----

----

| Georgia                                                       | 58-1563165                              |
|---------------------------------------------------------------|-----------------------------------------|
| (State or other jurisdiction of incorporation or organization | (I.R.S. Employer Identification Number) |

| 282 Historic Highway 441 North, P. O. Box 1980, Cornelia, Georgia | 30531      |
|-------------------------------------------------------------------|------------|
| (Address of principal executive offices)                          | (Zip Code) |

| Large accelerated filer o                     | Accelerated filer  o                                 |
|-----------------------------------------------|----------------------------------------------------------------|
| Non-accelerated filer   o      | Smaller reporting company      x |
| (do not check if a smaller reporting company) |

----

----

----

| ASSETS                                                                                                                                                        |   | SEPTEMBER 30, 2010(unaudited) |    |   | DECEMBER 31, 2009(audited) |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|---------|--------|---------------------------------|--------|
| Cash and due from banks                                                                                                                                       |   | $                                  | 28,405  |   |                            | $      | 42,515 |   |
| Federal funds sold                                                                                                                                            |   |                               | 235     |   |                            |   | - |   |
| Total cash and cash equivalents                                                                                                                               |   |                               | 28,640  |   |                            |   | 42,515 |   |
|                                                                                                                                                          |   |                               |    |   |                            |   |   |   |
| Investment securities available for sale                                                                                                                      |   |                               | 60,646  |   |                            |   | 74,457 |   |
| Investment securities held to maturity (estimated fair value of $534 at September 30, 2010 and $903 at December 31, 2009)                                |   |                               | 520     |   |                            |   | 881 |   |
| Other investments                                                                                                                                             |   |                               | 2,596   |   |                            |   | 2,596 |   |
|                                                                                                                                                          |   |                               |    |   |                            |   |   |   |
| Loans                                                                                                                                                         |   |                               | 239,277 |   |                            |   | 276,995 |   |
| Less allowance for loan losses                                                                                                                                |   |                               | (5,817  | )      |                            |   | (12,106 | ) |
| Loans, net                                                                                                                                                    |   |                               | 233,460 |   |                            |   | 264,889 |   |
|                                                                                                                                                          |   |                               |    |   |                            |   |   |   |
| Premises and equipment, net                                                                                                                                   |   |                               | 11,830  |   |                            |   | 12,606 |   |
| Bank properties held for sale                                                                                                                                 |   |                               | 5,289   |   |                            |   | 5,062 |   |
| Accrued interest receivable                                                                                                                                   |   |                               | 965     |   |                            |   | 1,587 |   |
| Other real estate                                                                                                                                             |   |                               | 39,769  |   |                            |   | 37,833 |   |
| Cash surrender value of life insurance                                                                                                                        |   |                               | 10,395  |   |                            |   | 10,283 |   |
| Income tax receivable                                                                                                                                         |   |                               | -       |   |                            |   | 1,925 |   |
| Other assets                                                                                                                                                  |   |                               | 2,174   |   |                            |   | 1,385 |   |
| TOTAL ASSETS                                                                                                                                                  |   | $                                  | 396,284 |   |                            | $      | 456,019 |   |
|                                                                                                                                                          |   |                               |    |   |                            |   |   |   |
| LIABILITIES                                                                                                                                                   |   |                               |    |   |                            |   |   |   |
| Noninterest-bearing deposits                                                                                                                                  |   | $                                  | 39,144  |   |                            | $      | 35,570 |   |
| Money market and NOW accounts                                                                                                                                 |   |                               | 72,860  |   |                            |   | 91,687 |   |
| Savings                                                                                                                                                       |   |                               | 38,724  |   |                            |   | 38,308 |   |
| Time deposits, $100,000 and over                                                                                                                              |   |                               | 98,317  |   |                            |   | 104,309 |   |
| Other time deposits                                                                                                                                           |   |                               | 85,151  |   |                            |   | 120,287 |   |
| Total deposits                                                                                                                                                |   |                               | 334,196 |   |                            |   | 390,161 |   |
|                                                                                                                                                          |   |                               |    |   |                            |   |   |   |
| Short-term borrowings                                                                                                                                         |   |                               | 119     |   |                            |   | 539 |   |
| Federal funds purchased and securities sold under repurchase agreements                                                                                       |   |                               | 11,671  |   |                            |   | 6,317 |   |
| Federal Home Loan Bank advances                                                                                                                               |   |                               | 38,000  |   |                            |   | 38,000 |   |
| Accrued interest payable                                                                                                                                      |   |                               | 1,240   |   |                            |   | 2,192 |   |
| Other liabilities                                                                                                                                             |   |                               | 1,340   |   |                            |   | 1,735 |   |
| TOTAL LIABILITIES                                                                                                                                             |   |                               | 386,566 |   |                            |   | 438,944 |   |
|                                                                                                                                                          |   |                               |    |   |                            |   |   |   |
| Commitments and contingencies                                                                                                                                 |   |                               |    |   |                            |   |   |   |
| STOCKHOLDERS’ EQUITY                                                                                                                                    |   |                               |    |   |                            |   |   |   |
| Preferred stock – 10,000,000 authorized                                                                                                                 |   |                               |    |   |                            |   |   |   |
| Series A: No par  value; 10,000 shares authorized; no shares issued and outstanding                                                                 |   |                               | -       |   |                            |   | - |   |
| Series B:  No par value;  4,000 shares authorized; 4,000 shares issued  and outstanding                                         |   |                               | 3,963   |   |                            |   | 3,963 |   |
| Common Stock, $1.00 par value, 50,000,000 and 10,000,000 shares authorized in 2010 and 2009, respectively;  2,818,593 shares issued and outstanding |   |                               | 2,819   |   |                            |   | 2,819 |   |
| Additional paid-in capital                                                                                                                                    |   |                               | 13,490  |   |                            |   | 13,490 |   |
| Retained deficit                                                                                                                                              |   |                               | (10,297 | )      |                            |   | (3,822 | ) |
| Accumulated other comprehensive income (loss)                                                                                                                 |   |                               | (257    | )      |                            |   | 625 |   |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                                              |   |                               | 9,718   |   |                            |   | 17,075 |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                              |   | $                                  | 396,284 |   |                            | $      | 456,019 |   |

----

|                                                                       |   | Three Months ended |      |   | Nine Months ended |   |
|----------------------------------------------------------------------------|--------|--------------------|-----------|--------|-------------------|--------|
|                                                                       |   | 2010               |      |   | 2009              |   |   | 2010 |   |   | 2009 |   |
| INTEREST INCOME                                                            |   |               |      |   |              |   |   |   |   |   |   |   |
| Loan, including fees                                                       |   | $                  | 3,018     |   |              | $      | 4,075 |   |   | $ | 10,096 |   |   | $ | 12,809 |   |
| Taxable investment securities                                              |   |               | 492       |   |              |   | 894 |   |   |   | 1,798 |   |   |   | 2,860 |   |
| Tax exempt investment securities                                           |   |               | 38        |   |              |   | 142 |   |   |   | 135 |   |   |   | 430 |   |
| Federal funds sold                                                         |   |               | 1         |   |              |   | 9 |   |   |   | 3 |   |   |   | 23 |   |
| Other                                                                      |   |               | 20        |   |              |   | 15 |   |   |   | 53 |   |   |   | 24 |   |
| TOTAL INTEREST INCOME                                                      |   |               | 3,569     |   |              |   | 5,135 |   |   |   | 12,085 |   |   |   | 16,146 |   |
| INTEREST EXPENSE                                                           |   |               |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Time deposits, $100,000 and over                                           |   |               | 520       |   |              |   | 1,021 |   |   |   | 1,771 |   |   |   | 3,113 |   |
| Other deposits                                                             |   |               | 645       |   |              |   | 1,549 |   |   |   | 2,373 |   |   |   | 4,890 |   |
| Short-term and other borrowings, primarily FHLB advances                   |   |               | 250       |   |              |   | 417 |   |   |   | 872 |   |   |   | 1,363 |   |
| TOTAL INTEREST EXPENSE                                                     |   |               | 1,415     |   |              |   | 2,987 |   |   |   | 5,016 |   |   |   | 9,366 |   |
| NET INTEREST INCOME                                                        |   |               | 2,154     |   |              |   | 2,148 |   |   |   | 7,069 |   |   |   | 6,780 |   |
| Provision for loan losses                                                  |   |               | 749       |   |              |   | 7,400 |   |   |   | 5,440 |   |   |   | 10,480 |   |
| NET INTEREST INCOME  (EXPENSE) AFTER PROVISION FOR LOAN LOSSES   |   |               | 1,405     |   |              |   | (5,252 | ) |   |   | 1,629 |   |   |   | (3,700 | ) |
| NONINTEREST INCOME                                                         |   |               |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage origination income                                                |   |               | -         |   |              |   | 15 |   |   |   | - |   |   |   | 108 |   |
| Service charges on deposits                                                |   |               | 215       |   |              |   | 294 |   |   |   | 726 |   |   |   | 794 |   |
| Other service charges and commissions                                      |   |               | 63        |   |              |   | 62 |   |   |   | 187 |   |   |   | 183 |   |
| Gain on sale of investment securities                                      |   |               | 511       |   |              |   | 55 |   |   |   | 1,182 |   |   |   | 369 |   |
| Gain on sale and impairment of other investments, net                      |   |               | -         |   |              |   | - |   |   |   | - |   |   |   | 20 |   |
| Other income                                                               |   |               | 362       |   |              |   | 426 |   |   |   | 1,091 |   |   |   | 1,350 |   |
| Total noninterest income                                                   |   |               | 1,151     |   |              |   | 852 |   |   |   | 3,186 |   |   |   | 2,824 |   |
| NONINTEREST EXPENSE                                                        |   |               |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Salary and employee benefits                                               |   |               | 1,146     |   |              |   | 1,836 |   |   |   | 3,511 |   |   |   | 5,740 |   |
| Occupancy                                                                  |   |               | 390       |   |              |   | 742 |   |   |   | 1,177 |   |   |   | 1,974 |   |
| Other real estate expense                                                  |   |               | 744       |   |              |   | 975 |   |   |   | 1,764 |   |   |   | 1,818 |   |
| Computer services                                                          |   |               | 153       |   |              |   | 190 |   |   |   | 473 |   |   |   | 508 |   |
| Telephone                                                                  |   |               | 95        |   |              |   | 118 |   |   |   | 304 |   |   |   | 353 |   |
| Leased equipment                                                           |   |               | 117       |   |              |   | 122 |   |   |   | 358 |   |   |   | 367 |   |
| Other                                                                      |   |               | 1,350     |   |              |   | 1,516 |   |   |   | 3,704 |   |   |   | 3,807 |   |
| Total noninterest expense                                                  |   |               | 3,995     |   |              |   | 5,499 |   |   |   | 11,291 |   |   |   | 14,567 |   |
| LOSS BEFORE INCOME TAXES                                                   |   |               | (1,439    | )      |              |   | (9,899 | ) |   |   | (6,476 | ) |   |   | (15,443 | ) |
| Income tax benefit                                                         |   |               | -         |   |              |   | 3,930 |   |   |   | - |   |   |   | 6,219 |   |
| NET LOSS                                                                   |   |               | (1,439    | )      |              |   | (5,969 | ) |   |   | (6,476 | ) |   |   | (9,224 | ) |
| Preferred stock dividends                                                  |   |               | -         |   |              |   | (60 | ) |   |   | - |   |   |   | (151 | ) |
| LOSS AVAILABLE TO COMMON STOCKHOLDERS                                      |   | $                  | (1,439    | )      |              | $      | (6,029 | ) |   | $ | (6,476 | ) |   | $ | (9,375 | ) |
| Net loss  per common share – Basic                         |   | $                  | (.51      | )      |              | $      | (2.14 | ) |   | $ | (2.30 | ) |   | $ | (3.33 | ) |
| Net loss  per common share – Diluted                       |   | $                  | (.51      | )      |              | $      | (2.14 | ) |   | $ | (2.30 | ) |   | $ | (3.33 | ) |
| Weighted average number of common shares outstanding                       |   |               | 2,818,593 |   |              |   | 2,818,593 |   |   |   | 2,818,593 |   |   |   | 2,818,593 |   |
| Weighted average number of common and common equivalent shares outstanding |   |               | 2,818,593 |   |              |   | 2,818,593 |   |   |   | 2,818,593 |   |   |   | 2,818,593 |   |

----

|                                                                                                                   |   | Three Months ended |   |   | Nine Months ended |   |
|------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
|                                                                                                                   |   | 2010               |   |   | 2009              |   |   | 2010 |   |   | 2009 |   |
|                                                                                                                   |   |               |   |   |              |   |   |   |   |   |   |   |
| NET LOSS                                                                                                               |   | $                  | (1,439 | )      |              | $      | (5,969 | ) |   | $ | (6,476 | ) |   | $ | (9,224 | ) |
|                                                                                                                   |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| OTHER COMPREHENSIVE INCOME (LOSS):                                                                                     |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding gains (losses) on investment securities available for sale arising during the period                |   |               | (248   | )      |              |   | 1,716 |   |   |   | (154 | ) |   |   | 1,506 |   |
| Unrealized holding gains on derivative financial instruments classified as cash flow hedges, arising during the period |   |               | -      |   |              |   | 26 |   |   |   | - |   |   |   | 95 |   |
| Reclassification adjustment for realized gains on  investment securities available for sale                  |   |               | (511   | )      |              |   | (55 | ) |   |   | (1,182 | ) |   |   | (369 | ) |
| Total other comprehensive loss, before tax                                                                             |   |               | (759   | )      |              |   | 1,687 |   |   |   | (1,336 | ) |   |   | 1,232 |   |
| INCOME TAXES RELATED TO OTHER COMPREHENSIVE INCOME (LOSS):                                                             |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding (gains) losses on investment securities available for sale arising during the period                |   |               | 84     |   |              |   | (583 | ) |   |   | 52 |   |   |   | (512 | ) |
| Unrealized holding gains on derivative financial instruments classified as cash flow hedges, arising during the period |   |               | -      |   |              |   | (9 | ) |   |   | - |   |   |   | (32 | ) |
| Reclassification adjustment for realized gains on investment securities available for sale                             |   |               | 174    |   |              |   | 19 |   |   |   | 402 |   |   |   | 125 |   |
| Total income taxes related to other comprehensive loss                                                                 |   |               | 258    |   |              |   | (573 | ) |   |   | 454 |   |   |   | (419 | ) |
| Total other comprehensive income (loss),  net of tax                                                         |   |               | (501   | )      |              |   | 1,114 |   |   |   | (882 | ) |   |   | 813 |   |
| Total comprehensive loss                                                                                               |   | $                  | (1,940 | )      |              | $      | (4,855 | ) |   | $ | (7,358 | ) |   | $ | (8,411 | ) |

----

|                                                                                  |   | 2010   |    |   | 2009   |   |
|---------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                                                                  |   |   |    |   |   |   |
| CASH FLOWS PROVIDED BY (USED) BY OPERATING ACTIVITIES:                                |   | $      | 709     |   |   | $      |  (997 | ) |
|                                                                                  |   |   |    |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                 |   |   |    |   |   |   |   |   |
| Investment securities available for sale:                                             |   |   |    |   |   |   |   |   |
| Proceeds from maturity                                                                |   |   | 7,138   |   |   |   | 10,218 |   |
| Proceeds from sales and calls                                                         |   |   | 103,343 |   |   |   | 24,338 |   |
| Purchases                                                                             |   |   | (97,185 | )      |   |   | (22,936 | ) |
| Investment securities held to maturity:                                               |   |   |    |   |   |   |   |   |
| Proceeds from maturity                                                                |   |   | 4       |   |   |   | 7 |   |
| Proceeds from sales and calls                                                         |   |   | 360     |   |   |   | - |   |
| Other investments:                                                                    |   |   |    |   |   |   |   |   |
| Proceeds from sale                                                                    |   |   | -       |   |   |   | 758 |   |
| Purchases                                                                             |   |   | -       |   |   |   | (2 | ) |
| Net change in loans                                                                   |   |   | 15,873  |   |   |   | (5,412 | ) |
| Surrender of life insurance policies                                                  |   |   | 3,129   |   |   |   | - |   |
| Purchase of life insurance policies                                                   |   |   | (3,037  | )      |   |   | - |   |
| Proceeds from sale of loans                                                           |   |   | -       |   |   |   | 5,910 |   |
| Purchases of premises and equipment                                                   |   |   | (17     | )      |   |   | (116 | ) |
| Proceeds from sales of premises & equipment                                       |   |   | 3       |   |   |   | 32 |   |
| Capitalized completion costs of other real estate                                     |   |   | (68     | )      |   |   | (741 | ) |
| Proceeds from sale of other real estate                                               |   |   | 7,300   |   |   |   | 4,725 |   |
| Net cash provided by investing activities                                             |   |   | 36,843  |   |   |   | 16,781 |   |
|                                                                                  |   |   |    |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                 |   |   |    |   |   |   |   |   |
| Net change in deposits                                                           |   |   | (55,965 | )      |   |   | 10,329 |   |
| Net change in short-term borrowings                                                   |   |   | (420    | )      |   |   | (360 | ) |
| Net change in federal funds purchased and securities sold under repurchase agreements |   |   | 5,354   |   |   |   | (8,250 | ) |
| Proceeds from FHLB advances                                                           |   |   | 17,000  |   |   |   | 15,000 |   |
| Repayment of FHLB advances                                                            |   |   | (17,000 | )      |   |   | (15,000 | ) |
| Proceeds from issuance of preferred stock                                             |   |   | -       |   |   |   | 1,000 |   |
| Stock issuance costs                                                                  |   |   | (396    | )      |   |   | (15 | ) |
| Cash dividends paid                                                                   |   |   | -       |   |   |   | (151 | ) |
| Net cash provided by (used by) financing activities                                   |   |   | (51,427 | )      |   |   | 2,553 |   |
|                                                                                  |   |   |    |   |   |   |   |   |
|  Change  in cash and cash equivalents                                  |   |   | (13,875 | )      |   |   | 18,337 |   |
|                                                                                  |   |   |    |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS:  BEGINNING OF PERIOD                             |   |   | 42,515  |   |   |   | 14,260 |   |
| CASH AND CASH EQUIVALENTS:  END OF PERIOD                                   |   | $      | 28,640  |   |   | $      | 32,597 |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                    |   |   |    |   |   |   |   |   |
| Other real estate acquired through loan foreclosures                                  |   | $      | 10,115  |   |   | $      | 14,302 |   |
| Change in components of other comprehensive income                                    |   | $      | (882    | )      |   | $      | 813 |   |
| Reclassification of premises and equipment, net to bank properties held for sale      |   | $      | 227     |   |   | $      | 3,366 |   |

----

| 1. | Basis of Presentation |
|----|-----------------------|

| 2. | Accounting Policies |
|----|---------------------|

| 3. | Regulatory Oversight, Capital Adequacy, Operating Losses, Liquidity and Management’s Plans |
|----|--------------------------------------------------------------------------------------------------|

----

----

| 4. | Net Loss Per Share |
|----|--------------------|

|                                                       |   | Three Months            |      |   | Three Months            |   |      | Nine Months             |   |   | Nine Months             |   |
|------------------------------------------------------------|--------|-------------------------|-----------|--------|-------------------------|--------|-----------|-------------------------|--------|--------|-------------------------|--------|
|                                                       |   | ended                   |      |   | ended                   |   |      | ended                   |   |   | ended                   |   |
| (dollars in thousands, except share and per share amounts) |   | September 30, 2010 |      |   | September 30, 2009 |   |      | September 30, 2010 |   |   | September 30, 2009 |   |
|                                                       |   |                    |      |   |                    |   |      |                    |   |   |                    |   |
| Net loss                                                   |   | $                       | (1,439    | )      |                    | $      | (5,969    | )                       |   | $      | (6,476                  | )      |   | $ | (9,224 | ) |
| Less dividends on preferred stock                          |   |                    | -         |   |                    |   | (60       | )                       |   |   | -                       |   |   |   | (151 | ) |
| Net loss available to common shareholders                  |   | $                       | (1,439    | )      |                    | $      | (6,029    | )                       |   | $      | (6,476                  | )      |   | $ | (9,375 | ) |
|                                                       |   |                    |      |   |                    |   |      |                    |   |   |                    |   |   |   |   |   |
| Weighted average common shares outstanding                 |   |                    | 2,818,593 |   |                    |   | 2,818,593 |                    |   |   | 2,818,593               |   |   |   | 2,818,593 |   |
| Loss per share:                                            |   |                    |      |   |                    |   |      |                    |   |   |                    |   |   |   |   |   |
| Basic                                                      |   | $                       | (.51      | )      |                    | $      | (2.14     | )                       |   | $      | (2.30                   | )      |   | $ | (3.33 | ) |
| Diluted                                                    |   | $                       | (.51      | )      |                    | $      | (2.14     | )                       |   | $      | (2.30                   | )      |   | $ | (3.33 | ) |

----

| 5. | Investment Securities Available for Sale |
|----|------------------------------------------|

| (dollars in thousands)                |   |           |   |   |                   |   |   |                    |   |   |                 |   |
|---------------------------------------|--------|----------------|--------|--------|------------------------|--------|--------|-------------------------|--------|--------|----------------------|--------|
| September 30, 2010                    |   | Amortized Cost |   |   | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | Estimated Fair Value |   |
| Mortgage-backed securities            |   | $              | 57,766 |   |                   |   | 196    |                    |   |   | 504                  |   |   |   | 57,458 |   |
| State and political subdivisions      |   |           | 3,060  |   |                   |   | 17     |                    |   |   | 80                   |   |   |   | 2,997 |   |
| Equity securities                     |   |           | 209    |   |                   |   | -      |                    |   |   | 18                   |   |   |   | 191 |   |
| Total                                 |   | $              | 61,035 |   |                   |   | 213    |                    |   |   | 602                  |   |   |   | 60,646 |   |
|                                  |   |           |   |   |                   |   |   |                    |   |   |                 |   |   |   |   |   |
|  December 31, 2009               |   | Amortized Cost |   |   | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | Estimated Fair Value |   |
| U.S. government-sponsored enterprises |   | $              | 16,311 |   |                   |   | 60     |                    |   |   | 290                  |   |   |   | 16,081 |   |
| Mortgage-backed securities            |   |           | 48,208 |   |                   |   | 1,319  |                    |   |   | 17                   |   |   |   | 49,510 |   |
| State and political subdivisions      |   |           | 8,782  |   |                   |   | 87     |                    |   |   | 189                  |   |   |   | 8,680 |   |
| Equity securities                     |   |           | 209    |   |                   |   | -      |                    |   |   | 23                   |   |   |   | 186 |   |
| Total                                 |   | $              | 73,510 |   |                   |   | 1,466  |                    |   |   | 519                  |   |   |   | 74,457 |   |

----

| (dollars in thousands)                      |   |   |   |   | September 30, 2010   |   |   |              |   |   | December 31, 2009 |   |
|---------------------------------------------|--------|--------|--------|--------|----------------------|--------|--------|-------------------|--------|--------|-------------------|--------|
|                                        |   |   |   |   |                 |   |   |              |   |   |              |   |
|                                        |   | No.    |   |   | Estimated Fair Value |   |   | Unrealized Losses |   |   | No.               |   |   | Estimated Fair Value |   |   | Unrealized Losses |   |
| Unrealized loss for less than 12 months:    |   |   |   |   |                 |   |   |              |   |   |              |   |   |   |   |   |   |   |
| U.S. government-sponsored enterprises       |   |   | -      |   |                 | $      | -      |              |   |   | -                 |   |   |   | 14 |   |   | $ | 11,531 |   |   |   | 289 |   |
| Mortgage-backed securities                  |   |   | 49     |   |                 |   | 35,769 |              |   |   | 504               |   |   |   | 2 |   |   |   | 2,081 |   |   |   | 17 |   |
| State and political subdivisions            |   |   | -      |   |                 |   | -      |              |   |   | -                 |   |   |   | 8 |   |   |   | 2,773 |   |   |   | 147 |   |
|                                        |   |   |   |   |                 |   |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total (less than 12 months)                 |   |   | 49     |   |                 |   | 35,769 |              |   |   | 504               |   |   |   | 24 |   |   |   | 16,385 |   |   |   | 453 |   |
| Unrealized loss for greater than 12 months: |   |   |   |   |                 |   |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. government-sponsored enterprises       |   |   | -      |   |                 |   | -      |              |   |   | -                 |   |   |   | 1 |   |   |   | 51 |   |   |   | 1 |   |
| Mortgage-backed securities                  |   |   | -      |   |                 |   | -      |              |   |   | -                 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| State and political subdivisions            |   |   | 3      |   |                 |   | 1,190  |              |   |   | 80                |   |   |   | 3 |   |   |   | 1,199 |   |   |   | 42 |   |
| Equity securities                           |   |   | 1      |   |                 |   | 191    |              |   |   | 18                |   |   |   | 1 |   |   |   | 186 |   |   |   | 23 |   |
| Total (more than 12 months)                 |   |   | 4      |   |                 |   | 1,381  |              |   |   | 98                |   |   |   | 5 |   |   |   | 1,436 |   |   |   | 66 |   |
| Total                                       |   |   | 53     |   |                 | $      | 37,150 |              |   |   | 602               |   |   |   | 29 |   |   | $ | 17,821 |   |   |   | 519 |   |

----

| (dollars in thousands)                 |   | September 30,2010 |   |   | September 30,2010 |   |   | December 31, 2009 |   |   | December 31, 2009 |   |
|----------------------------------------|--------|------------------------|--------|--------|------------------------|--------|--------|------------------------|--------|--------|------------------------|--------|
|                                   |   | Amortized Cost         |   |   | Estimated Fair Value   |   |   | Amortized Cost         |   |   | Estimated Fair Value   |   |
| Due in one year or less                |   | $                      | 2      |   |                   |   | 2      |                   |   |   | 132                    |   |   |   | 132 |   |
| Due after one year through five years  |   |                   | -      |   |                   |   | -      |                   |   |   | 1,696                  |   |   |   | 1,711 |   |
| Due after five years through ten years |   |                   | 914    |   |                   |   | 918    |                   |   |   | 6,218                  |   |   |   | 6,375 |   |
| Due after ten years                    |   |                   | 59,910 |   |                   |   | 59,535 |                   |   |   | 65,255                 |   |   |   | 66,053 |   |
| Total                                  |   | $                      | 60,826 |   |                   |   | 60,455 |                   |   |   | 73,301                 |   |   |   | 74,271 |   |

| 6. | Investment Securities Held to Maturity |
|----|----------------------------------------|

| (dollars in thousands)           |   |           |   |   |                   |   |   |                    |   |   |                 |   |
|----------------------------------|--------|----------------|--------|--------|------------------------|--------|--------|-------------------------|--------|--------|----------------------|--------|
| September 30, 2010               |   | Amortized Cost |   |   | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | Estimated Fair Value |   |
| Mortgage-backed securities       |   | $              | 1      |   |                   |   | -      |                    |   |   | -                    |   |   |   | 1 |   |
| State and political subdivisions |   |           | 519    |   |                   |   | 14     |                    |   |   | -                    |   |   |   | 533 |   |
| Total                            |   | $              | 520    |   |                   |   | 14     |                    |   |   | -                    |   |   |   | 534 |   |
|                             |   |           |   |   |                   |   |   |                    |   |   |                 |   |   |   |   |   |
| December 31, 2009                |   | Amortized Cost |   |   | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | Estimated Fair Value |   |
| Mortgage-backed securities       |   | $              | 17     |   |                   |   | 1      |                    |   |   | -                    |   |   |   | 18 |   |
| State and political subdivisions |   |           | 864    |   |                   |   | 21     |                    |   |   | -                    |   |   |   | 885 |   |
| Total                            |   | $              | 881    |   |                   |   | 22     |                    |   |   | -                    |   |   |   | 903 |   |

----

| (dollars in thousands)                 |   | September 30, 2010 |   |   | September 30, 2010 |   |   | December 31, 2009 |   |   | December 31, 2009 |   |
|----------------------------------------|--------|-------------------------|--------|--------|-------------------------|--------|--------|------------------------|--------|--------|------------------------|--------|
|                                   |   | Amortized Cost          |   |   | Estimated Fair Value    |   |   | Amortized Cost         |   |   | Estimated Fair Value   |   |
| Due in one year or less                |   | $                       | -      |   |                    |   | -      |                   |   |   | 345                    |   |   |   | 348 |   |
| Due after one year through five years  |   |                    | 474    |   |                    |   | 483    |                   |   |   | 408                    |   |   |   | 414 |   |
| Due after five years through ten years |   |                    | 46     |   |                    |   | 51     |                   |   |   | 124                    |   |   |   | 137 |   |
| Due after ten years                    |   |                    | -      |   |                    |   | -      |                   |   |   | 4                      |   |   |   | 4 |   |
| Total                                  |   | $                       | 520    |   |                    |   | 534    |                   |   |   | 881                    |   |   |   | 903 |   |

| 7. | Nonperforming Assets |
|----|----------------------|

----

| (dollars in thousands)          |   | September 30, 2010 |    |   | December 31, 2009 |   |
|---------------------------------|--------|--------------------|---------|--------|-------------------|--------|
| Accruing loans 90 days past due |   | $                  | 32      |   |              | $      | - |   |
| Nonaccrual loans                |   |               | 60,286  |   |              |   | 71,813 |   |
| Other real estate               |   |               | 39,769  |   |              |   | 37,833 |   |
| Restructured loans              |   |               | 1,043   |   |              |   | 728 |   |
| Total nonperforming assets      |   | $                  | 101,130 |   |              | $      | 110,374 |   |

| 8.  | Bank Properties Held for Sale |
|----------|-------------------------------|

| 9. | Regulatory Matters |
|----|--------------------|

| 10. | Preferred Stock |
|-----|-----------------|

----

| 11. | Fair Value Measurements and Disclosures |
|-----|-----------------------------------------|

|   | Level 1 – | Valuation is based upon quoted prices for identical instruments traded in active markets. |
|--------|-----------------|-------------------------------------------------------------------------------------------|

|   | Level 2 – | Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. |
|--------|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Level 3  – | Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.  Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. |
|--------|----------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                     |   | September 30, 2010 |   |
|------------------------------------------|--------|--------------------|--------|
|                                     |   |               |   |   |   |   |   |   |   |   |   |   |
| (dollars in thousands)                   |   | Total              |   |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
| Investment securities available for sale |   | $                  | 60,646 |   |   |   | 11,592 |   |   |   | 49,054 |   |   |   | - |   |

|                                     |   | December 31, 2009 |   |
|------------------------------------------|--------|-------------------|--------|
|                                     |   |              |   |   |   |   |   |   |   |   |   |   |
| (dollars in thousands)                   |   | Total             |   |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
| Investment securities available for sale |   | $                 | 74,457 |   |   |   | 8,465 |   |   |   | 65,992 |   |   |   | - |   |

|                   |   | September 30, 2010 |   |
|------------------------|--------|--------------------|--------|
|                   |   |               |   |
| (dollars in thousands) |   | Total              |   |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
| Other real estate      |   | $                  | 39,769 |   |   |   | - |   |   |   | 9,198 |   |   |   | 30,571 |   |
| Loans                  |   |               | 30,063 |   |   |   | - |   |   |   | 30,063 |   |   |   | - |   |
| Total                  |   | $                  | 69,832 |   |   |   | - |   |   |   | 39,261 |   |   |   | 30,571 |   |

|                   |   | December 31, 2009 |   |
|------------------------|--------|-------------------|--------|
| (dollars in thousands) |   | Total             |   |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
| Other real estate      |   | $                 | 37,833 |   |   |   | - |   |   |   | 1,907 |   |   |   | 35,926 |   |
| Loans                  |   |              | 26,088 |   |   |   | - |   |   |   | 26,088 |   |   |   | - |   |
| Total                  |   | $                 | 63,921 |   |   |   | - |   |   |   | 27,995 |   |   |   | 35,926 |   |

----

|                                                                    |   | September 30, 2010 |    |   | December 31, 2009 |   |
|-------------------------------------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
| (dollars in thousands)                                                  |   | CarryingAmount     |    |   | FairValue         |   |   | CarryingAmount |   |   | FairValue |   |
| Assets:                                                                 |   |               |    |   |              |   |   |   |   |   |   |   |
| Cash and cash equivalents                                               |   | $                  | 28,640  |   |              |   | 28,640 |   |   |   | 42,515 |   |   |   | 42,515 |   |
| Investment securities available for sale                                |   |               | 60,646  |   |              |   | 60,646 |   |   |   | 74,457 |   |   |   | 74,457 |   |
| Investment securities held to maturity                                  |   |               | 520     |   |              |   | 534 |   |   |   | 881 |   |   |   | 903 |   |
| Other investments                                                       |   |               | 2,596   |   |              |   | 2,596 |   |   |   | 2,596 |   |   |   | 2,596 |   |
| Loans, net                                                              |   |               | 233,460 |   |              |   | 233,233 |   |   |   | 264,889 |   |   |   | 264,891 |   |
| Cash surrender value of  life insurance                       |   |               | 10,395  |   |              |   | 10,395 |   |   |   | 10,283 |   |   |   | 10,283 |   |
| Liabilities:                                                            |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                |   | $                  | 334,196 |   |              |   | 334,977 |   |   |   | 390,161 |   |   |   | 392,792 |   |
| Short-term borrowings                                                   |   |               | 119     |   |              |   | 119 |   |   |   | 539 |   |   |   | 539 |   |
| Federal funds purchased and securities sold under repurchase agreements |   |               | 11,671  |   |              |   | 11,671 |   |   |   | 6,317 |   |   |   | 6,317 |   |
| FHLB advances                                                           |   |               | 38,000  |   |              |   | 38,328 |   |   |   | 38,000 |   |   |   | 38,869 |   |

| 12. | Recent Accounting Pronouncements |
|-----|----------------------------------|

----

----

----

----

| (dollars in thousands)         |   | U.S. government-sponsored enterprises |    |   | Mortgage backed securities |   |    | Municipal bonds |   |   | Equity securities |   |   | Unrealized Gain / Loss |   |   | Total  |   |
|--------------------------------|--------|---------------------------------------|---------|--------|----------------------------|--------|---------|-----------------|--------|--------|-------------------|--------|--------|------------------------|--------|--------|--------|--------|
|                           |   |                                  |    |   |                       |   |    |            |   |   |              |   |   |                   |   |   |   |   |
| December 31, 2009              |   | $                                     | 16,311  |   |                       |   | 48,208  |            |   |   | 8,782             |   |   |                   | 209    |   |   |   | 947 |   |   |   | 74,457 |   |
| Purchased                      |   |                                  | 3,085   |   |                       |   | 94,100  |            |   |   | -                 |   |   |                   | -      |   |   |   | - |   |   |   | 97,185 |   |
| Calls & sales              |   |                                  | (19,519 | )      |                       |   | (78,379 | )               |   |   | (5,442            | )      |   |                   | -      |   |   |   | - |   |   |   | (103,340 | ) |
| Gain / loss                    |   |                                  | 197     |   |                       |   | 1,264   |            |   |   | (279              | )      |   |                   | -      |   |   |   | - |   |   |   | 1,182 |   |
| Payments / maturities          |   |                                  | (54     | )      |                       |   | (7,084  | )               |   |   | -                 |   |   |                   | -      |   |   |   | - |   |   |   | (7,138 | ) |
| Accret / amort                 |   |                                  | (20     | )      |                       |   | (343    | )               |   |   | (1                | )      |   |                   | -      |   |   |   | - |   |   |   | (364 | ) |
| Change in unrealized gain/loss |   |                                  | -       |   |                       |   | -       |            |   |   | -                 |   |   |                   | -      |   |   |   | (1,336 | ) |   |   | (1,336 | ) |
| September 30, 2010             |   | $                                     | -       |   |                       |   | 57,766  |            |   |   | 3,060             |   |   |                   | 209    |   |   |   | (389 | ) |   |   | 60,646 |   |

----

| Summary of Loans By Category            |   |
|-----------------------------------------|--------|
|                                    |   |
|                                    |   | September 30, 2010 |   |   | December 31, 2009 |   |
|                                    |   |   |   |   | Percent of Loans |   |   |   |   |   | Percent of Loans |   |
| Secured by real estate:                 |   |   |   |   |   |   |   |   |   |   |   |   |
| 1-4 family residential                  |   | $ | 33,578 |   |   |   | 14 | % |   | $ | 43,702 |   |   |   | 16 | % |
| Commercial real estate and multi-family |   |   | 78,204 |   |   |   | 33 | % |   |   | 71,832 |   |   |   | 26 | % |
| Construction                            |   |   | 82,597 |   |   |   | 34 | % |   |   | 107,718 |   |   |   | 39 | % |
| Home equity line of credit              |   |   | 26,011 |   |   |   | 11 | % |   |   | 27,749 |   |   |   | 10 | % |
| Total real estate                       |   |   | 220,390 |   |   |   | 92 | % |   |   | 251,001 |   |   |   | 91 | % |
|                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other loans:                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                              |   |   | 9,561 |   |   |   | 4 | % |   |   | 13,763 |   |   |   | 5 | % |
| Loans to individuals                    |   |   | 9,326 |   |   |   | 4 | % |   |   | 12,231 |   |   |   | 4 | % |
| Total other loans                       |   |   | 18,887 |   |   |   | 8 | % |   |   | 25,994 |   |   |   | 9 | % |
|                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans                             |   | $ | 239,277 |   |   |   | 100 | % |   | $ | 276,995 |   |   |   | 100 | % |

----

|                                      |   | September30,2010     |    |
|-------------------------------------------|--------|----------------------|---------|
|                                      |   |                 |    |   |   |   |   |   |   |   |   |   |
| (In thousands)                            |   | Core Retail Deposits |    |   | National Market Deposits |   |   | Brokered Deposits |   |   | Total Deposits |   |
| Noninterest-bearing demand deposits       |   | $                    | 39,144  |   |   |   | - |   |   |   | - |   |   |   | 39,144 |   |
| Interest-bearing demand deposits          |   |                 | 72,860  |   |   |   | - |   |   |   | - |   |   |   | 72,860 |   |
| Savings deposits                          |   |                 | 38,724  |   |   |   | - |   |   |   | - |   |   |   | 38,724 |   |
| Certificates of deposit $100,000 and over |   |                 | 57,816  |   |   |   | 40,501 |   |   |   | - |   |   |   | 98,317 |   |
| Other time deposits                       |   |                 | 78,102  |   |   |   |  7,049 |   |   |   | - |   |   |   | 85,151 |   |
|                                      |   | $                    | 286,646 |   |   |   | 47,550 |   |   |   | - |   |   |   | 334,196 |   |

|                                      |   | December 31, 2009    |    |
|-------------------------------------------|--------|----------------------|---------|
|                                      |   |                 |    |
| (In thousands)                            |   | Core Retail Deposits |    |   | National Market Deposits |   |   | Brokered Deposits |   |   | Total Deposits |   |
| Noninterest-bearing demand deposits       |   | $                    | 35,570  |   |   | $ | - |   |   | $ | - |   |   | $ | 35,570 |   |
| Interest-bearing demand deposits          |   |                 | 91,687  |   |   |   | - |   |   |   | - |   |   |   | 91,687 |   |
| Savings deposits                          |   |                 | 38,308  |   |   |   | - |   |   |   | - |   |   |   | 38,308 |   |
| Certificates of deposit $100,000 and over |   |                 | 82,853  |   |   |   | 21,456 |   |   |   | - |   |   |   | 104,309 |   |
| Other time deposits                       |   |                 | 92,863  |   |   |   | 17,362 |   |   |   | 10,062 |   |   |   | 120,287 |   |
|                                      |   | $                    | 341,281 |   |   | $ | 38,818 |   |   | $ | 10,062 |   |   | $ | 390,161 |   |

|                    |   | Three Months ended September 30 |   |   | Nine Months ended September 30 |   |
|-------------------------|--------|---------------------------------|--------|--------|--------------------------------|--------|
|                    |   | 2010                            |   |   | 2009                           |   |   | 2010 |   |   | 2009 |   |
| INTEREST YIELDS EARNED: |   |                            |   |   |                           |   |   |   |   |   |   |   |
| Loans                   |   |                            | 4.90   | %      |                           |   | 5.38 | % |   |   | 5.24 | % |   |   | 5.44 | % |
| Investment securities   |   |                            | 3.62   | %      |                           |   | 4.75 | % |   |   | 3.95 | % |   |   | 4.78 | % |
| Federal funds sold      |   |                            | .25    | %      |                           |   | .22 | % |   |   | .24 | % |   |   | .26 | % |
|                    |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| INTEREST RATES PAID:    |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                |   |                            | 1.54   | %      |                           |   | 2.68 | % |   |   | 1.74 | % |   |   | 2.81 | % |
| Borrowings              |   |                            | 1.97   | %      |                           |   | 3.44 | % |   |   | 2.35 | % |   |   | 3.58 | % |

----

----

|                                                         |   | September 30,      |   |   |      |   |   | September 30,     |   |   |      |   |
|--------------------------------------------------------------|--------|--------------------|--------|--------|-----------|--------|--------|-------------------|--------|--------|-----------|--------|
| (dollars in thousands)                                       |   | Three Months ended |   |   | Increase/ |   |   | Nine Months ended |   |   | Increase/ |   |
|                                                         |   | 2010               |   |   | 2009      |   |   | (Decrease)        |   |   | 2010      |   |   | 2009 |   |   | (Decrease) |   |
| Mortgage origination income                                  |   | $                  | -      |   |      |   | 15     |              |   |   | (15       | )      |   |   | - |   |   |   | 108 |   |   |   | (108 | ) |
| Service charges on deposits                                  |   |               | 215    |   |      |   | 294    |              |   |   | (79       | )      |   |   | 726 |   |   |   | 794 |   |   |   | (68 | ) |
| Other service charges and commissions                        |   |               | 63     |   |      |   | 62     |              |   |   | 1         |   |   |   | 187 |   |   |   | 183 |   |   |   | 4 |   |
| Net gain on sale of investment securities available for sale |   |               | 511    |   |      |   | 55     |              |   |   | 456       |   |   |   | 1,182 |   |   |   | 369 |   |   |   | 813 |   |
| Gain on sale and impairment of other investments, net        |   |               | -      |   |      |   | -      |              |   |   | -         |   |   |   | - |   |   |   | 20 |   |   |   | (20 | ) |
| Income from life insurance                                   |   |               | 77     |   |      |   | 81     |              |   |   | (4        | )      |   |   | 205 |   |   |   | 259 |   |   |   | (54 | ) |
| Trust service fees                                           |   |               | 106    |   |      |   | 105    |              |   |   | 1         |   |   |   | 337 |   |   |   | 331 |   |   |   | 6 |   |
| Other income                                                 |   |               | 179    |   |      |   | 240    |              |   |   | (61       | )      |   |   | 549 |   |   |   | 760 |   |   |   | (211 | ) |
| Total noninterest income                                     |   | $                  | 1,151  |   |      |   | 852    |              |   |   | 299       |   |   |   | 3,186 |   |   |   | 2,824 |   |   |   | 362 |   |

----

|                           |   | September 30,      |   |   |      |   |   | September 30,     |   |   |      |   |
|--------------------------------|--------|--------------------|--------|--------|-----------|--------|--------|-------------------|--------|--------|-----------|--------|
| (dollars in thousands)         |   | Three Months ended |   |   | Increase/ |   |   | Nine Months ended |   |   | Increase/ |   |
|                           |   | 2010               |   |   | 2009      |   |   | (Decrease)        |   |   | 2010      |   |   | 2009 |   |   | (Decrease) |   |
| Salaries and employee benefits |   | $                  | 1,146  |   |      |   | 1,836  |              |   |   | (690      | )      |   |   | 3,511 |   |   |   | 5,740 |   |   |   | (2,229 | ) |
| Occupancy expenses             |   |               | 390    |   |      |   | 742    |              |   |   | (352      | )      |   |   | 1,177 |   |   |   | 1,974 |   |   |   | (797 | ) |
| Other real estate expense      |   |               | 744    |   |      |   | 975    |              |   |   | (231      | )      |   |   | 1,764 |   |   |   | 1,818 |   |   |   | (54 | ) |
| Computer services              |   |               | 153    |   |      |   | 190    |              |   |   | (37       | )      |   |   | 473 |   |   |   | 508 |   |   |   | (35 | ) |
| Telephone                      |   |               | 95     |   |      |   | 118    |              |   |   | (23       | )      |   |   | 304 |   |   |   | 353 |   |   |   | (49 | ) |
| Leased equipment expense       |   |               | 117    |   |      |   | 122    |              |   |   | (5        | )      |   |   | 358 |   |   |   | 367 |   |   |   | (9 | ) |
| Other expense                  |   |               | 1,350  |   |      |   | 1516   |              |   |   | (166      | )      |   |   | 3,704 |   |   |   | 3,807 |   |   |   | (103 | ) |
| Total noninterest expense      |   | $                  | 3,995  |   |      |   | 5,499  |              |   |   | (1,504    | )      |   |   | 11,291 |   |   |   | 14,567 |   |   |   | (3,276 | ) |

----

----

|                                   |   | September 30, 2010 |   |   | December 31, 2009    |   |
|----------------------------------------|--------|--------------------|--------|--------|----------------------|--------|
| (In thousands)                         |   | Amount             |   |   | % ofLoans inCategory |   |   | Amount |   |   | % ofLoans inCategory |   |
| Commercial, financial and agricultural |   | $                  | 521    |   |                 |   | 3.50 | % |   | $ | 460 |   |   |   | 4.78 | % |
| Real estate – construction       |   |               | 1,999  |   |                 |   | 34.20 | % |   |   | 1,236 |   |   |   | 15.17 | % |
| Real estate                            |   |               | 2,788  |   |                 |   | 58.37 | % |   |   | 10,122 |   |   |   | 75.59 | % |
| Consumer                               |   |               | 509    |   |                 |   | 3.93 | % |   |   | 285 |   |   |   | 4.46 | % |
| Unallocated                            |   |               | -      |   |                 |   | - |   |   |   | 3 |   |   |   | - |   |
| Total                                  |   | $                  | 5,817  |   |                 |   | 100.00 | % |   | $ | 12,106 |   |   |   | 100.00 | % |

| (dollars in thousands) |   | No.    |   |   | September 30, 2010 |   |   | No.    |   |   | September 30, 2009 |   |
|------------------------|--------|--------|--------|--------|-------------------------|--------|--------|--------|--------|--------|-------------------------|--------|
| Charge-offs:           |   |   |   |   |                    |   |   |   |   |   |                    |   |
| Commercial             |   |   | 10     |   |                    | $      | 442    |   |   |   | 16                      |   |   | $ | 874 |   |
| Real Estate            |   |   | 58     |   |                    |   | 11,306 |   |   |   | 63                      |   |   |   | 11,019 |   |
| Consumer               |   |   | 43     |   |                    |   | 357    |   |   |   | 66                      |   |   |   | 493 |   |
| Total Charge-offs      |   |   | 111    |   |                    |   | 12,105 |   |   |   | 145                     |   |   |   | 12,386 |   |
|                   |   |   |   |   |                    |   |   |   |   |   |                    |   |   |   |   |   |
| Recoveries:            |   |   |   |   |                    |   |   |   |   |   |                    |   |   |   |   |   |
| Commercial             |   |   |   |   |                    |   | 42     |   |   |   |                    |   |   |   | 4 |   |
| Real Estate            |   |   |   |   |                    |   | 210    |   |   |   |                    |   |   |   | 66 |   |
| Consumer               |   |   |   |   |                    |   | 123    |   |   |   |                    |   |   |   | 46 |   |
| Total Recoveries       |   |   |   |   |                    |   | 375    |   |   |   |                    |   |   |   | 116 |   |
|                   |   |   |   |   |                    |   |   |   |   |   |                    |   |   |   |   |   |
| Net Charge-offs        |   |   |   |   |                    | $      | 11,730 |   |   |   |                    |   |   | $ | 12,270 |   |

| (dollars in thousands)          |   | September 30, 2010 |    |   | December 31, 2009 |   |
|---------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
| Accruing loans 90 days past due |   | $                       | 32      |   |                   | $      | - |   |
| Nonaccrual loans                |   |                    | 60,286  |   |                   |   | 71,813 |   |
| Other real estate               |   |                    | 39,769  |   |                   |   | 37,833 |   |
| Restructured loans              |   |                    | 1,043   |   |                   |   | 728 |   |
| Total nonperforming assets      |   | $                       | 101,130 |   |                   | $      | 110,374 |   |

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| (dollars in thousands)                          |   |   |   |
|-------------------------------------------------|--------|--------|--------|
| Balance at December 31, 2009                    |   | $      | -      |   |
| New loans classified to 90 days past due status |   |   | 2,582  |   |
| Payments received                               |   |   | (1,484 | ) |
| To non-accrual                                  |   |   | (1,066 | ) |
| Forbearance & modification agreements       |   |   | -      |   |
| Balance at September 30, 2010                   |   | $      | 32     |   |

| (dollars in thousands)                 |   | September 30, 2010 |   |   | December 31, 2009 |   |
|----------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
|                                   |   |                    |   |   |                   |   |
| Real estate secured construction loans |   | $                       | -      |   |                   | $      | - |   |
| Residential loans                      |   |                    | 32     |   |                   |   | - |   |
| Non-farm non-residential               |   |                    | -      |   |                   |   | - |   |
| Commercial loans                       |   |                    | -      |   |                   |   | - |   |
|                                   |   | $                       | 32     |   |                   | $      | - |   |

| (dollars in thousands)                                   |   | Number of Loans |   |   | September 30,2010 |   |   | Number of Loans |   |   | December 31, 2009 |   |
|----------------------------------------------------------|--------|-----------------|--------|--------|------------------------|--------|--------|-----------------|--------|--------|------------------------|--------|
| Real Estate – construction & development loans |   |            | 39     |   |                   | $      | 45,124 |            |   |   | 50                     |   |   | $ | 59,863 |   |
| Real Estate – residential loans                    |   |            | 28     |   |                   |   | 5,601  |            |   |   | 23                     |   |   |   | 4,967 |   |
| Real Estate – commercial                           |   |            | 12     |   |                   |   | 9,118  |            |   |   | 8                      |   |   |   | 6,549 |   |
| Commercial loans                                         |   |            | 5      |   |                   |   | 312    |            |   |   | 3                      |   |   |   | 217 |   |
| Consumer loans                                           |   |            | 14     |   |                   |   | 131    |            |   |   | 11                     |   |   |   | 217 |   |
| Total nonaccrual loans                                   |   |            | 98     |   |                   | $      | 60,286 |            |   |   | 95                     |   |   | $ | 71,813 |   |

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| (dollars in thousands)                                  |   |   |    |
|---------------------------------------------------------|--------|--------|---------|
| Balance at December 31, 2009                            |   | $      | 71,813  |   |
| Loans reclassified to nonaccrual status in 2010         |   |   | 15,018  |   |
| Advances                                                |   |   | 553     |   |
| Payments received on nonaccrual loans during 2010       |   |   | (4,996  | ) |
| Nonaccrual loans charged-off during 2010                |   |   | (11,832 | ) |
| Nonaccrual loans reclassified to other real estate      |   |   | (10,059 | ) |
| Nonaccrual loans reclassified to repossessions          |   |   | -       |   |
| Nonaccrual loans reclassified to accrual status in 2010 |   |   | (211    | ) |
| Balance at September 30, 2010                           |   | $      | 60,286  |   |

| (dollars in thousands)                                   |   | September 30, 2010 |   |
|----------------------------------------------------------|--------|-------------------------|--------|
|                                                     |   |                    |   |
| Real Estate – construction & development loans |   | $                       | 4,967  |   |
| Real Estate – residential loans                    |   |                    | 2,666  |   |
| Real Estate – commercial                           |   |                    | 6,737  |   |
| Commercial loans                                         |   |                    | 459    |   |
| Consumer loans                                           |   |                    | 189    |   |
| Total  nonaccrual loans                        |   | $                       | 15,018 |   |

| (dollars in thousands)                     |   | Number of Properties |   |   | September 30, 2010 |   |        | Number of Properties |   |   | December 31,2009 |   |
|--------------------------------------------|--------|----------------------|--------|--------|------------------------------|--------|-------------|----------------------|--------|--------|-----------------------|--------|
| Residential properties – spec houses |   |                 | 28     |   |                         | $      | 9,808       |                 |   |   | 33                    |   |   | $ | 12,412 |   |
| Commercial properties                      |   |                 | 10     |   |                         |   | 3,707       |                 |   |   | 13                    |   |   |   | 5,117 |   |
| Vacant lots                                |   |                 | 394    |   |                         |   | 24,490      |                 |   |   | 223                   |   |   |   | 19,462 |   |
| Mobile home and lot                        |   |                 | 2      |   |                         |   | 78          |                 |   |   | 1                     |   |   |   | 51 |   |
| Residential construction properties        |   |                 | 6      |   |                         |   |  1,686 |                 |   |   | 2                     |   |   |   |  791 |   |
| Total other real estate                    |   |                 | 440    |   |                         | $      | 39,769      |                 |   |   | 272                   |   |   | $ | 37,833 |   |

----

| (dollars in thousands)                   |   |   |   |
|------------------------------------------|--------|--------|--------|
| Balance at December 31, 2009             |   | $      | 37,833 |   |
| Foreclosed property                      |   |   | 10,115 |   |
| Additions to complete                    |   |   | 68     |   |
| Losses on sales                          |   |   | (605   | ) |
| Write down                               |   |   | (341   | ) |
| Sales of other real estate               |   |   | (7,301 | ) |
| Balance at  September 30, 2010 |   | $      | 39,769 |   |

| (dollars in thousands)               |   | September 30, 2010 |   |   | December 31, 2009 |   |
|--------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
|                                 |   |                    |   |   |                   |   |
| Residential loans – 1-4 Family |   | $                       | 857    |   |                   | $      | 478 |   |
| Real Estate – unimproved land  |   |                    | -      |   |                   |   | 96 |   |
| Commercial loans                     |   |                    | 57     |   |                   |   | 80 |   |
| Consumer loans                       |   |                    | 129    |   |                   |   | 74 |   |
| Total                                |   | $                       | 1,043  |   |                   | $      | 728 |   |

----

|                    |   | September 30, 2010 |   |   | December 31, 2009 |   |
|-------------------------|--------|------------------------------|--------|--------|------------------------|--------|
| (dollars in thousands)  |   | Total Available              |   |   | Total Available        |   |
| Federal discount window |   | $                            | 5,273  |   |                   | $      | 8,672 |   |

|                                        |   | September 30, 2010 |   | December 31, 2009 |
|---------------------------------------------|--------|------------------------------|--------|------------------------|
|                                        |   |                         |   |                   |
| Liquidity as a percent of deposits          |   | 14.42%                       |   | 22.38%                 |
| Liquidity as a percent of total liabilities |   | 12.46 %                      |   | 20.04%                 |

|                      | Habersham |   | Habersham |
|---------------------------|-----------|--------|-----------|
|                      | Bank      |   | Bancorp   |
| Tier 1 Leverage           | 2.28%     |   | 2.38%     |
| Tier 1 Risk-based Capital | 3.20%     |   | 3.33%     |
| Total Risk-based Capital  | 4.46%     |   | 4.59%     |

|                      | Habersham |   | Habersham |
|---------------------------|-----------|--------|-----------|
|                      | Bank      |   | Bancorp   |
| Tier 1 Leverage           | 3.08%     |   | 3.39%     |
| Tier 1 Risk-based Capital | 4.41%     |   | 4.87%     |
| Total Risk-based Capital  | 5.69%     |   | 6.15%     |

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| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|------|-----------------------------------------------------------------------------------------------------|

| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|------|-----------------------------------------------------------------------------------------------------|

| 32 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|----|---------------------------------------------------------------------------------------------------------------------------------|

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| Date November 2, 2010 | /s/ Annette Banks                                                                             |
|-----------------------|-----------------------------------------------------------------------------------------------|
|                  | Chief Financial Officer                                                                       |
|                  | (for the Registrant and as the Registrant’s principal financial and accounting officer) |

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