| x      | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934  |
|--------|------------------------------------------------------------------------------------------|
|   | For the period ended June 30, 2010.                                                      |
|   |                                                                                     |
| o      | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|   | For 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—June 30, 2010 and December 31, 2009                                |   | 3      |   |
|                          |                                                                                                           |   |   |   |
|                          | Condensed Consolidated Statement of Operations—For the three and six months ended June 30, 2010 and 2009 |   | 4      |   |
|                          |                                                                                                           |   |   |   |
|                          | Condensed Consolidated Statements of Cash Flows—For the six months ended June 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                    |   | 16     |   |
|                          |                                                                                                           |   |   |   |
| Item 3.                       | Quantitative and Qualitative Disclosures about Market Risk                                                     |   | 31     |   |
|                          |                                                                                                           |   |   |   |
| Item 4.                       | Controls and Procedures                                                                                        |   | 31     |   |
|                          |                                                                                                           |   |   |   |
| PART II. OTHER INFORMATION    |                                                                                                           |   |   |
|                          |                                                                                                           |   |   |
| Item 1.                       | Legal Proceedings                                                                                              |   | 32     |   |
|                          |                                                                                                           |   |   |   |
| Item 1A.                      | Risk Factors                                                                                                   |   | 32     |   |
|                          |                                                                                                           |   |   |   |
| Item 2.                       | Unregistered Sales of Equity Securities and Use of Proceeds                                                    |   | 32     |   |
|                          |                                                                                                           |   |   |   |
| Item 3.                       | Defaults Upon Senior Securities                                                                                |   | 32     |   |
|                          |                                                                                                           |   |   |   |
| Item 4.                       | (removed and reserved)                                                                                         |   | 32     |   |
|                          |                                                                                                           |   |   |   |
| Item 5.                       | Other Information                                                                                              |   | 32     |   |
|                          |                                                                                                           |   |   |   |
| Item 6.                       | Exhibits                                                                                                       |   | 32     |   |
|                          |                                                                                                           |   |   |   |
| SIGNATURES                    |                                                                                                           | 32     |   |

----

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

----

|                                                                                                                            |   | June 30, |    |   | December 31, |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|----------|---------|--------|--------------|--------|
|                                                                                                                            |   | 2010     |    |   | 2009         |   |
| ASSETS                                                                                                                          |   |     |    |   |         |   |
| Cash and cash equivalents:                                                                                                      |   |     |    |   |         |   |
| Cash and due from banks                                                                                                         |   | $        | 20,457  |   |         | $      | 19,378 |   |
| Federal funds sold                                                                                                              |   |     | 60,410  |   |         |   | 48,250 |   |
| Total cash and cash equivalents                                                                                                 |   |     | 80,867  |   |         |   | 67,628 |   |
|                                                                                                                            |   |     |    |   |         |   |   |   |
| Time deposits at other financial institutions                                                                                   |   |     | 425     |   |         |   | 425 |   |
| Investment securities available for sale, at fair value                                                                         |   |     | 196,493 |   |         |   | 146,335 |   |
| Investment securities held to maturity, at amortized cost                                                                       |   |     | 6       |   |         |   | 9 |   |
|                                                                                                                            |   |     |    |   |         |   |   |   |
| Loans and leases                                                                                                                |   |     | 559,605 |   |         |   | 602,417 |   |
| Less: Allowance for loan and lease losses                                                                                       |   |     | (16,151 | )      |         |   | (18,539 | ) |
| Net loans and leases                                                                                                            |   |     | 543,454 |   |         |   | 583,878 |   |
|                                                                                                                            |   |     |    |   |         |   |   |   |
| Premises and equipment, net                                                                                                     |   |     | 9,516   |   |         |   | 10,319 |   |
| Accrued interest receivable                                                                                                     |   |     | 2,535   |   |         |   | 2,565 |   |
| Other real estate owned                                                                                                         |   |     | 16,426  |   |         |   | 12,377 |   |
| FHLB and FRB stock and other securities                                                                                         |   |     | 6,134   |   |         |   | 5,833 |   |
| Bank-owned life insurance policies                                                                                              |   |     | 33,340  |   |         |   | 32,745 |   |
| Core deposit intangibles, net                                                                                                   |   |     | 619     |   |         |   | 692 |   |
| Other assets                                                                                                                    |   |     | 20,966  |   |         |   | 21,556 |   |
|                                                                                                                            |   |     |    |   |         |   |   |   |
| TOTAL ASSETS                                                                                                                    |   | $        | 910,781 |   |         | $      | 884,362 |   |
|                                                                                                                            |   |     |    |   |         |   |   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                      |   |     |    |   |         |   |   |   |
|                                                                                                                            |   |     |    |   |         |   |   |   |
| LIABILITIES:                                                                                                                    |   |     |    |   |         |   |   |   |
| Deposits:                                                                                                                       |   |     |    |   |         |   |   |   |
| Noninterest-bearing                                                                                                             |   | $        | 140,728 |   |         | $      | 152,421 |   |
| Interest-bearing                                                                                                                |   |     | 633,132 |   |         |   | 635,388 |   |
| Total deposits                                                                                                                  |   |     | 773,860 |   |         |   | 787,809 |   |
|                                                                                                                            |   |     |    |   |         |   |   |   |
| Subordinated debentures                                                                                                         |   |     | 31,961  |   |         |   | 31,961 |   |
| Accrued interest payable and other liabilities                                                                                  |   |     | 13,742  |   |         |   | 12,290 |   |
| Total liabilities                                                                                                               |   |     | 819,563 |   |         |   | 832,060 |   |
|                                                                                                                            |   |     |    |   |         |   |   |   |
| Commitments and Contingencies (Note H)                                                                                          |   |     |    |   |         |   |   |   |
|                                                                                                                            |   |     |    |   |         |   |   |   |
| STOCKHOLDERS’ EQUITY:                                                                                                     |   |     |    |   |         |   |   |   |
| Preferred stock, no par value: authorized 5,000,000 shares; 40,000 shares outstanding at June 30, 2010 (Note K)                 |   |     | 37,500  |   |         |   | — |   |
| Common stock, no par value: authorized 20,000,000 shares; outstanding 7,495,817 at June 30, 2010 and December 31, 2009 (Note K) |   |     | 41,875  |   |         |   | 41,781 |   |
| Retained earnings                                                                                                               |   |     | 10,694  |   |         |   | 11,578 |   |
| Accumulated other comprehensive income (loss) net of tax                                                                        |   |     | 1,149   |   |         |   | (1,057 | ) |
| Total stockholders’ equity                                                                                                |   |     | 91,218  |   |         |   | 52,302 |   |
|                                                                                                                            |   |     |    |   |         |   |   |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                |   | $        | 910,781 |   |         | $      | 884,362 |   |

----

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

----

|                                                        |   | For the three months ended June 30, |        |
|-------------------------------------------------------------|--------|-------------------------------------|-------------|
|                                                        |   | 2010                                |        |   | 2009 |   |
| INTEREST INCOME:                                            |   |                                |        |   |   |   |
| Interest and fees on loans and leases                       |   | $                                   | 8,463       |   |   | $ | 10,029 |   |
| Interest on investments:                                    |   |                                |        |   |   |   |   |   |
| Taxable interest income                                     |   |                                | 1,142       |   |   |   | 1,017 |   |
| Nontaxable interest income                                  |   |                                | 177         |   |   |   | 181 |   |
| Interest on federal funds sold and repurchase agreements    |   |                                | 55          |   |   |   | 14 |   |
| Total interest income                                       |   |                                | 9,837       |   |   |   | 11,241 |   |
|                                                        |   |                                |        |   |   |   |   |   |
| INTEREST EXPENSE:                                           |   |                                |        |   |   |   |   |   |
| Deposits                                                    |   |                                | 1,929       |   |   |   | 2,806 |   |
| Subordinated debentures                                     |   |                                | 522         |   |   |   | 526 |   |
| Total interest expense                                      |   |                                | 2,451       |   |   |   | 3,332 |   |
|                                                        |   |                                |        |   |   |   |   |   |
| NET INTEREST INCOME                                         |   |                                | 7,386       |   |   |   | 7,909 |   |
|                                                        |   |                                |        |   |   |   |   |   |
| PROVISION FOR CREDIT LOSSES                                 |   |                                | 2,600       |   |   |   | 9,000 |   |
|                                                        |   |                                |        |   |   |   |   |   |
| NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES       |   |                                |  4,786 |   |   |   | (1,091 | ) |
|                                                        |   |                                |        |   |   |   |   |   |
| NONINTEREST INCOME:                                         |   |                                |        |   |   |   |   |   |
| Service charges on deposit accounts                         |   |                                | 1,546       |   |   |   | 1,640 |   |
| Other fees and charges                                      |   |                                | 1,158       |   |   |   | 1,079 |   |
| Earnings on cash surrender value of life insurance policies |   |                                | 373         |   |   |   | 345 |   |
| Gain on sale of loans                                       |   |                                | 33          |   |   |   | 128 |   |
| (Loss) gain on sale of other assets                         |   |                                | (22         | ) |   |   | 30 |   |
| Other                                                       |   |                                | 289         |   |   |   | 216 |   |
| Total noninterest income                                    |   |                                | 3,377       |   |   |   | 3,438 |   |
|                                                        |   |                                |        |   |   |   |   |   |
| NONINTEREST EXPENSES:                                       |   |                                |        |   |   |   |   |   |
| Salaries and employee benefits                              |   |                                | 4,138       |   |   |   | 4,905 |   |
| Occupancy expense                                           |   |                                | 695         |   |   |   | 801 |   |
| Furniture and equipment expense                             |   |                                | 352         |   |   |   | 459 |   |
| FDIC and state assessments                                  |   |                                | 696         |   |   |   | 905 |   |
| Professional services                                       |   |                                | 302         |   |   |   | 343 |   |
| Other real estate owned expense                             |   |                                | 1,253       |   |   |   | 572 |   |
| Other                                                       |   |                                | 2,436       |   |   |   | 2,797 |   |
| Total noninterest expenses                                  |   |                                | 9,872       |   |   |   | 10,782 |   |
|                                                        |   |                                |        |   |   |   |   |   |
| LOSS BEFORE BENEFIT FOR INCOME TAXES                        |   |                                | (1,709      | ) |   |   | (8,435 | ) |
|                                                        |   |                                |        |   |   |   |   |   |
| BENEFIT FOR INCOME TAXES                                    |   |                                | (1,137      | ) |   |   | (4,346 | ) |
|                                                        |   |                                |        |   |   |   |   |   |
| NET LOSS                                                    |   | $                                   | (572        | ) |   | $ | (4,089 | ) |
|                                                        |   |                                |        |   |   |   |   |   |
| Per Share Amounts                                           |   |                                |        |   |   |   |   |   |
| Basic and Diluted Loss Per Share                            |   | $                                   | (0.08       | ) |   | $ | (0.55 | ) |

----

----

|                                                        |   | For the six months ended June 30, |    |
|-------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                        |   | 2010                              |    |   | 2009 |   |
| INTEREST INCOME:                                            |   |                              |    |   |   |   |
| Interest and fees on loans and leases                       |   | $                                 | 17,079  |   |   | $ | 20,565 |   |
| Interest on investments:                                    |   |                              |    |   |   |   |   |   |
| Taxable interest income                                     |   |                              | 2,191   |   |   |   | 1,711 |   |
| Nontaxable interest income                                  |   |                              | 355     |   |   |   | 361 |   |
| Interest on federal funds sold and repurchase agreements    |   |                              | 87      |   |   |   | 23 |   |
| Total interest income                                       |   |                              | 19,712  |   |   |   | 22,660 |   |
|                                                        |   |                              |    |   |   |   |   |   |
| INTEREST EXPENSE:                                           |   |                              |    |   |   |   |   |   |
| Deposits                                                    |   |                              | 3,948   |   |   |   | 5,574 |   |
| Subordinated debentures                                     |   |                              | 1,036   |   |   |   | 1,068 |   |
| Other borrowings                                            |   |                              | — |   |   |   | 1 |   |
| Total interest expense                                      |   |                              | 4,984   |   |   |   | 6,643 |   |
|                                                        |   |                              |    |   |   |   |   |   |
| NET INTEREST INCOME                                         |   |                              | 14,728  |   |   |   | 16,017 |   |
|                                                        |   |                              |    |   |   |   |   |   |
| PROVISION FOR CREDIT LOSSES                                 |   |                              | 3,600   |   |   |   | 16,000 |   |
|                                                        |   |                              |    |   |   |   |   |   |
| NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES       |   |                              | 11,128  |   |   |   | 17 |   |
|                                                        |   |                              |    |   |   |   |   |   |
| NONINTEREST INCOME:                                         |   |                              |    |   |   |   |   |   |
| Service charges on deposit accounts                         |   |                              | 3,027   |   |   |   | 3,168 |   |
| Other fees and charges                                      |   |                              | 2,189   |   |   |   | 2,043 |   |
| Earnings on cash surrender value of life insurance policies |   |                              | 719     |   |   |   | 681 |   |
| Gain on sale of loans                                       |   |                              | 82      |   |   |   | 225 |   |
| (Loss) gain on sale of other assets                         |   |                              | (147    | ) |   |   | 30 |   |
| Other                                                       |   |                              | 519     |   |   |   | 455 |   |
| Total noninterest income                                    |   |                              | 6,389   |   |   |   | 6,602 |   |
|                                                        |   |                              |    |   |   |   |   |   |
| NONINTEREST EXPENSES:                                       |   |                              |    |   |   |   |   |   |
| Salaries and employee benefits                              |   |                              | 8,425   |   |   |   | 9,969 |   |
| Occupancy expense                                           |   |                              | 1,429   |   |   |   | 1,562 |   |
| Furniture and equipment expense                             |   |                              | 775     |   |   |   | 928 |   |
| FDIC and state assessments                                  |   |                              | 1,402   |   |   |   | 1,316 |   |
| Professional services                                       |   |                              | 994     |   |   |   | 670 |   |
| Other real estate owned expense                             |   |                              | 2,103   |   |   |   | 1,570 |   |
| Other                                                       |   |                              | 4,763   |   |   |   | 5,102 |   |
| Total noninterest expenses                                  |   |                              | 19,891  |   |   |   | 21,117 |   |
|                                                        |   |                              |    |   |   |   |   |   |
| LOSS BEFORE BENEFIT FOR INCOME TAXES                        |   |                              | (2,374  | ) |   |   | (14,498 | ) |
|                                                        |   |                              |    |   |   |   |   |   |
| BENEFIT FOR INCOME TAXES                                    |   |                              | (1,490  | ) |   |   | (7,302 | ) |
|                                                        |   |                              |    |   |   |   |   |   |
| NET LOSS                                                    |   | $                                 | (884    | ) |   | $ | (7,196 | ) |
|                                                        |   |                              |    |   |   |   |   |   |
| Per Share Amounts                                           |   |                              |    |   |   |   |   |   |
| Basic and Diluted Loss Per Share                            |   | $                                 | (0.12   | ) |   | $ | (0.96 | ) |

----

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

----

|                                                                                         |   | For the six months ended June30, |    |
|----------------------------------------------------------------------------------------------|--------|----------------------------------|---------|
|                                                                                         |   | 2010                             |    |   | 2009 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                        |   |                             |    |   |   |   |
| Net Loss                                                                                     |   | $                                | (884    | ) |   | $ | (7,196 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activities:              |   |                             |    |   |   |   |   |   |
| Depreciation and amortization                                                                |   |                             | 827     |   |   |   | 983 |   |
| Amortization of premium on securities, net                                                   |   |                             | 410     |   |   |   | 114 |   |
| Amortization of core deposit intangible                                                      |   |                             | 73      |   |   |   | 73 |   |
| Provision for credit losses                                                                  |   |                             | 3,600   |   |   |   | 16,000 |   |
| Net losses on sale and writedown of other real estate owned                                  |   |                             | 1,830   |   |   |   | 1,410 |   |
| Gain on sale of loans                                                                        |   |                             | (82     | ) |   |   | (225 | ) |
| Loss (gain) on sale of premises and equipment                                                |   |                             | 147     |   |   |   | (30 | ) |
| Stock-based compensation expense                                                             |   |                             | 94      |   |   |   | 146 |   |
| Effect of changes in:                                                                        |   |                             |    |   |   |   |   |   |
| Accrued interest receivable                                                                  |   |                             | 30      |   |   |   | 155 |   |
| Other assets                                                                                 |   |                             | (1,539  | ) |   |   | (6,053 | ) |
| Accrued interest payable and other liabilities                                               |   |                             | 1,452   |   |   |   | (288 | ) |
| Net cash provided by operating activities                                                    |   |                             | 5,958   |   |   |   | 5,089 |   |
|                                                                                         |   |                             |    |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                        |   |                             |    |   |   |   |   |   |
| Purchases of time deposits at other financial institutions                                   |   |                             | — |   |   |   | (425 | ) |
| Purchases of available for sale securities                                                   |   |                             | (64,738 | ) |   |   | (72,234 | ) |
| Proceeds from maturities/calls of available for sale securities                              |   |                             | 17,911  |   |   |   | 10,691 |   |
| Proceeds from maturities/calls of held to maturity securities                                |   |                             | 2       |   |   |   | 6 |   |
| Purchases of FHLB and FRB stock and other securities                                         |   |                             | (301    | ) |   |   | (8 | ) |
| Net decrease in loans and leases                                                             |   |                             | 28,467  |   |   |   | 34,233 |   |
| Proceeds from sales of other real estate owned                                               |   |                             | 2,560   |   |   |   | 6,423 |   |
| Proceeds from sales of premises and equipment                                                |   |                             | — |   |   |   | 36 |   |
| Purchases of premises and equipment                                                          |   |                             | (171    | ) |   |   | (668 | ) |
| Net cash used in investing activities                                                        |   |                             | (16,270 | ) |   |   | (21,946 | ) |
|                                                                                         |   |                             |    |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                        |   |                             |    |   |   |   |   |   |
| (Decrease) increase in deposits                                                              |   |                             | (13,949 | ) |   |   | 44,799 |   |
| 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                                                    |   |                             | 23,551  |   |   |   | 41,283 |   |
|                                                                                         |   |                             |    |   |   |   |   |   |
| NET INCREASE CASH AND CASH EQUIVALENTS                                                       |   |                             | 13,239  |   |   |   | 24,426 |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                                 |   |                             | 67,628  |   |   |   | 27,153 |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                                     |   | $                                | 80,867  |   |   | $ | 51,579 |   |
|                                                                                         |   |                             |    |   |   |   |   |   |
| Supplemental Disclosures of Cash Flow Information                                            |   |                             |    |   |   |   |   |   |
| Cash paid during the year for:                                                               |   |                             |    |   |   |   |   |   |
| Interest                                                                                     |   | $                                | 4,044   |   |   | $ | 6,825 |   |
|                                                                                         |   |                             |    |   |   |   |   |   |
| Noncash investing and financing activities:                                                  |   |                             |    |   |   |   |   |   |
| Net change in unrealized gain (loss) on available for sale investment securities, net of tax |   |                             | 2,206   |   |   |   | (129 | ) |
| Transfer from loans to other real estate owned                                               |   |                             | 8,439   |   |   |   | 3,554 |   |

----

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

----

|                                            |   |      |    |   | Gross      |   |    | Gross      |   |   | Estimated |   |
|-------------------------------------------------|--------|-----------|---------|--------|------------|--------|---------|------------|--------|--------|-----------|--------|
|                                            |   | Amortized |    |   | Unrealized |   |    | Unrealized |   |   | Fair      |   |
|                                            |   | Cost      |    |   | Gains      |   |    | Losses     |   |   | Value     |   |
| June 30, 2010                                   |   |      |    |   |       |   |    |       |   |   |      |   |
| Available-for-Sale:                             |   |      |    |   |       |   |    |       |   |   |      |   |
| Obligations of U.S. government agencies         |   | $         | 36,604  |   |       | $      | 528     |       |   | $      | —   |   |   | $ | 37,132 |   |
| Obligations of state and political subdivisions |   |      | 15,486  |   |       |   | 514     |       |   |   | (139      | )      |   |   | 15,861 |   |
| Mortgage-backed securities                      |   |      | 132,650 |   |       |   | 3,475   |       |   |   | (3        | )      |   |   | 136,122 |   |
| Corporate debt securities                       |   |      | 6,000   |   |       |   | — |       |   |   | (1,622    | )      |   |   | 4,378 |   |
| Equity securities                               |   |      | 3,000   |   |       |   | — |       |   |   | —   |   |   |   | 3,000 |   |
|                                            |   | $         | 193,740 |   |       | $      | 4,517   |       |   | $      | (1,764    | )      |   | $ | 196,493 |   |
| 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 June 30, 2010                  |   |   | 763,965 |   |     | $      | 10.18       |   | 6 years  |   | $3.15-$24.75 |         |   | $ | — |   |
| Fully vested and exercisable at June 30, 2010 |   |   | 485,482 |   |     | $      | 12.07       |   | 4 years  |   | $3.15-$24.75 |         |   | $ | — |   |
| Options expected to vest                      |   |   | 278,483 |   |     | $      | 6.90        |   | 8 years  |   | $3.15-$24.75 |         |   | $ | — |   |

|                                         |   | Three months ended June 30, |   |   | Six months ended June30, |   |
|----------------------------------------------|--------|-----------------------------|--------|--------|--------------------------|--------|
|                                         |   | 2010                        |   |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
|                                         |   |                        |   |   |                     |   |   |   |   |   |   |   |
| Net loss                                     |   | $                           | (572   | )      |                     | $      | (4,089 | ) |   | $ | (884 | ) |   | $ | (7,196 | ) |
| Other comprehensive gain (loss), net of tax: |   |                        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Holding gain (loss) arising during period    |   |                        | 1,561  |   |                     |   | (829 | ) |   |   | 2,206 |   |   |   | (129 | ) |
| Total comprehensive income (loss)            |   | $                           | 989    |   |                     | $      | (4,918 | ) |   | $ | 1,322 |   |   | $ | (7,325 | ) |

----

|                                                           |   | June 30, |   |   | December 31, |   |
|----------------------------------------------------------------|--------|----------|--------|--------|--------------|--------|
|                                                           |   | 2010     |   |   | 2009         |   |
|                                                           |   |     |   |   |         |   |
| Nonaccrual loans and leases                                    |   | $        | 38,399 |   |         | $      | 46,598 |   |
| Loans and leases past due 90 days and accruing interest        |   |     | 11     |   |         |   | — |   |
| Other real estate owned                                        |   |     | 16,426 |   |         |   | 12,377 |   |
| Total nonperforming assets                                     |   | $        | 54,836 |   |         | $      | 58,975 |   |
|                                                           |   |     |   |   |         |   |   |   |
| Nonaccrual loans and leases to total gross loans and leases    |   |     | 6.86   | %      |         |   | 7.74 | % |
| Nonperforming loans and leases to total gross loans and leases |   |     | 6.86   | %      |         |   | 7.74 | % |
| Total nonperforming assets to total assets                     |   |     | 6.02   | %      |         |   | 6.67 | % |

|                                      |   | Three months ended June 30, |    | Six months ended June 30, |   |
|-------------------------------------------|--------|-----------------------------|---------|---------------------------|--------|
|                                      |   | 2010                        |    | 2009                      |   | 2010 |   | 2009 |   |
| Components of net periodic benefits cost: |   |                        |    |                      |   |   |   |   |   |   |   |   |   |
| Service cost                              |   | $                           | — |                      | $      | 135 |   | $ | — |   | $ | 270 |   |
| Interest cost                             |   |                        | 85      |                      |   | 83 |   |   | 170 |   |   | 167 |   |
| Prior service amortization                |   |                        | 8       |                      |   | 8 |   |   | 16 |   |   | 16 |   |
| Recognized net actuarial loss             |   |                        | 4       |                      |   | 5 |   |   | 8 |   |   | 10 |   |
| Total components of net periodic cost     |   | $                           | 97      |                      | $      | 231 |   | $ | 194 |   | $ | 463 |   |

----

| ● | Quoted prices in active markets for identical assets (Level 1): Inputs that are quoted unadjusted prices in active markets for identical assets that the Company has the ability to access at the measurement date. An active market for the asset is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ● | Significant other observable inputs (Level 2): Inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity including quoted prices for similar assets or liabilities, quoted prices for securities in inactive markets and inputs derived principally from, or corroborated by, observable market data by correlation or other means. |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| ● | Significant unobservable inputs (Level 3): Inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.                                                                                                                                                                                              |

|                          |   | At June 30, 2010 |    |
|-------------------------------|--------|------------------|---------|
|                          |   | Fair Value       |    |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|                          |   |             |    |   |   |   |   |   |   |   |   |   |
| Available for sale securities |   | $                | 196,493 |   |   | $ | — |   |   | $ | 196,493 |   |   | $ | — |   |

|                          |   | At December 31, 2009 |    |
|-------------------------------|--------|----------------------|---------|
|                          |   | Fair Value           |    |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|                          |   |                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available for sale securities |   | $                    | 146,335 |   |   | $ | — |   |   | $ | 146,335 |   |   | $ | — |   |

|                                                        |   |             |   |   |                    |   |    |    |   |   |    |   |   | Total Losses     |   |
|-------------------------------------------------------------|--------|------------------|--------|--------|-------------------------|--------|---------|---------|--------|--------|---------|--------|--------|------------------|--------|
|                                                        |   | At June 30, 2010 |   |   | For the SixMonths Ended |   |
|                                                        |   | Fair Value       |   |   | Level 1                 |   |    | Level 2 |   |   | Level 3 |   |   | At June 30, 2010 |   |
|                                                        |   |             |   |   |                    |   |    |    |   |   |    |   |   |             |   |
| Impaired loans                                              |   | $                | 20,009 |   |                    | $      | — |    |   | $      | 10,002  |   |   | $                | 10,007 |   |   | $ | 2,897 |   |
| Other real estate owned                                     |   | $                | 16,426 |   |                    |   | — |    |   |   | 16,158  |   |   |             | 268    |   |   |   | 2,114 |   |
| Total assets measured at fair value on a nonrecurring basis |   | $                | 36,435 |   |                    | $      | — |    |   | $      | 26,160  |   |   | $                | 10,275 |   |   | $ | 5,011 |   |

|                                                        |   |                 |   |   |                        |   |    |    |   |   |    |   |   |              |   |   |   | Total Losses |   |
|-------------------------------------------------------------|--------|----------------------|--------|--------|-----------------------------|--------|---------|---------|--------|--------|---------|--------|--------|-------------------|--------|--------|--------|--------------|--------|
|                                                        |   | At December 31, 2009 |   |   | For the Twelve Months Ended |   |
|                                                        |   | Fair Value           |   |   | Level 1                     |   |    | Level 2 |   |   | Level 3 |   |   | December 31, 2009 |   |
|                                                        |   |                 |   |   |                        |   |    |    |   |   |    |   |   |              |   |   |   |         |   |   |
| Impaired loans                                              |   | $                    | 21,242 |   |                        | $      | — |    |   | $      | 11,102  |   |   | $                 | 10,140 |   |   | $            | 12,928 |   |
| 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.                                                                                                                                                                                                                                                                                                                             |

----

|                                          |   | June 30, 2010 |    |   | December 31, 2009 |   |
|-----------------------------------------------|--------|---------------|---------|--------|-------------------|--------|
|                                          |   | Carrying      |    |   | Fair              |   |   | Carrying |   |   | Fair |   |
|                                          |   | Amount        |    |   | Value             |   |   | Amount |   |   | Value |   |
| FINANCIAL ASSETS                              |   |          |    |   |              |   |   |   |   |   |   |   |
| Cash and due from banks                       |   | $             | 20,457  |   |              | $      | 20,457 |   |   | $ | 19,378 |   |   | $ | 19,378 |   |
| Federal funds sold                            |   |          | 60,410  |   |              |   | 60,410 |   |   |   | 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                            |   |          | 196,493 |   |              |   | 196,493 |   |   |   | 146,335 |   |   |   | 146,335 |   |
| Held to maturity                              |   |          | 6       |   |              |   | 6 |   |   |   | 9 |   |   |   | 9 |   |
| Loans and leases                              |   |          | 543,454 |   |              |   | 557,473 |   |   |   | 583,878 |   |   |   | 593,278 |   |
| Bank owned life insurance                     |   |          | 33,340  |   |              |   | 33,340 |   |   |   | 32,745 |   |   |   | 32,745 |   |
| Mortgage servicing assets                     |   |          | 664     |   |              |   | 664 |   |   |   | 712 |   |   |   | 642 |   |
| Accrued interest receivable                   |   |          | 2,535   |   |              |   | 2,535 |   |   |   | 2,565 |   |   |   | 2,565 |   |
|                                          |   |          |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| FINANCIAL LIABILITIES                         |   |          |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                      |   | $             | 773,860 |   |              | $      | 775,949 |   |   | $ | 787,809 |   |   | $ | 790,803 |   |
| Subordinated debentures                       |   |          | 31,961  |   |              |   | 19,381 |   |   |   | 31,961 |   |   |   | 22,005 |   |
| Accrued interest payable                      |   |          | 2,040   |   |              |   | 2,040 |   |   |   | 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 June 30, |   |   | Six months ended June 30, |   |
|-----------------------------------------|--------|-----------------------------|--------|--------|---------------------------|--------|
|                                    |   | 2010                        |   |   | 2009                      |   |   | 2010 |   |   | 2009 |   |
| Net interest income                     |   | $                           | 7,386  |   |                      | $      | 7,909 |   |   | $ | 14,728 |   |   | $ | 16,017 |   |
| Provision for credit losses             |   |                        | 2,600  |   |                      |   | 9,000 |   |   |   | 3,600 |   |   |   | 16,000 |   |
| Noninterest income                      |   |                        | 3,377  |   |                      |   | 3,438 |   |   |   | 6,389 |   |   |   | 6,602 |   |
| Noninterest expense                     |   |                        | 9,872  |   |                      |   | 10,782 |   |   |   | 19,891 |   |   |   | 21,117 |   |
| Benefit for income taxes                |   |                        | (1,137 | )      |                      |   | (4,346 | ) |   |   | (1,490 | ) |   |   | (7,302 | ) |
| Net loss                                |   | $                           | (572   | )      |                      | $      | (4,089 | ) |   | $ | (884 | ) |   | $ | (7,196 | ) |
|                                    |   |                        |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Loss Per Share                          |   |                        |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                   |   | $                           | (0.08  | )      |                      | $      | (0.55 | ) |   | $ | (0.12 | ) |   | $ | (0.96 | ) |
| Diluted                                 |   | $                           | (0.08  | )      |                      | $      | (0.55 | ) |   | $ | (0.12 | ) |   | $ | (0.96 | ) |
|                                    |   |                        |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Annualized Loss on Average Assets       |   |                        | (0.25  | %)     |                      |   | (1.81 | %) |   |   | (0.20 | %) |   |   | (1.63 | %) |
| Annualized Loss on Average Equity       |   |                        | (2.76  | %)     |                      |   | (21.74 | %) |   |   | (2.62 | %) |   |   | (18.98 | %) |

----

----

| Schedule of Average Daily Balance and Average Yields and Rates |   |
|----------------------------------------------------------------|--------|
| (Dollars in thousands)                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   | Three months ended June 30, 2010 |   |   | Three months ended June 30, 2009 |   |
|                                                           |   | Average |   |   | Yield/ |   |   | Interest |   |   | Average |   |   | Yield/ |   |   | Interest |   |
|                                                           |   | Balance |   |   | Rate |   |   | Amount |   |   | Balance |   |   | Rate |   |   | Amount |   |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Assets                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earning assets:                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold                                             |   | $ | 95,116 |   |   |   | 0.23 | % |   | $ | 55 |   |   | $ | 31,984 |   |   |   | 0.18 | % |   | $ | 14 |   |
| Investment securities:                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                        |   |   | 155,504 |   |   |   | 2.95 | % |   |   | 1,142 |   |   |   | 107,969 |   |   |   | 3.78 | % |   |   | 1,017 |   |
| Non-taxable (1)                                                |   |   | 15,459 |   |   |   | 6.80 | % |   |   | 262 |   |   |   | 15,850 |   |   |   | 6.76 | % |   |   | 267 |   |
| Total investments                                              |   |   | 170,963 |   |   |   | 3.29 | % |   |   | 1,404 |   |   |   | 123,819 |   |   |   | 4.16 | % |   |   | 1,284 |   |
| Loans and leases (2)(3)                                        |   |   | 570,805 |   |   |   | 5.95 | % |   |   | 8,463 |   |   |   | 658,068 |   |   |   | 6.11 | % |   |   | 10,029 |   |
| Total earning assets                                           |   |   | 836,884 |   |   |   | 4.76 | % |   |   | 9,922 |   |   |   | 813,871 |   |   |   | 5.58 | % |   |   | 11,327 |   |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non earning assets                                             |   |   | 100,894 |   |   |   |   |   |   |   |   |   |   |   | 108,298 |   |   |   |   |   |   |   |   |   |
| Allowance for loan and lease losses                            |   |   | (18,067 | ) |   |   |   |   |   |   |   |   |   |   | (16,136 | ) |   |   |   |   |   |   |   |   |
| Total non-earning assets                                       |   |   | 82,827 |   |   |   |   |   |   |   |   |   |   |   | 92,162 |   |   |   |   |   |   |   |   |   |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                   |   | $ | 919,711 |   |   |   |   |   |   |   |   |   |   | $ | 906,033 |   |   |   |   |   |   |   |   |   |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and Shareholders’ Equity                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Transaction accounts                                           |   | $ | 156,514 |   |   |   | 0.27 | % |   | $ | 104 |   |   | $ | 151,422 |   |   |   | 0.31 | % |   | $ | 117 |   |
| Savings and money market                                       |   |   | 217,773 |   |   |   | 0.76 | % |   |   | 415 |   |   |   | 172,001 |   |   |   | 1.01 | % |   |   | 435 |   |
| Time certificates                                              |   |   | 266,086 |   |   |   | 2.13 | % |   |   | 1,410 |   |   |   | 320,512 |   |   |   | 2.82 | % |   |   | 2,254 |   |
| Other borrowed funds                                           |   |   | 31,961 |   |   |   | 6.55 | % |   |   | 522 |   |   |   | 31,961 |   |   |   | 6.60 | % |   |   | 526 |   |
| Total interest bearing liabilities                             |   |   | 672,334 |   |   |   | 1.46 | % |   |   | 2,451 |   |   |   | 675,896 |   |   |   | 1.98 | % |   |   | 3,332 |   |
| Demand deposits                                                |   |   | 145,284 |   |   |   |   |   |   |   |   |   |   |   | 144,334 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                              |   |   | 18,827 |   |   |   |   |   |   |   |   |   |   |   | 10,370 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                              |   |   | 836,445 |   |   |   |   |   |   |   |   |   |   |   | 830,600 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                     |   |   | 83,266 |   |   |   |   |   |   |   |   |   |   |   | 75,433 |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity               |   | $ | 919,711 |   |   |   |   |   |   |   |   |   |   | $ | 906,033 |   |   |   |   |   |   |   |   |   |
| Net interest income                                            |   |   |   |   |   |   |   |   |   | $ | 7,471 |   |   |   |   |   |   |   |   |   |   | $ | 7,995 |   |
| Net interest spread                                            |   |   |   |   |   |   | 3.30 | % |   |   |   |   |   |   |   |   |   |   | 3.60 | % |   |   |   |   |
| Net interest margin                                            |   |   |   |   |   |   | 3.58 | % |   |   |   |   |   |   |   |   |   |   | 3.94 | % |   |   |   |   |

----

----

| Schedule of Average Daily Balance and Average Yields and Rates |   |
|----------------------------------------------------------------|--------|
| (Dollars in thousands)                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   | Six months ended June 30, 2010 |   |   | Six months ended June 30, 2009 |   |
|                                                           |   | Average |   |   | Yield/ |   |   | Interest |   |   | Average |   |   | Yield/ |   |   | Interest |   |
|                                                           |   | Balance |   |   | Rate |   |   | Amount |   |   | Balance |   |   | Rate |   |   | Amount |   |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Assets                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earning assets:                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold                                             |   | $ | 75,651 |   |   |   | 0.23 | % |   | $ | 87 |   |   | $ | 23,544 |   |   |   | 0.20 | % |   | $ | 23 |   |
| Investment securities:                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                        |   |   | 145,095 |   |   |   | 3.05 | % |   |   | 2,191 |   |   |   | 88,839 |   |   |   | 3.88 | % |   |   | 1,711 |   |
| Non-taxable (1)                                                |   |   | 15,514 |   |   |   | 6.82 | % |   |   | 525 |   |   |   | 15,874 |   |   |   | 6.78 | % |   |   | 534 |   |
| Total investments                                              |   |   | 160,609 |   |   |   | 3.41 | % |   |   | 2,716 |   |   |   | 104,713 |   |   |   | 4.32 | % |   |   | 2,245 |   |
| Loans and leases (2)(3)                                        |   |   | 581,101 |   |   |   | 5.93 | % |   |   | 17,079 |   |   |   | 669,390 |   |   |   | 6.20 | % |   |   | 20,565 |   |
| Total earning assets                                           |   |   | 817,361 |   |   |   | 4.91 | % |   |   | 19,882 |   |   |   | 797,647 |   |   |   | 5.77 | % |   |   | 22,833 |   |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non earning assets                                             |   |   | 98,920 |   |   |   |   |   |   |   |   |   |   |   | 108,432 |   |   |   |   |   |   |   |   |   |
| Allowance for loan and lease losses                            |   |   | (18,426 | ) |   |   |   |   |   |   |   |   |   |   | (13,798 | ) |   |   |   |   |   |   |   |   |
| Total non-earning assets                                       |   |   | 80,494 |   |   |   |   |   |   |   |   |   |   |   | 94,634 |   |   |   |   |   |   |   |   |   |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                   |   | $ | 897,855 |   |   |   |   |   |   |   |   |   |   | $ | 892,281 |   |   |   |   |   |   |   |   |   |
|                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and Shareholders’ Equity                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Transaction accounts                                           |   | $ | 156,912 |   |   |   | 0.27 | % |   | $ | 208 |   |   | $ | 152,403 |   |   |   | 0.34 | % |   | $ | 258 |   |
| Savings and money market                                       |   |   | 207,332 |   |   |   | 0.75 | % |   |   | 769 |   |   |   | 169,913 |   |   |   | 1.04 | % |   |   | 875 |   |
| Time certificates                                              |   |   | 271,650 |   |   |   | 2.21 | % |   |   | 2,971 |   |   |   | 303,183 |   |   |   | 2.95 | % |   |   | 4,441 |   |
| Other borrowed funds                                           |   |   | 31,961 |   |   |   | 6.54 | % |   |   | 1,036 |   |   |   | 32,641 |   |   |   | 6.60 | % |   |   | 1,069 |   |
| Total interest bearing liabilities                             |   |   | 667,855 |   |   |   | 1.50 | % |   |   | 4,984 |   |   |   | 658,140 |   |   |   | 2.04 | % |   |   | 6,643 |   |
| Demand deposits                                                |   |   | 146,131 |   |   |   |   |   |   |   |   |   |   |   | 147,158 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                              |   |   | 15,712 |   |   |   |   |   |   |   |   |   |   |   | 10,521 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                              |   |   | 829,698 |   |   |   |   |   |   |   |   |   |   |   | 815,819 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                     |   |   | 68,157 |   |   |   |   |   |   |   |   |   |   |   | 76,462 |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity               |   | $ | 897,855 |   |   |   |   |   |   |   |   |   |   | $ | 892,281 |   |   |   |   |   |   |   |   |   |
| Net interest income                                            |   |   |   |   |   |   |   |   |   | $ | 14,898 |   |   |   |   |   |   |   |   |   |   | $ | 16,190 |   |
| Net interest spread                                            |   |   |   |   |   |   | 3.41 | % |   |   |   |   |   |   |   |   |   |   | 3.73 | % |   |   |   |   |
| Net interest margin                                            |   |   |   |   |   |   | 3.68 | % |   |   |   |   |   |   |   |   |   |   | 4.09 | % |   |   |   |   |

----

----

| Changes in Volume/Rate              |   |                             |    |   |                           |   |   |       |   |   |    |   |   |    |   |   |
|-------------------------------------|--------|----------------------------------|---------|--------|--------------------------------|--------|--------|------------|--------|--------|---------|--------|--------|---------|--------|--------|
| (Dollars in thousands)              |   | Three months ended June 30, 2010 |    |   | Six months ended June 30, 2010 |   |
|                                |   | compared with                    |    |   | compared with                  |   |
|                                |   | Three months ended June 30, 2009 |    |   | Six months ended June 30, 2009 |   |
|                                |   |                             |    |   |                           |   | Total  |       |   |   |    |   |   |    |   | Total  |   |
|                                |   | Average                          |    |   | Average                        |   |   | Increase   |   |   | Average |   |   | Average |   |   | Increase |   |
|                                |   | Volume                           |    |   | Rate                           |   |   | (Decrease) |   |   | Volume  |   |   | Rate    |   |   | (Decrease) |   |
| Interest Income                     |   |                             |    |   |                           |   |   |       |   |   |    |   |   |    |   |   |   |   |
| Interest on Federal funds sold      |   | $                                | 28      |   |                           | $      | 13     |       |   | $      | 41      |   |   | $       | 52     |   |   | $ | 12 |   |   | $ | 64 |   |
| Interest on investments:            |   |                             |    |   |                           |   |   |       |   |   |    |   |   |    |   |   |   |   |   |   |   |   |   |   |
| Taxable securities                  |   |                             | 448     |   |                           |   | (322   | )          |   |   | 126     |   |   |    | 1,091  |   |   |   | (611 | ) |   |   | 480 |   |
| Nontaxable securities (1)           |   |                             | (7      | )      |                           |   | 1      |       |   |   | (6      | )      |   |    | (12    | )      |   |   | 3 |   |   |   | (9 | ) |
| Total investments                   |   |                             | 441     |   |                           |   | (321   | )          |   |   | 120     |   |   |    | 1,079  |   |   |   | (608 | ) |   |   | 471 |   |
| Interest on loans and leases        |   |                             | (1,333  | )      |                           |   | (233   | )          |   |   | (1,566  | )      |   |    | (2,737 | )      |   |   | (749 | ) |   |   | (3,486 | ) |
| Total interest income               |   |                             | (864    | )      |                           |   | (541   | )          |   |   | (1,405  | )      |   |    | (1,606 | )      |   |   | (1,345 | ) |   |   | (2,951 | ) |
|                                |   |                             |    |   |                           |   |   |       |   |   |    |   |   |    |   |   |   |   |   |   |   |   |   |   |
| Interest Expense                    |   |                             |    |   |                           |   |   |       |   |   |    |   |   |    |   |   |   |   |   |   |   |   |   |   |
| Transaction accounts                |   | $                                | 4       |   |                           | $      | (17    | )          |   | $      | (13     | )      |   |    | 8      |   |   | $ | (58 | ) |   | $ | (50 | ) |
| Savings and money market            |   |                             | 116     |   |                           |   | (136   | )          |   |   | (20     | )      |   |    | 195    |   |   |   | (301 | ) |   |   | (106 | ) |
| Time deposits                       |   |                             | (384    | )      |                           |   | (460   | )          |   |   | (844    | )      |   |    | (465   | )      |   |   | (1,005 | ) |   |   | (1,470 | ) |
| Other borrowed funds                |   |                             | — |   |                           |   | (4     | )          |   |   | (4      | )      |   |    | (22    | )      |   |   | (11 | ) |   |   | (33 | ) |
| Total interest expense              |   |                             | (264    | )      |                           |   | (617   | )          |   |   | (881    | )      |   |    | (284   | )      |   |   | (1,375 | ) |   |   | (1,659 | ) |
|                                |   |                             |    |   |                           |   |   |       |   |   |    |   |   |    |   |   |   |   |   |   |   |   |   |   |
| Total change in net interest income |   | $                                | (600    | )      |                           | $      | 76     |       |   | $      | (524    | )      |   | $       | (1,322 | )      |   | $ | 30 |   |   | $ | (1,292 | ) |

|                                     |   | Three months ended June 30, |   |   | Six months ended June 30, |   |
|------------------------------------------|--------|-----------------------------|--------|--------|---------------------------|--------|
|                                     |   | 2010                        |   |   | 2009                      |   |   | 2010 |   |   | 2009 |   |
| Service charges on deposit accounts      |   | $                           | 1,546  |   |                      | $      | 1,640 |   |   | $ | 3,027 |   |   | $ | 3,168 |   |
| Other fees and charges                   |   |                        | 1,158  |   |                      |   | 1,079 |   |   |   | 2,189 |   |   |   | 2,043 |   |
| Increase in cash value of life insurance |   |                        | 373    |   |                      |   | 345 |   |   |   | 719 |   |   |   | 681 |   |
| Gain on sale of loans                    |   |                        | 33     |   |                      |   | 128 |   |   |   | 82 |   |   |   | 225 |   |
| (Loss) gain on sale other assets         |   |                        | (22    | )      |                      |   | 30 |   |   |   | (147 | ) |   |   | 30 |   |
| Other                                    |   |                        | 289    |   |                      |   | 216 |   |   |   | 519 |   |   |   | 455 |   |
| Total                                    |   | $                           | 3,377  |   |                      | $      | 3,438 |   |   | $ | 6,389 |   |   | $ | 6,602 |   |

----

|                            |   | Three months ended June 30, |   |   | Six months ended June 30, |   |
|---------------------------------|--------|-----------------------------|--------|--------|---------------------------|--------|
|                            |   | 2010                        |   |   | 2009                      |   |   | 2010 |   |   | 2009 |   |
| Salaries and benefits           |   | $                           | 4,138  |   |                      | $      | 4,905 |   |   | $ | 8,425 |   |   | $ | 9,969 |   |
| Other real estate owned expense |   |                        | 1,253  |   |                      |   | 572 |   |   |   | 2,103 |   |   |   | 1,570 |   |
| FDIC and state assessments      |   |                        | 696    |   |                      |   | 905 |   |   |   | 1,402 |   |   |   | 1,316 |   |
| Occupancy                       |   |                        | 695    |   |                      |   | 801 |   |   |   | 1,429 |   |   |   | 1,562 |   |
| Data processing                 |   |                        | 504    |   |                      |   | 548 |   |   |   | 1,025 |   |   |   | 1,129 |   |
| Furniture and equipment         |   |                        | 352    |   |                      |   | 459 |   |   |   | 775 |   |   |   | 928 |   |
| Professional services           |   |                        | 302    |   |                      |   | 343 |   |   |   | 994 |   |   |   | 670 |   |
| ATM and online banking          |   |                        | 287    |   |                      |   | 286 |   |   |   | 546 |   |   |   | 571 |   |
| Loan expense                    |   |                        | 171    |   |                      |   | 612 |   |   |   | 291 |   |   |   | 805 |   |
| Postage                         |   |                        | 157    |   |                      |   | 136 |   |   |   | 307 |   |   |   | 300 |   |
| Messenger                       |   |                        | 150    |   |                      |   | 123 |   |   |   | 293 |   |   |   | 207 |   |
| Marketing                       |   |                        | 141    |   |                      |   | 142 |   |   |   | 309 |   |   |   | 263 |   |
| Operations expense              |   |                        | 127    |   |                      |   | 131 |   |   |   | 259 |   |   |   | 274 |   |
| Director                        |   |                        | 113    |   |                      |   | 135 |   |   |   | 218 |   |   |   | 267 |   |
| Printing and supplies           |   |                        | 104    |   |                      |   | 119 |   |   |   | 208 |   |   |   | 256 |   |
| Amortization of intangibles     |   |                        | 37     |   |                      |   | 37 |   |   |   | 73 |   |   |   | 73 |   |
| Other                           |   |                        | 645    |   |                      |   | 528 |   |   |   | 1,234 |   |   |   | 957 |   |
|                            |   | $                           | 9,872  |   |                      | $      | 10,782 |   |   | $ | 19,891 |   |   | $ | 21,117 |   |

----

| (in thousands)                      |   | June 30, |    |   | December 31, |   |
|-------------------------------------|--------|----------|---------|--------|--------------|--------|
|                                |   | 2010     |    |   | 2009         |   |
| Commercial                          |   | $        | 59,305  |   |         | $      | 66,513 |   |
| Real estate - commercial            |   |     | 298,230 |   |         |   | 313,917 |   |
| Real estate - construction          |   |     | 79,656  |   |         |   | 92,111 |   |
| Real estate - mortgage              |   |     | 55,310  |   |         |   | 59,816 |   |
| Installment                         |   |     | 18,122  |   |         |   | 22,289 |   |
| Direct financing leases             |   |     | 711     |   |         |   | 813 |   |
| Other                               |   |     | 48,920  |   |         |   | 47,665 |   |
|                                |   |     | 560,254 |   |         |   | 603,124 |   |
| Deferred loan fees, net             |   |     | (649    | )      |         |   | (707 | ) |
| Allowance for loan and lease losses |   |     | (16,151 | )      |         |   | (18,539 | ) |
|                                |   | $        | 543,454 |   |         | $      | 583,878 |   |

----

|                                                           |   | June 30, |   |   | December 31, |   |
|----------------------------------------------------------------|--------|----------|--------|--------|--------------|--------|
|                                                           |   | 2010     |   |   | 2009         |   |
|                                                           |   |     |   |   |         |   |
| Nonaccrual loans and leases                                    |   | $        | 38,399 |   |         | $      | 46,598 |   |
| Loans and leases past due 90 days and accruing interest        |   |     | 11     |   |         |   | — |   |
| Other real estate owned                                        |   |     | 16,426 |   |         |   | 12,377 |   |
| Total nonperforming assets                                     |   | $        | 54,836 |   |         | $      | 58,975 |   |
|                                                           |   |     |   |   |         |   |   |   |
| Nonaccrual loans and leases to total gross loans and leases    |   |     | 6.86   | %      |         |   | 7.74 | % |
| Nonperforming loans and leases to total gross loans and leases |   |     | 6.86   | %      |         |   | 7.74 | % |
| Total nonperforming assets to total assets                     |   |     | 6.02   | %      |         |   | 6.67 | % |

----

|                       |   | June   |    |   | % of   |   |   | March |   |   | % of    |   |   | December |   |   | % of   |   |    | September |   |   | % of  |   |   | June   |    |   | % of   |   |
|----------------------------|--------|--------|---------|--------|--------|--------|--------|-------|--------|--------|---------|--------|--------|----------|--------|--------|--------|--------|---------|-----------|--------|--------|-------|--------|--------|--------|---------|--------|--------|--------|
|                       |   | 2010   |    |   | total  |   |   | 2010  |   |   | total   |   |   | 2009     |   |   | total  |   |    | 2009      |   |   | total |   |   | 2009   |    |   | total  |   |
| Commercial                 |   | $      | 1,008   |   |   |   | 2.6    | %     |   | $      | 538     |   |   |     | 1.2    | %      |   | $      | 215     |      |   |   | 0.5   | %      |   | $      | 1,079   |   |   |   | 2.0 | % |   | $ | 4,097 |   |   |   | 9.2 | % |
| Real estate - commercial   |   |   | 9,597   |   |   |   | 25.0   | %     |   |   | 14,485  |   |   |     | 31.8   | %      |   |   | 13,825  |      |   |   | 29.7  | %      |   |   | 12,729  |   |   |   | 23.4 | % |   |   | 11,024 |   |   |   | 24.9 | % |
| Real estate - construction |   |   | 24,463  |   |   |   | 63.7   | %     |   |   | 27,229  |   |   |     | 59.7   | %      |   |   | 29,042  |      |   |   | 62.3  | %      |   |   | 37,483  |   |   |   | 68.8 | % |   |   | 26,785 |   |   |   | 60.5 | % |
| Real estate - mortgage     |   |   | 2,784   |   |   |   | 7.3    | %     |   |   | 3,082   |   |   |     | 6.8    | %      |   |   | 2,980   |      |   |   | 6.4   | %      |   |   | 2,927   |   |   |   | 5.4 | % |   |   | 2,131 |   |   |   | 4.8 | % |
| Installment                |   |   | 56      |   |   |   | 0.1    | %     |   |   | 39      |   |   |     | 0.1    | %      |   |   | 34      |      |   |   | 0.1   | %      |   |   | 40      |   |   |   | 0.1 | % |   |   | 45 |   |   |   | 0.1 | % |
| Direct financing leases    |   |   | — |   |   |   | 0.0    | %     |   |   | — |   |   |     | 0.0    | %      |   |   | — |      |   |   | 0.0   | %      |   |   | — |   |   |   | 0.0 | % |   |   | — |   |   |   | 0.0 | % |
| Other                      |   |   | 491     |   |   |   | 1.3    | %     |   |   | 204     |   |   |     | 0.4    | %      |   |   | 502     |      |   |   | 1.1   | %      |   |   | 204     |   |   |   | 0.4 | % |   |   | 222 |   |   |   | 0.5 | % |
| Total nonaccrual loans     |   | $      | 38,399  |   |   |   | 100.0  | %     |   | $      | 45,577  |   |   |     | 100.0  | %      |   | $      | 46,598  |      |   |   | 100.0 | %      |   | $      | 54,462  |   |   |   | 100.0 | % |   | $ | 44,304 |   |   |   | 100.0 | % |

|                                             |   | Six months ended June 30, |   |
|--------------------------------------------------|--------|---------------------------|--------|
|                                             |   | 2010                      |   |   | 2009 |   |
| Balance, beginning of period                     |   | $                         | 18,539 |   |   | $ | 11,327 |   |
| Provision for credit losses                      |   |                      | 3,600  |   |   |   | 16,000 |   |
| Loan charge-offs                                 |   |                      | (6,035 | ) |   |   | (5,484 | ) |
| Loan recoveries                                  |   |                      | 277    |   |   |   | 276 |   |
| Net loan charge-offs                             |   |                      | (5,758 | ) |   |   | (5,208 | ) |
| Total allowance for credit losses, end of period |   | $                         | 16,381 |   |   | $ | 22,119 |   |
| Components of allowance for credit losses        |   |                      |   |   |   |   |   |   |
| Allowance for loan and lease losses              |   | $                         | 16,151 |   |   | $ | 22,119 |   |
| Reserve for unfunded commitments                 |   |                      | 230    |   |   |   | — |   |
| Total allowance for credit losses                |   | $                         | 16,381 |   |   | $ | 22,119 |   |

----

|   | · | 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.                                                                                                                                                                                                                                                                                                           |

| (in thousands)             |   | June 30, |    |   | December 31, |   |
|----------------------------|--------|----------|---------|--------|--------------|--------|
|                       |   | 2010     |    |   | 2009         |   |
| Noninterest-bearing demand |   | $        | 140,728 |   |         | $      | 152,421 |   |
| Interest-bearing demand    |   |     | 154,998 |   |         |   | 160,216 |   |
| Savings                    |   |     | 219,300 |   |         |   | 189,782 |   |
| Time certificates          |   |     | 258,834 |   |         |   | 285,390 |   |
| Total deposits             |   | $        | 773,860 |   |         | $      | 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 June 30, 2010:                     |   |   |    |    |   |   |    |              |    |                    |   |    |   |                   |   |   |   |   |
| Total capital (to risk weighted assets)  |   | $      | 120,584 |    |   | 17.59  | %       |              | $       | 54,842                  |   |    | 8.00   | %                      |   |  N/A |   |   | N/A |   |
| Tier 1 capital (to risk weighted assets) |   | $      | 60,942  |    |   | 8.89   | %       |              | $       | 27,420                  |   |    | 4.00   | %                      |   |  N/A |   |   | N/A |   |
| Tier 1 capital (to average assets)       |   | $      | 60,942  |    |   | 6.69   | %       |              | $       | 36,438                  |   |    | 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 June 30, 2010:                     |   |   |    |    |   |   |    |              |    |                    |   |    |   |                   |   |   |   |   |   |   |   |
| Total capital (to risk weighted assets)  |   | $      | 121,037 |    |   | 17.65  | %       |              | $       | 54,861                  |   |    | 8.00   | %                      |   | $ | 68,576 |   |   | 10.00 | % |
| Tier 1 capital (to risk weighted assets) |   | $      | 112,370 |    |   | 16.39  | %       |              | $       | 27,424                  |   |    | 4.00   | %                      |   | $ | 41,136 |   |   | 6.00 | % |
| Tier 1 capital (to average assets)       |   | $      | 112,370 |    |   | 12.34  | %       |              | $       | 36,425                  |   |    | 4.00   | %                      |   | $ | 45,531 |   |   | 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 INFORMATION

ITEM 6. EXHIBITS

|   | 10(kkkk) | Lease for 804 E. Cypress Avenue, Redding, California, dated May 24, 2010, between North Valley Bank and Joe Wong Family Trust. |
|--------|----------|--------------------------------------------------------------------------------------------------------------------------------|
|   | 10(llll) | North Valley Bancorp Employee Stock Ownership Plan, effective January 1, 2010.                                                 |
|   | 31       | Rule 13a-14(a) / 15d-14(a) Certifications                                                                                      |
|   | 32       | Section 1350 Certifications                                                                                                    |

SIGNATURES

| /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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