16,375  |   |         |   | 22,289 |   |
| Direct financing leases             |   |          | 712     |   |         |   | 813 |   |
| Other                               |   |          | 48,169  |   |         |   | 47,665 |   |
|                                |   |          | 536,932 |   |         |   | 603,124 |   |
| Deferred loan fees, net             |   |          | (636    | )      |         |   | (707 | ) |
| Allowance for loan and lease losses |   |          | (15,249 | )      |         |   | (18,539 | ) |
|                                |   | $             | 521,047 |   |         | $      | 583,878 |   |

----

|                                                           |   | September 30, |    |   | December 31, |   |
|----------------------------------------------------------------|--------|---------------|---------|--------|--------------|--------|
|                                                           |   | 2010          |    |   | 2009         |   |
|                                                           |   |          |    |   |         |   |
| Nonaccrual loans and leases                                    |   | $             | 29,643  |   |         | $      | 46,598 |   |
| Loans and leases past due 90 days and accruing interest        |   |          | — |   |         |   | — |   |
| Other real estate owned                                        |   |          | 18,850  |   |         |   | 12,377 |   |
| Total nonperforming assets                                     |   | $             | 48,493  |   |         | $      | 58,975 |   |
|                                                           |   |          |    |   |         |   |   |   |
| Nonaccrual loans and leases to total gross loans and leases    |   |          | 5.53    | %      |         |   | 7.74 | % |
| Nonperforming loans and leases to total gross loans and leases |   |          | 5.53    | %      |         |   | 7.74 | % |
| Total nonperforming assets to total assets                     |   |          | 5.42    | %      |         |   |  6.67 | %  |

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|                       |   | September 30, 2010 |    |   | June 30, 2010 |   |   | March 31, 2010 |   |    | December 31, 2009 |   |
|----------------------------|--------|--------------------|---------|--------|---------------|--------|--------|----------------|--------|---------|-------------------|--------|
|                       |   |               |    |   | % of          |   |   |           |   |    | % of              |   |   |   |   |   | % of |   |   |   |   |   | % of |   |
|                       |   | Amount             |    |   | total         |   |   | Amount         |   |    | total             |   |   | Amount |   |   | total |   |   | Amount |   |   | total |   |
| Commercial                 |   | $                  | 1,106   |   |          | 3.7    | %      |           | $      | 1,008   |              |   | 2.6 | % |   | $ | 538 |   |   | 1.2 | % |   | $ | 215 |   |   | 0.5 | % |
| Real estate - commercial   |   |               | 4,031   |   |          | 13.6   | %      |           |   | 9,597   |              |   | 25.0 | % |   |   | 14,485 |   |   | 31.8 | % |   |   | 13,825 |   |   | 29.7 | % |
| Real estate - construction |   |               | 22,044  |   |          | 74.4   | %      |           |   | 24,463  |              |   | 63.7 | % |   |   | 27,229 |   |   | 59.7 | % |   |   | 29,042 |   |   | 62.3 | % |
| Real estate - mortgage     |   |               | 1,882   |   |          | 6.3    | %      |           |   | 2,784   |              |   | 7.3 | % |   |   | 3,082 |   |   | 6.8 | % |   |   | 2,980 |   |   | 6.4 | % |
| Installment                |   |               | 90      |   |          | 0.3    | %      |           |   | 56      |              |   | 0.1 | % |   |   | 39 |   |   | 0.1 | % |   |   | 34 |   |   | 0.1 | % |
| Direct financing leases    |   |               | — |   |          | 0.0    | %      |           |   | — |              |   | 0.0 | % |   |   | — |   |   | 0.0 | % |   |   | — |   |   | 0.0 | % |
| Other                      |   |               | 490     |   |          | 1.7    | %      |           |   | 491     |              |   | 1.3 | % |   |   | 204 |   |   | 0.4 | % |   |   | 502 |   |   | 1.1 | % |
| Total nonaccrual loans     |   | $                  | 29,643  |   |          | 100.0  | %      |           | $      | 38,399  |              |   | 100.0 | % |   | $ | 45,577 |   |   | 100.0 | % |   | $ | 46,598 |   |   | 100.0 | % |

|                                             |   | Nine months ended September 30, |    |
|--------------------------------------------------|--------|---------------------------------|---------|
|                                             |   | 2010                            |    |   | 2009 |   |
| Balance, beginning of period                     |   | $                               | 18,539  |   |   | $ | 11,327 |   |
| Provision for credit losses                      |   |                            | 8,200   |   |   |   | 17,500 |   |
| Loan charge-offs                                 |   |                            | (11,740 | ) |   |   | (10,774 | ) |
| Loan recoveries                                  |   |                            | 480     |   |   |   | 1,370 |   |
| Net loan charge-offs                             |   |                            | (11,260 | ) |   |   | (9,404 | ) |
| Total allowance for credit losses, end of period |   | $                               | 15,479  |   |   | $ | 19,423 |   |
| Components of allowance for credit losses        |   |                            |    |   |   |   |   |   |
| Allowance for loan and lease losses              |   | $                               | 15,249  |   |   | $ | 19,423 |   |
| Reserve for unfunded commitments                 |   |                            | 230     |   |   |   | — |   |
| Total allowance for credit losses                |   | $                               | 15,479  |   |   | $ | 19,423 |   |

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|   | ● | Specific Allowances. A specific allowance is established when management has identified unique or particular risks that were related to a specific loan that demonstrated risk characteristics consistent with impairment. Specific allowances are established when management can estimate the amount of an impairment of a loan.                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | ● | Formula Allowance. The formula allowance is calculated by applying loss factors through the assignment of loss factors to homogenous pools of loans. Changes in risk grades of both performing and nonperforming loans affect the amount of the formula allowance. Loss factors are based on our historical loss experience and such other data as management believes to be pertinent. Management, also, considers a variety of subjective factors, including regional economic and business conditions that impact important segments of our portfolio, loan growth rates, the depth and skill of lending staff, the interest rate environment, and the results of bank regulatory examinations and findings of our internal credit examiners to establish the formula allowance. |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | ● | Unallocated Allowance. The unallocated loan loss allowance represents an amount for imprecision or uncertainty that is inherent in estimates used to determine the allowance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | ● | Reserve for Unfunded Commitments. A reserve for unfunded commitments is maintained at a level that, in the opinion of management, is adequate to absorb probable losses associated with commitments to lend funds under existing agreements, for example, the Bank’s commitment to fund advances under lines of credit. The reserve amount for unfunded commitments is determined based on our methodologies described above with respect to the formula allowance.                                                                                                                                                                                                                                                                                                           |

|                       |   | September 30, |    |   | December 31, |   |
|----------------------------|--------|---------------|---------|--------|--------------|--------|
| (in thousands)             |   | 2010          |    |   | 2009         |   |
| Noninterest-bearing demand |   | $             | 150,433 |   |         | $      | 152,421 |   |
| Interest-bearing demand    |   |          | 152,230 |   |         |   | 160,216 |   |
| Savings                    |   |          | 212,128 |   |         |   | 189,782 |   |
| Time certificates          |   |          | 250,862 |   |         |   | 285,390 |   |
| Total deposits             |   | $             | 765,653 |   |         | $      | 787,809 |   |

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|                                     |   |   |    |    |   |   |    |              |    |                    |   |    |   | To be Well Capitalized |
|------------------------------------------|--------|--------|---------|---------|--------|--------|---------|-------------------|---------|-------------------------|--------|---------|--------|------------------------|
|                                     |   |   |    |    |   |   |    | For Capital       |    | Under Prompt Corrective |
|                                     |   |   |    |    |   |   |    | Adequacy Purposes |    | Action Provisions       |
|                                     |   | Actual |    | Minimum |   |   | Minimum |              | Minimum |                    |   | Minimum |
|                                     |   | Amount |    |    | Ratio  |   | Amount  |              |    | Ratio                   |   | Amount  |   |                   | Ratio |
| Company                                  |   |   |    |    |   |   |    |              |    |                    |   |    |   |                   |   |   |   |   |
| As of September 30, 2010:                |   |   |    |    |   |   |    |              |    |                    |   |    |   |                   |   |   |   |   |
| Total capital (to risk weighted assets)  |   | $      | 112,135 |    |   | 16.99  | %       |              | $       | 52,800                  |   |    | 8.00   | %                      |   |   | N/A |   |   | N/A |   |
| Tier 1 capital (to risk weighted assets) |   | $      | 100,289 |    |   | 15.20  | %       |              | $       | 26,392                  |   |    | 4.00   | %                      |   |   | N/A |   |   | N/A |   |
| Tier 1 capital (to average assets)       |   | $      | 100,289 |    |   | 11.01  | %       |              | $       | 36,436                  |   |    | 4.00   | %                      |   |   | N/A |   |   | N/A |   |
|                                     |   |   |    |    |   |   |    |              |    |                    |   |    |   |                   |   |   |   |   |   |   |   |
| As of December 31, 2009:                 |   |   |    |    |   |   |    |              |    |                    |   |    |   |                   |   |   |   |   |   |   |   |
| Total capital (to risk weighted assets)  |   | $      | 87,791  |    |   | 12.19  | %       |              | $       | 57,615                  |   |    | 8.00   | %                      |   |   | N/A |   |   | N/A |   |
| Tier 1 capital (to risk weighted assets) |   | $      | 65,457  |    |   | 9.09   | %       |              | $       | 28,804                  |   |    | 4.00   | %                      |   |   | N/A |   |   | N/A |   |
| Tier 1 capital (to average assets)       |   | $      | 65,457  |    |   | 7.16   | %       |              | $       | 36,568                  |   |    | 4.00   | %                      |   |   | N/A |   |   | N/A |   |
|                                     |   |   |    |    |   |   |    |              |    |                    |   |    |   |                   |   |   |   |   |   |   |   |
| North Valley Bank                        |   |   |    |    |   |   |    |              |    |                    |   |    |   |                   |   |   |   |   |   |   |   |
| As of September 30, 2010:                |   |   |    |    |   |   |    |              |    |                    |   |    |   |                   |   |   |   |   |   |   |   |
| Total capital (to risk weighted assets)  |   | $      | 112,636 |    |   | 17.09  | %       |              | $       | 52,726                  |   |    | 8.00   | %                      |   | $ | 65,908 |   |   | 10.00 | % |
| Tier 1 capital (to risk weighted assets) |   | $      | 104,307 |    |   | 15.82  | %       |              | $       | 26,373                  |   |    | 4.00   | %                      |   | $ | 39,560 |   |   | 6.00 | % |
| Tier 1 capital (to average assets)       |   | $      | 104,307 |    |   | 11.46  | %       |              | $       | 36,407                  |   |    | 4.00   | %                      |   | $ | 45,509 |   |   | 5.00 | % |
|                                     |   |   |    |    |   |   |    |              |    |                    |   |    |   |                   |   |   |   |   |   |   |   |
| As of December 31, 2009:                 |   |   |    |    |   |   |    |              |    |                    |   |    |   |                   |   |   |   |   |   |   |   |
| Total capital (to risk weighted assets)  |   | $      | 89,015  |    |   | 12.38  | %       |              | $       | 57,522                  |   |    | 8.00   | %                      |   | $ | 71,902 |   |   | 10.00 | % |
| Tier 1 capital (to risk weighted assets) |   | $      | 79,907  |    |   | 11.11  | %       |              | $       | 28,769                  |   |    | 4.00   | %                      |   | $ | 43,154 |   |   | 6.00 | % |
| Tier 1 capital (to average assets)       |   | $      | 79,907  |    |   | 8.80   | %       |              | $       | 36,321                  |   |    | 4.00   | %                      |   | $ | 45,402 |   |   | 5.00 | % |

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4. CONTROLS AND PROCEDURES

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

ITEM 4. (removed and reserved)

ITEM 5. OTHER INFORMATIO

ITEM 6. EXHIBITS

|   | 31 | Rule 13a-14(a) / 15d-14(a) Certifications |
|--------|----|-------------------------------------------|
|   | 32 | Section 1350 Certifications               |

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SIGNATURES

| Date November 15, 2010                                           |   |
|------------------------------------------------------------------|--------|
|                                                             |   |
| By:                                                              |   |
|                                                             |   |
| /s/ Michael J. Cushman                                           |   |
| Michael J. Cushman                                               |   |
| President & Chief Executive Officer                          |   |
| (Principal Executive Officer)                                    |   |
|                                                             |   |
| /s/ Kevin R. Watson                                              |   |
| Kevin R. Watson                                                  |   |
| Executive Vice President & Chief Financial Officer           |   |
| (Principal Financial Officer & Principal Accounting Officer) |   |

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