| ·   | Continued growth in net interest income, |
|--------------------|------------------------------------------|

| ·   | The net interest margin expanded 45 basis points to 3.67 percent, |
|--------------------|-------------------------------------------------------------------|

| ·   | Noninterest income, excluding the effect of OTTI charges and security gains, increased 27.9 percent due to record gains on mortgage loan sales, |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Nonperforming assets declined $3 million to $24 million from $27 million at year-end 2009, |
|--------------------|--------------------------------------------------------------------------------------------|

| ·   | The mix of our deposits improved, and |
|--------------------|---------------------------------------|

| ·   | The Company remained well capitalized. |
|--------------------|----------------------------------------|

| ·   | A $7.3 million provision for loan losses due to the increased level of charge offs  and the inherent credit risk within the loan portfolio, and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A $1.1 million increase in expenses on other real estate owned (“OREO”) |
|--------------------|-------------------------------------------------------------------------------------|

|                                             |   |   | 2010  |   |   |   | 2009  |    |
|--------------------------------------------------|--------|--------|-------|--------|--------|--------|-------|---------|
| Net income (loss) per common share - Basic (1)   |   | $      | 0.10  |   |   | $      | (0.36 | )       |
| Net income (loss) per common share - Diluted (1) |   | $      | 0.10  |   |   | $      | (0.36 | )       |
| Return (loss) on average assets                  |   |   | 0.26  | %      |   |   | (0.12 | )%      |
| Return (loss) on average equity (2)              |   |   | 1.43  | %      |   |   | (5.29 | )%      |
| Efficiency ratio                                 |   |   | 71.43 | %      |   |   | 75.49 |  % |

| 1)   | Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by weighted average shares outstanding. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2)   | Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by average shareholders’ equity (excluding preferred stock). |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Of the $5.4 million decrease in interest income on a tax-equivalent basis, $2.5 million was attributed to reduced yields on interest-earning assets, and $2.9 million was due to the decrease in average interest-earning assets. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The average volume of interest-earning assets decreased $45.9 million to $821.0 million in 2010 compared to $866.9 million in 2009. This was due primarily to a $25.3 million decrease in average investment securities and a $28.3 million decrease in average loans, partially offset by an $8.2 million increase in federal funds sold and interest-bearing deposits. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  ·   |   The yield on interest-earning assets decreased 33 basis points to 5.38 percent in 2010 due to the continued re-pricing in an overall lower interest rate environment.  Yields on most earning assets, particularly those with variable rates, fell due to these lower market rates.  There was a slight increase in the yield on residential mortgage loans. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Of the $7.5 million decrease in interest expense in 2010, $4.3 million was attributed to a decrease in the rates paid on interest-bearing liabilities, and $3.3 million was due to the decrease in the volume of average interest-bearing liabilities. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Interest-bearing liabilities averaged $707.8 million in 2010, a decrease of $49.6 million, or 6.5 percent, compared to 2009.  The decrease in interest-bearing liabilities was a result of decreases in average time deposits and borrowed funds, partially offset by increases in all other deposit categories. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The average cost of interest-bearing liabilities decreased 87 basis points to 1.97 percent, primarily due to the repricing of deposits in a lower interest rate environment.  This was partially offset by an increase in the cost of borrowings due to the use of low cost overnight lines of credit and a low rate repurchase agreement in 2009 and not in 2010.  The cost of interest-bearing deposits decreased 105 basis. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The lower cost of funding was also attributed to a shift in the mix of deposits from higher cost time deposits to lower cost savings deposits and demand deposits. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                             |   | 2010    |    |    | 2009     |   |
|--------------------------------------------------|--------|---------|---------|---------|----------|--------|
|                                             |   | Average |    |    |     |   |   | Rate/ |   |   | Average |   |   |   |   |   | Rate/ |   |
|                                             |   | Balance |    |    | Interest |   |   | Yield |   |   | Balance |   |   | Interest |   |   | Yield |   |
| ASSETS                                           |   |    |    |    |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                             |   |    |    |    |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                         |   |    |    |    |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold and interest-bearing deposits |   | $       | 35,349  |    |     | $      | 87 |   |   |   | 0.25 | % |   | $ | 27,163 |   |   | $ | 117 |   |   |   | 0.43 | % |
| Federal Home Loan Bank stock                     |   |    | 4,646   |    |     |   | 235 |   |   |   | 5.06 |   |   |   | 5,061 |   |   |   | 277 |   |   |   | 5.47 |   |
| Securities:                                      |   |    |    |    |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available for sale                               |   |    | 118,984 |    |     |   | 4,353 |   |   |   | 3.66 |   |   |   | 135,537 |   |   |   | 6,189 |   |   |   | 4.57 |   |
| Held to maturity                                 |   |    | 23,496  |    |     |   | 1,149 |   |   |   | 4.89 |   |   |   | 32,292 |   |   |   | 1,593 |   |   |   | 4.93 |   |
| Total securities (A)                             |   |    | 142,480 |    |     |   | 5,502 |   |   |   | 3.86 |   |   |   | 167,829 |   |   |   | 7,782 |   |   |   | 4.64 |   |
| Loans, net of unearned discount:                 |   |    |    |    |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SBA                                              |   |    | 95,353  |    |     |   | 5,264 |   |   |   | 5.52 |   |   |   | 103,031 |   |   |   | 6,246 |   |   |   | 6.06 |   |
| SBA 504                                          |   |    | 66,767  |    |     |   | 4,305 |   |   |   | 6.45 |   |   |   | 73,517 |   |   |   | 4,821 |   |   |   | 6.56 |   |
| Commercial                                       |   |    | 285,771 |    |     |   | 18,130 |   |   |   | 6.34 |   |   |   | 301,340 |   |   |   | 19,881 |   |   |   | 6.60 |   |
| Residential mortgage                             |   |    | 132,414 |    |     |   | 7,684 |   |   |   | 5.80 |   |   |   | 126,474 |   |   |   | 7,252 |   |   |   | 5.73 |   |
| Consumer                                         |   |    | 58,200  |    |     |   | 2,926 |   |   |   | 5.03 |   |   |   | 62,481 |   |   |   | 3,160 |   |   |   | 5.06 |   |
| Total loans (A),(B)                              |   |    | 638,505 |    |     |   | 38,309 |   |   |   | 6.00 |   |   |   | 666,843 |   |   |   | 41,360 |   |   |   | 6.20 |   |
| Total interest-earning assets                    |   | $       | 820,980 |    |     | $      | 44,133 |   |   |   | 5.38 | % |   | $ | 866,896 |   |   | $ | 49,536 |   |   |   | 5.71 | % |
| Noninterest-earning assets:                      |   |    |    |    |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and due from banks                          |   |    | 20,672  |    |     |   |   |   |   |   |   |   |   |   | 18,948 |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses                        |   |    | (14,667 | )  |     |   |   |   |   |   |   |   |   |   | (11,721 | )  |   |   |   |   |   |   |   |   |
| Other assets                                     |   |    | 41,817  |    |     |   |   |   |   |   |   |   |   |   | 33,913 |   |   |   |   |   |   |   |   |   |
| Total noninterest-earning assets                 |   |    | 47,822  |    |     |   |   |   |   |   |   |   |   |   | 41,140 |   |   |   |   |   |   |   |   |   |
| Total Assets                                     |   | $       | 868,802 |    |     |   |   |   |   |   |   |   |   | $ | 908,036 |   |
|                                             |   |    |    |    |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                             |   |    |    |    |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY       |   |    |    |    |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                    |   |    |    |    |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits                 |   | $       | 100,729 |    |     | $      | 737 |   |   |   | 0.73 | % |   | $ | 89,500 |   |   | $ | 1,063 |   |   |   | 1.19 | % |
| Savings deposits                                 |   |    | 289,156 |    |     |   | 2,829 |   |   |   | 0.98 |   |   |   | 214,274 |   |   |   | 3,574 |   |   |   | 1.67 |   |
| Time deposits                                    |   |    | 216,488 |    |     |   | 6,173 |   |   |   | 2.85 |   |   |   | 341,233 |   |   |   | 12,523 |   |   |   | 3.67 |   |
| Total interest-bearing deposits                  |   |    | 606,373 |    |     |   | 9,739 |   |   |   | 1.61 |   |   |   | 645,007 |   |   |   | 17,160 |   |   |   | 2.66 |   |
| Borrowed funds and subordinated debentures       |   |    | 101,449 |    |     |   | 4,296 |   |   |   | 4.18 |   |   |   | 112,403 |   |   |   | 4,422 |   |   |   | 3.88 |   |
| Total interest-bearing liabilities               |   | $       | 707,822 |    |     | $      | 14,035 |   |   |   | 1.97 | % |   | $ | 757,410 |   |   | $ | 21,582 |   |   |   | 2.84 | % |
| Noninterest-bearing liabilities:                 |   |    |    |    |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                  |   |    | 87,684  |    |     |   |   |   |   |   |   |   |   |   | 79,252 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                |   |    | 4,174   |    |     |   |   |   |   |   |   |   |   |   | 4,313 |   |   |   |   |   |   |   |   |   |
| Total noninterest-bearing liabilities            |   |    | 91,858  |    |     |   |   |   |   |   |   |   |   |   | 83,565 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                       |   |    | 69,122  |    |     |   |   |   |   |   |   |   |   |   | 67,061 |   |   |   |   |   |   |   |   |   |
| Total Liabilities and Shareholders’ Equity |   | $       | 868,802 |    |     |   |   |   |   |   |   |   |   | $ | 908,036 |   |
| Net interest spread                              |   |    |    |    |     | $      | 30,098 |   |   |   | 3.41 | % |   |   |   |   |   | $ | 27,954 |   |   |   | 2.87 | % |
| Tax-equivalent basis adjustment                  |   |    |    |    |     |   | (98 | )  |   |   |   |   |   |   |   |   |   |   | (126 | )  |   |   |   |   |
| Net interest income                              |   |    |    |    |     | $      | 30,000  |   |   |   |   |   |   |   |   |   |   | $ | 27,828  |   |   |   |   |   |
| Net interest margin                         |   |    |    |    |     |   |   |   |   |   | 3.67 |  % |   |   |   |   |   |   |   |   |   |   | 3.22  | % |

| A)   | Yields related to securities and loans exempt from federal and state income taxes are stated on a fully tax-equivalent basis.  They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 34 percent and applicable state tax rates. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| B)   | The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------|

----

| 2008           |    |   | 2007     |   |   | 2006       |   |
|----------------|---------|--------|----------|--------|--------|------------|--------|
| AverageBalance |    |   | Interest |   |   | Rate/Yield |   |   | AverageBalance |   |   | Interest |   |   | Rate/Yield |   |   | AverageBalance |   |   | Interest |   |   | Rate/Yield |   |
|           |    |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           |    |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $              | 26,686  |   |     | $      | 471    |       |   |   | 1.76 | % |   | $ | 22,290 |   |   | $ | 1,068 |   |   |   | 4.79 | % |   | $ | 21,606 |   |   | $ | 1,042 |   |   |   | 4.82 | % |
|           | 4,353   |   |     |   | 240    |       |   |   | 5.51 |   |   |   | 3,336 |   |   |   | 258 |   |   |   | 7.73 |   |   |   | 2,340 |   |   |   | 139 |   |   |   | 5.94 |   |
|           |    |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           | 74,243  |   |     |   | 3,761  |       |   |   | 5.07 |   |   |   | 65,853 |   |   |   | 3,253 |   |   |   | 4.94 |   |   |   | 64,134 |   |   |   | 2,964 |   |   |   | 4.62 |   |
|           | 31,710  |   |     |   | 1,654  |       |   |   | 5.22 |   |   |   | 37,724 |   |   |   | 1,986 |   |   |   | 5.26 |   |   |   | 41,156 |   |   |   | 2,069 |   |   |   | 5.03 |   |
|           | 105,953 |   |     |   | 5,415  |       |   |   | 5.11 |   |   |   | 103,577 |   |   |   | 5,239 |   |   |   | 5.06 |   |   |   | 105,290 |   |   |   | 5,033 |   |   |   | 4.78 |   |
|           |    |
|           | 101,430 |   |     |   | 8,370  |       |   |   | 8.25 |   |   |   | 84,185 |   |   |   | 9,039 |   |   |   | 10.74 |   |   |   | 84,113 |   |   |   | 8,615 |   |   |   | 10.24 |   |
|           | 74,617  |   |     |   | 5,572  |       |   |   | 7.47 |   |   |   | 66,393 |   |   |   | 5,345 |   |   |   | 8.05 |   |   |   | 54,462 |   |   |   | 4,514 |   |   |   | 8.29 |   |
|           | 308,751 |   |     |   | 21,424 |       |   |   | 6.94 |   |   |   | 275,448 |   |   |   | 20,393 |   |   |   | 7.40 |   |   |   | 240,311 |   |   |   | 17,400 |   |   |   | 7.24 |   |
|           | 100,110 |   |     |   | 5,971  |       |   |   | 5.96 |   |   |   | 68,443 |   |   |   | 3,995 |   |   |   | 5.84 |   |   |   | 59,933 |   |   |   | 3,305 |   |   |   | 5.51 |   |
|           | 59,291  |   |     |   | 3,462  |       |   |   | 5.84 |   |   |   | 54,789 |   |   |   | 3,722 |   |   |   | 6.79 |   |   |   | 47,652 |   |   |   | 3,208 |   |   |   | 6.73 |   |
|           | 644,199 |   |     |   | 44,799 |       |   |   | 6.95 |   |   |   | 549,258 |   |   |   | 42,494 |   |   |   | 7.74 |   |   |   | 486,471 |   |   |   | 37,042 |   |   |   | 7.61 |   |
| $              | 781,191 |   |     | $      | 50,925 |       |   |   | 6.52 | % |   | $ | 678,461 |   |   | $ | 49,059 |   |   |   | 7.23 | % |   | $ | 615,707 |   |   | $ | 43,256 |   |   |   | 7.02 | % |
|           |    |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           | 17,529  |   |     |   |   |       |   |   |   |   |   |   | 13,467 |   |   |   |   |   |   |   |   |   |   |   | 12,439 |   |   |   |   |   |   |   |   |   |
|           | (9,179  | )      |     |   |   |       |   |   |   |   |   |   | (8,184 | ) |   |   |   |   |   |   |   |   |   |   | (7,493 | ) |   |   |   |   |   |   |   |   |
|           | 31,667  |   |     |   |   |       |   |   |   |   |   |   | 29,304 |   |   |   |   |   |   |   |   |   |   |   | 29,302 |   |   |   |   |   |   |   |   |   |
|           | 40,017  |   |     |   |   |       |   |   |   |   |   |   | 34,587 |   |   |   |   |   |   |   |   |   |   |   | 34,248 |   |   |   |   |   |   |   |   |   |
| $              | 821,208 |   |     |   |   |       |   |   |   |   |   | $ | 713,048 |   |   |   |   |   |   |   |   |   |   | $ | 649,955 |   |   |   |   |   |   |   |   |   |
|           |    |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           |    |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           |    |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $              | 84,336  |   |     | $      | 1,468  |       |   |   | 1.74 | % |   | $ | 85,750 |   |   | $ | 1,928 |   |   |   | 2.25 | % |   | $ | 117,730 |   |   | $ | 2,648 |   |   |   | 2.25 | % |
|           | 168,784 |   |     |   | 3,644  |       |   |   | 2.16 |   |   |   | 204,214 |   |   |   | 8,064 |   |   |   | 3.95 |   |   |   | 183,815 |   |   |   | 6,948 |   |   |   | 3.78 |   |
|           | 330,174 |   |     |   | 13,836 |       |   |   | 4.19 |   |   |   | 213,407 |   |   |   | 10,206 |   |   |   | 4.78 |   |   |   | 169,572 |   |   |   | 7,101 |   |   |   | 4.19 |   |
|           | 583,294 |   |     |   | 18,948 |       |   |   | 3.25 |   |   |   | 503,371 |   |   |   | 20,198 |   |   |   | 4.01 |   |   |   | 471,117 |   |   |   | 16,697 |   |   |   | 3.54 |   |
|           | 108,214 |   |     |   | 4,526  |       |   |   | 4.18 |   |   |   | 84,962 |   |   |   | 4,276 |   |   |   | 5.03 |   |   |   | 55,756 |   |   |   | 2,735 |   |   |   | 4.91 |   |
| $              | 691,508 |   |     | $      | 23,474 |       |   |   | 3.39 | % |   | $ | 588,333 |   |   | $ | 24,474 |   |   |   | 4.16 | % |   | $ | 526,873 |   |   | $ | 19,432 |   |   |   | 3.69 | % |
|           |    |   |     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           | 78,282  |   |     |   |   |       |   |   |   |   |   |   | 75,581 |   |   |   |   |   |   |   |   |   |   |   | 77,747 |   |   |   |   |   |   |   |   |   |
|           | 2,531   |   |     |   |   |       |   |   |   |   |   |   | 2,416 |   |   |   |   |   |   |   |   |   |   |   | 2,218 |   |   |   |   |   |   |   |   |   |
|           | 80,813  |   |     |   |   |       |   |   |   |   |   |   | 77,997 |   |   |   |   |   |   |   |   |   |   |   | 79,965 |   |   |   |   |   |   |   |   |   |
|           | 48,887  |   |     |   |   |       |   |   |   |   |   |   | 46,718 |   |   |   |   |   |   |   |   |   |   |   | 43,117 |   |   |   |   |   |   |   |   |   |
| $              | 821,208 |   |     |   |   |       |   |   |   |   |   | $ | 713,048 |   |   |   |   |   |   |   |   |   |   | $ | 649,955 |   |   |   |   |   |   |   |   |   |
|           |    |   |     | $      | 27,451 |       |   |   | 3.13 | % |   |   |   |   |   | $ | 24,585 |   |   |   | 3.07 | % |   |   |   |   |   | $ | 23,824 |   |   |   | 3.33 | % |
|           |    |   |     |   | (160   | )          |   |   |   |   |   |   |   |   |   |   | (159 | ) |   |   |   |   |   |   |   |   |   |   | (79 | ) |   |   |   |   |
|           |    |   |     | $      | 27,291 |       |   |   |   |   |   |   |   |   |   | $ | 24,426 |   |   |   |   |   |   |   |   |   |   | $ | 23,745 |   |   |   |   |   |
|           |    |   |     |   |   |       |   |   | 3.51 | % |   |   |   |   |   |   |   |   |   |   | 3.62 | % |   |   |   |   |   |   |   |   |   |   | 3.87 | % |

----

|                                             |   | 2010 versus 2009                    |   |   | 2009 versus 2008                    |   |
|--------------------------------------------------|--------|-------------------------------------|--------|--------|-------------------------------------|--------|
| Year ended December 31,                          |   | Increase (Decrease)Due to change in |   |   | Increase (Decrease)Due to change in |   |
| (In thousands on a tax-equivalent basis)         |   | Volume                              |   |   | Rate                                |   |   | Net |   |   | Volume |   |   | Rate |   |   | Net |   |
| Interest Income:                                 |   |                                |   |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold and interest-bearing deposits |   | $                                   | 28     |   |                                | $      | (58 | ) |   | $ | (30 | ) |   | $ | 8 |   |   | $ | (362 | ) |   | $ | (354 | ) |
| Federal Home Loan Bank stock                     |   |                                | (22    | )      |                                |   | (20 | ) |   |   | (42 | ) |   |   | 39 |   |   |   | (2 | ) |   |   | 37 |   |
| Investment securities                            |   |                                | (1,129 | )      |                                |   | (1,151 | ) |   |   | (2,280 | ) |   |   | 2,862 |   |   |   | (495 | ) |   |   | 2,367 |   |
| Net loans                                        |   |                                | (1,750 | )      |                                |   | (1,301 | ) |   |   | (3,051 | ) |   |   | 1,242 |   |   |   | (4,681 | ) |   |   | (3,439 | ) |
| Total interest income                            |   | $                                   | (2,873 | )      |                                | $      | (2,530 | ) |   | $ | (5,403 | ) |   | $ | 4,151 |   |   | $ | (5,540 | ) |   | $ | (1,389 | ) |
| Interest Expense:                                |   |                                |   |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits                 |   | $                                   | 122    |   |                                | $      | (448 | ) |   | $ | (326 | ) |   | $ | 85 |   |   | $ | (490 | ) |   | $ | (405 | ) |
| Savings deposits                                 |   |                                | 1,014  |   |                                |   | (1,759 | ) |   |   | (745 | ) |   |   | 861 |   |   |   | (931 | ) |   |   | (70 | ) |
| Time deposits                                    |   |                                | (3,941 | )      |                                |   | (2,409 | ) |   |   | (6,350 | ) |   |   | 451 |   |   |   | (1,764 | ) |   |   | (1,313 | ) |
| Total deposits                                   |   | $                                   | (2,805 | )      |                                | $      | (4,616 | ) |   | $ | (7,421 | ) |   | $ | 1,397 |   |   | $ | (3,185 | ) |   | $ | (1,788 | ) |
| Borrowed funds and subordinated debentures       |   |                                | (452   | )      |                                |   | 326 |   |   |   | (126 | ) |   |   | 192 |   |   |   | (296 | ) |   |   | (104 | ) |
| Total interest expense                           |   | $                                   | (3,257 | )      |                                | $      | (4,290 | ) |   | $ | (7,547 | ) |   | $ | 1,589 |   |   | $ | (3,481 | ) |   | $ | (1,892 | ) |
| Net interest income – fully tax-equivalent |   | $                                   | 384    |   |                                | $      | 1,760 |   |   | $ | 2,144 |   |   | $ | 2,562 |   |   | $ | (2,059 | ) |   | $ | 503 |   |
| Decrease (increase) in tax-equivalent adjustment |   |                                |   |   |                                |   |   |   |   |   | 28 |   |   |   |   |   |   |   |   |   |   |   | 34 |   |
| Net interest income                              |   |                                |   |   |                                |   |   |   |   | $ | 2,172 |   |   |   |   |   |   |   |   |   |   | $ | 537 |   |

| (In thousands)                                        |   | 2010   |   |   | 2009   |   |
|-------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Branch fee income                                     |   | $      | 1,424  |   |   | $      | 1,418 |   |
| Service and loan fee income                           |   |   | 979    |   |   |   | 1,214 |   |
| Gain on sale of SBA loans held for sale, net          |   |   | 500    |   |   |   | 393 |   |
| Gain on sale of mortgage loans                        |   |   | 1,052  |   |   |   | 217 |   |
| Bank owned life insurance                             |   |   | 310    |   |   |   | 222 |   |
| Other-than-temporary impairment charges on securities |   |   | -      |   |   |   | (2,611 | ) |
| Net security gains                                    |   |   | 85     |   |   |   | 855 |   |
| Other income                                          |   |   | 719    |   |   |   | 432 |   |
| Total noninterest income                              |   | $      | 5,069  |   |   | $      | 2,140 |   |

| ·   | Branch fee income was relatively flat for 2010 when compared to 2009. |
|--------------------|-----------------------------------------------------------------------|

| ·   | Service and loan fee income decreased $235 thousand, primarily as a result of lower levels of prepayment fees. |
|--------------------|----------------------------------------------------------------------------------------------------------------|

----

| ·   | Net gains on SBA loan sales amounted to $500 thousand on $4.8 million in sales. |
|--------------------|---------------------------------------------------------------------------------|

| ·   | Gains on the sale of mortgage loans increased $835 thousand due to a higher volume of loans sold. Sales of mortgage loans totaled $54.3 million and $17.7 million for 2010 and 2009, respectively. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In December 2004, the Company purchased $5.0 million of bank owned life insurance (“BOLI”).  An additional $2.5 million was purchased in January 2010 to help offset the rising costs of employee benefits.  The increase in the cash surrender value of BOLI was $310 thousand for 2010, compared to $222 thousand in 2009. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | No OTTI charges on securities were recorded in 2010. During 2009, the Company recognized $2.6 million of credit related other-than-temporary impairment losses on two held to maturity securities due to the deterioration in the underlying collateral. These two pooled trust preferred securities, which had a cost basis of $3.0 million, had been previously written down $306 thousand in December of 2008.  The remaining book value of the trust preferred securities is approximately $50 thousand as of December 31, 2010.   |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The Company realized net security gains of $85 thousand on the sale of securities in 2010 compared to $855 thousand in 2009.  The gross gains during 2010 are primarily attributed to the Company selling approximately $11.0 million in book value of mortgage-backed securities, resulting in pretax gains of approximately $329 thousand, five called structured agency securities with resulting gains of $8 thousand, and one called held to maturity municipal security with a resulting gain of $4 thousand.  These gains were partially offset by losses of $166 thousand on the sale of approximately $3.5 million in book value of three mortgage-backed securities and losses of $90 thousand on the sale of five held to maturity tax-exempt municipal securities with a total book value of approximately $2.0 million.  Although designated as held to maturity, these municipal securities were sold due to deterioration in the issuer’s creditworthiness, as evidenced by downgrades in their credit ratings.  The gross gains of $855 thousand in 2009 are primarily attributed to the Company selling approximately $31.5 million in book value of mortgage-backed securities, resulting in pretax gains of approximately $827 thousand on the sales.  The Company also sold its remaining callable Freddie Mac perpetual preferred securities resulting in pretax gains of $28 thousand. There were no realized losses in 2009. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Other income totaled $719 thousand and $432 thousand in 2010 and 2009, respectively.  The increase is primarily due to a refund of New Jersey state sales tax for overpayment in previous years received during the second quarter of 2010. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (In thousands)                |   | 2010   |   |   | 2009   |   |
|-------------------------------|--------|--------|--------|--------|--------|--------|
| Compensation and benefits     |   | $      | 11,875 |   |   | $      | 11,243 |   |
| Occupancy                     |   |   | 2,522  |   |   |   | 2,552 |   |
| Processing and communications |   |   | 2,139  |   |   |   | 2,077 |   |
| Furniture and equipment       |   |   | 1,755  |   |   |   | 1,829 |   |
| Professional services         |   |   | 737    |   |   |   | 1,042 |   |
| Loan collection costs         |   |   | 964    |   |   |   | 1,023 |   |
| OREO expense                  |   |   | 1,316  |   |   |   | 220 |   |
| Deposit insurance             |   |   | 1,301  |   |   |   | 1,707 |   |
| Advertising                   |   |   | 624    |   |   |   | 530 |   |
| Other expenses                |   |   | 1,757  |   |   |   | 1,724 |   |
| Total noninterest expense     |   | $      | 24,990 |   |   | $      | 23,947 |   |

| ·   | Compensation and benefits expense, the largest component of noninterest expense, increased $632 thousand or 5.6 percent.  This increase is attributable to an increase in compensation, higher employee medical benefits costs, and increased residential mortgage commissions due to higher sales volumes, partially offset by lower incentive bonus payouts.  At December 31, 2010 and 2009 there were 172 and 165 full-time equivalent employees, respectively. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Occupancy expense declined $30 thousand or 1.2 percent due primarily to the renegotiation of the lease on the Company’s corporate headquarters and a decline in depreciation expenses on capital expenditures, partially offset by an increase in seasonal snow removal costs, property taxes, and janitorial expenses. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Processing and communications expenses increased $62 thousand or 3.0 percent.  This increase was primarily the result of increased data processing line costs and cell phone expenses. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Furniture and equipment expense decreased $74 thousand or 4.0 percent due to lower depreciation expense as capital expenditures declined, as well as lower maintenance costs on equipment. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Professional service fees decreased $305 thousand or 29.3 percent in 2010 due to lower audit, legal and loan review fees. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------|

| ·   | Loan collection costs decreased $59 thousand or 5.8 percent due to decreased collections costs on a lower level of past due loans. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------|

| ·   | OREO expenses increased $1.1 million due to increased maintenance and valuation related expenses on OREO properties. |
|--------------------|----------------------------------------------------------------------------------------------------------------------|

| ·   | Deposit insurance expense decreased $406 thousand in 2010 due primarily to the $408 thousand special assessment in the second quarter of 2009, while there was no comparable charge in 2010. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Advertising expense increased $94 thousand or 17.7 percent in 2010, which reflects the Company’s sales initiatives and brand recognition efforts. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Other expenses increased $33 thousand or 1.9 percent compared to the prior year.  This increase was due primarily to uninsured losses. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $65.9 million in principal payments, maturities and called bonds, |
|--------------------|-------------------------------------------------------------------|

| ·   | $14.3 million in sales net of realized gains, which consisted primarily of mortgage-backed securities and collateralized mortgage obligations (“CMOs”), and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $836 thousand in net amortization of premiums, partially offset by |
|--------------------|--------------------------------------------------------------------|

| ·   | $46.7 million in purchases, which consisted of $24.4 million of mortgage-backed securities and CMOs, $13.0 million of U.S. Government sponsored entities, $8.3 million state and political subdivision bonds, and $1.0 million of Community Reinvestment Act (“CRA”) investments, and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $705 thousand appreciation in the fair value of the portfolio.  At December 31, 2010, the portfolio had a net unrealized gain of $697 thousand compared to a net unrealized loss of $8 thousand at the end of the prior year. These unrealized gains (losses) are reflected net of tax in shareholders’ equity as accumulated other comprehensive income (loss). |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $8.9 million in principal payments, maturities and called bonds, |
|--------------------|------------------------------------------------------------------|

| ·   | $2.0 million in sales net of realized losses, which consisted primarily of state and political subdivision bonds which were downgraded, and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $45 thousand in net amortization of premiums, partially offset by |
|--------------------|-------------------------------------------------------------------|

| ·   | $3.8 million in purchases of mortgage-backed securities and obligations of state and political subdivisions. |
|--------------------|--------------------------------------------------------------------------------------------------------------|

----

|                 |   | 2010   |    |   | 2009       |   |   | 2008   |   |   | 2007       |   |   | 2006   |   |
|----------------------|--------|--------|---------|--------|------------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|
| (In thousands)       |   | Amount |    |   | % of Total |   |   | Amount |   |   | % of Total |   |   | Amount |   |   | % of Total |   |   | Amount |   |   | % of Total |   |   | Amount |   |   | % of Total |   |
| SBA held for sale    |   | $      | 10,397  |   |       |   | 1.7    | %      |   | $      | 21,406     |   |   |   | 3.3    | % |   | $ | 22,181 |   |   |   | 3.2 | % |   | $ | 24,640 |   |   |   | 4.2 | % |   | $ | 12,273 |   |   |   | 2.4 | % |
| SBA held to maturity |   |   | 75,741  |   |       |   | 12.3   |   |   |   | 77,844     |   |   |   | 11.8   |   |   |   | 83,127 |   |   |   | 12.1 |   |   |   | 68,875 |   |   |   | 11.7 |   |   |   | 66,802 |   |   |   | 13.2 |   |
| SBA 504              |   |   | 64,276  |   |       |   | 10.4   |   |   |   | 70,683     |   |   |   | 10.8   |   |   |   | 76,802 |   |   |   | 11.2 |   |   |   | 72,145 |   |   |   | 12.2 |   |   |   | 58,067 |   |   |   | 11.4 |   |
| Commercial           |   |   | 281,205 |   |       |   | 45.7   |   |   |   | 293,739    |   |   |   | 44.6   |   |   |   | 308,165 |   |   |   | 44.9 |   |   |   | 293,641 |   |   |   | 49.7 |   |   |   | 254,128 |   |   |   | 50.1 |   |
| Residential mortgage |   |   | 128,400 |   |       |   | 20.8   |   |   |   | 133,059    |   |   |   | 20.3   |   |   |   | 133,110 |   |   |   | 19.5 |   |   |   | 73,697 |   |   |   | 12.5 |   |   |   | 63,493 |   |   |   | 12.5 |   |
| Consumer             |   |   | 55,917  |   |       |   | 9.1    |   |   |   | 60,285     |   |   |   | 9.2    |   |   |   | 62,561 |   |   |   | 9.1 |   |   |   | 57,134 |   |   |   | 9.7 |   |   |   | 52,927 |   |   |   | 10.4 |   |
| Total loans          |   | $      | 615,936 |   |       |   | 100.0  | %      |   | $      | 657,016    |   |   |   | 100.0  | % |   | $ | 685,946 |   |   |   | 100.0 | % |   | $ | 590,132 |   |   |   | 100.0 | % |   | $ | 507,690 |   |   |   | 100.0 | % |

----

| (In thousands)                                                           |   | Within1 Year |    |    | 1-5Years |   |    | After 5 Years |   |   | Total  |    |
|--------------------------------------------------------------------------|--------|--------------|---------|---------|----------|--------|---------|---------------|--------|--------|--------|---------|
| SBA                                                                      |   | $            | 62,733  |    |     | $      | 12,712  |          |   | $      | 10,693 |    |   | $ | 86,138 |   |
| SBA 504                                                                  |   |         | 18,079  |    |     |   | 40,768  |          |   |   | 5,429  |    |   |   | 64,276 |   |
| Commercial                                                               |   |         | 119,728 |    |     |   | 137,285 |          |   |   | 24,192 |    |   |   | 281,205 |   |
| Residential mortgage                                                     |   |         | 30,152  |    |     |   | 55,084  |          |   |   | 43,164 |    |   |   | 128,400 |   |
| Consumer                                                                 |   |         | 37,567  |    |     |   | 11,723  |          |   |   | 6,627  |    |   |   | 55,917 |   |
|     Total                                            |   | $            | 268,259 |    |     | $      | 257,572 |          |   | $      | 90,105 |    |   | $ | 615,936 |   |
| Amount of loans with maturities or repricing dates greater thanone year: |   |
| Fixed interest rates                                                     |   |         |    |    |     |   |    |          |   |   | $      | 173,867 |   |
| Floating or adjustable interest rates                                    |   |         |    | 173,810 |     |
| Total                                                                    |   | $            | 347,677 |    |

----

| (In thousands)                                        |   | 2010   |   |   | 2009   |   |   | 2008   |   |   | 2007   |   |   |   | 2006   |   |
|-------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Nonperforming by category:                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SBA (1)                                               |   | $      | 8,162  |   |   | $      | 6,559  |   |   | $      | 4,228  |   |   | $      | 2,110  |   |   | $ | 5,212 |   |
| SBA 504                                               |   |   | 2,714  |   |   |   | 5,575  |   |   |   | 4,600  |   |   |   | -      |   |   |   | - |   |
| Commercial                                            |   |   | 5,452  |   |   |   | 7,397  |   |   |   | 5,247  |   |   |   | 1,630  |   |   |   | 3,172 |   |
| Residential mortgage                                  |   |   | 5,085  |   |   |   | 5,578  |   |   |   | 1,808  |   |   |   | 1,192  |   |   |   | 322 |   |
| Consumer                                              |   |   | 249    |   |   |   | 387    |   |   |   | 237    |   |   |   | 529    |   |   |   | 203 |   |
| Total nonperforming loans                             |   | $      | 21,662 |   |   | $      | 25,496 |   |   | $      | 16,120 |   |   | $      | 5,461  |   |   | $ | 8,909 |   |
| OREO                                                  |   |   | 2,346  |   |   |   | 1,530  |   |   |   | 710    |   |   |   | 106    |   |   |   | 211 |   |
| Total nonperforming assets                            |   | $      | 24,008 |   |   | $      | 27,026 |   |   | $      | 16,830 |   |   | $      | 5,567  |   |   | $ | 9,120 |   |
| Past due 90 days or more and still accruing interest: |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SBA                                                   |   | $      | 374    |   |   | $      | 592    |   |   | $      | 332    |   |   | $      | 114    |   |   | $ | - |   |
| SBA 504                                               |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | - |   |
| Commercial                                            |   |   | -      |   |   |   | 469    |   |   |   | 146    |   |   |   | 41     |   |   |   | - |   |
| Residential mortgage                                  |   |   | -      |   |   |   | 1,196  |   |   |   | 2,058  |   |   |   | -      |   |   |   | 78 |   |
| Consumer                                              |   |   | -      |   |   |   | 29     |   |   |   | -      |   |   |   | -      |   |   |   | - |   |
| Total                                                 |   | $      | 374    |   |   | $      | 2,286  |   |   | $      | 2,536  |   |   | $      | 155    |   |   | $ | 78 |   |
| Nonperforming loans to total loans                    |   |   | 3.52   | %      |   |   | 3.88   | %      |   |   | 2.35   | %      |   |   | 0.93   | %      |   |   | 1.75 | % |
| Nonperforming assets to total loans and OREO          |   |   | 3.88   |   |   |   | 4.10   |   |   |   | 2.45   |   |   |   | 0.94   |   |   |   | 1.80 |   |
| Nonperforming assets to total assets                  |   |   | 2.93   |   |   |   | 2.90   |   |   |   | 1.87   |   |   |   | 0.74   |   |   |   | 1.31 |   |
| (1) SBA loans guaranteed                              |   | $      | 2,706  |   |   | $      | 1,931  |   |   | $      | 1,983  |   |   | $      | 714    |   |   | $ | 2,953 |   |

----

----

| (In thousands)                    |   | 2010   |   |   | 2009   |   |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|-----------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Balance, beginning of year        |   | $      | 13,842 |   |   | $      | 10,326 |   |   | $      | 8,383  |   |   | $      | 7,624  |   |   | $ | 6,892 |   |
| Provision charged to expense      |   |   | 7,250  |   |   |   | 8,000  |   |   |   | 4,500  |   |   |   | 1,550  |   |   |   | 1,550 |   |
| Charge-offs:                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SBA                               |   |   | 1,351  |   |   |   | 1,874  |   |   |   | 1,246  |   |   |   | 770    |   |   |   | 573 |   |
| SBA 504                           |   |   | 1,548  |   |   |   | 812    |   |   |   | 1,000  |   |   |   | -      |   |   |   | - |   |
| Commercial                        |   |   | 3,627  |   |   |   | 1,845  |   |   |   | 408    |   |   |   | 155    |   |   |   | 298 |   |
| Residential mortgage              |   |   | 500    |   |   |   | 216    |   |   |   | 25     |   |   |   | -      |   |   |   | - |   |
| Consumer                          |   |   | 245    |   |   |   | 27     |   |   |   | 145    |   |   |   | 50     |   |   |   | 62 |   |
| Total charge-offs                 |   |   | 7,271  |   |   |   | 4,774  |   |   |   | 2,824  |   |   |   | 975    |   |   |   | 933 |   |
| Recoveries:                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SBA                               |   |   | 243    |   |   |   | 123    |   |   |   | 177    |   |   |   | 147    |   |   |   | 20 |   |
| SBA 504                           |   |   | -      |   |   |   | 27     |   |   |   | -      |   |   |   | -      |   |   |   | - |   |
| Commercial                        |   |   | 296    |   |   |   | 134    |   |   |   | 39     |   |   |   | 18     |   |   |   | 75 |   |
| Residential mortgage              |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | - |   |
| Consumer                          |   |   | 4      |   |   |   | 6      |   |   |   | 51     |   |   |   | 19     |   |   |   | 20 |   |
| Total recoveries                  |   |   | 543    |   |   |   | 290    |   |   |   | 267    |   |   |   | 184    |   |   |   | 115 |   |
| Total net charge-offs             |   | $      | 6,728  |   |   | $      | 4,484  |   |   | $      | 2,557  |   |   | $      | 791    |   |   | $ | 818 |   |
| Balance, end of year              |   | $      | 14,364 |   |   | $      | 13,842 |   |   | $      | 10,326 |   |   | $      | 8,383  |   |   | $ | 7,624 |   |
| Selected loan quality ratios:     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net charge-offs to average loans: |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SBA                               |   |   | 1.16   | %      |   |   | 1.70   | %      |   |   | 1.05   | %      |   |   | 0.74   | % |   |   | 0.66 | % |
| SBA 504                           |   |   | 2.32   |   |   |   | 1.07   |   |   |   | 1.34   |   |   |   | 0.00   |   |   |   | 0.00 |   |
| Commercial                        |   |   | 1.17   |   |   |   | 0.57   |   |   |   | 0.12   |   |   |   | 0.05   |   |   |   | 0.09 |   |
| Residential mortgage              |   |   | 0.38   |   |   |   | 0.17   |   |   |   | 0.02   |   |   |   | 0.00   |   |   |   | 0.00 |   |
| Consumer                          |   |   | 0.41   |   |   |   | 0.03   |   |   |   | 0.16   |   |   |   | 0.06   |   |   |   | 0.09 |   |
| Total loans                       |   |   | 1.05   |   |   |   | 0.67   |   |   |   | 0.40   |   |   |   | 0.14   |   |   |   | 0.17 |   |
| Allowance to total loans          |   |   | 2.33   |   |   |   | 2.11   |   |   |   | 1.51   |   |   |   | 1.42   |   |   |   | 1.50 |   |
| Allowance to nonperforming loans  |   |   | 66.31  |   |   |   | 54.29  |   |   |   | 64.06  |   |   |   | 153.49 |   |   |   | 85.58 |   |

|                   |   | 2010   |   |   | 2009       |   |   | 2008   |   |   | 2007       |   |   | 2006   |   |
|------------------------|--------|--------|--------|--------|------------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|
| (In thousands)         |   | Amount |   |   | % of Total |   |   | Amount |   |   | % of Total |   |   | Amount |   |   | % of Total |   |   | Amount |   |   | % of Total |   |   | Amount |   |   | % of Total |   |
| Balance applicable to: |   |   |   |   |       |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SBA                    |   | $      | 4,198  |   |       |   | 14.0   | %      |   | $      | 3,247      |   |   |   | 15.1   | % |   | $ | 2,579 |   |   |   | 15.3 | % |   | $ | 2,181 |   |   |   | 15.9 | % |   | $ | 1,961 |   |   |   | 15.6 | % |
| SBA 504                |   |   | 1,551  |   |       |   | 10.4   |   |   |   | 1,872      |   |   |   | 10.8   |   |   |   | 1,065 |   |   |   | 11.2 |   |   |   | 902 |   |   |   | 12.2 |   |   |   | 726 |   |   |   | 11.4 |   |
| Commercial             |   |   | 6,011  |   |       |   | 45.7   |   |   |   | 6,013      |   |   |   | 44.6   |   |   |   | 4,415 |   |   |   | 44.9 |   |   |   | 4,186 |   |   |   | 49.7 |   |   |   | 3,728 |   |   |   | 50.1 |   |
| Residential mortgage   |   |   | 1,679  |   |       |   | 20.8   |   |   |   | 1,615      |   |   |   | 20.3   |   |   |   | 1,464 |   |   |   | 19.5 |   |   |   | 564 |   |   |   | 12.5 |   |   |   | 221 |   |   |   | 12.5 |   |
| Consumer               |   |   | 586    |   |       |   | 9.1    |   |   |   | 632        |   |   |   | 9.2    |   |   |   | 646 |   |   |   | 9.1 |   |   |   | 505 |   |   |   | 9.7 |   |   |   | 319 |   |   |   | 10.4 |   |
| Unallocated            |   |   | 339    |   |       |   | -      |   |   |   | 463        |   |   |   | -      |   |   |   | 157 |   |   |   | - |   |   |   | 45 |   |   |   | - |   |   |   | 669 |   |   |   | - |   |
| Total                  |   | $      | 14,364 |   |       |   | 100.0  | %      |   | $      | 13,842     |   |   |   | 100.0  | % |   | $ | 10,326 |   |   |   | 100.0 | % |   | $ | 8,383 |   |   |   | 100.0 | % |   | $ | 7,624 |   |   |   | 100.0 | % |

----

| At December 31,                     |   | 2010   |    |   | 2009   |   |   | 2008   |   |
|-------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|
| (In thousands)                      |   | Amount |    |   | %      |   |   | Amount |   |   | % |   |   | Amount |   |   | % |   |
| Ending balance:                     |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing demand deposits |   | $      | 91,272  |   |   |   | 13.9   | %      |   | $ | 80,100 |   |   |   | 10.6 | % |   | $ | 74,090 |   |   |   | 10.5 | % |
| Interest-bearing demand deposits    |   |   | 105,530 |   |   |   | 16.1   |   |   |   | 100,046 |   |   |   | 13.2 |   |   |   | 87,046 |   |   |   | 12.3 |   |
| Savings deposits                    |   |   | 277,394 |   |   |   | 42.5   |   |   |   | 286,334 |   |   |   | 37.7 |   |   |   | 134,875 |   |   |   | 19.1 |   |
| Time deposits                       |   |   | 180,592 |   |   |   | 27.5   |   |   |   | 291,759 |   |   |   | 38.5 |   |   |   | 411,106 |   |   |   | 58.1 |   |
| Total deposits                      |   | $      | 654,788 |   |   |   | 100.0  | %      |   | $ | 758,239 |   |   |   | 100.0 | % |   | $ | 707,117 |   |   |   | 100.0 | % |

|                                |   | 2010   |    |   | 2009   |   |   | 2008   |   |
|-------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|
| (In thousands)                      |   | Amount |    |   | %      |   |   | Amount |   |   | % |   |   | Amount |   |   | % |   |
| Average balance:                    |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing demand deposits |   | $      | 87,684  |   |   |   | 12.6   | %      |   | $ | 79,252 |   |   |   | 10.9 | % |   | $ | 78,282 |   |   |   | 11.8 | % |
| Interest-bearing demand deposits    |   |   | 100,729 |   |   |   | 14.5   |   |   |   | 89,500 |   |   |   | 12.4 |   |   |   | 84,336 |   |   |   | 12.7 |   |
| Savings deposits                    |   |   | 289,156 |   |   |   | 41.7   |   |   |   | 214,274 |   |   |   | 29.6 |   |   |   | 168,784 |   |   |   | 25.5 |   |
| Time deposits                       |   |   | 216,488 |   |   |   | 31.2   |   |   |   | 341,233 |   |   |   | 47.1 |   |   |   | 330,174 |   |   |   | 50.0 |   |
| Total deposits                      |   | $      | 694,057 |   |   |   | 100.0  | %      |   | $ | 724,259 |   |   |   | 100.0 | % |   | $ | 661,576 |   |   |   | 100.0 | % |

| (In thousands)              |   | 2010   |   |   | 2009   |   |
|-----------------------------|--------|--------|--------|--------|--------|--------|
| FHLB borrowings:            |   |   |   |   |   |   |
| Fixed rate advances         |   | $      | 30,000 |   |   | $      | 40,000 |   |
| Repurchase agreements       |   |   | 30,000 |   |   |   | 30,000 |   |
| Other repurchase agreements |   |   | 15,000 |   |   |   | 15,000 |   |
| Subordinated debentures     |   |   | 15,465 |   |   |   | 15,465 |   |

----

| (In thousands)                                   |   | Under six months |    |   | Six months through one year |   |    | More than one year through three years |   |   | More than three years throughfive years |   |   | More thanfive yearsthroughten years |    |   | More thanten yearsand notrepricing |   |      | Total  |   |
|--------------------------------------------------|--------|------------------|---------|--------|-----------------------------|--------|---------|----------------------------------------|--------|--------|-----------------------------------------|--------|--------|-------------------------------------|---------|--------|------------------------------------|--------|-----------|--------|--------|
| Assets                                           |   |             |    |   |                        |   |    |                                   |   |   |                                    |   |   |                                |    |   |                               |   |      |   |   |
| Cash & due from banks                        |   | $                | -       |   |                        | $      | -       |                                   |   | $      | -                                       |   |   | $                                   | -       |   |                               | $      | -         |   |   | $ | 17,637 |   |   | $ | 17,637 |   |
| Federal funds sold and interest-bearing deposits |   |             | 26,289  |   |                        |   | -       |                                   |   |   | -                                       |   |   |                                | -       |   |                               |   | -         |   |   |   | - |   |   |   | 26,289 |   |
| Federal Home Loan Bank stock                     |   |             | -       |   |                        |   | -       |                                   |   |   | -                                       |   |   |                                | -       |   |                               |   | -         |   |   |   | 4,206 |   |   |   | 4,206 |   |
| Securities                                       |   |             | 28,485  |   |                        |   | 16,999  |                                   |   |   | 37,526                                  |   |   |                                | 14,031  |   |                               |   | 18,189    |   |   |   | 13,012 |   |   |   | 128,242 |   |
| Loans                                            |   |             | 205,362 |   |                        |   | 62,897  |                                   |   |   | 171,664                                 |   |   |                                | 85,908  |   |                               |   | 47,708    |   |   |   | 42,397 |   |   |   | 615,936 |   |
| Other assets                                     |   |             | -       |   |                        |   | -       |                                   |   |   | -                                       |   |   |                                | -       |   |                               |   | -         |   |   |   | 26,100 |   |   |   | 26,100 |   |
| Total Assets                                     |   | $                | 260,136 |   |                        | $      | 79,896  |                                   |   | $      | 209,190                                 |   |   | $                                   | 99,939  |   |                               | $      | 65,897    |   |   | $ | 103,352 |   |   | $ | 818,410 |   |
| Liabilities and Shareholders’ Equity       |   |             |    |   |                        |   |    |                                   |   |   |                                    |   |   |                                |    |   |                               |   |      |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing demand deposits              |   | $                | -       |   |                        | $      | -       |                                   |   | $      | -                                       |   |   | $                                   | -       |   |                               | $      | -         |   |   | $ | 91,272 |   |   | $ | 91,272 |   |
| Savings and interest-bearing demand deposits     |   |             | 156,307 |   |                        |   | 943     |                                   |   |   | 103,784                                 |   |   |                                | 72,881  |   |                               |   | 49,009    |   |   |   | - |   |   |   | 382,924 |   |
| Time deposits                                    |   |             | 61,296  |   |                        |   | 42,952  |                                   |   |   | 65,103                                  |   |   |                                | 10,935  |   |                               |   | 306       |   |   |   | - |   |   |   | 180,592 |   |
| Borrowed funds and subordinated debentures       |   |             | 15,000  |   |                        |   | -       |                                   |   |   | -                                       |   |   |                                | 10,000  |   |                               |   | 65,000    |   |   |   | 465 |   |   |   | 90,465 |   |
| Other liabilities                                |   |             | -       |   |                        |   | -       |                                   |   |   | -                                       |   |   |                                | -       |   |                               |   | -         |   |   |   | 3,072 |   |   |   | 3,072 |   |
| Shareholders’ equity                       |   |             | -       |   |                        |   | -       |                                   |   |   | -                                       |   |   |                                | -       |   |                               |   | -         |   |   |   | 70,085 |   |   |   | 70,085 |   |
| Total Liabilities and Shareholders’ Equity |   | $                | 232,603 |   |                        | $      | 43,895  |                                   |   | $      | 168,887                                 |   |   | $                                   | 93,816  |   |                               | $      | 114,315   |   |   | $ | 164,894 |   |   | $ | 818,410 |   |
| Interest Rate Swap                               |   | $                | 15,000  |   |                        | $      | (10,000 | )                                 |   | $      | (5,000                                  | )      |   | $                                   | -       |   |                               | $      | -         |   |   | $ | - |   |   | $ | - |   |
| Gap                                              |   | $                | 42,533  |   |                        | $      | 26,001  |                                   |   | $      | 35,303                                  |   |   | $                                   | 6,123   |   |                               | $      | (48,418   | )      |   | $ | (61,542 | ) |   | $ | - |   |
| Cumulative Gap                                   |   | $                | 42,533  |   |                        | $      | 68,534  |                                   |   | $      | 103,837                                 |   |   | $                                   | 109,960 |   |                               | $      | 61,542    |   |   | $ | - |   |   | $ | - |   |
| Cumulative Gap to Total Assets%                  |   |             | 5.2     | %      |                        |   | 8.4     | %                                      |   |   | 12.7                               | %      |   |                                | 13.4    | %      |                               |   | 7.5  | %      |   |   | - |   |   |   | - |   |

----

| (In thousands, except percentages and years)                       |   | 2010   |   |   | 2009   |   |
|--------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Notional amount                                                    |   | $      | 15,000 |   |   | $      | 15,000 |   |
| Weighted average pay rate                                          |   |   | 4.05   | %      |   |   | 4.05 | % |
| Weighted average receive rate   (three-month LIBOR) |   |   | 0.34   | %      |   |   | 0.90 | % |
| Weighted average maturity in years                                 |   |   | 0.90   |   |   |   | 1.90 |   |
| Unrealized loss relating to interestrate swaps                     |   | $      | (499   | )      |   | $      | (777 | ) |

----

| (In thousands)            |   | One Yearor Less |   |   | One toThree Years |   |   | Three toFive Years |   |   | OverFive Years |   |   | Total |   |
|---------------------------|--------|-----------------|--------|--------|-------------------|--------|--------|--------------------|--------|--------|----------------|--------|--------|-------|--------|
| Standby letters of credit |   | $               | 1,419  |   |              | $      | -      |               |   | $      | -              |   |   | $     | 48     |   |   | $ | 1,467 |   |

| (In thousands)                             |   | One Yearor Less |   |   | One toThree Years |   |   | Three toFive Years |   |   | OverFive Years |   |   | Total  |   |
|--------------------------------------------|--------|-----------------|--------|--------|-------------------|--------|--------|--------------------|--------|--------|----------------|--------|--------|--------|--------|
| Borrowed funds and subordinated debentures |   | $               | -      |   |              | $      | -      |               |   | $      | 10,000         |   |   | $      | 80,465 |   |   | $ | 90,465 |   |
| Operating lease obligations                |   |            | 1,035  |   |              |   | 2,082  |               |   |   | 291            |   |   |   | -      |   |   |   | 3,408 |   |
| Purchase obligations                       |   |            | 1,070  |   |              |   | 353    |               |   |   | -              |   |   |   | -      |   |   |   | 1,423 |   |
| Total                                      |   | $               | 2,105  |   |              | $      | 2,435  |               |   | $      | 10,291         |   |   | $      | 80,465 |   |   | $ | 95,296 |   |

----

| Company                         |   | 2010   |   |   | 2009   |   |   | AdequatelyCapitalizedRequirements |   |   | Well-CapitalizedRequirements |   |
|---------------------------------|--------|--------|--------|--------|--------|--------|--------|-----------------------------------|--------|--------|------------------------------|--------|
| Leverage ratio                  |   |   | 9.97   | %      |   |   | 8.83   | %                                 |   |   | 4.00                         | %      |   |   | N/A |   |
| Tier 1 risk-based capital ratio |   |   | 13.04  |   |   |   | 11.75  |                              |   |   | 4.00                         |   |   |   | N/A |   |
| Total risk-based capital ratio  |   |   | 14.30  |   |   |   | 13.01  |                              |   |   | 8.00                         |   |   |   | N/A |   |

| Bank                            |   | 2010   |   |   | 2009   |   |   | AdequatelyCapitalizedRequirements |   |   | Well-CapitalizedRequirements |   |
|---------------------------------|--------|--------|--------|--------|--------|--------|--------|-----------------------------------|--------|--------|------------------------------|--------|
| Leverage ratio                  |   |   | 8.48   | %      |   |   | 7.38   | %                                 |   |   | 4.00                         | %      |   |   | 5.00 | % |
| Tier 1 risk-based capital ratio |   |   | 11.10  |   |   |   | 9.82   |                              |   |   | 4.00                         |   |   |   | 6.00 | % |
| Total risk-based capital ratio  |   |   | 13.69  |   |   |   | 12.30  |                              |   |   | 8.00                         |   |   |   | 10.00 | % |

----

----

----

----

----

|  December 31,                                                                                                                                            |   |   | 2010    |   |   |   | 2009    |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|
| ASSETS                                                                                                                                                        |   |   |    |   |   |   |    |   |
| Cash and due from banks                                                                                                                                       |   | $      | 17,637  |   |   | $      | 23,517  |   |
| Federal funds sold and interest-bearing deposits                                                                                                              |   |   | 26,289  |   |   |   | 50,118  |   |
| Cash and cash equivalents                                                                                                                                     |   |   | 43,926  |   |   |   | 73,635  |   |
| Securities:                                                                                                                                                   |   |   |    |   |   |   |    |   |
| Available for sale                                                                                                                                            |   |   | 107,131 |   |   |   | 140,770 |   |
| Held to maturity (fair value of $21,351 and $28,406 in 2010 and 2009, respectively)                                                                           |   |   | 21,111  |   |   |   | 28,252  |   |
| Total securities                                                                                                                                              |   |   | 128,242 |   |   |   | 169,022 |   |
| Loans:                                                                                                                                                        |   |   |    |   |   |   |    |   |
| SBA held for sale                                                                                                                                             |   |   | 10,397  |   |   |   | 21,406  |   |
| SBA held to maturity                                                                                                                                          |   |   | 75,741  |   |   |   | 77,844  |   |
| SBA 504                                                                                                                                                       |   |   | 64,276  |   |   |   | 70,683  |   |
| Commercial                                                                                                                                                    |   |   | 281,205 |   |   |   | 293,739 |   |
| Residential mortgage                                                                                                                                          |   |   | 128,400 |   |   |   | 133,059 |   |
| Consumer                                                                                                                                                      |   |   | 55,917  |   |   |   | 60,285  |   |
| Total loans                                                                                                                                                   |   |   | 615,936 |   |   |   | 657,016 |   |
| Less: Allowance for loan losses                                                                                                                               |   |   | 14,364  |   |   |   | 13,842  |   |
| Net loans                                                                                                                                                     |   |   | 601,572 |   |   |   | 643,174 |   |
| Premises and equipment, net                                                                                                                                   |   |   | 10,967  |   |   |   | 11,773  |   |
| Bank owned life insurance                                                                                                                                     |   |   | 8,812   |   |   |   | 6,002   |   |
| Deferred tax assets                                                                                                                                           |   |   | 7,550   |   |   |   | 7,308   |   |
| Federal Home Loan Bank stock                                                                                                                                  |   |   | 4,206   |   |   |   | 4,677   |   |
| Accrued interest receivable                                                                                                                                   |   |   | 3,791   |   |   |   | 4,225   |   |
| Prepaid FDIC insurance                                                                                                                                        |   |   | 3,266   |   |   |   | 4,739   |   |
| Other real estate owned (“OREO”)                                                                                                                  |   |   | 2,346   |   |   |   | 1,530   |   |
| Other assets                                                                                                                                                  |   |   | 2,188   |   |   |   | 2,713   |   |
| Goodwill and other intangibles                                                                                                                                |   |   | 1,544   |   |   |   | 1,559   |   |
| Total Assets                                                                                                                                                  |   | $      | 818,410 |   |   | $      | 930,357 |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                    |   |   |    |   |   |   |    |   |
| Liabilities:                                                                                                                                                  |   |   |    |   |   |   |    |   |
| Deposits:                                                                                                                                                     |   |   |    |   |   |   |    |   |
| Noninterest-bearing demand deposits                                                                                                                           |   | $      | 91,272  |   |   | $      | 80,100  |   |
| Interest-bearing demand deposits                                                                                                                              |   |   | 105,530 |   |   |   | 100,046 |   |
| Savings deposits                                                                                                                                              |   |   | 277,394 |   |   |   | 286,334 |   |
| Time deposits, under $100,000                                                                                                                                 |   |   | 119,478 |   |   |   | 183,377 |   |
| Time deposits, $100,000 and over                                                                                                                              |   |   | 61,114  |   |   |   | 108,382 |   |
| Total deposits                                                                                                                                                |   |   | 654,788 |   |   |   | 758,239 |   |
| Borrowed funds                                                                                                                                                |   |   | 75,000  |   |   |   | 85,000  |   |
| Subordinated debentures                                                                                                                                       |   |   | 15,465  |   |   |   | 15,465  |   |
| Accrued interest payable                                                                                                                                      |   |   | 556     |   |   |   | 710     |   |
| Accrued expenses and other liabilities                                                                                                                        |   |   | 2,516   |   |   |   | 3,078   |   |
| Total Liabilities                                                                                                                                             |   |   | 748,325 |   |   |   | 862,492 |   |
| Commitments and contingencies (Note 11)                                                                                                                       |   |   | -       |   |   |   | -       |   |
| Shareholders’ equity:                                                                                                                                   |   |   |    |   |   |   |    |   |
| Cumulative perpetual preferred stock, Series B, $1 liquidation preference per share, 500 shares authorized, 21 shares issued and outstanding in 2010 and 2009 |   |   | 19,019  |   |   |   | 18,533  |   |
| Common stock, no par value, 12,500 shares authorized, 7,636 shares issued and 7,211 outstanding in 2010; 7,569 shares issued and 7,144 outstanding in 2009    |   |   | 55,884  |   |   |   | 55,454  |   |
| Accumulated deficit                                                                                                                                           |   |   | (772    | )      |   |   | (1,492  | )      |
| Treasury stock at cost (425 shares in 2010 and 2009)                                                                                                          |   |   | (4,169  | )      |   |   | (4,169  | )      |
| Accumulated other comprehensive income (loss)                                                                                                                 |   |   | 123     |   |   |   | (461    | )      |
| Total Shareholders’ Equity                                                                                                                              |   |   | 70,085  |   |   |   | 67,865  |   |
| Total Liabilities and Shareholders’ Equity                                                                                                              |   | $      | 818,410 |   |   | $      | 930,357 |   |

|   | The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. |
|--------|-----------------------------------------------------------------------------------------------------------|

----

| For the years ended December 31,                            |   |   | 2010   |   |   |   | 2009   |   |
|-------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
| INTEREST INCOME                                             |   |   |   |   |   |   |   |   |
| Federal funds sold and interest-bearing deposits            |   | $      | 87     |   |   | $      | 117    |   |
| Federal Home Loan Bank stock                                |   |   | 235    |   |   |   | 277    |   |
| Securities:                                                 |   |   |   |   |   |   |   |   |
| Available for sale                                          |   |   | 4,287  |   |   |   | 6,136  |   |
| Held to maturity                                            |   |   | 1,117  |   |   |   | 1,520  |   |
| Total securities                                            |   |   | 5,404  |   |   |   | 7,656  |   |
| Loans:                                                      |   |   |   |   |   |   |   |   |
| SBA                                                         |   |   | 5,264  |   |   |   | 6,246  |   |
| SBA 504                                                     |   |   | 4,305  |   |   |   | 4,821  |   |
| Commercial                                                  |   |   | 18,130 |   |   |   | 19,881 |   |
| Residential mortgage                                        |   |   | 7,684  |   |   |   | 7,252  |   |
| Consumer                                                    |   |   | 2,926  |   |   |   | 3,160  |   |
| Total loans                                                 |   |   | 38,309 |   |   |   | 41,360 |   |
| Total interest income                                       |   |   | 44,035 |   |   |   | 49,410 |   |
| INTEREST EXPENSE                                            |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits                            |   |   | 737    |   |   |   | 1,063  |   |
| Savings deposits                                            |   |   | 2,829  |   |   |   | 3,574  |   |
| Time deposits                                               |   |   | 6,173  |   |   |   | 12,523 |   |
| Borrowed funds and subordinated debentures                  |   |   | 4,296  |   |   |   | 4,422  |   |
| Total interest expense                                      |   |   | 14,035 |   |   |   | 21,582 |   |
| Net interest income                                         |   |   | 30,000 |   |   |   | 27,828 |   |
| Provision for loan losses                                   |   |   | 7,250  |   |   |   | 8,000  |   |
| Net interest income after provision for loan losses         |   |   | 22,750 |   |   |   | 19,828 |   |
| NONINTEREST INCOME                                          |   |   |   |   |   |   |   |   |
| Branch fee income                                           |   |   | 1,424  |   |   |   | 1,418  |   |
| Service and loan fee income                                 |   |   | 979    |   |   |   | 1,214  |   |
| Gain on sale of SBA loans held for sale, net                |   |   | 500    |   |   |   | 393    |   |
| Gain on sale of mortgage loans                              |   |   | 1,052  |   |   |   | 217    |   |
| Bank owned life insurance                                   |   |   | 310    |   |   |   | 222    |   |
| Other-than-temporary impairment charges                     |   |   | -      |   |   |   | (2,611 | )      |
| Net security gains                                          |   |   | 85     |   |   |   | 855    |   |
| Other income                                                |   |   | 719    |   |   |   | 432    |   |
| Total noninterest income                                    |   |   | 5,069  |   |   |   | 2,140  |   |
| NONINTEREST EXPENSE                                         |   |   |   |   |   |   |   |   |
| Compensation and benefits                                   |   |   | 11,875 |   |   |   | 11,243 |   |
| Occupancy                                                   |   |   | 2,522  |   |   |   | 2,552  |   |
| Processing and communications                               |   |   | 2,139  |   |   |   | 2,077  |   |
| Furniture and equipment                                     |   |   | 1,755  |   |   |   | 1,829  |   |
| Professional services                                       |   |   | 737    |   |   |   | 1,042  |   |
| Loan collection costs                                       |   |   | 964    |   |   |   | 1,023  |   |
| OREO expenses                                               |   |   | 1,316  |   |   |   | 220    |   |
| Deposit insurance                                           |   |   | 1,301  |   |   |   | 1,707  |   |
| Advertising                                                 |   |   | 624    |   |   |   | 530    |   |
| Other expenses                                              |   |   | 1,757  |   |   |   | 1,724  |   |
| Total noninterest expense                                   |   |   | 24,990 |   |   |   | 23,947 |   |
| Income (loss) before provision (benefit) for income taxes   |   |   | 2,829  |   |   |   | (1,979 | )      |
| Provision (benefit) for income taxes                        |   |   | 589    |   |   |   | (898   | )      |
| Net income (loss)                                           |   |   | 2,240  |   |   |   | (1,081 | )      |
| Preferred stock dividends and discount accretion            |   |   | 1,520  |   |   |   | 1,496  |   |
| Income available (loss attributable) to common shareholders |   | $      | 720    |   |   | $      | (2,577 | )      |
| Net income (loss) per common share - Basic                  |   | $      | 0.10   |   |   | $      | (0.36  | )      |
| Net income(loss) per common share - Diluted                 |   |   | 0.10   |   |   |   | (0.36  | )      |
| Weighted average common shares outstanding - Basic          |   |   | 7,173  |   |   |   | 7,121  |   |
| Weighted average common shares outstanding - Diluted        |   |   | 7,447  |   |   |   | 7,121  |   |

|   | The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. |
|--------|-----------------------------------------------------------------------------------------------------------|

----

|  (In thousands)                                     |   |  Preferred |   |   | Common Stock |   |   |  Retained |   |   |  Treasury |   |   |  Accumulated Other Comprehensive Income |   |    |  Total Shareholders' |   |
|----------------------------------------------------------|--------|-----------------|--------|--------|--------------|--------|--------|----------------|--------|--------|----------------|--------|--------|----------------------------------------------|--------|---------|---------------------------|--------|
|                                                     |   | Stock           |   |   | Shares       |   |   | Amount         |   |   | Earnings       |   |   | Stock                                        |   |    | Loss                      |   |   | Equity |   |
| Balance, December 31, 2008                               |   | $               | 18,064 |   |         |   | 7,119  |           |   | $      | 55,179         |   |   | $                                            | 1,085  |    |                      | $      | (4,169 | ) |   | $ | (2,356 | ) |   | $ | 67,803 |   |
| Comprehensive income:                                    |   |            |   |   |         |   |   |           |   |   |           |   |   |                                         |   |    |                      |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                 |   |            |   |   |         |   |   |           |   |   |           |   |   |                                         | (1,081 | )  |                      |   |   |   |   |   |   |   |   |   | (1,081 | )  |
| Net unrealized gains on securities                  |   |            |   |   |         |   |   |           |   |   |           |   |   |                                         |   |    |                      |   |   |   |   |   | 1,733 |   |   |   | 1,733 |   |
| Net unrealized gains on cash flow hedge derivatives |   |            |   |   |         |   |   |           |   |   |           |   |   |                                         |   |    |                      |   |   |   |   |   | 162 |   |   |   | 162 |   |
| Total comprehensive income                               |   |            |   |   |         |   |   |           |   |   |           |   |   |                                         |   |    |                      |   |   |   |   |   |   |   |   |   | 814 |   |
| Accretion of discount on preferred stock                 |   |            | 469    |   |         |   |   |           |   |   |           |   |   |                                         | (469   | )       |                      |   |   |   |   |   |   |   |   |   | - |   |
| Dividends on preferred stock (5% annually)               |   |            |   |   |         |   |   |           |   |   |           |   |   |                                         | (1,027 | )       |                      |   |   |   |   |   |   |   |   |   | (1,027 | ) |
| Common stock issued and related tax effects              |   |            |   |   |         |   | 25     |           |   |   | 275            |   |   |                                         |   |    |                      |   |   |   |   |   |   |   |   |   | 275 |   |
| Balance, December 31, 2009                               |   | $               | 18,533 |   |         |   | 7,144  |           |   | $      | 55,454         |   |   | $                                            | (1,492 | )       |                      | $      | (4,169 | ) |   | $ | (461 | ) |   | $ | 67,865 |   |
| Comprehensive income:                                    |   |            |   |   |         |   |   |           |   |   |           |   |   |                                         |   |    |                      |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                               |   |            |   |   |         |   |   |           |   |   |           |   |   |                                         | 2,240  |    |                      |   |   |   |   |   |   |   |   |   | 2,240 |   |
| Net unrealized gains on securities                       |   |            |   |   |         |   |   |           |   |   |           |   |   |                                         |   |    |                      |   |   |   |   |   | 418 |   |   |   | 418 |   |
| Net unrealized gains on cash flow hedge derivatives      |   |            |   |   |         |   |   |           |   |   |           |   |   |                                         |   |    |                      |   |   |   |   |   | 166 |   |   |   | 166 |   |
| Total comprehensive income                               |   |            |   |   |         |   |   |           |   |   |           |   |   |                                         |   |    |                      |   |   |   |   |   |   |   |   |   | 2,824 |   |
| Accretion of discount on preferred stock                 |   |            | 486    |   |         |   |   |           |   |   |           |   |   |                                         | (486   | )       |                      |   |   |   |   |   |   |   |   |   | - |   |
| Dividends on preferred stock (5% annually)               |   |            |   |   |         |   |   |           |   |   |           |   |   |                                         | (1,034 | )       |                      |   |   |   |   |   |   |   |   |   | (1,034 | ) |
| Common stock issued and related tax effects              |   |            |   |   |         |   | 67     |           |   |   | 430            |   |   |                                         |   |    |                      |   |   |   |   |   |   |   |   |   | 430 |   |
| Balance, December 31, 2010                               |   | $               | 19,019 |   |         |   | 7,211  |           |   | $      | 55,884         |   |   | $                                            | (772   | )       |                      | $      | (4,169 | ) |   | $ | 123 |   |   | $ | 70,085 |   |

----

|                                                                                     |   |   | 2010     |   |   |   | 2009     |   |
|------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|--------|----------|--------|
| OPERATING ACTIVITIES:                                                                    |   |   |     |   |   |   |     |   |
| Net income (loss)                                                                        |   | $      | 2,240    |   |   | $      | (1,081   | )      |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |   |
| Provision for loan losses                                                                |   |   | 7,250    |   |   |   | 8,000    |   |
| Net amortization of purchase premiums and discounts on securities                        |   |   | 881      |   |   |   | 535      |   |
| Depreciation and amortization                                                            |   |   | 1,282    |   |   |   | 1,418    |   |
| Deferred income tax benefit                                                              |   |   | (641     | )      |   |   | (2,084   | )      |
| Other-than-temporary impairment charges on securities                                    |   |   | -        |   |   |   | 2,611    |   |
| Net security gains                                                                       |   |   | (85      | )      |   |   | (855     | )      |
| Stock compensation expense                                                               |   |   | 317      |   |   |   | 310      |   |
| Loss on sale of OREO                                                                     |   |   | 807      |   |   |   | 150      |   |
| Gain on sale of SBA loans held for sale, net                                             |   |   | (500     | )      |   |   | (393     | )      |
| Gain on sale of mortgage loans                                                           |   |   | (1,052   | )      |   |   | (217     | )      |
| Origination of mortgage loans held for sale                                              |   |   | (54,299  | )      |   |   | (17,711  | )      |
| Origination of SBA loans held for sale                                                   |   |   | (1,573   | )      |   |   | (6,446   | )      |
| Proceeds from the sale of mortgage loans held for sale, net                              |   |   | 55,351   |   |   |   | 17,928   |   |
| Proceeds from the sale of SBA loans held for sale, net                                   |   |   | 5,286    |   |   |   | 5,626    |   |
| Loss on the sale of premises and equipment                                               |   |   | 9        |   |   |   | 6        |   |
| Net change in other assets and liabilities                                               |   |   | 1,702    |   |   |   | (3,283   | )      |
| Net cash provided by operating activities                                                |   |   | 16,975   |   |   |   | 4,514    |   |
| INVESTING ACTIVITIES:                                                                    |   |   |     |   |   |   |     |   |
| Purchases of securities held to maturity                                                 |   |   | (3,765   | )      |   |   | (4,036   | )      |
| Purchases of securities available for sale                                               |   |   | (46,711  | )      |   |   | (104,779 | )      |
| Purchases of Federal Home Loan Bank stock, at cost                                       |   |   | -        |   |   |   | (8,469   | )      |
| Maturities and principal payments on securities held to maturity                         |   |   | 8,882    |   |   |   | 6,362    |   |
| Maturities and principal payments on securities available for sale                       |   |   | 65,877   |   |   |   | 50,318   |   |
| Proceeds from sale of securities held to maturity                                        |   |   | 1,893    |   |   |   | -        |   |
| Proceeds from sale of securities available for sale                                      |   |   | 14,513   |   |   |   | 32,403   |   |
| Proceeds from redemption of Federal Home Loan Bank stock                                 |   |   | 471      |   |   |   | 8,649    |   |
| Proceeds from the sale of OREO                                                           |   |   | 8,078    |   |   |   | 2,272    |   |
| Net decrease in loans                                                                    |   |   | 21,353   |   |   |   | 22,290   |   |
| Purchase of bank owned life insurance                                                    |   |   | (2,500   | )      |   |   | -        |   |
| Proceeds from the sale of premises and equipment                                         |   |   | 35       |   |   |   | 20       |   |
| Purchases of premises and equipment                                                      |   |   | (421     | )      |   |   | (496     | )      |
| Net cash provided by investing activities                                                |   |   | 67,705   |   |   |   | 4,534    |   |
| FINANCING ACTIVITIES:                                                                    |   |   |     |   |   |   |     |   |
| Net (decrease) increase in deposits                                                      |   |   | (103,451 | )      |   |   | 51,122   |   |
| Proceeds from new borrowings                                                             |   |   | -        |   |   |   | 22,000   |   |
| Repayments of borrowings                                                                 |   |   | (10,000  | )      |   |   | (42,000  | )      |
| Proceeds from issuance of common stock                                                   |   |   | 94       |   |   |   | 9        |   |
| Cash dividends paid on preferred stock                                                   |   |   | (1,032   | )      |   |   | (975     | )      |
| Net cash (used in) provided by financing activities                                      |   |   | (114,389 | )      |   |   | 30,156   |   |
| (Decrease) increase in cash and cash equivalents                                         |   |   | (29,709  | )      |   |   | 39,204   |   |
| Cash and cash equivalents at beginning of year                                           |   |   | 73,635   |   |   |   | 34,431   |   |
| Cash and cash equivalents at end of year                                                 |   | $      | 43,926   |   |   | $      | 73,635   |   |
| SUPPLEMENTAL DISCLOSURES:                                                                |   |   |     |   |   |   |     |   |
| Cash                                                                                     |   |   |     |   |   |   |     |   |
| Interest paid                                                                            |   | $      | 14,189   |   |   | $      | 21,677   |   |
| Income taxes paid                                                                        |   |   | 1,328    |   |   |   | 1,056    |   |
| Noncash investing activities:                                                            |   |   |     |   |   |   |     |   |
| Transfer of AFS SBA loans to HTM SBA loans                                               |   |   | 7,796    |   |   |   | 1,988    |   |
| Transfer of loans to OREO                                                                |   |   | 9,700    |   |   |   | 3,242    |   |

----

----

----

----

----

----

|                                   |   | 2010           |    |   | 2009                   |   |
|----------------------------------------|--------|----------------|---------|--------|------------------------|--------|
| (In thousands)                         |   | Amortized Cost |    |   | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | Estimated Fair Value |   |   | Amortized Cost |   |   | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | Estimated Fair Value |   |
| Available for sale:                    |   |           |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US Government sponsored entities       |   | $              | 6,415   |   |                   | $      | 47 |   |   | $ | - |   |   | $ | 6,462 |   |   | $ | 16,198 |   |   | $ | 20 |   |   | $ | (211 | ) |   | $ | 16,007 |   |
| State and political subdivisions       |   |           | 11,246  |   |                   |   | 23 |   |   |   | (306 | ) |   |   | 10,963 |   |   |   | 2,946 |   |   |   | 9 |   |   |   | (13 | ) |   |   | 2,942 |   |
| Residential mortgage-backed securities |   |           | 84,359  |   |                   |   | 2,022 |   |   |   | (640 | ) |   |   | 85,741 |   |   |   | 115,397 |   |   |   | 1,849 |   |   |   | (1,021 | ) |   |   | 116,225 |   |
| Commercial mortgage-backed securities  |   |           | 1,827   |   |                   |   | 3 |   |   |   | (4 | ) |   |   | 1,826 |   |   |   | 4,651 |   |   |   | - |   |   |   | (24 | ) |   |   | 4,627 |   |
| Trust preferred securities             |   |           | 977     |   |                   |   | - |   |   |   | (412 | ) |   |   | 565 |   |   |   | 976 |   |   |   | - |   |   |   | (586 | ) |   |   | 390 |   |
| Other securities                       |   |           | 1,610   |   |                   |   | - |   |   |   | (36 | ) |   |   | 1,574 |   |   |   | 610 |   |   |   | - |   |   |   | (31 | ) |   |   | 579 |   |
| Total securities available for sale    |   | $              | 106,434 |   |                   | $      | 2,095 |   |   | $ | (1,398 | ) |   | $ | 107,131 |   |   | $ | 140,778 |   |   | $ | 1,878 |   |   | $ | (1,886 | ) |   | $ | 140,770 |   |
| Held to maturity:                      |   |           |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US Government sponsored entities       |   | $              | -       |   |                   | $      | - |   |   | $ | - |   |   | $ | - |   |   | $ | 2,000 |   |   | $ | 76 |   |   | $ | - |   |   | $ | 2,076 |   |
| State and political subdivisions       |   |           | 2,297   |   |                   |   | - |   |   |   | (66 | ) |   |   | 2,231 |   |   |   | 3,156 |   |   |   | 4 |   |   |   | (92 | ) |   |   | 3,068 |   |
| Residential mortgage-backed securities |   |           | 14,722  |   |                   |   | 444 |   |   |   | (318 | ) |   |   | 14,848 |   |   |   | 18,700 |   |   |   | 545 |   |   |   | (527 | ) |   |   | 18,718 |   |
| Commercial mortgage-backed securities  |   |           | 4,042   |   |                   |   | 217 |   |   |   | - |   |   |   | 4,259 |   |   |   | 4,346 |   |   |   | 185 |   |   |   | - |   |   |   | 4,531 |   |
| Trust preferred securities             |   |           | 50      |   |                   |   | - |   |   |   | (37 | ) |   |   | 13 |   |   |   | 50 |   |   |   | - |   |   |   | (37 | ) |   |   | 13 |   |
| Total securities held to maturity      |   | $              | 21,111  |   |                   | $      | 661 |   |   | $ | (421 | ) |   | $ | 21,351 |   |   | $ | 28,252 |   |   | $ | 810 |   |   | $ | (656 | ) |   | $ | 28,406 |   |

----

|                                   |   | Within one year |   |   | After one yearthrough five years |   |   | After five yearsthrough ten years |   |   | After ten years |   |   | Total carrying value |   |
|----------------------------------------|--------|-----------------|--------|--------|----------------------------------|--------|--------|-----------------------------------|--------|--------|-----------------|--------|--------|----------------------|--------|
| (In thousands)                         |   | Amount          |   |   | Yield                            |   |   | Amount                            |   |   | Yield           |   |   | Amount               |   |   | Yield |   |   | Amount |   |   | Yield |   |   | Amount |   |   | Yield |   |
| Available for sale at fair value:      |   |            |   |   |                             |   |   |                              |   |   |            |   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US Government sponsored entities       |   | $               | -      |   |                             |   | -      | %                                 |   | $      | 893             |   |   |                 | 2.36   | % |   | $ | 2,594 |   |   |   | 2.48 | % |   | $ | 2,975 |   |   |   | 4.26 | % |   | $ | 6,462 |   |   |   | 3.28 | % |
| State and political subdivisions       |   |            | -      |   |                             |   | -      |                              |   |   | 170             |   |   |                 | 6.50   |   |   |   | 3,263 |   |   |   | 3.12 |   |   |   | 7,530 |   |   |   | 3.81 |   |   |   | 10,963 |   |   |   | 3.64 |   |
| Residential mortgage-backed securities |   |            | -      |   |                             |   | -      |                              |   |   | 1,091           |   |   |                 | 2.58   |   |   |   | 5,912 |   |   |   | 5.24 |   |   |   | 78,738 |   |   |   | 3.06 |   |   |   | 85,741 |   |   |   | 3.21 |   |
| Commercial mortgage-backed securities  |   |            | -      |   |                             |   | -      |                              |   |   | -               |   |   |                 | -      |   |   |   | - |   |   |   | - |   |   |   | 1,826 |   |   |   | 6.11 |   |   |   | 1,826 |   |   |   | 6.11 |   |
| Trust preferred securities             |   |            | -      |   |                             |   | -      |                              |   |   | -               |   |   |                 | -      |   |   |   | - |   |   |   | - |   |   |   | 565 |   |   |   | 1.07 |   |   |   | 565 |   |   |   | 1.07 |   |
| Other securities                       |   |            | -      |   |                             |   | -      |                              |   |   | -               |   |   |                 | -      |   |   |   | - |   |   |   | - |   |   |   | 1,574 |   |   |   | 3.49 |   |   |   | 1,574 |   |   |   | 3.49 |   |
| Total securities available for sale    |   | $               | -      |   |                             |   | -      | %                                 |   | $      | 2,154           |   |   |                 | 2.80   | % |   | $ | 11,769 |   |   |   | 4.05 | % |   | $ | 93,208 |   |   |   | 3.22 | % |   | $ | 107,131 |   |   |   | 3.30 | % |
|  Held to maturity at cost:        |   |            |   |   |                             |   |   |                              |   |   |            |   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| State and political subdivisions       |   | $               | -      |   |                             |   | -      | %                                 |   | $      | -               |   |   |                 | -      | % |   | $ | - |   |   |   | - | % |   | $ | 2,297 |   |   |   | 5.15 | % |   | $ | 2,297 |   |   |   | 5.15 | % |
| Residential mortgage-backed securities |   |            | -      |   |                             |   | -      |                              |   |   | 494             |   |   |                 | 4.28   |   |   |   | 3,829 |   |   |   | 4.77 |   |   |   | 10,399 |   |   |   | 4.67 |   |   |   | 14,722 |   |   |   | 4.68 |   |
| Commercial mortgage-backed securities  |   |            | -      |   |                             |   | -      |                              |   |   | -               |   |   |                 | -      |   |   |   | - |   |   |   | - |   |   |   | 4,042 |   |   |   | 5.55 |   |   |   | 4,042 |   |   |   | 5.55 |   |
| Trust preferred securities             |   |            | -      |   |                             |   | -      |                              |   |   | -               |   |   |                 | -      |   |   |   | - |   |   |   | - |   |   |   | 50 |   |   |   | - |   |   |   | 50 |   |   |   | - |   |
| Total securities held to maturity      |   | $               | -      |   |                             |   | -      | %                                 |   | $      | 494             |   |   |                 | 4.28   | % |   | $ | 3,829 |   |   |   | 4.77 | % |   | $ | 16,788 |   |   |   | 4.93 | % |   | $ | 21,111 |   |   |   | 4.89 | % |

----

|                                   |   | 2010                           |   |
|----------------------------------------|--------|--------------------------------|--------|
|                                   |   |                           |   |   | Less than 12 months |   |   | 12 months and greater |   |   | Total |   |
| (In thousands)                         |   | TotalNumber in a Loss Position |   |   | Estimated Fair Value |   |   | Unrealized Loss |   |   | Estimated Fair Value |   |   | Unrealized Loss |   |   | Estimated Fair Value |   |   | Unrealized Loss |   |
| Available for sale:                    |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| State and political subdivisions       |   |                           | 31     |   |   | $ | 9,051 |   |   | $ | (306 | ) |   | $ | - |   |   | $ | - |   |   | $ | 9,051 |   |   | $ | (306 | ) |
| Residential mortgage-backed securities |   |                           | 17     |   |   |   | 14,651 |   |   |   | (422 | ) |   |   | 3,547 |   |   |   | (218 | ) |   |   | 18,198 |   |   |   | (640 | ) |
| Commercial mortgage-backed securities  |   |                           | 1      |   |   |   | - |   |   |   | - |   |   |   | 1,516 |   |   |   | (4 | ) |   |   | 1,516 |   |   |   | (4 | ) |
| Trust preferred securities             |   |                           | 1      |   |   |   | - |   |   |   | - |   |   |   | 565 |   |   |   | (412 | ) |   |   | 565 |   |   |   | (412 | ) |
| Other equities                         |   |                           | 4      |   |   |   | - |   |   |   | - |   |   |   | 1,074 |   |   |   | (36 | ) |   |   | 1,074 |   |   |   | (36 | ) |
| Total temporarily impaired investments |   |                           | 54     |   |   | $ | 23,702 |   |   | $ | (728 | ) |   | $ | 6,702 |   |   | $ | (670 | ) |   | $ | 30,404 |   |   | $ | (1,398 | ) |
| Held to maturity:                      |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| State and political subdivisions       |   |                           | 4      |   |   | $ | 2,231 |   |   | $ | (66 | ) |   | $ | - |   |   | $ | - |   |   | $ | 2,231 |   |   | $ | (66 | ) |
| Residential mortgage-backed securities |   |                           | 5      |   |   |   | 2,243 |   |   |   | (75 | ) |   |   | 2,651 |   |   |   | (243 | ) |   |   | 4,894 |   |   |   | (318 | ) |
| Trust preferred securities             |   |                           | 2      |   |   |   | - |   |   |   | - |   |   |   | 13 |   |   |   | (37 | ) |   |   | 13 |   |   |   | (37 | ) |
| Total temporarily impaired investments |   |                           | 11     |   |   | $ | 4,474 |   |   | $ | (141 | ) |   | $ | 2,664 |   |   | $ | (280 | ) |   | $ | 7,138 |   |   | $ | (421 | ) |

|                                   |   | 2009                           |   |
|----------------------------------------|--------|--------------------------------|--------|
|                                   |   |                           |   |   | Less than 12 months |   |   | 12 months and greater |   |   | Total |   |
| (In thousands)                         |   | TotalNumber in a Loss Position |   |   | Estimated Fair Value |   |   | Unrealized Loss |   |   | Estimated Fair Value |   |   | Unrealized Loss |   |   | Estimated Fair Value |   |   | Unrealized Loss |   |
| Available for sale:                    |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government sponsored entities     |   |                           | 10     |   |   | $ | 12,807 |   |   | $ | (210 | ) |   | $ | 96 |   |   | $ | (1 | ) |   | $ | 12,903 |   |   | $ | (211 | ) |
| State and political subdivisions       |   |                           | 7      |   |   |   | 1,820 |   |   |   | (13 | ) |   |   | - |   |   |   | - |   |   |   | 1,820 |   |   |   | (13 | ) |
| Residential mortgage-backed securities |   |                           | 24     |   |   |   | 17,372 |   |   |   | (207 | ) |   |   | 7,735 |   |   |   | (814 | ) |   |   | 25,107 |   |   |   | (1,021 | ) |
| Commercial mortgage-backed securities  |   |                           | 4      |   |   |   | 4,627 |   |   |   | (24 | ) |   |   | - |   |   |   | - |   |   |   | 4,627 |   |   |   | (24 | ) |
| Trust preferred securities             |   |                           | 1      |   |   |   | - |   |   |   | - |   |   |   | 390 |   |   |   | (586 | ) |   |   | 390 |   |   |   | (586 | ) |
| Other equities                         |   |                           | 3      |   |   |   | - |   |   |   | - |   |   |   | 579 |   |   |   | (31 | ) |   |   | 579 |   |   |   | (31 | ) |
| Total temporarily impaired investments |   |                           | 49     |   |   | $ | 36,626 |   |   | $ | (454 | ) |   | $ | 8,800 |   |   | $ | (1,432 | ) |   | $ | 45,426 |   |   | $ | (1,886 | ) |
| Held to maturity:                      |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| State and political subdivisions       |   |                           | 6      |   |   | $ | 1,753 |   |   | $ | (32 | ) |   | $ | 999 |   |   | $ | (60 | ) |   | $ | 2,752 |   |   | $ | (92 | ) |
| Residential mortgage-backed securities |   |                           | 5      |   |   |   | 124 |   |   |   | (10 | ) |   |   | 3,844 |   |   |   | (517 | ) |   |   | 3,968 |   |   |   | (527 | ) |
| Trust preferred securities             |   |                           | 2      |   |   |   | 5 |   |   |   | (6 | ) |   |   | 26 |   |   |   | (31 | ) |   |   | 31 |   |   |   | (37 | ) |
| Total temporarily impaired investments |   |                           | 13     |   |   | $ | 1,882 |   |   | $ | (48 | ) |   | $ | 4,869 |   |   | $ | (608 | ) |   | $ | 6,751 |   |   | $ | (656 | ) |

----

| (In thousands)                                                                        |   | 2010   |   |   | 2009   |   |
|---------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Available for sale:                                                                   |   |   |   |   |   |   |
| Realized gains                                                                        |   | $      | 337    |   |   | $      | 855 |   |
| Realized losses                                                                       |   |   | (166   | )      |   |   | - |   |
| Other-than-temporary impairment charges                                               |   |   | -      |   |   |   | - |   |
| Total securities available for sale                                                   |   | $      | 171    |   |   | $      | 855 |   |
|                                                                                  |   |   |   |   |   |   |   |   |
| Held to maturity:                                                                     |   |   |   |   |   |   |   |   |
| Realized gains                                                                        |   | $      | 4      |   |   | $      | - |   |
| Realized losses                                                                       |   |   | (90    | )      |   |   | - |   |
| Other-than-temporary impairment charges                                               |   |   | -      |   |   |   | (2,611 | ) |
| Total securities held to maturity                                                     |   | $      | (86    | )      |   | $      | (2,611 | ) |
|                                                                                  |   |   |   |   |   |   |   |   |
| Net gains (losses) on sales of securities and other-than-temporary impairment charges |   | $      | 85     |   |   | $      | (1,756 | ) |

| ·   | Moderate conditional repayment rates (“CRR”) were used due to the lack of new trust preferred issuances and the poor conditions of the financial industry. A CRR of 2 percent was used for performing issuers and 0 percent for nonperformers. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Conditional deferral rates (“CDR”) have been established based on the financial condition of the underlying trust preferred issuers in the pools. These ranged from 0.75 percent to 2.35 percent for performing issuers. Nonperforming issues were stated at 100 percent CDR |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Expected loss severities of 95 percent were assumed (i.e. recoveries occur on only 5 percent of defaulted securities) for all performing issuers and ranged from 57.22 percent to 80.33 percent for nonperforming issues. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Internal rates of return (“IRR”) are the pre-tax yield used to discount the future cash flow stream expected from the collateral cash flows. The IRR used was 17 percent. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (In thousands)       |   | 2010   |    |   | 2009   |   |
|----------------------|--------|--------|---------|--------|--------|--------|
| SBA held for sale    |   | $      | 10,397  |   |   | $      | 21,406 |   |
| SBA held to maturity |   |   | 75,741  |   |   |   | 77,844 |   |
| SBA 504              |   |   | 64,276  |   |   |   | 70,683 |   |
| Commercial           |   |   | 281,205 |   |   |   | 293,739 |   |
| Residential mortgage |   |   | 128,400 |   |   |   | 133,059 |   |
| Consumer             |   |   | 55,917  |   |   |   | 60,285 |   |
| Total loans          |   | $      | 615,936 |   |   | $      | 657,016 |   |

|                             |   | Years ending December 31, |   |
|----------------------------------|--------|---------------------------|--------|
| (In thousands)                   |   |                      | 2010   |   |   |   | 2009 |   |
| Balance, beginning of year       |   | $                         | 897    |   |   | $ | 1,503 |   |
| SBA servicing assets capitalized |   |                      | 74     |   |   |   | 83 |   |
| Amortization of expense          |   |                      | (459   | ) |   |   | (689 | ) |
| Provision for loss in fair value |   |                      | -      |   |   |   | - |   |
| Balance, end of year             |   | $                         | 512    |   |   | $ | 897 |   |

|                                               |   | Concentration |    |
|----------------------------------------------------|--------|---------------|---------|
| (In thousands)                                     |   | Balance       |    |   | Percent |   |
| Commercial real estate – owner occupied      |   | $             | 138,942 |   |   |   | 49.4 | % |
| Commercial real estate – investment property |   |          | 114,146 |   |   |   | 40.6 |   |
| Undeveloped land                                   |   |          | 17,458  |   |   |   | 6.2 |   |
| Other non-real estate collateral                   |   |          | 10,659  |   |   |   | 3.8 |   |
| Total commercial loans                             |   | $             | 281,205 |   |   |   | 100.0 | % |

| (In thousands)                                                        |   | 2010   |   |
|-----------------------------------------------------------------------|--------|--------|--------|
| Loans to officers, directors or their associates at December 31, 2009 |   | $      | 16,438 |   |
| New loans                                                             |   |   | 1,717  |   |
| Repayments                                                            |   |   | (650   | ) |
| Loans to officers, directors or their associates at December 31, 2010 |   | $      | 17,505 |   |

----

|  2010                                  |
|---------------------------------------------|
| (In thousands)                              |   | SBA |   |   | SBA 504 |   |   | Commercial |   |   | Residential |   |   | Consumer |   |   | Unallocated |   |   | Total |   |
| Allowance for credit losses:                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beginning balance                           |   | $ | 3,247 |   |   | $ | 1,872 |   |   | $ | 6,013 |   |   | $ | 1,615 |   |   | $ | 632 |   |   | $ | 463 |   |   | $ | 13,842 |   |
| Charge-offs                                 |   |   | (1,351 | ) |   |   | (1,548 | ) |   |   | (3,627 | ) |   |   | (500 | ) |   |   | (245 | ) |   |   | - |   |   |   | (7,271 | ) |
| Recoveries                                  |   |   | 243 |   |   |   | - |   |   |   | 296 |   |   |   | - |   |   |   | 4 |   |   |   | - |   |   |   | 543 |   |
| Net charge-offs                             |   |   | (1,108 | ) |   |   | (1,548 | ) |   |   | (3,331 | ) |   |   | (500 | ) |   |   | (241 | ) |   |   | - |   |   |   | (6,728 | ) |
| Provision for loan lossescharged to expense |   |   | 2,059 |   |   |   | 1,227 |   |   |   | 3,329 |   |   |   | 564 |   |   |   | 195 |   |   |   | (124 | ) |   |   | 7,250 |   |
| Ending balance                              |   | $ | 4,198 |   |   | $ | 1,551 |   |   | $ | 6,011 |   |   | $ | 1,679 |   |   | $ | 586 |   |   | $ | 339 |   |   | $ | 14,364 |   |
|                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance:                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment       |   | $ | 1,761 |   |   | $ | 87 |   |   | $ | 609 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 2,457 |   |
| Collectively evaluated for impairment       |   |   | 2,437 |   |   |   | 1,464 |   |   |   | 5,402 |   |   |   | 1,679 |   |   |   | 586 |   |   |   | 339 |   |   |   | 11,907 |   |
| Totals                                      |   | $ | 4,198 |   |   | $ | 1,551 |   |   | $ | 6,011 |   |   | $ | 1,679 |   |   | $ | 586 |   |   | $ | 339 |   |   | $ | 14,364 |   |
|                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan ending balances:                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment       |   | $ | 6,888 |   |   | $ | 10,622 |   |   | $ | 10,194 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 27,704 |   |
| Collectively evaluated for impairment       |   |   | 79,250 |   |   |   | 53,654 |   |   |   | 271,011 |   |   |   | 128,400 |   |   |   | 55,917 |   |   |   | - |   |   |   | 588,232 |   |
| Total ending balance                        |   | $ | 86,138 |   |   | $ | 64,276 |   |   | $ | 281,205 |   |   | $ | 128,400 |   |   | $ | 55,917 |   |   | $ | - |   |   | $ | 615,936 |   |

| 2009                                         |
|----------------------------------------------|
| Allowance for credit losses:                 |   |   |   |
| Beginning balance                            |   | $ | 10,326 |   |
| Charge-offs                                  |   |   | (4,774 | ) |
| Recoveries                                   |   |   | 290 |   |
| Net charge-offs                              |   |   | (4,484 | ) |
| Provision for loan losses charged to expense |   |   | 8,000 |   |
| Ending balance                               |   | $ | 13,842 |   |

----

| ·   | Risk ratings of 1 through 6 are used for loans that are performing, as they meet, and are expected to continue to meet, all of the terms and conditions set forth in the original loan documentation, and are generally current on principal and interest payments.  These performing loans are termed “Pass”. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Criticized loans are assigned a risk rating of 7 and termed “Special Mention”, as the borrowers exhibit potential credit weaknesses or downward trends deserving management’s close attention.  If not checked or corrected, these trends will weaken the Bank’s collateral and position.  While potentially weak, these borrowers are currently marginally acceptable and no loss of interest or principal is anticipated.  As a result, special mention assets do not expose an institution to sufficient risk to warrant adverse classification.  Included in “Special Mention” could be turnaround situations, such as borrowers with deteriorating trends beyond one year, borrowers in start up or deteriorating industries, or borrowers with a poor market share in an average industry.  An element of asset quality, financial flexibility, or management is below average.  Management and ownership may have limited depth or experience.  Regulatory agencies have agreed on a consistent definition of “Special Mention” as an asset with potential weaknesses which, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date.  This definition is intended to ensure that the “Special Mention” category is not used to identify assets that have as their sole weakness credit data exceptions or collateral documentation exceptions that are not material to the repayment of the asset. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Classified loans are assigned a risk rating of an 8 or 9, depending upon the prospect for collection, and deemed “Substandard”.  A risk rating of 8 is used for borrowers with well-defined weaknesses that jeopardize the orderly liquidation of debt.  The loan is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any.  Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned.  There is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected.  Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified “Substandard”.  A risk rating of 9 is used for borrowers that have all the weaknesses inherent in a loan with a risk rating of 8, with the added characteristic that the weaknesses make collection of debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.  Serious problems exist to the point where partial loss of principal is likely.  The possibility of loss is extremely high, but because of certain important, reasonably specific pending factors that may work to strengthen the assets, the loans’ classification as estimated losses is deferred until a more exact status may be determined.   Pending factors include proposed merger, acquisition, or liquidation procedures; capital injection; perfecting liens on additional collateral; and refinancing plans.  Partial charge-offs are likely. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Once a borrower is deemed incapable of repayment of unsecured debt, the risk rating becomes a 10, the loan is termed a “Loss”, and charged-off immediately.  Loans to such borrowers are considered uncollectible and of such little value that continuance as active assets of the Bank is not warranted.  This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off these basically worthless assets even though partial recovery may be affected in the future. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                |   | 2010                                                        |    |
|-------------------------------------|--------|-------------------------------------------------------------|---------|
|                                |   | SBA, SBA 504 & Commercial Loans - Internal Risk Ratings |    |
| (In thousands)                      |   | Pass                                                        |    |   | Special Mention |   |   | Substandard |   |   | Total |   |
| SBA loans                           |   | $                                                           | 48,500  |   |   | $ | 25,668 |   |   | $ | 11,970 |   |   | $ | 86,138 |   |
| SBA 504 loans                       |   |                                                        | 30,235  |   |   |   | 15,366 |   |   |   | 18,675 |   |   |   | 64,276 |   |
| Commercial loans                    |   |                                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial other                    |   |                                                        | 17,402  |   |   |   | 4,764 |   |   |   | 2,102 |   |   |   | 24,268 |   |
| Commercial real estate              |   |                                                        | 169,093 |   |   |   | 67,305 |   |   |   | 10,493 |   |   |   | 246,891 |   |
| Commercial real estate construction |   |                                                        | 6,197   |   |   |   | 2,715 |   |   |   | 1,134 |   |   |   | 10,046 |   |
| Total commercial loans              |   | $                                                           | 192,692 |   |   | $ | 74,784 |   |   | $ | 13,729 |   |   | $ | 281,205 |   |

|                             |   | 2010                                                                 |    |
|----------------------------------|--------|----------------------------------------------------------------------|---------|
|                             |   | Residential Mortgage & Consumer Loans - Performing/Nonperforming |    |
| (In thousands)                   |   | Performing                                                           |    |   | Nonperforming |   |   | Total |   |
| Residential mortgage loans       |   |                                                                 |    |   |   |   |   |   |   |
| Residential mortgages            |   | $                                                                    | 114,716 |   |   | $ | 2,453 |   |   | $ | 117,169 |   |
| Residential construction         |   |                                                                 | 2,711   |   |   |   | - |   |   |   | 2,711 |   |
| Purchased residential mortgages  |   |                                                                 | 5,888   |   |   |   | 2,632 |   |   |   | 8,520 |   |
| Total residential mortgage loans |   | $                                                                    | 123,315 |   |   | $ | 5,085 |   |   | $ | 128,400 |   |
| Consumer loans                   |   |                                                                 |    |   |   |   |   |   |   |   |   |   |
| Home equity                      |   | $                                                                    | 54,024  |   |   | $ | 249 |   |   | $ | 54,273 |   |
| Consumer other                   |   |                                                                 | 1,644   |   |   |   | - |   |   |   | 1,644 |   |
| Total consumer loans             |   | $                                                                    | 55,668  |   |   | $ | 249 |   |   | $ | 55,917 |   |
| Total loans                      |   |                                                                 |    |   |   |   |   |   |   | $ | 615,936 |   |

|                                |   |     2009                                |    |
|-------------------------------------|--------|-------------------------------------------------------------|---------|
|                                |   | SBA, SBA 504 & Commercial Loans - Internal Risk Ratings |    |
| (In thousands)                      |   | Pass                                                        |    |   | Special Mention |   |   | Substandard |   |   | Total |   |
| SBA loans                           |   | $                                                           | 57,725  |   |   | $ | 18,506 |   |   | $ | 23,019 |   |   | $ | 99,250 |   |
| SBA 504 loans                       |   |                                                        | 35,984  |   |   |   | 18,770 |   |   |   | 15,929 |   |   |   | 70,683 |   |
| Commercial loans                    |   |                                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial other                    |   |                                                        | 18,421  |   |   |   | 4,442 |   |   |   | 2,554 |   |   |   | 25,417 |   |
| Commercial real estate              |   |                                                        | 183,579 |   |   |   | 45,499 |   |   |   | 27,086 |   |   |   | 256,164 |   |
| Commercial real estate construction |   |                                                        | 2,974   |   |   |   | 5,911 |   |   |   | 3,273 |   |   |   | 12,158 |   |
| Total commercial loans              |   | $                                                           | 204,974 |   |   | $ | 55,852 |   |   | $ | 32,913 |   |   | $ | 293,739 |   |

|                             |   | 2009                                                                 |    |
|----------------------------------|--------|----------------------------------------------------------------------|---------|
|                             |   | Residential Mortgage & Consumer Loans - Performing/Nonperforming |    |
| (In thousands)                   |   | Performing                                                           |    |   | Nonperforming |   |   | Total |   |
| Residential mortgage loans       |   |                                                                 |    |   |   |   |   |   |   |
| Residential mortgages            |   | $                                                                    | 115,587 |   |   | $ | 5,078 |   |   | $ | 120,665 |   |
| Residential construction         |   |                                                                 | 3,353   |   |   |   | - |   |   |   | 3,353 |   |
| Purchased residential mortgages  |   |                                                                 | 8,541   |   |   |   | 500 |   |   |   | 9,041 |   |
| Total residential mortgage loans |   | $                                                                    | 127,481 |   |   |   | 5,578 |   |   | $ | 133,059 |   |
| Consumer loans                   |   |                                                                 |    |   |   |   |   |   |   |   |   |   |
| Home equity                      |   | $                                                                    | 57,756  |   |   | $ | 387 |   |   | $ | 58,143 |   |
| Consumer other                   |   |                                                                 | 2,142   |   |   |   | - |   |   |   | 2,142 |   |
| Total consumer loans             |   | $                                                                    | 59,898  |   |   | $ | 387 |   |   | $ | 60,285 |   |
| Total loans                      |   |                                                                 |    |   |   |   |   |   |   | $ | 657,016 |   |

----

|                               |   | 2010                |   |
|------------------------------------|--------|---------------------|--------|
| (In thousands)                     |   | 30-59 Days Past Due |   |   | 60-89 Days Past Due |   |   | 90+ Days and Still Accruing |   |   | Nonaccrual |   |   | Total Past Due |   |   | Current |   |   | Total Loans |   |
| SBA loans                          |   | $                   | 1,297  |   |   | $ | 1,181 |   |   | $ | 374 |   |   | $ | 8,162 |   |   | $ | 11,014 |   |   | $ | 75,124 |   |   | $ | 86,138 |   |
| SBA 504 loans                      |   |                | -      |   |   |   | 1,339 |   |   |   | - |   |   |   | 2,714 |   |   |   | 4,053 |   |   |   | 60,223 |   |   |   | 64,276 |   |
| Commercial loans                   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial other                   |   |                | 693    |   |   |   | 86 |   |   |   | - |   |   |   | 179 |   |   |   | 958 |   |   |   | 23,310 |   |   |   | 24,268 |   |
| Commercial real estate             |   |                | 3,051  |   |   |   | 176 |   |   |   | - |   |   |   | 4,139 |   |   |   | 7,366 |   |   |   | 239,525 |   |   |   | 246,891 |   |
| Commercial real estate contruction |   |                | -      |   |   |   | - |   |   |   | - |   |   |   | 1,134 |   |   |   | 1,134 |   |   |   | 8,912 |   |   |   | 10,046 |   |
| Residential mortgage loans         |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential mortgages              |   |                | 2,123  |   |   |   | 144 |   |   |   | - |   |   |   | 2,453 |   |   |   | 4,720 |   |   |   | 112,449 |   |   |   | 117,169 |   |
| Residential construction           |   |                | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,711 |   |   |   | 2,711 |   |
| Purchased residential mortgages    |   |                | 117    |   |   |   | - |   |   |   | - |   |   |   | 2,632 |   |   |   | 2,749 |   |   |   | 5,771 |   |   |   | 8,520 |   |
| Cosumer loans                      |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Home equity                        |   |                | 175    |   |   |   | 325 |   |   |   | - |   |   |   | 249 |   |   |   | 749 |   |   |   | 53,524 |   |   |   | 54,273 |   |
| Consumer other                     |   |                | 5      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 5 |   |   |   | 1,639 |   |   |   | 1,644 |   |
| Total loans                        |   | $                   | 7,461  |   |   | $ | 3,251 |   |   | $ | 374 |   |   | $ | 21,662 |   |   | $ | 32,748 |   |   | $ | 583,188 |   |   | $ | 615,936 |   |

|                                |   | 2009                |   |
|-------------------------------------|--------|---------------------|--------|
| (In thousands)                      |   | 30-59 Days Past Due |   |   | 60-89 Days Past Due |   |   | 90+ Days and Still Accruing |   |   | Nonaccrual |   |   | Total Past Due |   |   | Current |   |   | Total Loans |   |
| SBA loans                           |   | $                   | 3,508  |   |   | $ | 995 |   |   | $ | 592 |   |   | $ | 6,559 |   |   | $ | 11,654 |   |   | $ | 87,596 |   |   | $ | 99,250 |   |
| SBA 504 loans                       |   |                | 2,963  |   |   |   | 1,614 |   |   |   | - |   |   |   | 5,575 |   |   |   | 10,152 |   |   |   | 60,531 |   |   |   | 70,683 |   |
| Commercial loans                    |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial other                    |   |                | 789    |   |   |   | - |   |   |   | 150 |   |   |   | 617 |   |   |   | 1,556 |   |   |   | 23,861 |   |   |   | 25,417 |   |
| Commercial real estate              |   |                | 3,287  |   |   |   | 4,335 |   |   |   | 319 |   |   |   | 5,977 |   |   |   | 13,918 |   |   |   | 242,246 |   |   |   | 256,164 |   |
| Commercial real estate construction |   |                | -      |   |   |   | 339 |   |   |   | - |   |   |   | 803 |   |   |   | 1,142 |   |   |   | 11,016 |   |   |   | 12,158 |   |
| Residential mortgage loans          |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential mortgages               |   |                | 2,246  |   |   |   | 103 |   |   |   | 1,196 |   |   |   | 5,078 |   |   |   | 8,623 |   |   |   | 112,042 |   |   |   | 120,665 |   |
| Residential construction            |   |                | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 3,353 |   |   |   | 3,353 |   |
| Purchased residential mortgages     |   |                | 469    |   |   |   | 1,671 |   |   |   | - |   |   |   | 500 |   |   |   | 2,640 |   |   |   | 6,401 |   |   |   | 9,041 |   |
| Consumer loans                      |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Home equity                         |   |                | 400    |   |   |   | - |   |   |   | - |   |   |   | 387 |   |   |   | 787 |   |   |   | 57,356 |   |   |   | 58,143 |   |
| Consumer other                      |   |                | 9      |   |   |   | - |   |   |   | 29 |   |   |   | - |   |   |   | 38 |   |   |   | 2,104 |   |   |   | 2,142 |   |
| Total loans                         |   | $                   | 13,671 |   |   | $ | 9,057 |   |   | $ | 2,286 |   |   | $ | 25,496 |   |   | $ | 50,510 |   |   | $ | 606,506 |   |   | $ | 657,016 |   |

----

----

|                                                                               | 2010                                                 |   |
|------------------------------------------------------------------------------------|------------------------------------------------------|--------|
| (In thousands)                                                                     | Recorded Investment (Balance less specific reserves) |   |   | Outstanding Principal Balance |   |   | Related Allowance |   |   | Average Recorded Investment |   |   | Lost Interest on Impaired Loans |   |   | Interest Income Collected on Impaired Loans |   |
| With no related allowance:                                                         |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SBA loans(1)                                                                       |                                                 | $      | 2,362 |   |   | $ | 2,362 |   |   | $ | - |   |   |   |   |   |   |   |   |   |   |
| SBA 504 loans                                                                      |                                                 |   | 8,145 |   |   |   | 8,145 |   |   |   | - |   |   |   |   |   |   |   |   |   |   |
| Commercial loans                                                                   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial other                                                                   |                                                 |   | 179 |   |   |   | 179 |   |   |   | - |   |   |   |   |   |   |   |   |   |   |
| Commercial real estate                                                             |                                                 |   | 7,891 |   |   |   | 7,891 |   |   |   | - |   |   |   |   |   |   |   |   |   |   |
| Total commercial loans                                                             |                                                 |   | 8,070 |   |   |   | 8,070 |   |   |   | - |   |   |   |   |   |   |   |   |   |   |
| Total impaired loans with no related allowance                                     |                                                 | $      | 18,577 |   |   | $ | 18,577 |   |   | $ | - |   |   |   |   |   |   |   |   |   |   |
|                                                                               |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| With an allowance:                                                                 |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SBA loans(1)                                                                       |                                                 | $      | 2,765 |   |   | $ | 4,526 |   |   | $ | 1,761 |   |   |   |   |   |   |   |   |   |   |
| SBA 504 loans                                                                      |                                                 |   | 2,390 |   |   |   | 2,477 |   |   |   | 87 |   |   |   |   |   |   |   |   |   |   |
| Commercial loans                                                                   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial real estate                                                             |                                                 |   | 764 |   |   |   | 990 |   |   |   | 226 |   |   |   |   |   |   |   |   |   |   |
| Commercial real estate construction                                                |                                                 |   | 751 |   |   |   | 1,134 |   |   |   | 383 |   |   |   |   |   |   |   |   |   |   |
| Total commercial loans                                                             |                                                 |   | 1,515 |   |   |   | 2,124 |   |   |   | 609 |   |   |   |   |   |   |   |   |   |   |
| Total impaired loans with a related allowance                                      |                                                 | $      | 6,670 |   |   | $ | 9,127 |   |   | $ | 2,457 |   |   |   |   |   |   |   |   |   |   |
|                                                                               |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total individually evaluated impaired loans:                                       |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SBA loans(1)                                                                       |                                                 | $      | 5,127 |   |   | $ | 6,888 |   |   | $ | 1,761 |   |   | $ | 6,792 |   |   | $ | 317 |   |   | $ | 234 |   |
| SBA 504 loans                                                                      |                                                 |   | 10,535 |   |   |   | 10,622 |   |   |   | 87 |   |   |   | 6,454 |   |   |   | 133 |   |   |   | 69 |   |
| Commercial loans                                                                   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial other                                                                   |                                                 |   | 179 |   |   |   | 179 |   |   |   | - |   |   |   | 425 |   |   |   | 16 |   |   |   | 1 |   |
| Commercial real estate                                                             |                                                 |   | 8,655 |   |   |   | 8,881 |   |   |   | 226 |   |   |   | 10,964 |   |   |   | 367 |   |   |   | 143 |   |
| Commercial real estate construction                                                |                                                 |   | 751 |   |   |   | 1,134 |   |   |   | 383 |   |   |   | 813 |   |   |   | 84 |   |   |   | 47 |   |
| Total commercial loans                                                             |                                                 |   | 9,585 |   |   |   | 10,194 |   |   |   | 609 |   |   |   | 12,202 |   |   |   | 467 |   |   |   | 191 |   |
| Total individually evaluated impaired loans                                        |                                                 | $      | 25,247 |   |   | $ | 27,704 |   |   | $ | 2,457 |   |   | $ | 25,448 |   |   | $ | 917 |   |   | $ | 494 |   |
|                                                                               |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Homogeneous loans collectively evaluated for impairment:                           |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential mortgage loans                                                         |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential mortgages                                                              |                                                 | $      | 2,453 |   |   | $ | 2,453 |   |   | $ | - |   |   | $ | 4,632 |   |   | $ | 147 |   |   | $ | - |   |
| Purchased mortgages                                                                |                                                 |   | 2,632 |   |   |   | 2,632 |   |   |   | - |   |   |   | 1,897 |   |   |   | 136 |   |   |   | - |   |
| Total residential mortgage loans                                                   |                                                 |   | 5,085 |   |   |   | 5,085 |   |   |   | - |   |   |   | 6,529 |   |   |   | 283 |   |   |   | - |   |
| Consumer loans                                                                     |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Home equity                                                                        |                                                 |   | 249 |   |   |   | 249 |   |   |   | - |   |   |   | 341 |   |   |   | 2 |   |   |   | 9 |   |
| Total other homogeneous loans evaluated for impairment                             |                                                 |   | 5,334 |   |   |   | 5,334 |   |   |   | - |   |   |   | 6,870 |   |   |   | 285 |   |   |   | 9 |   |
| Total impaired loans                                                               |                                                 | $      | 30,581 |   |   | $ | 33,038 |   |   | $ | 2,457 |   |   | $ | 32,318 |   |   | $ | 1,202 |   |   | $ | 503 |   |
| (1) Balances are reduced by amount guaranteed by the Small Business Administration |                                                 |

|                                           | 2009                                                 |   |
|------------------------------------------------|------------------------------------------------------|--------|
| (In thousands)                                 | Recorded Investment (Balance less specific reserves) |   | Outstanding Principal Balance |   | Related Allowance |   | Average Recorded Investment |   | Lost Interest on Impaired Loans |   | Interest Income Collected on Impaired Loans |   |
| Total impaired loans with no related allowance |                                                 | $      | 7,896 |   |   | $ | 7,896 |   |   | $ | - |   |   |   |   |   |   |   |   |   |   |
| Total impaired loans with a related allowance  |                                                 |   | 21,712 |   |   |   | 24,176 |   |   |   | 2,464 |   |   |   |   |   |   |   |   |   |   |
| Total impaired loans                           |                                                 | $      | 29,608 |   |   | $ | 32,072 |   |   | $ | 2,464 |   |   | $ | 26,775 |   |   | $ | 1,967 |   |   | $ | 388 |   |

----

| (In thousands)                            |   |   | 2010   |   |   |   | 2009   |   |
|-------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
| Land and buildings                        |   | $      | 10,606 |   |   | $      | 10,497 |   |
| Furniture, fixtures and equipment         |   |   | 6,724  |   |   |   | 6,488  |   |
| Leasehold improvements                    |   |   | 2,463  |   |   |   | 2,431  |   |
| Gross premises and equipment              |   |   | 19,793 |   |   |   | 19,416 |   |
| Less:  Accumulated depreciation |   |   | (8,826 | )      |   |   | (7,643 | )      |
| Net premises and equipment                |   | $      | 10,967 |   |   | $      | 11,773 |   |

| (In thousands)                             |   | 2010   |   |   | 2009   |   |
|--------------------------------------------|--------|--------|--------|--------|--------|--------|
| SBA servicing assets                       |   | $      | 512    |   |   | $      | 897 |   |
| Net receivable due from SBA                |   |   | 463    |   |   |   | 354 |   |
| Prepaid expenses                           |   |   | 378    |   |   |   | 363 |   |
| Taxes receivable                           |   |   | -      |   |   |   | 268 |   |
| Other                                      |   |   | 835    |   |   |   | 831 |   |
|     Total other assets |   | $      | 2,188  |   |   | $      | 2,713 |   |

| (In thousands)       |   | 3 monthsor less |   |   | More than 3months through6 months |   |   | More than 6 months through12 months |   |   | More than12 months |   |   | Total  |   |
|----------------------|--------|-----------------|--------|--------|-----------------------------------|--------|--------|-------------------------------------|--------|--------|--------------------|--------|--------|--------|--------|
| At December 31, 2010 |   |            |   |   |                              |   |   |                                |   |   |               |   |   |   |   |
| $100,000 or more     |   | $               | 19,248 |   |                              | $      | 6,227  |                                |   | $      | 12,903             |   |   | $      | 22,736 |   |   | $ | 61,114 |   |
| Less than $100,000   |   |            | 23,235 |   |                              |   | 12,586 |                                |   |   | 30,049             |   |   |   | 53,608 |   |   |   | 119,478 |   |
| At December 31, 2009 |   |            |   |   |                              |   |   |                                |   |   |               |   |   |   |   |   |   |   |   |   |
| $100,000 or more     |   | $               | 40,726 |   |                              | $      | 17,523 |                                |   | $      | 19,819             |   |   | $      | 30,314 |   |   | $ | 108,382 |   |
| Less than $100,000   |   |            | 42,896 |   |                              |   | 17,257 |                                |   |   | 44,066             |   |   |   | 79,158 |   |   |   | 183,377 |   |

| (In thousands)   |   | 2011 |    |   | 2012   |   |   | 2013   |   |   | 2014   |   |   | 2015 |   |   | Thereafter |   |
|------------------|--------|------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------|--------|--------|------------|--------|
| Balance Maturing |   | $    | 104,248 |   |   | $      | 42,032 |   |   | $      | 23,052 |   |   | $    | 6,571  |   |       | $      | 4,365 |   |   | $ | 324 |   |

----

|                                        |   | 2010   |   |   | 2009   |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|
| (In thousands)                              |   | Amount |   |   | Rate   |   |   | Amount |   |   | Rate |   |
| FHLB borrowings and repurchase agreements : |   |   |   |   |   |   |   |   |   |   |   |   |
| At December 31,                             |   | $      | 60,000 |   |   |   | 3.94 | % |   | $ | 70,000 |   |   |   | 4.08 | % |
| Year-to-date average                        |   |   | 69,671 |   |   |   | 4.08 |   |   |   | 80,048 |   |   |   | 3.63 |   |
| Maximum outstanding                         |   |   | 70,000 |   |   |   |   |   |   |   | 121,000 |   |   |   |   |   |
| Repurchase agreements:                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| At December 31,                             |   | $      | 15,000 |   |   |   | 3.67 | % |   | $ | 15,000 |   |   |   | 3.67 | % |
| Year-to-date average                        |   |   | 15,000 |   |   |   | 3.65 |   |   |   | 16,890 |   |   |   | 3.59 |   |
| Maximum outstanding                         |   |   | 15,000 |   |   |   |   |   |   |   | 25,000 |   |   |   |   |   |
| Subordinated debentures:                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| At December 31,                             |   | $      | 15,465 |   |   |   | 5.49 | % |   | $ | 15,465 |   |   |   | 5.35 | % |
| Year-to-date average                        |   |   | 15,465 |   |   |   | 5.50 |   |   |   | 15,465 |   |   |   | 5.47 |   |
| Maximum outstanding                         |   |   | 15,465 |   |   |   |   |   |   |   | 15,465 |   |   |   |   |   |

| (In thousands)                            |   | 2011   |   |   | 2012   |   |   | 2013   |   |   | 2014 |   |   | 2015   |   |   | Thereafter |   |
|-------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------|--------|--------|--------|--------|--------|------------|--------|
| FHLB borrowings and repurchase agreements |   | $      | -      |   |   | $      | -      |   |   | $      | -    |   |   | $      | -      |   |       | $      | 10,000 |   |   | $ | 50,000 |   |
| Other repurchase agreements               |   |   | -      |   |   |   | -      |   |   |   | -    |   |   |   | -      |   |       |   | - |   |   |   | 15,000 |   |
| Subordinated debentures                   |   |   | -      |   |   |   | -      |   |   |   | -    |   |   |   | -      |   |       |   | - |   |   |   | 15,465 |   |
| Total                                     |   | $      | -      |   |   | $      | -      |   |   | $      | -    |   |   | $      | -      |   |       | $      | 10,000 |   |   | $ | 80,465 |   |

| ·   | The FHLB advance that was issued on April 27, 2005 has a fixed rate of 3.70 percent, matures on April 27, 2015 and is callable on April 27, 2008 and quarterly thereafter on the 27th of July, October, January and April. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The FHLB advance that was issued on December 19, 2000 had a fixed rate of interest at 4.92 percent, matured on December 20, 2010 and was callable quarterly on the 19th of March, June, September and December. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The FHLB advance that was issued on November 2, 2006 has a fixed rate of 4.03 percent, matures on November 2, 2016 and is callable on November 2, 2007 and quarterly thereafter on the 2nd of February, May, August and November. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The FHLB advance that was issued on August 10, 2007 has a fixed rate of 4.23 percent, matures on August 10, 2017 and is callable on August 10, 2009 and quarterly thereafter on the 10th of November, February, May and August. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The FHLB repo-advance that was issued on December 15, 2006 has a fixed rate of 4.13 percent, matures on December 15, 2016 and is callable on December 15, 2008 and quarterly thereafter on the 15th of March, June, September and December. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The FHLB repo-advance that was issued on April 5, 2007 has a fixed rate of 4.21 percent, matures on April 5, 2017 and is callable on April 5, 2009 and quarterly thereafter on the 5th of July, October, January and April. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The FHLB repo-advance that was issued on December 20, 2007 has a fixed rate of 3.34 percent, matures on December 20, 2017 and is callable on December 20, 2010 and quarterly thereafter on the 20th of March, June, September and December. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A $15.0 million repurchase agreement that was entered into in February 2008 has a term of 10 years expiring on February 28, 2018, and a rate of 3.67 percent.  The borrowing may be called by the issuer on the repurchase date of May 29, 2008 and quarterly thereafter. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | On July 24, 2006, Unity (NJ) Statutory Trust II, a statutory business trust and wholly-owned subsid- |
|--------------------|------------------------------------------------------------------------------------------------------|

----

|   | iary of Unity Bancorp, Inc., issued $10.0 million of floating rate capital trust pass through securities to investors due on July 24, 2036. The subordinated debentures are redeemable in whole or part, prior to maturity but after July 24, 2011. The floating interest rate on the subordinated debentures is the three-month LIBOR plus 159 basis points and reprices quarterly.  The floating interest rate at December 31, 2010 was 1.89 percent and 1.84 percent at December 31, 2009. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | On December 19, 2006, Unity (NJ) Statutory Trust III, a statutory business trust and wholly-owned subsidiary of Unity Bancorp, Inc., issued $5.0 million of floating rate capital trust pass through securities to investors due on December 19, 2036. The subordinated debentures are redeemable in whole or part, prior to maturity but after December 19, 2011. The floating interest rate on the subordinated debentures is the three-month LIBOR plus 165 basis points and reprices quarterly.  The floating interest rate at December 31, 2010 was 1.95 percent and 1.91 percent at December 31, 2009. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In connection with the formation of the statutory business trusts, the trusts also issued $465 thousand of common equity securities to the Company, which together with the proceeds stated above were used to purchase the subordinated debentures, under the same terms and conditions. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (In thousands) |   | Operating Lease Rental Payments |   |   | Rent fromSublet Locations |   |   | Net Rent Obligation |   |
|----------------|--------|---------------------------------|--------|--------|---------------------------|--------|--------|---------------------|--------|
| 2011           |   |                            | 1,112  |   |                      |   | 77     |                |   |   | 1,035 |   |
| 2012           |   |                            | 1,054  |   |                      |   | -      |                |   |   | 1,054 |   |
| 2013           |   |                            | 1,028  |   |                      |   | -      |                |   |   | 1,028 |   |
| 2014           |   |                            | 274    |   |                      |   | -      |                |   |   | 274 |   |
| 2015           |   |                            | 17     |   |                      |   | -      |                |   |   | 17 |   |
| Thereafter     |   |                            | -      |   |                      |   | -      |                |   |   | - |   |

----

| (In thousands, except percentages and years)      |   |   | 2010   |   |   |   | 2009   |   |
|---------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
| Notional amount                                   |   | $      | 15,000 |   |   | $      | 15,000 |   |
| Weighted average pay rate                         |   |   | 4.05   | %      |   |   | 4.05   | %      |
| Weighted average receive rate (three-month LIBOR) |   |   | 0.34   | %      |   |   | 0.90   | %      |
| Weighted average maturity in years                |   |   | 0.90   |   |   |   | 1.90   |   |
| Unrealized loss relating to interest rate swaps   |   | $      | (499   | )      |   | $      | (777   | )      |

----

| (In thousands)          |   | 2010   |   |   | 2009   |   |
|-------------------------|--------|--------|--------|--------|--------|--------|
| ATM and check card fees |   | $      | 267    |   |   | $      | 203 |   |
| Wire transfer fees      |   |   | 81     |   |   |   | 76 |   |
| Safe deposit box fees   |   |   | 53     |   |   |   | 52 |   |
| Other                   |   |   | 318    |   |   |   | 101 |   |
| Total other income      |   | $      | 719    |   |   | $      | 432 |   |

| (In thousands)                                 |   | 2010   |   |   | 2009   |   |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Travel, entertainment, training and recruiting |   | $      | 603    |   |   | $      | 618 |   |
| Director fees                                  |   |   | 346    |   |   |   | 339 |   |
| Insurance                                      |   |   | 325    |   |   |   | 312 |   |
| Stationery and supplies                        |   |   | 221    |   |   |   | 209 |   |
| Other                                          |   |   | 262    |   |   |   | 246 |   |
| Total other expenses                           |   | $      | 1,757  |   |   | $      | 1,724 |   |

| (In thousands)                             |   |   | 2010  |   |   |   | 2009   |   |
|--------------------------------------------|--------|--------|-------|--------|--------|--------|--------|--------|
| Federal – current provision          |   | $      | 1,212 |   |   | $      | 973    |   |
| Federal – deferred benefit           |   |   | (530  | )      |   |   | (1,099 | )      |
| Total Federal provision (benefit)          |   |   | 682   |   |   |   | (126   | )      |
| State – current provision            |   |   | 18    |   |   |   | 213    |   |
| State – deferred benefit             |   |   | (111  | )      |   |   | (985   | )      |
| Total State benefit                        |   |   | (93   | )      |   |   | (772   | )      |
| Total provision (benefit) for income taxes |   | $      | 589   |   |   | $      | (898   | )      |

| (In thousands)                                           |   |   | 2010   |   |   |   | 2009   |   |
|----------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
| Federal income tax provision (benefit) at statutory rate |   | $      | 962    |   |   | $      | (673   | )      |
| Increases (decreases) resulting from:                    |   |   |   |   |   |   |   |   |
| Tax-exempt interest                                      |   |   | (105   | )      |   |   | (88    | )      |
| Bank owned life insurance                                |   |   | (68    | )      |   |   | (75    | )      |
| Meals and entertainment                                  |   |   | 15     |   |   |   | 15     |   |
| True up to return                                        |   |   | (180   | )      |   |   | -      |   |
| State income taxes, net of federal income tax effect     |   |   | 86     |   |   |   | -      |   |
| Other, net                                               |   |   | (121   | )      |   |   | (77    | )      |
| Provision (benefit) for income taxes                     |   | $      | 589    |   |   | $      | (898   | )      |
| Effective tax rate                                       |   |   | 20.8   | %      |   |   | 46.0   | %      |

| (In thousands)                        |   |   | 2010   |   |   |   | 2009   |   |
|---------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
| Deferred tax assets:                  |   |   |   |   |   |   |   |   |
| Allowance for loan losses             |   | $      | 5,737  |   |   | $      | 5,438  |   |
| Reserve for impaired securities       |   |   | 1,179  |   |   |   | 730    |   |
| Lost interest on nonaccrual loans     |   |   | 855    |   |   |   | 1,102  |   |
| State net operating loss              |   |   | 323    |   |   |   | 450    |   |
| Stock-based compensation              |   |   | 290    |   |   |   | 242    |   |
| Depreciation                          |   |   | 240    |   |   |   | 65     |   |
| Net unrealized cash flow hedge losses |   |   | 199    |   |   |   | 311    |   |
| Net unrealized security losses        |   |   | -      |   |   |   | 13     |   |
| Other                                 |   |   | 127    |   |   |   | 229    |   |
| Gross deferred tax assets             |   |   | 8,950  |   |   |   | 8,580  |   |
|  Valuation allowance             |   |   | (323   | )      |   |   | (450   | )      |
|  Net deferred tax assets         |   |   | 8,627  |   |   |   | 8,130  |   |
| Deferred tax liabilities:             |   |   |   |   |   |   |   |   |
| Deferred loan costs                   |   |   | 433    |   |   |   | 469    |   |
| Net unrealized security gains         |   |   | 274    |   |   |   | -      |   |
| Goodwill                              |   |   | 205    |   |   |   | 165    |   |
| Bond accretion                        |   |   | 165    |   |   |   | 188    |   |
| Total deferred tax liabilities        |   |   | 1,077  |   |   |   | 822    |   |
| Net deferred tax asset                |   | $      | 7,550  |   |   | $      | 7,308  |   |

----

| (In thousands, except per share amounts)                                                                                    |   | 2010   |   |   |   | 2009   |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Net income (loss)                                                                                                           |   | $      | 2,240  |   |   | $      | (1,081 | ) |
| Less: Preferred stock dividends and discount accretion                                                                      |   |   | 1,520  |   |   |   | 1,496  |   |
| Income available (loss attributable) to common shareholders                                                                 |   | $      | 720    |   |   | $      | (2,577 | ) |
| Weighted average common shares outstanding (basic)                                                                          |   |   | 7,173  |   |   |   | 7,121  |   |
| Plus:  Potential dilutive common stock                                                                            |   |   | 274    |   |   |   | -      |   |
| Weighted average common shares outstanding (diluted)                                                                        |   |   | 7,447  |   |   |   | 7,121  |   |
| Net income (loss) per common share -                                                                                        |   |   |   |   |   |   |   |   |
| Basic                                                                                                                       |   | $      | 0.10   |   |   | $      | (0.36  | ) |
| Diluted                                                                                                                     |   |   | 0.10   |   |   |   | (0.36  | ) |
| Stock options and common stock excluded from the income per share computation as their effect would have been anti-dilutive |   |   | 444    |   |   |   | 1,403  |   |

----

|                            |   | Actual |   |   | For CapitalAdequacy Purposes |   |   | To Be Well-CapitalizedUnder Prompt Corrective Action Provisions |   |
|---------------------------------|--------|--------|--------|--------|------------------------------|--------|--------|-----------------------------------------------------------------|--------|
| (In thousands)                  |   | Amount |   |   | Ratio                        |   |   | Amount                                                          |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
| As of December 31, 2010         |   |   |   |   |                         |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |
| Leverage ratio                  |   | $      | 83,550 |   |                         |   | 9.97   | %                                                               |   | ≥ $ 33,531 |   |   |   | 4.00 | % |   | ≥ $ 41,914 |   |   |   | N/A |   |
| Tier I risk-based capital ratio |   |   | 83,550 |   |                         |   | 13.04  |                                                            |   |   | 25,628 |   |   |   | 4.00 |   |   |   | 38,442 |   |   |   | N/A |   |
| Total risk-based capital ratio  |   |   | 91,638 |   |                         |   | 14.30  |                                                            |   |   | 51,257 |   |   |   | 8.00 |   |   |   | 64,071 |   |   |   | N/A |   |
| As of December 31, 2009         |   |   |   |   |                         |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Leverage ratio                  |   | $      | 81,824 |   |                         |   | 8.83   | %                                                               |   | ≥ $ 37,058 |   |   |   | 4.00 | % |   | ≥ $ 46,323 |   |   |   | N/A |   |
| Tier I risk-based capital ratio |   |   | 81,824 |   |                         |   | 11.75  |                                                            |   |   | 27,852 |   |   |   | 4.00 |   |   |   | 41,778 |   |   |   | N/A |   |
| Total risk-based capital ratio  |   |   | 90,592 |   |                         |   | 13.01  |                                                            |   |   | 55,704 |   |   |   | 8.00 |   |   |   | 69,630 |   |   |   | N/A |   |

|                            |   | Actual |   |   | For CapitalAdequacy Purposes |   |   | To Be Well-CapitalizedUnder Prompt Corrective Action Provisions |   |
|---------------------------------|--------|--------|--------|--------|------------------------------|--------|--------|-----------------------------------------------------------------|--------|
| (In thousands)                  |   | Amount |   |   | Ratio                        |   |   | Amount                                                          |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
| As of December 31, 2010         |   |   |   |   |                         |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |
| Leverage ratio                  |   | $      | 71,053 |   |                         |   | 8.48   | %                                                               |   | ≥ $ 33,497 |   |   |   | 4.00 | % |   | ≥ $ 41,871 |   |   |   | 5.00 | % |
| Tier I risk-based capital ratio |   |   | 71,053 |   |                         |   | 11.10  |                                                            |   |   | 25,595 |   |   |   | 4.00 |   |   |   | 38,393 |   |   |   | 6.00 |   |
| Total risk-based capital ratio  |   |   | 87,631 |   |                         |   | 13.69  |                                                            |   |   | 51,191 |   |   |   | 8.00 |   |   |   | 63,988 |   |   |   | 10.00 |   |
| As of December 31, 2009         |   |   |   |   |                         |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Leverage ratio                  |   | $      | 68,299 |   |                         |   | 7.38   | %                                                               |   | ≥ $ 37,020 |   |   |   | 4.00 | % |   | ≥ $ 46,275 |   |   |   | 5.00 | % |
| Tier I risk-based capital ratio |   |   | 68,299 |   |                         |   | 9.82   |                                                            |   |   | 27,815 |   |   |   | 4.00 |   |   |   | 41,722 |   |   |   | 6.00 |   |
| Total risk-based capital ratio  |   |   | 85,555 |   |                         |   | 12.30  |                                                            |   |   | 55,630 |   |   |   | 8.00 |   |   |   | 69,537 |   |   |   | 10.00 |   |

----

|                                   |   | 2010   |   |   | 2009   |   |
|----------------------------------------|--------|--------|--------|--------|--------|--------|
| Number of options granted              |   |   | -      |   |   |   | 59,250 |   |
| Weighted average exercise price        |   | $      | -      |   |   | $      | 3.98 |   |
| Weighted average fair value of options |   | $      | -      |   |   | $      | 1.86 |   |
| Expected life (years)                  |   |   | -      |   |   |   | 4.26 |   |
| Expected volatility                    |   |   | -      | %      |   |   | 57.37 | % |
| Risk-free interest rate                |   |   | -      | %      |   |   | 1.73 | % |
| Dividend yield                         |   |   | -      | %      |   |   | - | % |

|                                            | Shares  |    | Weighted AverageExercise Price |       | Weighted Average Remaining Contractual Life (in years) | Aggregate IntrinsicValue |
|-------------------------------------------------|---------|---------|--------------------------------|------------|--------------------------------------------------------|--------------------------|
| Outstanding at December 31, 2008                | 871,422 |    | $                              | 5.94       |                                                   | 5.0                      | $ | 252,815 |
|      Options granted   | 59,250  |    |                           | 3.98       |                                                   |                     |   |   |
|      Options exercised | (3,261  | )  |                           | 2.70       |                                                   |                     |   |   |
|      Options forfeited | (1,267  | )  |                           | 5.38       |                                                   |                     |   |   |
|      Options expired   | (39,858 | )  |                           |  7.91 |                                                   |                     |   |   |
| Outstanding at December 31, 2009                | 886,286 |    | $                              | 5.73       |                                                   | 4.6                      | $ | 293,911 |
|      Options granted   | -       |    |                           | -          |                                                   |                     |   |   |
|      Options exercised | (80,626 | )       |                           | 2.79       |                                                   |                     |   |   |
|      Options forfeited | (5,524  | )       |                           | 4.44       |                                                   |                     |   |   |
|      Options expired   | (24,668 | )       |                           | 10.37      |                                                   |                     |   |   |
| Outstanding at December 31, 2010                | 775,468 |    | $                              | 5.90       |                                                   | 3.9                      | $ | 1,049,184 |
| Exercisable at December 31, 2010                | 690,338 |    | $                              | 6.06       |                                                   | 3.4                      | $ | 903,094 |

|                    |             |   | Options Outstanding |    |    | Options Exercisable                                    |   |
|-------------------------|------------------|--------|---------------------|---------|---------|--------------------------------------------------------|--------|
| Range ofExercise Prices |             |   | Shares Outstanding  |    |    | Weighted Average Remaining Contractual Life (in years) |   |   | Weighted AverageExercise Price |   |   | SharesExercisable |   |   | Weighted AverageExercise Price |   |
| $                       | 0.00 - 4.00 |   |                |    | 332,821 |                                                   |   |   | 3.6 |   |   | $ | 3.45 |   |   |   | 271,326 |   |   | $ | 3.34 |   |
|                    | 4.01 - 8.00 |   |                |    | 248,163 |                                                   |   |   | 4.2 |   |   |   | 5.73 |   |   |   | 224,528 |   |   |   | 5.67 |   |
|                    | 8.01 - 12.00     |   |                |    | 129,022 |                                                   |   |   | 3.2 |   |   |   | 9.20 |   |   |   | 129,022 |   |   |   | 9.20 |   |
|                    | 12.01 - 16.00    |   |                |    | 65,462  |                                                   |   |   | 5.9 |   |   |   | 12.55 |   |   |   | 65,462 |   |   |   | 12.55 |   |
| Total                   |             |   |                | 775,468 |    |                                                   |   | 3.9 |   |   | $ | 5.90 |   |   |   | 690,338 |   |   | $ | 6.06 |   |

----

|                                          |   | 2010   |    |   | 2009   |   |
|-----------------------------------------------|--------|--------|---------|--------|--------|--------|
| Number of options exercised                   |   |   | 80,626  |   |   |   | 3,261 |   |
| Total intrinsic value of options exercised    |   | $      | 136,723 |   |   | $      | 4,659 |   |
| Cash received from options exercised          |   |   | 93,721  |   |   |   | 8,814 |   |
| Tax deduction realized from options exercised |   |   | 54,607  |   |   |   | 1,861 |   |

| Grant Year |   | Shares |   |   | Average Grant Date Fair Value |   |
|------------|--------|--------|--------|--------|-------------------------------|--------|
| 2010       |   |   | 13,200 |   |                          | $      | 5.30 |   |
| 2009       |   |   | 21,400 |   |                          | $      | 3.98 |   |

|                                            |   | Shares |    |   | Average Grant Date Fair Value |   |
|-------------------------------------------------|--------|--------|---------|--------|-------------------------------|--------|
| Nonvested restricted stock at December 31, 2009 |   |   | 54,282  |   |                          | $      | 7.25 |   |
| Granted                                         |   |   | 13,200  |   |                          |   | 5.30 |   |
| Vested                                          |   |   | (21,688 | )      |                          |   | 9.03 |   |
| Forfeited                                       |   |   | (2,427  | )      |                          |   | 6.18 |   |
| Nonvested restricted stock at December 31, 2010 |   |   | 43,367  |   |                          | $      | 5.83 |   |

| ·   | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Generally, this includes debt and equity securities and derivative contracts that are traded in an active exchange market (i.e. New York Stock Exchange), as well as certain U.S. Treasury, U.S. Government and sponsored entity mortgage-backed securities that are highly liquid and are actively traded in over-the-counter markets. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Quoted prices for similar assets or liabilities in active markets. |
|--------------------|--------------------------------------------------------------------|

| ·   | Quoted prices for identical or similar assets or liabilities in inactive markets. |
|--------------------|-----------------------------------------------------------------------------------|

| ·   | Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (i.e., interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.” |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Generally, this includes U.S. Government and sponsored entity mortgage-backed securities, corporate debt securities and derivative contracts. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Prices or valuation techniques that require inputs that are both unobservable (i.e. supported by little or no market activity) and that are significant to the fair value of the assets or liabilities. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                   |   | As of December 31, 2010 |   |
|----------------------------------------|--------|-------------------------|--------|
| (In thousands)                    |   | Level 1                 |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Financial Assets:                      |   |                    |   |   |   |   |   |   |   |   |   |   |
| Securities available for sale:         |   |                    |   |   |   |   |   |   |   |   |   |   |
| U.S. government sponsored entities     |   | $                       | -      |   |   | $ | 6,462 |   |   | $ | - |   |   | $ | 6,462 |   |
| State and political subdivisions       |   |                    | -      |   |   |   | 10,963 |   |   |   | - |   |   |   | 10,963 |   |
| Residential mortgage-backed securities |   |                    | -      |   |   |   | 85,741 |   |   |   | - |   |   |   | 85,741 |   |
| Commercial mortgage-backed securities  |   |                    | -      |   |   |   | 1,826 |   |   |   | - |   |   |   | 1,826 |   |
| Trust preferred securities             |   |                    | -      |   |   |   | 565 |   |   |   | - |   |   |   | 565 |   |
| Other equities                         |   |                    | -      |   |   |   | 1,574 |   |   |   | - |   |   |   | 1,574 |   |
| Total securities available for sale    |   |                    | -      |   |   |   | 107,131 |   |   |   | - |   |   |   | 107,131 |   |
| Financial Liabilities:                 |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate swap agreements          |   |                    | -      |   |   |   | 499 |   |   |   | - |   |   |   | 499 |   |

|                                   |   | As of December 31, 2009 |   |
|----------------------------------------|--------|-------------------------|--------|
| (In thousands)                    |   | Level 1                 |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Financial Assets:                      |   |                    |   |   |   |   |   |   |   |   |   |   |
| Securities available for sale:         |   |                    |   |   |   |   |   |   |   |   |   |   |
| U.S. government sponsored entities     |   | $                       | 500    |   |   | $ | 15,507 |   |   | $ | - |   |   | $ | 16,007 |   |
| State and political subdivisions       |   |                    | -      |   |   |   | 2,942 |   |   |   | - |   |   |   | 2,942 |   |
| Residential mortgage-backed securities |   |                    | 8,756  |   |   |   | 107,469 |   |   |   | - |   |   |   | 116,225 |   |
| Commercial mortgage-backed securities  |   |                    | -      |   |   |   | 4,627 |   |   |   | - |   |   |   | 4,627 |   |
| Trust preferred securities             |   |                    | -      |   |   |   | 390 |   |   |   | - |   |   |   | 390 |   |
| Other equities                         |   |                    | -      |   |   |   | 579 |   |   |   | - |   |   |   | 579 |   |
| Total securities available for sale    |   |                    | 9,256  |   |   |   | 131,514 |   |   |   | - |   |   |   | 140,770 |   |
| Financial Liabilities:                 |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate swap agreements          |   |                    | -      |   |   |   | 777 |   |   |   | - |   |   |   | 777 |   |

|                                                                     |   | As of December 31, 2010       |   |
|--------------------------------------------------------------------------|--------|-------------------------------|--------|
| (In thousands)                                                           |   | Securities Available for Sale |   |
| Beginning balance January 1, 2010                                        |   | $                             | 9,256  |   |
| Total net gains (losses) included in:                                    |   |                          |   |   |
| Net income                                                               |   |                          | -      |   |
| Other comprehensive income                                               |   |                          | -      |   |
|     Purchases, sales, issuances and settlements, net |   |                          | (500   | ) |
|     Transfers in and/or out of Level 1 (a)           |   |                          | (8,756 | ) |
| Ending balance December 31, 2010                                         |   | $                             | -      |   |

----

|                                                                       |   | As of December 31, 2010       |    |
|----------------------------------------------------------------------------|--------|-------------------------------|---------|
| (In thousands)                                                             |   | Securities Available for Sale |    |   | Interest Rate Swap Agreements |   |
| Beginning balance January 1, 2010                                          |   | $                             | 131,514 |   |   | $ | 777 |   |
|     Total net gains (losses) included in:              |   |                          |    |   |   |   |   |   |
|         Net income                 |   |                          | 171     |   |   |   | - |   |
|         Other comprehensive income |   |                          | 705     |   |   |   | (278 | ) |
|     Purchases, sales, issuances and settlements, net   |   |                          | 34,015  |   |   |   | - |   |
|     Transfers in and/or out of Level 2                 |   |                          | 8,756   |   |   |   | - |   |
| Ending balance December 31, 2010                                           |   | $                             | 107,131 |   |   | $ | 499 |   |

|                                         | As of December 31, 2010 |   |
|----------------------------------------------|-------------------------|--------|
| (In thousands)                               | Level 1                 |   |   | Level 2 |   | Level 3 |   |   | Total |   | Total fair value gain (loss) duringyear ended December 31, 2010 |   |
| Financial Assets:                            |                    |   |   |   |   |   |   |   |   |   |   |   |
| Other real estate owned (“OREO”) |                    | $      | - |   |   |  - |   |   | $ | 2,346 |   |   | $ | 2,346 |   |   | $ | (807 | ) |
| Impaired collateral-dependent loans          |                    |   | - |   |   |   | - |   |   |   | 6,054 |   |   |   | 6,054 |   |   |   | (7 | ) |

|                                         | As of December 31, 2009 |   |
|----------------------------------------------|-------------------------|--------|
| (In thousands)                               | Level 1                 |   |   | Level 2 |   |   | Level 3 |   |   | Total |   | Total fair value loss during year ended December 31, 2009 |   |
| Financial Assets:                            |                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Other real estate owned (“OREO”) |                    | $      | - |   |   | $ | - |   |   | $ | 1,530 |   |   | $ | 1,530 |   |   | $ | 150 |   |
| Impaired collateral-dependent loans          |                    |   | - |   |   |  - |   |   |   | 21,712 |   |   |   | 21,712 |   |   |   | 1,507 |   |

----

|                                             |   | 2010                 |    |   | 2009                      |   |
|--------------------------------------------------|--------|----------------------|---------|--------|---------------------------|--------|
| (In thousands)                                   |   | Carrying Amount |    |   | Estimated Fair Value |   |   | Carrying Amount |   |   | EstimatedFair Value |   |
| Financial assets:                                |   |                 |    |   |                      |   |   |   |   |   |   |   |
| Cash and cash equivalents                        |   | $                    | 43,926  |   |                      | $      | 43,926 |   |   | $ | 73,635 |   |   | $ | 73,635 |   |
| Securities available for sale                    |   |                 | 107,131 |   |                      |   | 107,131 |   |   |   | 140,770 |   |   |   | 140,770 |   |
| Securities held to maturity                      |   |                 | 21,111  |   |                      |   | 21,351 |   |   |   | 28,252 |   |   |   | 28,406 |   |
| Loans, net of allowance for possible loan losses |   |                 | 601,572 |   |                      |   | 599,567 |   |   |   | 643,174 |   |   |   | 640,246 |   |
| Federal Home Loan Bank stock                     |   |                 | 4,206   |   |                      |   | 4,206 |   |   |   | 4,677 |   |   |   | 4,677 |   |
| SBA servicing assets                             |   |                 | 512     |   |                      |   | 512 |   |   |   | 897 |   |   |   | 897 |   |
| Accrued interest receivable                      |   |                 | 3,791   |   |                      |   | 3,791 |   |   |   | 4,225 |   |   |   | 4,225 |   |
| Financial liabilities:                           |   |                 |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                         |   |                 | 654,788 |   |                      |   | 634,713 |   |   |   | 758,239 |   |   |   | 739,909 |   |
| Borrowed funds and subordinated debentures       |   |                 | 90,465  |   |                      |   | 103,704 |   |   |   | 100,465 |   |   |   | 113,227 |   |
| Accrued interest payable                         |   |                 | 556     |   |                      |   | 556 |   |   |   | 710 |   |   |   | 710 |   |
| Interest rate swap agreements                    |   |                 | 499     |   |                      |   | 499 |   |   |   | 777 |   |   |   | 777 |   |

----

| Balance Sheets                                     |   | December 31, |   |
|----------------------------------------------------|--------|--------------|--------|
| (In thousands)                                     |   | 2010         |   |   | 2009 |   |
| Assets:                                            |   |         |   |   |   |   |
| Cash                                               |   | $            | 4,056  |   |   | $ | 5,077 |   |
| Securities available for sale                      |   |         | 98     |   |   |   | 90 |   |
| Capital note due from Bank                         |   |         | 8,500  |   |   |   | 8,500 |   |
| Investment in subsidiaries                         |   |         | 72,888 |   |   |   | 69,806 |   |
| Other assets                                       |   |         | 669    |   |   |   | 783 |   |
| Total Assets                                       |   | $            | 86,211 |   |   | $ | 84,256 |   |
| Liabilities & Shareholders’ Equity:      |   |         |   |   |   |   |   |   |
| Other liabilities                                  |   | $            | 661    |   |   | $ | 926 |   |
| Other borrowings                                   |   |         | 15,465 |   |   |   | 15,465 |   |
| Shareholders’ equity                         |   |         | 70,085 |   |   |   | 67,865 |   |
| Total Liabilities & Shareholders’ Equity |   | $            | 86,211 |   |   | $ | 84,256 |   |

| Statements of Operations                                                                   |   | Years ended December 31, |   |
|--------------------------------------------------------------------------------------------|--------|--------------------------|--------|
| (In thousands)                                                                             |   |                     | 2010   |   |   |   | 2009 |   |
| Interest income                                                                            |   | $                        | 746    |   |   | $ | 745 |   |
| Interest expense                                                                           |   |                     | 862    |   |   |   | 858 |   |
| Net interest expense                                                                       |   |                     | (116   | ) |   |   | (113 | ) |
| Net security gains                                                                         |   |                     | -      |   |   |   | 2 |   |
| Other expenses                                                                             |   |                     | 21     |   |   |   | 19 |   |
| Loss before income tax benefit and equity in undistributed net income (loss) of subsidiary |   |                     | (137   | ) |   |   | (130 | ) |
| Income tax benefit                                                                         |   |                     | (45    | ) |   |   | (43 | ) |
| Loss before equity in undistributed net (loss) of subsidiary                               |   |                     | (92    | ) |   |   | (87 | ) |
| Equity in undistributed net income (loss) of subsidiary                                    |   |                     | 2,332  |   |   |   | (994 | ) |
| Net income (loss)                                                                          |   |                     | 2,240  |   |   |   | (1,081 | ) |
| Preferred stock dividends and discount accretion                                           |   |                     | 1,520  |   |   |   | 1,496 |   |
| Income available (loss attributable) to common shareholders                                |   | $                        | 720    |   |   | $ | (2,577 | ) |

| Statements of Cash Flows                                                             |   | Years ended December 31, |   |
|--------------------------------------------------------------------------------------|--------|--------------------------|--------|
| (In thousands)                                                                       |   |                     | 2010   |   |   |   | 2009 |   |
| Operating Activities:                                                                |   |                     |   |   |   |   |   |   |
| Net income (loss)                                                                    |   | $                        | 2,240  |   |   | $ | (1,081 | ) |
| Adjustments to reconcile net income (loss) to net cash used in operating activities: |   |                     |   |   |   |   |   |   |
| Equity in undistributed net (income) loss of subsidiary                              |   |                     | (2,332 | ) |   |   | 994 |   |
| Gains on sales of securities available for sale                                      |   |                     | -      |   |   |   | (2 | ) |
| Net change in other assets and liabilities                                           |   |                     | 9      |   |   |   | 21 |   |
| Net cash used in operating activities                                                |   |                     | (83    | ) |   |   | (68 | ) |
| Investing Activities:                                                                |   |                     |   |   |   |   |   |   |
| Sales and maturities of securities available for sale                                |   |                     | -      |   |   |   | 17 |   |
| Net cash provided by investing activities                                            |   |                     | -      |   |   |   | 17 |   |
| Financing Activities:                                                                |   |                     |   |   |   |   |   |   |
| Proceeds from issuance of common stock                                               |   |                     | 94     |   |   |   | 9 |   |
| Cash dividends on preferred stock                                                    |   |                     | (1,032 | ) |   |   | (975 | ) |
| Net cash used in financing activities                                                |   |                     | (938   | ) |   |   | (966 | ) |
| Net decrease in cash and cash equivalents                                            |   |                     | (1,021 | ) |   |   | (1,017 | ) |
| Cash, beginning of year                                                              |   |                     | 5,077  |   |   |   | 6,094 |   |
| Cash, end of year                                                                    |   | $                        | 4,056  |   |   | $ | 5,077 |   |
| Supplemental disclosures:  Interest paid                                   |   | $                        | 860    |   |   | $ | 860 |   |

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| (In thousands)                                                            |   | Pre-tax |   |   | Tax    |   |   | After-tax |   |
|---------------------------------------------------------------------------|--------|---------|--------|--------|--------|--------|--------|-----------|--------|
| Net unrealized security gains (losses):                                   |   |    |   |   |   |   |   |      |   |
| Balance at December 31, 2008                                              |   |    |   |   |   |   |   | $         | (1,728 | ) |
| Unrealized holding gain on securities arising during the period           |   | $       | 1,821  |   |   | $      | 266    |      |   |   | 1,555 |   |
| Less: Reclassification adjustment for gains included in net income        |   |    | 855    |   |   |   | 286    |      |   |   | 569 |   |
| Less: Reclassification adjustment for OTTI charges included in net income |   |    | (1,123 | )      |   |   | (376   | )         |   |   | (747 | ) |
| Net unrealized gain on securities arising during the period               |   |    | 2,089  |   |   |   | 356    |      |   |   | 1,733 |   |
| Balance at December 31, 2009                                              |   |    |   |   |   |   |   |      |   |   | 5 |   |
| Unrealized holding gain on securities arising during the period           |   |    | 790    |   |   |   | 315    |      |   |   | 475 |   |
| Less: Reclassification adjustment for gains included in net income        |   |    | 85     |   |   |   | 28     |      |   |   | 57 |   |
| Net unrealized gain on securities arising during the period               |   |    | 705    |   |   |   | 287    |      |   |   | 418 |   |
| Balance at December 31, 2010                                              |   |    |   |   |   |   |   |      |   | $ | 423 |   |
| Net unrealized losses on cash flow hedges:                                |   |    |   |   |   |   |   |      |   |   |   |   |
| Balance at December 31, 2008                                              |   |    |   |   |   |   |   |      |   | $ | (628 | ) |
| Unrealized holding gain on cash flow hedges arising during the period     |   | $       | 236    |   |   | $      | 74     |      |   |   | 162 |   |
| Balance at December 31, 2009                                              |   |    |   |   |   |   |   |      |   |   | (466 | ) |
| Unrealized holding gain on cash flow hedges arising during the period     |   |    | 278    |   |   |   | 112    |      |   |   | 166 |   |
| Balance at December 31, 2010                                              |   |    |   |   |   |   |   |      |   |   | (300 | ) |
| Total Accumulated Other Comprehensive Income at December 31, 2010         |   |    |   |   |   |   |   |      |   | $ | 123 |   |

----

| (In thousands, except per share data)                       |   |     |   |   |    |   |   |         |   |   |        |   |
|-------------------------------------------------------------|--------|----------|--------|--------|---------|--------|--------|--------------|--------|--------|-------------|--------|
| 2010                                                        |   | March 31 |   |   | June 30 |   |   | September 30 |   |   | December 31 |   |
| Total interest income                                       |   | $        | 11,513 |   |    | $      | 10,944 |         |   | $      | 10,726      |   |   | $ | 10,852 |   |
| Total interest expense                                      |   |     | 4,049  |   |    |   | 3,681  |         |   |   | 3,314       |   |   |   | 2,991 |   |
| Net interest income                                         |   |     | 7,464  |   |    |   | 7,263  |         |   |   | 7,412       |   |   |   | 7,861 |   |
| Provision for loan losses                                   |   |     | 1,500  |   |    |   | 1,500  |         |   |   | 1,500       |   |   |   | 2,750 |   |
| Net interest income after provision for loan losses         |   |     | 5,964  |   |    |   | 5,763  |         |   |   | 5,912       |   |   |   | 5,111 |   |
| Total noninterest income                                    |   |     | 910    |   |    |   | 1,170  |         |   |   | 1,460       |   |   |   | 1,529 |   |
| Total noninterest expense                                   |   |     | 5,941  |   |    |   | 6,040  |         |   |   | 6,404       |   |   |   | 6,605 |   |
| Income before provision (benefit) for income taxes          |   |     | 933    |   |    |   | 893    |         |   |   | 968         |   |   |   | 35 |   |
| Provision (benefit) for income taxes                        |   |     | 185    |   |    |   | 212    |         |   |   | 242         |   |   |   | (50 | ) |
| Net income                                                  |   |     | 748    |   |    |   | 681    |         |   |   | 726         |   |   |   | 85 |   |
| Preferred stock dividends and discount accretion            |   |     | 373    |   |    |   | 379    |         |   |   | 385         |   |   |   | 383 |   |
| Income available (loss attributable) to common shareholders |   | $        | 375    |   |    | $      | 302    |         |   | $      | 341         |   |   | $ | (298 | ) |
| Net income (loss) per common share - Basic                  |   | $        | 0.05   |   |    | $      | 0.04   |         |   | $      | 0.05        |   |   | $ | (0.04 | ) |
| Net income (loss) per common share - Diluted                |   | $        | 0.05   |   |    | $      | 0.04   |         |   | $      | 0.05        |   |   | $ | (0.04 | ) |

| (In thousands, except per share data)                       |   |     |   |   |    |   |         |   |   |        |         |
|-------------------------------------------------------------|--------|----------|--------|--------|---------|--------|--------------|--------|--------|-------------|--------------|
| 2009                                                        |   | March 31 |   |   | June 30 |   | September 30 |   |   | December 31 |         |
| Total interest income                                       |   | $        | 12,590 |   |    | $      | 12,531       |   |   | $      | 12,185       |   |   | $ | 12,104 |   |
| Total interest expense                                      |   |     | 5,816  |   |    |   | 5,673        |   |   |        | 5,327        |   |   |   | 4,766 |   |
| Net interest income                                         |   |     | 6,774  |   |    |   | 6,858        |   |   |        | 6,858        |   |   |   | 7,338 |   |
| Provision for loan losses                                   |   |     | 1,500  |   |    |   | 1,500        |   |   |        | 3,000        |   |   |   | 2,000 |   |
| Net interest income after provision for loan losses         |   |     | 5,274  |   |    |   | 5,358        |   |   |        | 3,858        |   |   |   | 5,338 |   |
| Total noninterest income (loss)                             |   |     | 1,348  |   |    |   | (907         | )      |   |        | 1,162        |   |   |   | 537 |   |
| Total noninterest expense                                   |   |     | 5,555  |   |    |   | 6,203        |   |   |        | 6,110        |   |   |   | 6,079 |   |
| Income (loss) before provision (benefit) for income taxes   |   |     | 1,067  |   |    |   | (1,752       | )      |   |        | (1,090       | ) |   |   | (204 | ) |
| Provision (benefit) for income taxes                        |   |     | 336    |   |    |   | (552         | )      |   |        | (343         | ) |   |   | (339 | ) |
| Net income (loss)                                           |   |     | 731    |   |    |   | (1,200       | )      |   |        | (747         | ) |   |   | 135 |   |
| Preferred stock dividends and discount accretion            |   |     | 379    |   |    |   | 372          |   |   |        | 372          |   |   |   | 373 |   |
| Income available (loss attributable) to common shareholders |   | $        | 352    |   |    | $      | (1,572       | )      |   | $      | (1,119       | ) |   | $ | (238 | ) |
| Net income (loss) per common share - Basic                  |   | $        | 0.05   |   |    | $      | (0.22        | )      |   | $      |  (0.16 | )  |   | $ | (0.03 | ) |
| Net income (loss) per common share - Diluted                |   | $        | 0.05   |   |    | $      | (0.22        | )      |   | $      |  (0.16 | )  |   | $ | (0.03 | ) |

----

| At or for the years ended December 31,                      |   |
|-------------------------------------------------------------|--------|
|                                                        |   | 2010 |   |   |   | 2009 |   |   |   | 2008 |   |   |   | 2007 |   |   |   | 2006 |   |
| Selected Results of Operations                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                                             |   | $ | 44,035 |   |   | $ | 49,410 |   |   | $ | 50,765 |   |   | $ | 48,900 |   |   | $ | 43,177 |   |
| Interest expense                                            |   |   | 14,035 |   |   |   | 21,582 |   |   |   | 23,474 |   |   |   | 24,474 |   |   |   | 19,432 |   |
| Net interest income                                         |   |   | 30,000 |   |   |   | 27,828 |   |   |   | 27,291 |   |   |   | 24,426 |   |   |   | 23,745 |   |
| Provision for loan losses                                   |   |   | 7,250 |   |   |   | 8,000 |   |   |   | 4,500 |   |   |   | 1,550 |   |   |   | 1,550 |   |
| Noninterest income                                          |   |   | 5,069 |   |   |   | 2,140 |   |   |   | 2,694 |   |   |   | 5,940 |   |   |   | 7,638 |   |
| Noninterest expense                                         |   |   | 24,990 |   |   |   | 23,947 |   |   |   | 22,939 |   |   |   | 22,113 |   |   |   | 21,045 |   |
| Provision (benefit) for income taxes                        |   |   | 589 |   |   |   | (898 | ) |   |   | 616 |   |   |   | 1,978 |   |   |   | 2,943 |   |
| Net income (loss)                                           |   |   | 2,240 |   |   |   | (1,081 | ) |   |   | 1,930 |   |   |   | 4,725 |   |   |   | 5,845 |   |
| Preferred stock dividends and discount accretion            |   |   | 1,520 |   |   |   | 1,496 |   |   |   | 110 |   |   |   | - |   |   |   | - |   |
| Income available (loss attributable) to common shareholders |   |   | 720 |   |   |   | (2,577 | ) |   |   | 1,820 |   |   |   | 4,725 |   |   |   | 5,845 |   |
| Per Share Data                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) per common share - Basic                  |   | $ | 0.10 |   |   | $ | (0.36 | ) |   | $ | 0.26 |   |   | $ | 0.65 |   |   | $ | 0.81 |   |
| Net income (loss) per common share - Diluted                |   |   | 0.10 |   |   |   | (0.36 | ) |   |   | 0.25 |   |   |   | 0.63 |   |   |   | 0.77 |   |
| Book value per common share                                 |   |   | 7.08 |   |   |   | 6.91 |   |   |   | 6.99 |   |   |   | 6.70 |   |   |   | 6.34 |   |
| Market value per common share                               |   |   | 6.05 |   |   |   | 4.02 |   |   |   | 3.90 |   |   |   | 8.10 |   |   |   | 13.34 |   |
| Cash dividends declared on common shares                    |   |   | - |   |   |   | - |   |   |   | 0.10 |   |   |   | 0.19 |   |   |   | 0.18 |   |
| Selected Balance Sheet Data                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Assets                                                      |   | $ | 818,410 |   |   | $ | 930,357 |   |   | $ | 898,310 |   |   | $ | 752,196 |   |   | $ | 694,106 |   |
| Loans                                                       |   |   | 615,936 |   |   |   | 657,016 |   |   |   | 685,946 |   |   |   | 590,132 |   |   |   | 507,690 |   |
| Allowance for loan losses                                   |   |   | 14,364 |   |   |   | 13,842 |   |   |   | 10,326 |   |   |   | 8,383 |   |   |   | 7,624 |   |
| Securities                                                  |   |   | 128,242 |   |   |   | 169,022 |   |   |   | 149,509 |   |   |   | 98,591 |   |   |   | 105,457 |   |
| Deposits                                                    |   |   | 654,788 |   |   |   | 758,239 |   |   |   | 707,117 |   |   |   | 601,268 |   |   |   | 566,465 |   |
| Borrowed funds and subordinated debentures                  |   |   | 90,465 |   |   |   | 100,465 |   |   |   | 120,465 |   |   |   | 100,465 |   |   |   | 79,744 |   |
| Shareholders’ equity                                  |   |   | 70,085 |   |   |   | 67,865 |   |   |   | 67,803 |   |   |   | 47,260 |   |   |   | 46,228 |   |
| Common shares outstanding                                   |   |   | 7,211 |   |   |   | 7,144 |   |   |   | 7,119 |   |   |   | 7,063 |   |   |   | 7,296 |   |
| Performance Ratios                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return (loss) on average assets                             |   |   | 0.26 | % |   |   | (0.12 | ) % |   |   | 0.23 | % |   |   | 0.66 | % |   |   | 0.90 | % |
| Return (loss) on average equity                             |   |   | 1.43 |   |   |   | (5.29 | ) |   |   | 3.72 |   |   |   | 10.11 |   |   |   | 13.56 |   |
| Efficiency ratio                                            |   |   | 71.43 |   |   |   | 75.49 |   |   |   | 71.90 |   |   |   | 71.48 |   |   |   | 67.21 |   |
| Net interest spread                                         |   |   | 3.41 |   |   |   | 2.87 |   |   |   | 3.13 |   |   |   | 3.07 |   |   |   | 3.33 |   |
| Net interest margin                                         |   |   | 3.67 |   |   |   | 3.22 |   |   |   | 3.51 |   |   |   | 3.62 |   |   |   | 3.87 |   |
| Asset Quality Ratios                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses to loans                          |   |   | 2.33 | % |   |   | 2.11 |  % |   |   | 1.51 | % |   |   | 1.42 | % |   |   | 1.50 | % |
| Allowance for loan losses to nonperforming loans            |   |   | 66.31 |   |   |   | 54.29 |   |   |   | 64.06 |   |   |   | 153.49 |   |   |   | 85.58 |   |
| Nonperforming loans to total loans                          |   |   | 3.52 |   |   |   | 3.88 |   |   |   | 2.35 |   |   |   | 0.93 |   |   |   | 1.75 |   |
| Nonperforming assets to total loans and OREO                |   |   | 3.88 |   |   |   | 4.10 |   |   |   | 2.45 |   |   |   | 0.94 |   |   |   | 1.80 |   |
| Nonperforming assets to total assets                        |   |   | 2.93 |   |   |   | 2.90 |   |   |   | 1.87 |   |   |   | 0.74 |   |   |   | 1.31 |   |
| Net charge-offs to average loans                            |   |   | 1.05 |   |   |   | 0.67 |   |   |   | 0.40 |   |   |   | 0.14 |   |   |   | 0.17 |   |
| Capital Ratios – Company                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Leverage ratio                                              |   |   | 9.97 | % |   |   | 8.83 |  % |   |   | 9.54 | % |   |   | 8.25 | % |   |   | 9.08 | % |
| Tier I risk-based capital ratio                             |   |   | 13.04 |   |   |   | 11.75 |   |   |   | 12.02 |   |   |   | 9.81 |   |   |   | 10.80 |   |
| Total risk-based capital ratio                              |   |   | 14.30 |   |   |   | 13.01 |   |   |   | 13.27 |   |   |   | 11.06 |   |   |   | 13.60 |   |
| Capital Ratios – Bank                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Leverage ratio                                              |   |   | 8.48 | % |   |   | 7.38 |  % |   |   | 7.88 | % |   |   | 7.06 | % |   |   | 7.20 | % |
| Tier I risk-based capital ratio                             |   |   | 11.10 |   |   |   | 9.82 |   |   |   | 9.93 |   |   |   | 8.39 |   |   |   | 8.55 |   |
| Total risk-based capital ratio                              |   |   | 13.69 |   |   |   | 12.30 |   |   |   | 12.41 |   |   |   | 11.00 |   |   |   | 12.38 |   |

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