| (X) | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2010 |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------|

| ( ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
|-----|----------------------------------------------------------|

|   | SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____. |
|--------|------------------------------------------------------------------------------|

| New Jersey                                                     | 22-3282551                           |
|----------------------------------------------------------------|--------------------------------------|
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
|                                                           |                                 |
| 64 Old Highway 22, Clinton, NJ                                 | 08809                                |
| (Address of Principal Executive Offices)                       | (Zip Code)                           |

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Table of Contents

|                |                               | Page #                                                                                                                                 |
|---------------------|------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|
|  PART I        | CONSOLIDATED FINANCIAL INFORMATION |                                                                                                                                   |
|                |                               |                                                                                                                                   |
|                | ITEM 1                             | Consolidated Financial Statements (Unaudited)                                                                                          |   |
|                |                               |                                                                                                                                   |   |
|                |                               | Consolidated Balance Sheets at September 30, 2010, December 31, 2009, and September 30, 2009                            | 1 |
|                |                               |                                                                                                                                   |
|                |                               | Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009                        | 2 |
|                |                               |                                                                                                                                   |   |
|                |                               | Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2010 and  2009 | 3 |
|                |                               |                                                                                                                                   |   |
|                |                               | Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and  2009                            | 4 |
|                |                               |                                                                                                                                   |   |
|                |                               | Notes to the Consolidated Financial Statements                                                                                         | 5 |
|                |                               |                                                                                                                                   |
|                | ITEM 2                             | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                            | 20 |
|                |                               |                                                                                                                                   |   |
|                | ITEM 3                             | Quantitative and Qualitative Disclosures about Market Risk                                                                             | 35 |
|                |                               |                                                                                                                                   |   |
|                | ITEM 4T                            | Controls and Procedures                                                                                                                | 35 |
|                |                               |                                                                                                                                   |   |
| PART II             | OTHER INFORMATION                  | 35                                                                                                                                     |
|                |                               |                                                                                                                                   |   |
|                | ITEM 1                             | Legal Proceedings                                                                                                                      | 35 |
|                |                               |                                                                                                                                   |   |
|                | ITEM 1A                            | Risk Factors                                                                                                                           | 35 |
|                |                               |                                                                                                                                   |   |
|                | ITEM 2                             | Unregistered Sales of Equity Securities and Use of Proceeds                                                                            | 35 |
|                |                               |                                                                                                                                   |   |
|                | ITEM 3                             | Defaults upon Senior Securities                                                                                                        | 35 |
|                |                               |                                                                                                                                   |   |
|                | ITEM 4                             | Reserved                                                                                                                               | 35 |
|                |                               |                                                                                                                                   |   |
|                | ITEM 5                             | Other Information                                                                                                                      | 35 |
|                |                               |                                                                                                                                   |   |
|                | ITEM 6                             | Exhibits                                                                                                                               | 35 |
|                |                               |                                                                                                                                   |
|  SIGNATURES    | 36                                 |
|                |                               |                                                                                                                                   |
|  EXHIBIT INDEX | 37                                 |
|                |                               |
|                | Exhibit 31.1                       | 38                                                                                                                                     |
|                | Exhibit 31.2                       | 39                                                                                                                                     |
|                | Exhibit 32.1                       | 40                                                                                                                                     |
|                |                               |
|                |                               |

----

|                                             |
|--------------------------------------------------|
| (In thousands)                                   |   |   | September 30, 2010 |   |   | December 31, 2009 |   |   | September 30, 2009 |   |
| ASSETS                                           |   |   |   |   |   |   |   |   |   |   |
| Cash and due from banks                          |   | $ | 16,928 |   |   | $ | 23,517 |   |   | $ | 17,035 |   |
| Federal funds sold and interest-bearing deposits |   |   | 30,379 |   |   |   | 50,118 |   |   |   | 48,853 |   |
|                                             | Cash and cash equivalents |   |   | 47,307 |   |   |   | 73,635 |   |   |   | 65,888 |   |
| Securities:                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                             | Available for sale |   |   | 111,777 |   |   |   | 140,770 |   |   |   | 140,906 |   |
|                                             | Held to maturity (fair value of $23,745, $28,406 and $30,396, respectively) |   |   | 23,043 |   |   |   | 28,252 |   |   |   | 30,595 |   |
|                                             |   | Total securities |   |   | 134,820 |   |   |   | 169,022 |   |   |   | 171,501 |   |
| Loans:                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                             | SBA held for sale |   |   | 19,021 |   |   |   | 21,406 |   |   |   | 21,364 |   |
|                                             | SBA held to maturity |   |   | 72,197 |   |   |   | 77,844 |   |   |   | 79,342 |   |
|                                             | SBA 504 |   |   | 65,075 |   |   |   | 70,683 |   |   |   | 71,432 |   |
|                                             | Commercial |   |   | 284,875 |   |   |   | 293,739 |   |   |   | 298,019 |   |
|                                             | Residential mortgage |   |   | 131,479 |   |   |   | 133,059 |   |   |   | 124,313 |   |
|                                             | Consumer |   |   |   | 56,869 |   |   |   | 60,285 |   |   |   | 62,050 |   |
|                                             | Total loans |   |   | 629,516 |   |   |   | 657,016 |   |   |   | 656,520 |   |
|                                             |   | Less: Allowance for loan losses |   |   | 14,163 |   |   |   | 13,842 |   |   |   | 12,445 |   |
|                                             |   | Net loans |   |   | 615,353 |   |   |   | 643,174 |   |   |   | 644,075 |   |
| Premises and equipment, net                      |   |   | 11,137 |   |   |   | 11,773 |   |   |   | 11,911 |   |
| Deferred tax assets                              |   |   | 7,168 |   |   |   | 7,308 |   |   |   |  7,256 |   |
| Bank owned life insurance                        |   |   | 8,732 |   |   |   | 6,002 |   |   |   |  5,946 |   |
| Prepaid FDIC insurance                           |   |   |  3,545 |   |   |   | 4,739 |   |   |   |  - |   |
| Federal Home Loan Bank stock                     |   |   | 4,656 |   |   |   | 4,677 |   |   |   | 4,677 |   |
| Accrued interest receivable                      |   |   | 3,750 |   |   |   | 4,225 |   |   |   | 4,230 |   |
| Other real estate owned                          |   |   | 5,773 |   |   |   | 1,530 |   |   |   | 2,774 |   |
| Goodwill and other intangibles                   |   |   | 1,548 |   |   |   | 1,559 |   |   |   | 1,563 |   |
| SBA servicing assets                             |   |   | 614 |   |   |   | 897 |   |   |   | 977 |   |
| Other assets                                     |   |   | 1,982 |   |   |   | 1,816 |   |   |   | 1,891 |   |
|                                             |   | Total Assets |   | $ | 846,385 |   |   | $ | 930,357 |   |   | $ | 922,689 |   |
|                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS' EQUITY             |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                             | Noninterest-bearing demand deposits |   | $ | 87,837 |   |   | $ | 80,100 |   |   | $ | 83,534 |   |
|                                             | Interest-bearing demand deposits |   |   | 100,350 |   |   |   | 100,046 |   |   |   | 92,401 |   |
|                                             | Savings deposits |   |   | 292,372 |   |   |   | 286,334 |   |   |   | 263.758 |   |
|                                             | Time deposits, under $100,000 |   |   | 124,851 |   |   |   | 183,377 |   |   |   | 209,050 |   |
|                                             | Time deposits, $100,000 and over |   |   | 64,748 |   |   |   | 108,382 |   |   |   | 101,922 |   |
|                                             |   | Total deposits |   |   | 670,158 |   |   |   | 758,239 |   |   |   | 750,665 |   |
| Borrowed funds                                   |   |   | 86,044 |   |   |   | 85,000 |   |   |   | 85,000 |   |
| Subordinated debentures                          |   |   | 15,465 |   |   |   | 15,465 |   |   |   | 15,465 |   |
| Accrued interest payable                         |   |   | 618 |   |   |   | 710 |   |   |   | 797 |   |
| Accrued expenses and other liabilities           |   |   | 3,370 |   |   |   | 3,078 |   |   |   | 3,377 |   |
|                                             |   | Total Liabilities |   |   | 775,655 |   |   |   | 862,492 |   |   |   | 855,304 |   |
| Commitments and contingencies                    |   |   | - |   |   |   | - |   |   |   | - |   |
|                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shareholders' equity:                            |   |   |   |   |   |   |   |   |   |   |   |   |
|                                             | Preferred stock, no par value, 500 shares authorized |   |   | 18,894 |   |   |   | 18,533 |   |   |   | 18,418 |   |
|                                             | Common stock, no par value, 12,500 shares authorized |   |   | 55,798 |   |   |   | 55,454 |   |   |   | 55,351 |   |
|                                             | Retained earnings (deficit) |   |   | (473 | )  |   |   | (1,492 | )  |   |   | (1,253 | )  |
|                                             | Treasury stock at cost |   |   | (4,169 | ) |   |   | (4,169 | ) |   |   | (4,169 | ) |
|                                             | Accumulated other comprehensive income (loss), net of tax |   |   | 680 |   |   |   | (461 | ) |   |   | (962 | ) |
|                                             |   | Total Shareholders' Equity |   |   | 70,730 |   |   |   | 67,865 |   |   |   | 67,385 |   |
|                                             |   | Total Liabilities and Shareholders' Equity |   | $ | 846,385 |   |   | $ | 930,357 |   |   | $ | 922,689 |   |
|                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred shares                                 |   |   | 21 |   |   |   | 21 |   |   |   | 21 |   |
| Issued common shares                             |   |   | 7,632 |   |   |   | 7,569 |   |   |   | 7,544 |   |
| Outstanding common shares                        |   |   | 7,207 |   |   |   | 7,144 |   |   |   | 7,119 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                |   |   For the three months ended September 30, |              |   |   | For the nine months ended September 30, |         |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|-------------------|--------|--------|-----------------------------------------|--------------|
| (In thousands, except per share amounts)                                                                                                                                                                                                                                                                                                                                                            |   |                                            | 2010              |   |   |                                    | 2009         |   |   |   | 2010 |   |   | 2009 |   |
| INTEREST INCOME                                                                                                                                                                                                                                                                                                                                                                                     |   |                                            |              |   |   |                                    |         |   |   |   |   |   |   |   |   |
| Federal funds sold and interest-bearing deposits                                                                                                                                                                                                                                                                                                                                                    |   | $                                               | 21                |   |   | $                                       | 32           |   |   |  $ | 76 |   |   | $ | 78 |   |
| Federal Home Loan Bank stock                                                                                                                                                                                                                                                                                                                                                                        |   |                                            | 65                |   |   |                                    |  101    |   |   |   | 148 |   |   |   | 219 |   |
| Securities:                                                                                                                                                                                                                                                                                                                                                                                         |   |                                            |              |   |   |                                    |         |   |   |   |   |   |   |   |   |   |
| Available for sale                                                                                                                                                                                                                                                                                                                                                                                  |   |                                            |   1,071 |   |   |                                    |  1,482  |   |   |   | 3,405 |   |   |   | 4,670 |   |
| Held to maturity                                                                                                                                                                                                                                                                                                                                                                                    |   |                                            | 270               |   |   |                                    | 389          |   |   |   |   858 |   |   |   | 1,167 |   |
| Total securities                                                                                                                                                                                                                                                                                                                                                                                    |   |                                            | 1,341             |   |   |                                    |  1,871  |   |   |   |   4,263 |   |   |   | 5,837 |   |
| Loans:                                                                                                                                                                                                                                                                                                                                                                                              |   |                                            |              |   |   |                                    |         |   |   |   |   |   |   |   |   |   |
| SBA                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                            |  1,225       |   |   |                                    |  1,498  |   |   |   |   3,977 |   |   |   | 4,668 |   |
| SBA 504                                                                                                                                                                                                                                                                                                                                                                                             |   |                                            |  1,093       |   |   |                                    |  1,147  |   |   |   |   3,270 |   |   |   |  3,663 |   |
| Commercial                                                                                                                                                                                                                                                                                                                                                                                          |   |                                            |  4,454       |   |   |                                    |  4,973  |   |   |   |   13,546 |   |   |   | 15,040 |   |
| Residential mortgage                                                                                                                                                                                                                                                                                                                                                                                |   |                                            |  1,808       |   |   |                                    |  1,772  |   |   |   |   5,729 |   |   |   | 5,419 |   |
| Consumer                                                                                                                                                                                                                                                                                                                                                                                            |   |                                            |  719         |   |   |                                    | 791          |   |   |   |   2,174 |   |   |   | 2,383 |   |
| Total loans                                                                                                                                                                                                                                                                                                                                                                                         |   |                                            |  9,299       |   |   |                                    |  10,181 |   |   |   |   28,696 |   |   |   | 31,173 |   |
| Total interest income                                                                                                                                                                                                                                                                                                                                                                               |   |                                            |  10,726      |   |   |                                    |  12,185 |   |   |   | 33,183 |   |   |   | 37,307 |   |
| INTEREST EXPENSE                                                                                                                                                                                                                                                                                                                                                                                    |   |                                            |              |   |   |                                    |         |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits                                                                                                                                                                                                                                                                                                                                                                    |   |                                            |  148         |   |   |                                    |  264    |   |   |   |   593 |   |   |   | 801 |   |
| Savings deposits                                                                                                                                                                                                                                                                                                                                                                                    |   |                                            |  639         |   |   |                                    | 1,032        |   |   |   | 2,268 |   |   |   | 2,588 |   |
| Time deposits                                                                                                                                                                                                                                                                                                                                                                                       |   |                                            |  1,450       |   |   |                                    |  2,950  |   |   |   |   4,952 |   |   |   | 10,084 |   |
| Borrowed funds and subordinated debentures                                                                                                                                                                                                                                                                                                                                                          |   |                                            |  1,077       |   |   |                                    |  1,081  |   |   |   |   3,232 |   |   |   | 3,344 |   |
| Total interest expense                                                                                                                                                                                                                                                                                                                                                                              |   |                                            |  3,314       |   |   |                                    |  5,327  |   |   |   |  11,045 |   |   |   | 16,817 |   |
| Net interest income                                                                                                                                                                                                                                                                                                                                                                                 |   |                                            |  7,412       |   |   |                                    |  6,858  |   |   |   | 22,138 |   |   |   | 20,490 |   |
| Provision for loan losses                                                                                                                                                                                                                                                                                                                                                                           |   |                                            |  1,500       |   |   |                                    |  3,000  |   |   |   |   4,500 |   |   |   | 6,000 |   |
| Net interest income after provision for loan losses                                                                                                                                                                                                                                                                                                                                            |   |                                            |  5,912       |   |   |                                    |  3,858  |   |   |   | 17,638 |   |   |   | 14,490 |   |
| NONINTEREST INCOME                                                                                                                                                                                                                                                                                                                                                                                  |   |                                            |              |   |   |                                    |         |   |   |   |   |   |   |   |   |   |
| Branch fee income                                                                                                                                                                                                                                                                                                                                                                                   |   |                                            |  359         |   |   |                                    | 373          |   |   |   | 1,051 |   |   |   | 1,038 |   |
| Service and loan fee income                                                                                                                                                                                                                                                                                                                                                                         |   |                                            |  251         |   |   |                                    |  398    |   |   |   | 705 |   |   |   | 946 |   |
| Gain on sale of SBA loans held for sale, net                                                                                                                                                                                                                                                                                                                                                        |   |                                            |  269         |   |   |                                    |  -      |   |   |   | 416 |   |   |   |  29 |   |
| Gain on sale of mortgage loans                                                                                                                                                                                                                                                                                                                                                                      |   |                                            | 247               |   |   |                                    |  71     |   |   |   |   504 |   |   |   | 184 |   |
| Bank owned life insurance                                                                                                                                                                                                                                                                                                                                                                      |   |                                            |  79          |   |   |                                    |  56     |   |   |   | 230 |   |   |   | 166 |   |
| Total other-than-temporary impairment charges on securities                                                                                                                                                                                                                                                                                                                                         |   |                                            |   -     |   |   |                                    | -            |   |   |   |  - |   |   |   |  (2,555 | ) |
| Portion of loss recognized in other comprehensive income (before taxes)                                                                                                                                                                                                                                                                                                                             |   |                                            | -                 |   |   |                                    | -            |   |   |   |  - |   |   |   |  806 |   |
| Net other-than-temporary impairment charges recognized in earnings                                                                                                                                                                                                                                                                                                                                  |   |                                            |  -           |   |   |                                    |  -      |   |   |   |  - |   |   |   |  (1,749 | )  |
| Net security gains                                                                                                                                                                                                                                                                                                                                                                                  |   |                                            |  35          |   |   |                                    |  158    |   |   |   | 42 |   |   |   | 675 |   |
| Other income                                                                                                                                                                                                                                                                                                                                                                                        |   |                                            | 220               |   |   |                                    |  106    |   |   |   |  592 |   |   |   | 316 |   |
| Total noninterest income                                                                                                                                                                                                                                                                                                                                                                            |   |                                            |  1,460       |   |   |                                    | 1,162        |   |   |   | 3,540 |   |   |   | 1,605 |   |
| NONINTEREST EXPENSE                                                                                                                                                                                                                                                                                                                                                                                 |   |                                            |              |   |   |                                    |         |   |   |   |   |   |   |   |   |   |
| Compensation and benefits                                                                                                                                                                                                                                                                                                                                                                           |   |                                            |  2,960       |   |   |                                    |  2,909  |   |   |   |   8,781 |   |   |   | 8,386 |   |
| Occupancy                                                                                                                                                                                                                                                                                                                                                                                           |   |                                            |  624         |   |   |                                    | 595          |   |   |   | 1,910 |   |   |   | 1,929 |   |
| Processing and communications                                                                                                                                                                                                                                                                                                                                                                       |   |                                            |  529         |   |   |                                    |  531    |   |   |   | 1,609 |   |   |   | 1,554 |   |
| Furniture and equipment                                                                                                                                                                                                                                                                                                                                                                             |   |                                            |  440         |   |   |                                    |  414    |   |   |   | 1,311 |   |   |   | 1,381 |   |
| Professional services                                                                                                                                                                                                                                                                                                                                                                               |   |                                            |  229         |   |   |                                    | 274          |   |   |   | 657 |   |   |   | 780 |   |
| Loan collection costs                                                                                                                                                                                                                                                                                                                                                                               |   |                                            |  272         |   |   |                                    |  315    |   |   |   |  698 |   |   |   | 694 |   |
| OREO expenses                                                                                                                                                                                                                                                                                                                                                                                       |   |                                            | 482               |   |   |                                    | 176          |   |   |   |  669 |   |   |   |  193 |   |
| Deposit insurance                                                                                                                                                                                                                                                                                                                                                                                   |   |                                            |  333         |   |   |                                    |  351    |   |   |   | 983 |   |   |   | 1,361 |   |
| Advertising                                                                                                                                                                                                                                                                                                                                                                                         |   |                                            |  130         |   |   |                                    |  147    |   |   |   |   478 |   |   |   | 373 |   |
| Other expenses                                                                                                                                                                                                                                                                                                                                                                                      |   |                                            | 405               |   |   |                                    |  398    |   |   |   | 1,288 |   |   |   | 1,218 |   |
| Total noninterest expense                                                                                                                                                                                                                                                                                                                                                                           |   |                                            |  6,404       |   |   |                                    |  6,110  |   |   |   |  18,384 |   |   |   | 17,869 |   |
| Income (loss) before provision (benefit) for income taxes                                                                                                                                                                                                                                                                                                                                           |   |                                            |  968         |   |   |                                    |  (1,090 | )  |   |   | 2,794 |   |   |   | (1,774 | )  |
| Provision (benefit) for income taxes                                                                                                                                                                                                                                                                                                                                                                |   |                                            |  242         |   |   |                                    |  (343   | ) |   |   | 639 |   |   |   | (559 | )  |
| Net income (loss)                                                                                                                                                                                                                                                                                                                                                                                   |   |                                            |  726         |   |   |                                    |  (747   | )  |   |   |   2,155 |   |   |   | (1,215 | )  |
| Preferred stock dividends and discount accretion                                                                                                                                                                                                                                                                                                                                                    |   |                                            |  385         |   |   |                                    |  372    |   |   |   |  1,136 |   |   |   |        1,123 |   |
| Income available (loss attributable) to common shareholders                                                                                                                                                                                                                                                                                                                                    |   | $                                               |  341         |   |   | $                                  |  (1,119 | )  |   | $ | 1,019 |   |   | $ | (2,338 | )  |
|                                                                                                                                                                                                                                                                                                                                                                                                |   |                                            |              |   |   |                                    |         |   |   |   |   |   |   |   |   |   |
| Net income (loss) per common share  - Basic                                                                                                                                                                                                                                                                                                                                          |   | $                                               |  0.05        |   |   | $                                       |  (0.16  | )  |   | $ | 0.14 |   |   | $ | (0.33 | )  |
|                                                                - Diluted |   |                                            |  0.05        |   |   |                                    |  (0.16  | )  |   |   | 0.14 |   |   |   | (0.33 | )  |
| Weighted average common shares outstanding   - Basic                                                                                                                                                                                                                                                                                                                                      |   |                                            |  7,176       |   |   |                                    |  7,119  |   |   |   |   7,161 |   |   |   | 7,119 |   |
|                        - Diluted                                                                                                                                                                                                                                            |   |                                            |  7,467       |   |   |                                    |  7,119  |   |   |   |   7,417 |   |   |   | 7,119 |   |

----

Consolidated Statements of Changes in Shareholders’ Equity

|                                                                |   | Preferred |   |   | Common Stock |   |   | Retained Earnings |   |   | Treasury        |   |   | Accumulated Other Comprehensive |   |    | Total Shareholders' |   |
|---------------------------------------------------------------------|--------|-----------|--------|--------|--------------|--------|--------|-------------------|--------|--------|-----------------|--------|--------|---------------------------------|--------|---------|---------------------|--------|
| (In thousands)                                                      |   | Stock     |   |   | Shares       |   |   | Amount            |   |   |  (Deficit) |   |   | 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                                                            |   |      |   |   |         |   |   |              |   |   |            |   |   |                            | (1,215 | )  |                |   |   |   |   |   |   |   |   |   | (1,215 | )  |
| Net noncredit unrealized losses on held to maturity debt securities |   |      |   |   |         |   |   |              |   |   |            |   |   |                            |   |    |                |   |   |   |   |   | (532 | )  |   |   | (532 | )  |
| Net unrealized gains on securities                                  |   |      |   |   |         |   |   |              |   |   |            |   |   |                            |   |    |                |   |   |   |   |   | 1,841 |   |   |   | 1,841 |   |
| Net unrealized gains on cash flow hedge derivatives                 |   |      |   |   |         |   |   |              |   |   |            |   |   |                            |   |    |                |   |   |   |   |   | 85 |   |   |   | 85 |   |
| Total comprehensive income                                          |   |      |   |   |         |   |   |              |   |   |            |   |   |                            |   |    |                |   |   |   |   |   |   |   |   |   | 179 |   |
| Accretion of discount on preferred stock                            |   |      | 354    |   |         |   |   |              |   |   |            |   |   |                            | (354   | )       |                |   |   |   |   |   |   |   |   |   | - |   |
| Dividends on preferred stock (5% annually)                          |   |      |   |   |         |   |   |              |   |   |            |   |   |                            | (769   | )       |                |   |   |   |   |   |   |   |   |   | (769 | ) |
| Common stock issued and related tax effects (a)                     |   |      |   |   |         |   |   |              |   |   | 172             |   |   |                            |   |    |                |   |   |   |   |   |   |   |   |   | 172 |   |
| Balance, September 30, 2009                                    |   | $         | 18,418 |   |         |   | 7,119  |              |   | $      | 55,351          |   |   | $                               | (1,253 | )  |                | $      | (4,169 | ) |   | $ | (962 | ) |   | $ | 67,385 |   |

|                                                |   | Preferred |   |   | Common Stock |   |   | Retained Earnings |   |   | Treasury  |   |   | Accumulated Other Comprehensive |   |    | Total Shareholders' |   |
|-----------------------------------------------------|--------|-----------|--------|--------|--------------|--------|--------|-------------------|--------|--------|-----------|--------|--------|---------------------------------|--------|---------|---------------------|--------|
| (In thousands)                                      |   | Stock     |   |   | Shares       |   |   | Amount            |   |   | (Deficit) |   |   | Stock                           |   |    | Income (Loss)       |   |   | Equity |   |
| Balance, December 31, 2009                          |   | $         | 18,533 |   |         |   | 7,144  |              |   | $      | 55,454    |   |   | $                               | (1,492 | )  |                | $      | (4,169 | ) |   | $ | (461 | ) |   | $ | 67,865 |   |
| Comprehensive income:                               |   |      |   |   |         |   |   |              |   |   |      |   |   |                            |   |    |                |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                          |   |      |   |   |         |   |   |              |   |   |      |   |   |                            | 2,155  |    |                |   |   |   |   |   |   |   |   |   | 2,155 |   |
| Net unrealized gains on securities                  |   |      |   |   |         |   |   |              |   |   |      |   |   |                            |   |    |                |   |   |   |   |   | 1,049 |   |   |   | 1,049 |   |
| Net unrealized gains on cash flow hedge derivatives |   |      |   |   |         |   |   |              |   |   |      |   |   |                            |   |    |                |   |   |   |   |   | 92 |   |   |   | 92 |   |
| Total comprehensive income                          |   |      |   |   |         |   |   |              |   |   |      |   |   |                            |   |    |                |   |   |   |   |   |   |   |   |   | 3,296 |   |
| Accretion of discount on preferred stock            |   |      | 361    |   |         |   |   |              |   |   |      |   |   |                            | (361   | )       |                |   |   |   |   |   |   |   |   |   | - |   |
| Dividends on preferred stock (5% annually)          |   |      |   |   |         |   |   |              |   |   |      |   |   |                            | (775   | )       |                |   |   |   |   |   |   |   |   |   | (775 | ) |
| Common stock issued and related tax effects (a)     |   |      |   |   |         |   | 63     |              |   |   | 344       |   |   |                            |   |    |                |   |   |   |   |   |   |   |   |   | 344 |   |
| Balance, September 30, 2010                         |   | $         | 18,894 |   |         |   | 7,207  |              |   | $      | 55,798    |   |   | $                               | (473   | )       |                | $      | (4,169 | ) |   | $ | 680 |   |   | $ | 70,730 |   |

----

Consolidated Statements of Cash Flows

|                                                                                          |         | For the nine months ended September 30, |    |
|-----------------------------------------------------------------------------------------------|--------------|----------------------------------------------|---------|
| (In thousands)                                                                                |         | 2010                                         |    |   | 2009 |   |
| OPERATING ACTIVITIES                                                                          |         |                                         |    |   |   |   |
| Net income (loss)                                                                             |         | $                                            | 2,155   |   |   | $ | (1,215 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |         |                                         |    |   |   |
| Provision for loan losses                                                                     |         |                                         | 4,500   |   |   |   | 6,000 |   |
| Net amortization of purchase premiums and discounts on securities                             |         |                                         | 644     |   |   |   | 327 |   |
| Depreciation and amortization                                                                 |         |                                         | 941     |   |   |   | 1,115 |   |
| Deferred income tax benefit                                                                   |         |                                         | (630    | ) |   |   | (2,091 | )  |
| Other-than-temporary impairment charges on securities                                    |         |                                         | -  |   |   |   | 1,749 |   |
| Net security gains                                                                            |         |                                         | (42     | ) |   |   | (675 | )  |
| Stock compensation expense                                                                    |         |                                         | 219     |   |   |   | 223 |   |
| Loss on sale of other real estate owned                                        |         |                                         | (368    | ) |   |   | (157 | )  |
| Gain on sale of SBA loans held for sale, net                                                  |         |                                         | (416    | ) |   |   | (29 | ) |
| Gain on sale of mortgage loans                                                                |         |                                         | (504    | ) |   |   | (184 | ) |
| Origination of mortgage loans held for sale                                                   |         |                                         | (26,182 | ) |   |   | (15,700 | )  |
| Origination of SBA loans held for sale                                                        |         |                                         | (2,679  | ) |   |   | (1,910 | ) |
| Proceeds from the sale of mortgage loans held for sale, net                                   |         |                                         | 26,686  |   |   |   | 15,884 |   |
| Proceeds from the sale of SBA loans held for sale, net                                        |         |                                         | 4,250   |   |   |   | 867 |   |
| Loss on the sale of premises and equipment                                                    |         |                                         | (9      | ) |   |   | - |   |
| Net change in other assets and liabilities                                                    |         |                                         | 1,899   |   |   |   | 1,953 |   |
| Net cash provided by operating activities                                                     |         |                                         | 10,464  |   |   |   | 6,157 |   |
| INVESTING ACTIVITIES:                                                                         |         |                                         |    |   |   |   |   |   |
| Purchases of securities held to maturity                                                      |         |                                         | (2,330  | ) |   |   | (4,036 | ) |
| Purchases of securities available for sale                                                    |         |                                         | (27,704 | ) |   |   | (87,708 | ) |
| Purchases of Federal Home Loan Bank stock, at cost                                            |         |                                         | -       |   |   |   | (8,469 | )  |
| Maturities and principal payments on securities held to maturity                              |         |                                         | 5,517   |   |   |   | 4,096 |   |
| Maturities and principal payments on securities available for sale                            |         |                                         | 46,475  |   |   |   | 39,665 |   |
| Proceeds from sale of securities held to maturity                                             |         |                                         | 1,893   |   |   |   | - |   |
| Proceeds from sale of securities available for sale                                           |         |                                         | 11,507  |   |   |   | 26,048 |   |
| Proceeds from redemption of Federal Home Loan Bank stock                                      |         |                                         | 21      |   |   |   | 8,649 |   |
| Proceeds from the sale of other real estate owned                                             |         |                                         | 3,034   |   |   |   | 1,335 |   |
| Net decrease in loans                                                                         |         |                                         | 15,202  |   |   |   | 23,245 |   |
| Purchase of bank owned life insurance                                                         |         |                                         | (2,500  | ) |   |   | - |   |
| Proceeds from the sale of premises and equipment                                              |         |                                         | 53      |   |   |   | - |   |
| Purchases of premises and equipment                                                           |         |                                         | (283    | ) |   |   | (305 | )  |
| Net cash provided by investing activities                                                     |         |                                         | 50,885  |   |   |   | 2,520 |   |
| FINANCING ACTIVITIES:                                                                         |         |                                         |    |   |   |   |   |   |
| Net (decrease) increase in deposits                                                 |         |                                         | (88,081 | )  |   |   | 43,548 |   |
| Proceeds from new borrowings                                                                  |         |                                         | 1,044   |   |   |   | 22,000 |   |
| Repayments of borrowings                                                                      |         |                                         | -       |   |   |   | (42,000 | )  |
| Proceeds from the exercise of stock options, including related tax benefits              |         |                                         | 134     |   |   |   | (51 | )  |
| Cash dividends paid on preferred stock                                                        |         |                                         | (774    | ) |   |   | (717 | )  |
| Net cash (used in) provided by financing activities                                      |         |                                         | (87,677 | ) |   |   | 22,780 |   |
| (Decrease) increase in cash and cash equivalents                                         |         |                                         | (26,328 | ) |   |   | 31,457 |   |
| Cash and cash equivalents, beginning of period                                                |         |                                         | 73,635  |   |   |   | 34,431 |   |
| Cash and cash equivalents, end of period                                                      |         | $                                            | 47,307  |   |   | $ | 65,888 |   |
| SUPPLEMENTAL DISCLOSURES:                                                                     |         |                                         |    |   |   |   |   |   |
| Cash:                                                                                         |         |                                         |    |   |   |   |   |   |
| Interest paid                                                                                 |         | $                                            | 11,137  |   |   | $ | 16,825 |   |
| Income taxes paid                                                                             |         |                                         | 1,204   |   |   |   | 1,035 |   |
| Noncash investing activities:                                                                 |         |                                         |    |   |   |   |   |   |
|     Transfer of AFS SBA loans to HTM SBA loans                            |    |                                         | 1,230   |   |   |   | 1,890 |   |
| Transfer of loans to other real estate owned                                                  |         |                                         | 6,909   |   |   |   | 3,242 |   |

----

Notes to the Consolidated Financial Statements (Unaudited)

|                                            |   | Shares |    |    | Weighted AverageExercise Price |   |   | Weighted Average Remaining Contractual Life (in years) |   |   | Aggregate IntrinsicValue |   |
|-------------------------------------------------|--------|--------|---------|---------|--------------------------------|--------|--------|--------------------------------------------------------|--------|--------|--------------------------|--------|
| Outstanding at December 31, 2009                |   |   | 886,286 |    |                           | $      | 5.73   |                                                   |   |   | 4.6                      |   |   | $ | 293,911 |   |
|      Options granted   |   |   | -       |    |                           |   | -      |                                                   |   |   |                     |   |   |   |   |   |
|      Options exercised |   |   | (76,671 | )       |                           |   | 2.74   |                                                   |   |   |                     |   |   |   |   |   |
|      Options forfeited |   |   | (5,524  | )  |                           |   | 4.44   |                                                   |   |   |                     |   |   |   |   |   |
|      Options expired   |   |   | (23,072 | )       |                           |   | 10.47  |                                                   |   |   |                     |   |   |   |   |   |
| Outstanding at September 30, 2010               |   |   | 781,019 |    |                           | $      | 5.90   |                                                   |   |   | 4.1                      |   |   | $ | 657,401 |   |
| Exercisable at September 30, 2010               |   |   | 631,875 |    |                           | $      | 6.21   |                                                   |   |   | 3.1                      |   |   | $ | 501,291 |   |

----

|                    |             |   | 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 |   |                |    | 335,100 |                                                   |   |   | 3.8 |   |   | $ | 3.44 |   |   |   | 230,853 |   |   | $ | 3.24 |   |
|                    | 4.01 - 8.00 |   |                |    | 249,839 |                                                   |   |   | 4.4 |   |   |   | 5.72 |   |   |   | 204,942 |   |   |   | 5.63 |   |
|                    | 8.01 - 12.00     |   |                |    | 130,618 |                                                   |   |   | 3.4 |   |   |   | 9.19 |   |   |   | 130,618 |   |   |   | 9.19 |   |
|                    | 12.01 - 16.00    |   |                |    | 65,462  |                                                   |   |   | 6.2 |   |   |   | 12.55 |   |   |   | 65,462 |   |   |   | 12.55 |   |
| Total                   |             |   |                | 781,019 |    |                                                   |   | 4.1 |   |   | $ | 5.90 |   |   |   | 631,875 |   |   | $ | 6.21 |   |

|                                          |   |  Three months ended September 30,   |    |   | Nine months ended September 30, |   |
|-----------------------------------------------|--------|-----------------------------------------------|---------|--------|---------------------------------|--------|
|                                          |   |  2010                                    |    |   |  2009                      |   |   | 2010 |   |   | 2009 |   |
| Number of options exercised                   |   |                                          | 50,929  |   |                            |   | - |   |   |   | 76,671 |   |   |   | - |   |
| Total intrinsic value of options exercised    |   | $                                        | 115,156 |   |                            | $      | - |   |   | $ | 130,972 |   |   | $ | - |   |
| Cash received from options exercised          |   |                                          | 47,048  |   |                            |   | - |   |   |   | 78,743 |   |   |   | - |   |
| Tax deduction realized from options exercised |   |                                          | 45,977  |   |                            |   | - |   |   |   | 52,276 |   |   |   | - |   |

|                                             |   | Shares |    |   | Average Grant Date Fair Value |   |
|--------------------------------------------------|--------|--------|---------|--------|-------------------------------|--------|
| Nonvested restricted stock at December 31, 2009  |   |   | 54,281  |   |                          | $      | 7.25 |   |
| Granted                                          |   |   | 13,200  |   |                          |   | 5.30 |   |
| Vested                                           |   |   | (15,012 | )      |                          |   | 11.23 |   |
| Forfeited                                        |   |   | (2,427  | )      |                          |   | 6.18 |   |
| Nonvested restricted stock at September 30, 2010 |   |   | 50,042  |   |                          | $      | 5.60 |   |

----

----

----

|                                                                                                                        |   |    | Three months ended September 30, |   |   | Nine months ended September 30, |
|-----------------------------------------------------------------------------------------------------------------------------|--------|---------|----------------------------------|--------|--------|---------------------------------|
| (In thousands, except per share amounts)                                                                                    |   |    | 2010                             |   |   |                            | 2009 |   |   |   | 2010 |   |   |   | 2009 |   |
| Net income (loss)                                                                                                           |   | $  | 726                              |   |   | $                          | (747 | ) |   | $ | 2,155 |   |   | $ | (1,215 | ) |
| Less: Preferred stock dividends and discount accretion                                                                      |   |    | 385                              |   |   |                            | 372 |   |   |   | 1,136 |   |   |   | 1,123 |   |
| Income available (loss attributable) to common shareholders                                                                 |   |  $ | 341                              |   |   | $                               | (1,119 | ) |   | $ | 1,019 |   |   | $ | (2,338 | ) |
| Weighted average common shares outstanding - Basic                                                                          |   |    | 7,176                            |   |   |                            | 7,119 |   |   |   | 7,161 |   |   |   | 7,119 |   |
| Plus:  Potential dilutive common stock equivalents                                                                |   |    | 291                              |   |   |                            | - |   |   |   | 256 |   |   |   | - |   |
| Weighted average common shares outstanding - Diluted                                                                        |   |    | 7,467                            |   |   |                            | 7,119 |   |   |   | 7,417 |   |   |   | 7,119 |   |
| Net income (loss) per common share -                                                                                   |   |    |                             |   |   |                            |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                       |   | $  | 0.05                             |   |   | $                               | (0.16 | ) |   | $ | 0.14 |   |   | $ | (0.33 | ) |
| Diluted                                                                                                                     |   |    | 0.05                             |   |   |                            | (0.16 | ) |   |   | 0.14 |   |   |   | (0.33 | ) |
| Stock options and common stock excluded from the income per share computation as their effect would have been anti-dilutive |   |    | 432                              |   |   |                            | 1,385 |   |   |   | 609 |   |   |   | 1,405 |   |

| (In thousands)                                                                                            |   | Pre-tax |    |   | Tax    |    |   | After-tax |    |
|-----------------------------------------------------------------------------------------------------------|--------|---------|---------|--------|--------|---------|--------|-----------|---------|
| Net noncredit unrealized losses on held to maturity debt securities with other-than-temporary impairment: |   |    |    |   |   |    |   |      |    |
| Balance at December 31, 2008                                                                              |   |    |    |   |   |    | $      | -         |    |
| Noncredit unrealized holding loss on securities arising during the period                                 |   | (806    | )  |   | (274   | )  |   | (532      | )  |
| Balance at September 30, 2009                                                                             |   |    |    |   |   |    | $      | (532      | )  |
|                                                                                                      |   |    |    |   |   |    |   |      |    |
|                                                                                                      |   |    |    |   |   |    |   |      |    |
| Net unrealized gains (losses) on securities:                                                              |   |    |    |   |   |    |   |      |    |
| Balance at December 31, 2008                                                                              |   |    |    |   |   |    |   | $         | (1,728  | ) |
| Unrealized holding gain on securities arising during the period                                           |   | $       | 2,956   |   |   | $       | 666    |      |    |   | 2,290 |   |
| Less: Reclassification adjustment for gains included in net income                                        |   |    | 675     |   |   |    | 226    |      |    |   | 449 |   |
| Net unrealized gain on securities arising during the period                                               |   |    | 2,281   |   |   |    | 440    |      |    |   | 1,841 |   |
| Balance at September 30, 2009                                                                             |   |    |    |   |   |    |   |      |    |   | 113 |   |
|                                                                                                      |   |    |    |   |   |    |   |      |    |   |   |   |
| Balance at December 31, 2009                                                                              |   |    |    |   |   |    |   |      |    |   | 5 |   |
| Unrealized holding gain on securities arising during the period                                           |   |    | 1,798   |   |   |    | 721    |      |    |   | 1,077 |   |
| Less: Reclassification adjustment for gains included in net income                                        |   |    | 42      |   |   |    | 14     |      |    |   | 28 |   |
| Net unrealized gain on securities arising during the period                                               |   |    | 1,756   |   |   |    | 707    |      |    |   | 1,049 |   |
| Balance at September 30, 2010                                                                             |   |    |    |   |   |    |   |      |    | $ | 1,054 |   |
|                                                                                                      |   |    |    |   |   |    |   |      |    |   |   |   |
|                                                                                                      |   |    |    |   |   |    |   |      |    |   |   |   |
| Net unrealized gains (losses) on cash flow hedges:                                                        |   |    |    |   |   |    |   |      |    |   |   |   |
| Balance at December 31, 2008                                                                              |   |    |    |   |   |    |   |      |    | $ | (628 | ) |
| Unrealized holding gain on cash flow hedges arising during the period                                     |   | $       | 137     |   |   | $       | 52     |      |    |   | 85 |   |
| Balance at September 30, 2009                                                                             |   |    |    |   |   |    |   |      |    |   | (543 | ) |
|                                                                                                      |   |    |    |   |   |    |   |      |    |   |   |   |
| Balance at December 31, 2009                                                                              |   |    |    |   |   |    |   |      |    |   | (466 | )  |
| Unrealized holding gain on cash flow hedges arising during the period                                     |   |    | 153     |   |   |    | 61     |      |    |   | 92 |   |
| Balance at September 30, 2010                                                                             |   |    |    |   |   |    |   |      |    |   | (374 | ) |
|                                                                                                      |   |    |    |   |   |    |   |      |    |   |   |   |
|                                                                                                      |   |    |    |   |   |    |   |      |    |   |   |   |
| Total Accumulated Other Comprehensive Income at September 30, 2010                                        |   |    |    |   |   |    |   |      |    | $ | 680 |   |

----

| (In thousands)                                                                |   | Pre-tax |   |    | Tax    |   |   | After-tax |   |
|-------------------------------------------------------------------------------|--------|---------|--------|---------|--------|--------|--------|-----------|--------|
| Net unrealized gains (losses) on securities:                                  |   |    |   |    |   |   |   |      |   |
| Balance at June 30, 2009                                                      |   |    |   |    |   |   |   |      | (1,156 | ) |
| Unrealized holding gain on securities arising during the period          |   |    | 2,205  |    |   |   | 831    |      |   |   | 1,374 |   |
| Less:  Reclassification adjustment for gains included in net income |   |    | 158    |    |   |   | 53     |      |   |   | 105 |   |
| Net unrealized gain on securities arising during the period              |   |    | 2,047  |    |   |   | 778    |      |   |   | 1,269 |   |
| Balance at September 30, 2009                                                 |   |    |   |    |   |   |   |      |   |   | 113 |   |
|                                                                          |   |    |   |    |   |   |   |      |   |   |   |   |
| Balance at June 30, 2010                                                      |   |    |   |    |   |   |   |      |   |   | 671 |   |
| Unrealized holding gain on securities arising during the period          |   |    | 672    |    |   |   | 266    |      |   |   | 406 |   |
| Less:  Reclassification adjustment for gains included in net income |   |    | 34     |    |   |   | 11     |      |   |   | 23 |   |
| Net unrealized gain on securities arising during the period                   |   |    | 638    |    |   |   | 255    |      |   |   | 383 |   |
| Balance at September 30, 2010                                                 |   |    |   |    |   |   |   |      |   |   | 1,054 |   |
|                                                                          |   |    |   |    |   |   |   |      |   |   |   |   |
|                                                                          |   |    |   |    |   |   |   |      |   |   |   |   |
| Net unrealized gains (losses) on cash flow hedges:                            |   |    |   |    |   |   |   |      |   |   |   |   |
| Balance at June 30, 2009                                                      |   |    |   |    |   |   |   |      |   |   | (513 | ) |
| Unrealized holding loss on cash flow hedges arising during the period         |   |    | (48    | )  |   |   | (18    | )    |   |   | (30 | )  |
| Balance at September 30, 2009                                                 |   |    |   |    |   |   |   |      |   |   | (543 | ) |
|                                                                          |   |    |   |    |   |   |   |      |   |   |   |   |
| Balance at June 30, 2010                                                      |   |    |   |    |   |   |   |      |   |   | (416 | ) |
| Unrealized holding gain on cash flow hedges arising during the period         |   |    | 70     |    |   |   | 28     |      |   |   | 42 |   |
| Balance at September 30, 2010                                                 |   |    |   |    |   |   |   |      |   |   | (374 | ) |
|                                                                          |   |    |   |    |   |   |   |      |   |   |   |   |
|                                                                          |   |    |   |    |   |   |   |      |   |   |   |   |
| Total Accumulated Other Comprehensive Income at September 30, 2010            |   |    |   |    |   |   |   |      |   |   | 680 |   |

----

| ·   | 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 agency 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 agency mortgage-backed securities, corporate debt securities, derivative contracts and loans held for sale. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 September 30, 2010 |   |
|----------------------------------------|--------|--------------------------|--------|
| (In thousands)                         |   | Level 1                  |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Financial Assets:                      |   |                     |   |   |   |   |   |   |   |   |   |   |
| Securities available for sale:         |   |                     |   |   |   |   |   |   |   |   |   |   |
| U.S. government sponsored entities     |   | $                        | -      |   |   | $ | 13,557 |   |   | $ | - |   |   | $ | 13,557 |   |
| State and political subdivisions       |   |                     | -      |   |   |   | 3,036 |   |   |   | - |   |   |   | 3,036 |   |
| Residential mortgage-backed securities |   |                     | -      |   |   |   | 90,741 |   |   |   | - |   |   |   | 90,741 |   |
| Commercial mortgage-backed securities  |   |                     | -      |   |   |   | 2,297 |   |   |   | - |   |   |   | 2,297 |   |
| Trust preferred securities             |   |                     | -      |   |   |   | 561 |   |   |   | - |   |   |   | 561 |   |
| Other equities                         |   |                     | -      |   |   |   | 1,585 |   |   |   | - |   |   |   | 1,585 |   |
| Total securities available for sale    |   |                     | -      |   |   |   | 111,777 |   |   |   | - |   |   |   | 111,777 |   |
| SBA servicing assets                   |   |                     | -      |   |   |   | - |   |   |   | 614 |   |   |   | 614 |   |
| Financial Liabilities:                 |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate swap agreements          |   |                     | -      |   |   |   | 623 |   |   |   | - |   |   |   | 623 |   |

|                                   |   | 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 |   |
| SBA servicing assets                   |   |                    | -      |   |   |   | - |   |   |   | 897 |   |   |   | 897 |   |
| Financial Liabilities:                 |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate swap agreements          |   |                    | -      |   |   |   | 777 |   |   |   | - |   |   |   | 777 |   |

|                                             |   | As of September 30, 2010      |   |
|--------------------------------------------------|--------|-------------------------------|--------|
| (In thousands)                                   |   | Securities Available for Sale |   |
| Beginning balance December 31, 2009              |   | $                             | 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 September 30, 2010                |   | $                             | -      |   |

----

|                                             |   | As of September 30, 2010      |    |
|--------------------------------------------------|--------|-------------------------------|---------|
| (In thousands)                                   |   | Securities Available for Sale |    |   | Interest Rate Swap Agreements |   |
| Beginning balance December 31, 2009              |   | $                             | 131,514 |   |   | $ | 777 |   |
| Total net gains (losses) included in:            |   |                          |    |   |   |   |   |   |
| Net income                                       |   |                          | 128     |   |   |   | - |   |
| Other comprehensive income                       |   |                          | 1,756   |   |   |   | (154 | ) |
| Purchases, sales, issuances and settlements, net |   |                          | (30,377 | )  |   |   | - |   |
| Transfers in and/or out of Level 2 (a)           |   |                          | 8,756   |   |   |   | - |   |
| Ending balance September 30, 2010                |   | $                             | 111,777 |   |   | $ | 623 |   |

|                                             |   | As of September 30, 2010 |   |
|--------------------------------------------------|--------|--------------------------|--------|
| (In thousands)                                   |   | SBA Servicing Assets     |   |
| Beginning balance December 31, 2009              |   | $                        | 897    |   |
| Total net gains (losses) included in:            |   |                     |   |   |
| Net income                                       |   |                     | -      |   |
| Other comprehensive income                       |   |                     | -      |   |
| Purchases, sales, issuances and settlements, net |   |                     | (283   | ) |
| Transfers in and/or out of Level 3               |   |                     | -      |   |
| Ending balance September 30, 2010                |   | $                        | 614    |   |

|                                             |   | As of September 30, 2009 |   |
|--------------------------------------------------|--------|-------------------------------|--------|
| (In thousands)                                   |   | SBA Servicing Assets          |   |
| Beginning balance December 31, 2008              |   | $                             | 1,503  |   |
| Total net gains (losses) included in:            |   |                          |   |   |
| Net income                                       |   |                          | -      |   |
| Other comprehensive income                       |   |                          | -      |   |
| Purchases, sales, issuances and settlements, net |   |                          | (526   | ) |
| Transfers in and/or out of Level 3               |   |                          | -      |   |
| Ending balance September 30, 2009                |   | $                             | 977    |   |

----

|                                |   | As of September 30, 2010 |   |
|-------------------------------------|--------|--------------------------|--------|
| (In thousands)                      |   | Level 1                  |   |   | Level 2 |   |   | Level 3 |   |   | Total |   | Total fair value gain (loss) during nine months ended September 30, 2010 |   |
| Financial Assets:                   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Other real estate owned ("OREO")    |   | $                        | -      |   |   | $ | - |   |   |  $ | 5,773 |   |   | $ | 5,773 |   |   | $ | - |   |
| Impaired collateral-dependent loans |   |                     | -      |   |   |  - |   |   |   | 24,998 |   |   |   | 24,998 |   |   |   | 127 |   |

|                                |   | As of December 31, 2009 |   |
|-------------------------------------|--------|-------------------------|--------|
| (In thousands)                      |   | Level 1                 |   |   | Level 2 |   |   | Level 3 |   |   | Total |   | Total fair value gain (loss) during twelve  months ended December 31, 2009 |   |
| Financial Assets:                   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Other real estate owned ("OREO")    |   | $                       | -      |   |   | $ | - |   |   |  $ | 1,530 |   |   | $ | 1,530 |   |   | $ | (150 | )  |
| Impaired collateral-dependent loans |   |                    | -      |   |   |  - |   |   |   | 21,713 |   |   |   | 21,713 |   |   |   | (1,507 | ) |

----

|                                       |   | September 30, 2010   |    |   | December 31, 2009         |   |
|--------------------------------------------|--------|----------------------|---------|--------|---------------------------|--------|
| (In thousands)                             |   | Carrying Amount |    |   | Estimated Fair Value |   |   | Carrying Amount |   |   | EstimatedFair Value |   |
| Financial assets:                          |   |                 |    |   |                      |   |   |   |   |   |   |   |
| Cash and cash equivalents                  |   | $                    | 47,307  |   |                      | $      | 47,307 |   |   | $ | 73,635 |   |   | $ | 73,635 |   |
| Securities available for sale              |   |                 | 111,777 |   |                      |   | 111,777 |   |   |   | 140,770 |   |   |   | 140,770 |   |
| Securities held to maturity                |   |                 | 23,043  |   |                      |   | 23,745 |   |   |   | 28,252 |   |   |   | 28,406 |   |
| Loans, net of allowance for loan losses    |   |                 | 615,353 |   |                      |   | 615,374 |   |   |   | 643,174 |   |   |   | 640,246 |   |
| Federal Home Loan Bank stock               |   |                 | 4,656   |   |                      |   | 4,656 |   |   |   | 4,677 |   |   |   | 4,677 |   |
| SBA servicing assets                       |   |                 | 614     |   |                      |   | 614 |   |   |   | 897 |   |   |   | 897 |   |
| Accrued interest receivable                |   |                 | 3,750   |   |                      |   | 3,750 |   |   |   | 4,225 |   |   |   | 4,225 |   |
| Financial liabilities:                     |   |                 |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                   |   |                 | 670,158 |   |                      |   | 657,834 |   |   |   | 758,239 |   |   |   | 739,909 |   |
| Borrowed funds and subordinated debentures |   |                 | 101,509 |   |                      |   | 115,408 |   |   |   | 100,465 |   |   |   | 113,227 |   |
| Accrued interest payable                   |   |                 | 618     |   |                      |   | 618 |   |   |   | 710 |   |   |   | 710 |   |
| Interest rate swap agreements              |   |                 | 623     |   |                      |   | 623 |   |   |   | 777 |   |   |   | 777 |   |

----

|                                   |   | September 30, 2010 |    |   | December 31, 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       |   | $                  | 13,417  |   |                   | $      | 140 |   |   | $ | - |   |   | $ | 13,557 |   |   | $ | 16,198 |   |   | $  | 20 |   |   | $ |  (211 | )  |   | $ | 16,007 |   |
| State and political subdivisions       |   |               | 2,946   |   |                   |   | 90 |   |   |   | - |   |   |   | 3,036 |   |   |   | 2,946 |   |   |   | 9 |   |   |   | (13 | ) |   |   | 2,942 |   |
| Residential mortgage-backed securities |   |               | 88,773  |   |                   |   | 2,306 |   |   |   | (338 | ) |   |   | 90,741 |   |   |   | 115,397 |   |   |   | 1,849 |   |   |   | (1,021 | ) |   |   | 116,225 |   |
| Commercial mortgage-backed securities  |   |               | 2,306   |   |                   |   | - |   |   |   | (9 | ) |   |   | 2,297 |   |   |   | 4,651 |   |   |   | - |   |   |   | (24 | )  |   |   | 4,627 |   |
| Trust preferred securities             |   |               | 977     |   |                   |   | - |   |   |   | (416 | ) |   |   | 561 |   |   |   | 976 |   |   |   | - |   |   |   | (586 | ) |   |   | 390 |   |
| Other equities                         |   |               | 1,610   |   |                   |   | 1 |   |   |   | (26 | ) |   |   | 1,585 |   |   |   | 610 |   |   |   | - |   |   |   | (31 | ) |   |   | 579 |   |
| Total securities available for sale    |   | $                  | 110,029 |   |                   | $      | 2,537 |   |   | $ | (789 | ) |   | $ | 111,777 |   |   | $ | 140,778 |   |   | $  | 1,878 |   |   | $ | (1,886 | ) |   | $ | 140,770 |   |
| Held to maturity:                      |   |               |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US Government sponsored entities       |   | $                  | 2,000   |   |                   | $      | 7 |   |   | $ | - |   |   | $ | 2,007 |   |   | $ | 2,000 |   |   | $  | 76 |   |   | $ | - |   |   | $ | 2,076 |   |
| State and political subdivisions       |   |               | 862     |   |                   |   | 15 |   |   |   | - |   |   |   | 877 |   |   |   | 3,156 |   |   |   | 4 |   |   |   | (92 | ) |   |   | 3,068 |   |
| Residential mortgage-backed securities |   |               | 15,982  |   |                   |   | 461 |   |   |   | (283 | ) |   |   | 16,160 |   |   |   | 18,700 |   |   |   | 545 |   |   |   | (527 | ) |   |   | 18,718 |   |
| Commercial mortgage-backed securities  |   |               | 4,149   |   |                   |   | 539 |   |   |   | - |   |   |   | 4,688 |   |   |   | 4,346 |   |   |   | 185 |   |   |   | - |   |   |   | 4,531 |   |
| Trust preferred securities             |   |               | 50      |   |                   |   | - |   |   |   | (37 | ) |   |   | 13 |   |   |   | 50 |   |   |   | - |   |   |   | (37 | ) |   |   | 13 |   |
| Total securities held to maturity      |   | $                  | 23,043  |   |                   | $      | 1,022 |   |   | $ | (320 | ) |   | $ | 23,745 |   |   | $ | 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                 |   | $               | -      |   |                             |   | -          | %                                 |   | $      | 3,398           |   |   |                 | 1.54   | % |   | $ | 7,123 |   |   |   | 2.88 | % |   | $ | 3,036 |   |   |   | 3.73 | % |   | $ | 13,557 |   |   |   | 2.84 | % |
| State and political subdivisions                 |   |            | -      |   |                             |   | -          |                              |   |   | -               |   |   |                 | -      |   |   |   | 1,187 |   |   |   | 3.83 |   |   |   | 1,849 |   |   |   | 3.91 |   |   |   | 3,036 |   |   |   | 3.91 |   |
| Residential mortgage-backed securities           |   |            | 66     |   |                             |   | 2.07       |                              |   |   | 1,259           |   |   |                 | 3.41   |   |   |   | 6,780 |   |   |   | 4.66 |   |   |   | 82,636 |   |   |   | 3.75 |   |   |   | 90,741 |   |   |   | 3.81 |   |
| Commercial mortgage-backed securities            |   |            | -      |   |                             |   | -          |                              |   |   | -               |   |   |                 | -      |   |   |   | - |   |   |   | - |   |   |   | 2,297 |   |   |   | 6.10 |   |   |   | 2,297 |   |   |   | 6.10 |   |
| Trust preferred securities                       |   |            | -      |   |                             |   | -          |                              |   |   | -               |   |   |                 | -      |   |   |   | - |   |   |   | - |   |   |   | 561 |   |   |   | 1.06 |   |   |   | 561 |   |   |   | 1.06 |   |
| Other equities                                   |   |            | -      |   |                             |   | -          |                              |   |   | -               |   |   |                 | -      |   |   |   | - |   |   |   | - |   |   |   | 1,585 |   |   |   | 3.20 |   |   |   | 1,585 |   |   |   | 3.20 |   |
|    Total securities available for sale |   | $               | 66     |   |                             |   | 2.07  | %                                 |   | $      | 4,657           |   |   |                 | 2.05   | % |   | $ | 15,090 |   |   |   | 3.45 | % |   | $ | 91,964 |   |   |   | 3.78 | % |   | $ | 111,777 |   |   |   | 3.72 | % |
|  Held to maturity at cost:                  |   |            |   |   |                             |   |       |                              |   |   |            |   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US Government sponsored entities                 |   | $               | 2,000  |   |                             |   | 4.94       | %                                 |   | $      | -               |   |   |                 | -      | % |   | $ | - |   |   |   | - | % |   | $ | - |   |   |   | - | % |   | $ | 2,000 |   |   |   | 4.94 | % |
| State and political subdivisions                 |   |            | -      |   |                             |   | -          |                              |   |   | -               |   |   |                 | -      |   |   |   | - |   |   |   | - |   |   |   | 862 |   |   |   | 4.34 |   |   |   | 862 |   |   |   | 4.34 |   |
| Residential mortgage-backed securities           |   |            | -      |   |                             |   | -          |                              |   |   | 566             |   |   |                 | 4.29   |   |   |   | 4,288 |   |   |   | 4.78 |   |   |   | 11,128 |   |   |   | 4.63 |   |   |   | 15,982 |   |   |   | 4.66 |   |
| Commercial mortgage-backed securities            |   |            | -      |   |                             |   | -          |                              |   |   | -               |   |   |                 | -      |   |   |   | - |   |   |   | - |   |   |   | 4,149 |   |   |   | 5.30 |   |   |   | 4,149 |   |   |   | 5.30 |   |
| Trust preferred securities                       |   |            | -      |   |                             |   | -          |                              |   |   | -               |   |   |                 | -      |   |   |   | - |   |   |   | - |   |   |   | 50 |   |   |   | - |   |   |   | 50 |   |   |   | - |   |
|    Total securities held to maturity   |   | $               | 2,000  |   |                             |   | 4.94       | %                                 |   | $      | 566             |   |   |                 | 4.29   | % |   | $ | 4,288 |   |   |   | 4.78 | % |   | $ | 16,189 |   |   |   | 4.78 | % |   | $ | 23,043 |   |   |   | 4.78 | % |

----

|                                   |   | September 30, 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:                    |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government sponsored entities     |   |                           | 2      |   |   | $ | - |   |   | $ | - |   |   | $ | 75 |   |   | $ | - |   |   | $ | 75 |   |   | $ | - |   |
| Residential mortgage-backed securities |   |                           | 13     |   |   |   | 6,816 |   |   |   | (49 | ) |   |   | 3,801 |   |   |   | (289 | ) |   |   | 10,617 |   |   |   | (338 | ) |
| Commercial mortgage-backed securities  |   |                           | 2      |   |   |   | 306 |   |   |   | (4 | ) |   |   | 1,991 |   |   |   | (5 | ) |   |   | 2,297 |   |   |   | (9 | ) |
| Trust preferred securities             |   |                           | 1      |   |   |   | - |   |   |   | - |   |   |   | 561 |   |   |   | (416 | ) |   |   | 561 |   |   |   | (416 | ) |
| Other equities                         |   |                           | 3      |   |   |   | - |   |   |   | - |   |   |   | 584 |   |   |   | (26 | ) |   |   | 584 |   |   |   | (26 | ) |
| Total temporarily impaired investments |   |                           | 21     |   |   | $ | 7,122 |   |   | $ | (53 | ) |   | $ | 7,012 |   |   | $ | (736 | ) |   | $ | 14,134 |   |   | $ | (789 | ) |
| Held to maturity:                      |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential mortgage-backed securities |   |                           | 5      |   |   | $ | 1,143 |   |   | $ |  (5 | ) |   | $ | 3,244 |   |   | $ | (278 | ) |   | $ | 4,387 |   |   | $ | (283 | ) |
| Trust preferred securities             |   |                           | 2      |   |   |   | - |   |   |   | - |   |   |   | 13 |   |   |   | (37 | ) |   |   | 13 |   |   |   | (37 | ) |
| Total temporarily impaired investments |   |                           | 7      |   |   | $ | 1,143 |   |   | $ | (5 | ) |   | $ | 3,257 |   |   | $ | (315 | ) |   | $ | 4,400 |   |   | $ | (320 | ) |

|                                   |   | December 31, 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 | ) |

----

| ·   | 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 3.50 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 80.25 percent to 87.46 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. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                  |   | For the three months ended September 30,  |     |   | For the nine months ended September 30, |   |
|---------------------------------------------------------------------------------------|--------|------------------------------------------------|----------|--------|-----------------------------------------|--------|
| (In thousands)                                                                        |   |                                           | 2010     |   |                                    |   | 2009 |   |   | 2010 |   |   | 2009 |   |
| Available for sale:                                                                   |   |                                           |     |   |                                    |   |   |   |   |   |   |   |   |   |
| Realized gains                                                                        |   | $                                         |  35 |   |                                    | $      | 158 |   |   | $ | 278 |   |   | $ | 675 |   |
| Realized losses                                                                       |   |                                           |  -  |   |                                    |   |  - |   |   |   | (150 | ) |   |   | - |   |
| Total securities available for sale                                                   |   | $                                         |  35 |   |                                    | $      | 158 |   |   | $ | 128 |   |   | $ | 675 |   |
|                                                                                  |   |                                           |     |   |                                    |   |   |   |   |   |   |   |   |   |   |   |
| Held to maturity:                                                                     |   |                                           |     |   |                                    |   |   |   |   |   |   |   |   |   |   |   |
| Realized gains                                                                        |   | $                                         |  -  |   |                                    | $      |  - |   |   | $ | 4 |   |   | $ | - |   |
| Realized losses                                                                       |   |                                           |  -  |   |                                    |   |  - |   |   |   | (90 | ) |   |   | - |   |
| Other than temporary impairment charges                                               |   |                                           | -        |   |                                    |   | - |   |   |   |  - |   |   |   |  (1,749 | )  |
| Total securities held to maturity                                                     |   | $                                         | -        |   |                                    | $      | - |   |   | $ | (86 | ) |   | $ | (1,749 | )  |
| Net realized gains on sales of securities and other-than-temporary impairment charges |   | $                                              |  35 |   |                                    | $      | 158 |   |   | $ | 42 |   |   | $ | (1,074 | )  |

----

|                         |   |    | For the three months ended September 30, |   |   | For the nine months ended September 30, |         |
|------------------------------|--------|---------|------------------------------------------|--------|--------|-----------------------------------------|--------------|
| (In thousands)               |   |    | 2010                                     |   |   |                                    | 2009         |   |   | 2010 |   |   | 2009 |   |
| Balance, beginning of period |   | $  | 13,946                                   |   |   | $                                       | 10,665       |   |   | $ | 13,842 |   |   | $ | 10,326 |   |
| Provision charged to expense |   |    | 1,500                                    |   |   |                                    | 3,000        |   |   |   | 4,500 |   |   |   | 6,000 |   |
| Charge-offs                  |   |    | 1,482                                    |   |   |                                    |  1,258  |   |   |   | 4,489 |   |   |   | 4,147 |   |
| Recoveries                   |   |    | 199                                      |   |   |                                    |  38     |   |   |   | 310 |   |   |   | 266 |   |
| Net charge-offs              |   |    | 1,283                                    |   |   |                                    |  1,220  |   |   |   | 4,179 |   |   |   | 3,881 |   |
| Balance, end of period       |   | $  | 14,163                                   |   |   | $                                       |  12,445 |   |   | $ | 14,163 |   |   | $ | 12,445 |   |

| (In thousands)                      |   |    | September 30, 2010 |   |   |   | December 31, 2009 |   |
|-------------------------------------|--------|---------|--------------------|--------|--------|--------|-------------------|--------|
| Nonperforming loans                 |   | $  | 27,304             |   |   | $      | 25,496            |   |
| Troubled debt restructurings        |   |    | 7,909              |   |   |   | 6,576             |   |
| Total impaired loans                |   |    | 35,213             |   |   |   | 32,072            |   |
|                                |   |    |               |   |   |   |              |   |
| Year-to-date average impaired loans |   | $  | 32,047             |   |   | $      | 26,775            |   |

----

ITEM 2.

| ·   | Net income increased $1.5 million. |
|--------------------|-----------------------------------------|

| ·   | Net interest margin expanded due to reduced funding costs as higher-priced time deposits rolled off. |
|--------------------|------------------------------------------------------------------------------------------------------|

| ·   | The provision for loan losses declined. |
|--------------------|-----------------------------------------|

| ·   | Noninterest income increased primarily due to increased gains on the sale of SBA and residential mortgage loans. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

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

| ·   | Net income increased $3.4 million. |
|--------------------|------------------------------------|

| ·   | Net interest margin widened due to reduced funding costs as higher-priced time deposits rolled off. |
|--------------------|-----------------------------------------------------------------------------------------------------|

| ·   | The provision for loan losses declined. |
|--------------------|-----------------------------------------|

| ·   | Noninterest income increased primarily due to OTTI charges recorded during the nine months ended September 30, 2009, compared to no OTTI charges recorded in 2010. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                                                |   |    | For the three months ended September 30, |    |   | For the nine months ended September 30, |        |
|-----------------------------------------------------|--------|---------|------------------------------------------|---------|--------|-----------------------------------------|-------------|
|                                                |   |    | 2010                                |    |   |                                    | 2009        |   |   | 2010 |   |   | 2009 |   |
| Net income (loss) per common share - Basic (1) |   | $  | 0.05                                     |    |   | $                                       | (0.16       | ) |   | $ | 0.14 |   |   | $ | (0.33 | )  |
| Net income (loss) per common share - Diluted (1)    |   | $  | 0.05                                     |    |   | $                                       | (0.16       | ) |   | $ | 0.14 |   |   | $ | (0.33 | ) |
| Return (loss) on average assets                     |   |    | 0.34                                     | %  |   |                                    | (0.33       | )% |   |   | 0.33 | % |   |   | (0.18 | )% |
| Return (loss) on average equity (2)                 |   |    | 2.66                                     | %       |   |                                    | (9.14       | )% |   |   | 2.72 | % |   |   | (6.38 | )% |
| Efficiency ratio                                    |   |    | 72.47                                    | %  |   |                                    |  77.72 | % |   |   | 71.72 | % |   |   | 77.12 | % |

----

| ·   | Of the $1.5 million decrease in interest income on a tax-equivalent basis, $736 thousand was attributed to reduced yields on average interest-earning assets and $735 thousand was attributable to the decrease in volume of average interest-earning assets.                                                         |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | The average volume of interest-earning assets decreased $55.6 million to $806.5 million for the third quarter of 2010 compared to $862.1 million for the same period in 2009. This was due primarily to a $28.9 million decrease in average loans and a $24.8 million decrease in average investment securities. |

| ·   | The yield on interest-earning assets decreased 34 basis points to 5.30 percent for the third quarter of 2010 when compared to the third quarter of 2009, due to continued re-pricing in a lower overall 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 SBA 504 loans. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Of the $2.0 million decrease in interest expense, $1.3 million was attributed to a decrease in the rates paid on interest-bearing liabilities and $708 thousand was due to the decrease in the volume of average interest-bearing liabilities.                                                                                                                                  |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Interest-bearing liabilities averaged $692.0 million for the third quarter of 2010, a decrease of $59.7 million or 7.9 percent, compared to the third quarter of 2009.  The decrease in interest-bearing liabilities was a result of a decrease in average time deposits, partially offset by increases in all other deposit categories and borrowed funds. |

| ·   | The average cost of interest-bearing liabilities decreased 91 basis points to 1.89 percent, primarily due to the repricing of deposits in a lower interest rate environment.  The cost of interest-bearing deposits decreased 108 basis points to 1.51 percent for the third quarter of 2010 and the cost of borrowed funds and subordinated debentures decreased 13 basis points to 4.08 percent. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | 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 interest-bearing demand deposits.                                                                                                                                                                                                                                              |

| ·   | Of the $4.2 million decrease in interest income on a tax-equivalent basis, $2.3 million was attributed to reduced yields on average interest-earning assets and $1.9 million was attributable to the decrease in volume of average interest-earning assets.                                                                                                                                                                                  |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | The average volume of interest-earning assets decreased $30.5 million to $829.7 million for the nine months ended September 30, 2010, compared to $860.3 million for the same period in 2009. This was due primarily to a $25.8 million decrease in average loans and a $20.0 million decrease in average investment securities, partially offset by a $15.8 million increase in federal funds sold and interest-bearing deposits. |

| ·   | The yield on interest-earning assets decreased 46 basis points to 5.35 percent for the nine months ended September 30, 2010 when compared to the same period in 2009, due to continued re-pricing in a lower overall interest rate environment.  Yields on most earning assets, particularly those with variable rates, fell due to these lower market rates.  |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Of the $5.8 million decrease in interest expense, $3.3 million was attributed to a decrease in the rates paid on interest-bearing liabilities and $2.4 million was due to a lower volume of average interest-bearing liabilities.                                                                                                                                                             |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Interest-bearing liabilities averaged $719.3 million for the nine months ended September 30, 2010 , a decrease of $33.0 million or 4.4 percent, compared to the same period in 2009.  The decrease in interest-bearing liabilities was a result of a decrease in average time deposits and borrowed funds, partially offset by increases in all other deposit categories. |

| ·   | The average cost of interest-bearing liabilities decreased 94 basis points to 2.04 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 during the nine months ended 2009 and not in 2010.  The cost of interest-bearing deposits decreased 114 basis points to 1.69 percent for the nine months ended September 30, 2010 and the cost of borrowed funds and subordinated debentures increased 39 basis points to 4.18 percent. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

----

|                                             |   | For the three months ended September 30, |    |
|--------------------------------------------------|--------|------------------------------------------|---------|
|                                             |   | 2010                                     |    |   | 2009 |   |
|                                             |   | Average                                  |    |   |   |   |   | Rate/ |   |   | Average |   |   |   |   |   | Rate/ |   |
|                                             |   | Balance                                  |    |   | Interest |   |   | Yield |   |   | Balance |   |   | Interest |   |   | Yield |   |
| ASSETS                                           |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                         |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold and interest-bearing deposits |   | $                                        | 30,939  |   |   | $ | 21 |   |   |   | 0.27 | % |   | $ | 32,940 |   |   | $ | 32 |   |   |   | 0.39 | % |
| Federal Home Loan Bank stock                     |   |                                     | 4,656   |   |   |   | 65 |   |   |   | 5.54 |   |   |   | 4,677 |   |   |   | 101 |   |   |   | 8.57 |   |
| Securities:                                      |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available for sale                               |   |                                     | 115,876 |   |   |   | 1,085 |   |   |   | 3.75 |   |   |   | 131,360 |   |   |   | 1,495 |   |   |   | 4.55 |   |
| Held to maturity                                 |   |                                     | 22,148  |   |   |   | 275 |   |   |   | 4.97 |   |   |   | 31,418 |   |   |   | 407 |   |   |   | 5.18 |   |
| Total securities (A)                             |   |                                     | 138,024 |   |   |   | 1,360 |   |   |   | 3.94 |   |   |   | 162,778 |   |   |   | 1,902 |   |   |   | 4.67 |   |
| Loans, net of unearned discount:                 |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SBA                                              |   |                                     | 94,723  |   |   |   | 1,225 |   |   |   | 5.17 |   |   |   | 102,691 |   |   |   | 1,498 |   |   |   | 5.83 |   |
| SBA 504                                          |   |                                     | 65,506  |   |   |   | 1,093 |   |   |   | 6.62 |   |   |   | 71,764 |   |   |   | 1,147 |   |   |   | 6.34 |   |
| Commercial                                       |   |                                     | 283,267 |   |   |   | 4,454 |   |   |   | 6.24 |   |   |   | 301,010 |   |   |   | 4,973 |   |   |   | 6.55 |   |
| Residential mortgage                             |   |                                     | 132,031 |   |   |   | 1,808 |   |   |   | 5.48 |   |   |   | 123,786 |   |   |   | 1,772 |   |   |   | 5.73 |   |
| Consumer                                         |   |                                     | 57,315  |   |   |   | 719 |   |   |   | 4.98 |   |   |   | 62,459 |   |   |   | 791 |   |   |   | 5.02 |   |
| Total loans (A),(B)                              |   |                                     | 632,842 |   |   |   | 9,299 |   |   |   | 5.85 |   |   |   | 661,710 |   |   |   | 10,181 |   |   |   | 6.12 |   |
| Total interest-earning assets                    |   |                                     | 806,461 |   |   | $ | 10,745 |   |   |   | 5.30 | % |   |   | 862,105 |   |   | $ | 12,216 |   |   |   | 5.64 | % |
| Noninterest-earning assets:                      |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and due from banks                          |   |                                     | 20,469  |   |   |   |   |   |   |   |   |   |   |   | 18,502 |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses                        |   |                                     | (14,725 | )  |   |   |   |   |   |   |   |   |   |   | (11,478 | )  |   |   |   |   |   |   |   |   |
| Other assets                                     |   |                                     | 41,374  |   |   |   |   |   |   |   |   |   |   |   | 34,355 |   |   |   |   |   |   |   |   |   |
| Total noninterest-earning assets                 |   |                                     | 47,118  |   |   |   |   |   |   |   |   |   |   |   | 41,379 |   |   |   |   |   |   |   |   |   |
| Total Assets                                     |   | $                                        | 853,579 |   |   |   |   |   |   |   |   |   |   | $ | 903,484 |   |
|                                             |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                             |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY       |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                    |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits                 |   | $                                        | 95,348  |   |   | $ | 148 |   |   |   | 0.62 | % |   | $ | 88,284 |   |   | $ | 264 |   |   |   | 1.19 | % |
| Savings deposits                                 |   |                                     | 290,017 |   |   |   | 639 |   |   |   | 0.87 |   |   |   | 239,427 |   |   |   | 1,032 |   |   |   | 1.71 |   |
| Time deposits                                    |   |                                     | 203,346 |   |   |   | 1,450 |   |   |   | 2.83 |   |   |   | 323,484 |   |   |   | 2,950 |   |   |   | 3.62 |   |
| Total interest-bearing deposits                  |   |                                     | 588,711 |   |   |   | 2,237 |   |   |   | 1.51 |   |   |   | 651,195 |   |   |   | 4,246 |   |   |   | 2.59 |   |
| Borrowed funds and subordinated debentures       |   |                                     | 103,296 |   |   |   | 1,077 |   |   |   | 4.08 |   |   |   | 100,465 |   |   |   | 1,081 |   |   |   | 4.21 |   |
| Total interest-bearing liabilities               |   |                                     | 692,007 |   |   |   | 3,314 |   |   |   | 1.89 |   |   |   | 751,660 |   |   |   | 5,327 |   |   |   | 2.80 |   |
| Noninterest-bearing liabilities:                 |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                  |   |                                     | 87,644  |   |   |   |   |   |   |   |   |   |   |   | 79,965 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                |   |                                     | 4,115   |   |   |   |   |   |   |   |   |   |   |   | 4,945 |   |   |   |   |   |   |   |   |   |
| Total noninterest-bearing liabilities            |   |                                     | 91,759  |   |   |   |   |   |   |   |   |   |   |   | 84,910 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                       |   |                                     | 69,813  |   |   |   |   |   |   |   |   |   |   |   | 66,914 |   |   |   |   |   |   |   |   |   |
| Total Liabilities and Shareholders’ Equity |   | $                                        | 853,579 |   |   |   |   |   |   |   |   |   |   | $ | 903,484 |   |
| Net interest spread                              |   |                                     |    |   |   |   | 7,431 |   |   |   | 3.41 | % |   |   |   |   |   |   | 6,889 |   |   |   | 2.84 | % |
| Tax-equivalent basis adjustment                  |   |                                     |    |   |   |   | (19 | )  |   |   |   |   |   |   |   |   |   |   | (31 | )  |   |   |   |   |
| Net interest income                              |   |                                     |    |   |   | $ | 7,412  |   |   |   |   |   |   |   |   |   |   | $ |  6,858 |   |   |   |   |   |
| Net interest margin                              |   |                                     |    |   |   |   |   |   |   |   | 3.66 | % |   |   |   |   |   |   |   |   |   |   | 3.17 | % |

----

|                                             |   | For the nine months ended September 30, |    |
|--------------------------------------------------|--------|-----------------------------------------|---------|
|                                             |   | 2010                                    |    |   | 2009 |   |
|                                             |   | Average                                 |    |   |   |   |   | Rate/ |   |   | Average |   |   |   |   |   | Rate/ |   |
|                                             |   | Balance                                 |    |   | Interest |   |   | Yield |   |   | Balance |   |   | Interest |   |   | Yield |   |
| ASSETS                                           |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                         |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold and interest-bearing deposits |   | $                                       | 35,037  |   |   | $ | 76 |   |   |   | 0.29 | % |   | $ |      19,222 |   |   | $ | 78 |   |   |   | 0.54 | % |
| Federal Home Loan Bank stock                     |   |                                    | 4,663   |   |   |   | 148 |   |   |   | 4.24 |   |   |   | 5,190 |   |   |   | 219 |   |   |   | 5.64 |   |
| Securities:                                      |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available for sale                               |   |                                    | 122,445 |   |   |   | 3,446 |   |   |   | 3.75 |   |   |   | 133,446 |   |   |   | 4,709 |   |   |   | 4.71 |   |
| Held to maturity                                 |   |                                    | 24,238  |   |   |   | 885 |   |   |   | 4.87 |   |   |   | 33,277 |   |   |   | 1,222 |   |   |   | 4.90 |   |
| Total securities (A)                             |   |                                    | 146,683 |   |   |   | 4,331 |   |   |   | 3.94 |   |   |   | 166,723 |   |   |   | 5,931 |   |   |   | 4.74 |   |
| Loans, net of unearned discount:                 |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SBA                                              |   |                                    | 97,013  |   |   |   | 3,977 |   |   |   | 5.47 |   |   |   | 103,321 |   |   |   | 4,668 |   |   |   | 6.02 |   |
| SBA 504                                          |   |                                    | 67,405  |   |   |   | 3,270 |   |   |   | 6.49 |   |   |   | 74,266 |   |   |   | 3,663 |   |   |   | 6.59 |   |
| Commercial                                       |   |                                    | 286,978 |   |   |   | 13,546 |   |   |   | 6.31 |   |   |   | 303,234 |   |   |   | 15,040 |   |   |   | 6.63 |   |
| Residential mortgage                             |   |                                    | 133,331 |   |   |   | 5,729 |   |   |   | 5.73 |   |   |   | 125,667 |   |   |   | 5,419 |   |   |   | 5.75 |   |
| Consumer                                         |   |                                    | 58,595  |   |   |   | 2,174 |   |   |   | 4.96 |   |   |   | 62,630 |   |   |   | 2,383 |   |   |   | 5.09 |   |
| Total loans (A),(B)                              |   |                                    | 643,322 |   |   |   | 28,696 |   |   |   | 5.96 |   |   |   | 669,118 |   |   |   | 31,173 |   |   |   | 6.22 |   |
| Total interest-earning assets                    |   |                                    | 829,705 |   |   | $ | 33,251 |   |   |   | 5.35 | % |   |   | 860,253 |   |   | $ | 37,401 |   |   |   | 5.81 | % |
| Noninterest-earning assets:                      |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and due from banks                          |   |                                    | 21,458  |   |   |   |   |   |   |   |   |   |   |   | 18,838 |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses                        |   |                                    | (14,662 | )  |   |   |   |   |   |   |   |   |   |   | (11,173 | )  |   |   |   |   |   |   |   |   |
| Other assets                                     |   |                                    | 41,521  |   |   |   |   |   |   |   |   |   |   |   | 33,409 |   |   |   |   |   |   |   |   |   |
| Total noninterest-earning assets                 |   |                                    | 48,317  |   |   |   |   |   |   |   |   |   |   |   | 41,074 |   |   |   |   |   |   |   |   |   |
| Total Assets                                     |   | $                                       | 878,022 |   |   |   |   |   |   |   |   |   |   | $ | 901,327 |   |
|                                             |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                             |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY       |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                    |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits                 |   | $                                       | 99,323  |   |   | $ | 593 |   |   |   | 0.80 | % |   | $ | 86,232 |   |   | $ | 801 |   |   |   | 1.24 | % |
| Savings deposits                                 |   |                                    | 290,606 |   |   |   | 2,268 |   |   |   | 1.04 |   |   |   | 192,559 |   |   |   | 2,588 |   |   |   | 1.80 |   |
| Time deposits                                    |   |                                    | 227,438 |   |   |   | 4,952 |   |   |   | 2.91 |   |   |   | 357,073 |   |   |   | 10,084 |   |   |   | 3.78 |   |
| Total interest-bearing deposits                  |   |                                    | 617,367 |   |   |   | 7,813 |   |   |   | 1.69 |   |   |   | 635,864 |   |   |   | 13,473 |   |   |   | 2.83 |   |
| Borrowed funds and subordinated debentures       |   |                                    | 101,911 |   |   |   | 3,232 |   |   |   | 4.18 |   |   |   | 116,427 |   |   |   | 3,344 |   |   |   | 3.79 |   |
| Total interest-bearing liabilities               |   |                                    | 719,278 |   |   |   | 11,045 |   |   |   | 2.04 |   |   |   | 752,291 |   |   |   | 16,817 |   |   |   | 2.98 |   |
| Noninterest-bearing liabilities:                 |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                  |   |                                    | 85,876  |   |   |   |   |   |   |   |   |   |   |   | 77,730 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                |   |                                    | 4,166   |   |   |   |   |   |   |   |   |   |   |   | 4,297 |   |   |   |   |   |   |   |   |   |
| Total noninterest-bearing liabilities            |   |                                    | 90,042  |   |   |   |   |   |   |   |   |   |   |   | 82,027 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                       |   |                                    | 68,702  |   |   |   |   |   |   |   |   |   |   |   | 67,009 |   |   |   |   |   |   |   |   |   |
| Total Liabilities and Shareholders’ Equity |   | $                                       | 878,022 |   |   |   |   |   |   |   |   |   |   | $ | 901,327 |   |
| Net interest spread                              |   |                                    |    |   |   |   | 22,206 |   |   |   | 3.31 | % |   |   |   |   |   |   | 20,584 |   |   |   | 2.83 | % |
| Tax-equivalent basis adjustment                  |   |                                    |    |   |   |   | (68 | )  |   |   |   |   |   |   |   |   |   |   | (94 | )  |   |   |   |   |
| Net interest income                              |   |                                    |    |   |   | $ | 22,138 |   |   |   |   |   |   |   |   |   |   | $ | 20,490 |   |   |   |   |   |
| Net interest margin                              |   |                                    |    |   |   |   |   |   |   |   | 3.58 | % |   |   |   |   |   |   |   |   |   |   | 3.20 | % |

----

|                                             |   | Three months ended September 30, 2010 versus September 30, 2009 |   |    | Nine months ended September 30, 2010 versus September 30, 2009 |    |
|--------------------------------------------------|--------|-----------------------------------------------------------------|--------|---------|----------------------------------------------------------------|---------|
|                                             |   | 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 |   | $                                                          | (2     | )  |                                                           | $  | (9 | )  |   | $  | (11 | )  |   | $ | 45 |   |   | $ | (47 | ) |   | $ | (2 | ) |
| Federal Home Loan Bank stock                     |   |                                                            | -      |    |                                                           |    | (36 | )  |   |   | (36 | )  |   |   | (21 | ) |   |   | (50 | )  |   |   | (71 | )  |
| Investment securities                            |   |                                                            | (280   | )  |                                                           |    | (262 | )  |   |   | (542 | )  |   |   | (694 | )  |   |   | (906 | ) |   |   | (1,600 | ) |
| Net loans                                        |   |                                                            | (453   | )  |                                                           |    | (429 | )  |   |   | (882 | )  |   |   | (1,221 | )  |   |   | (1,256 | ) |   |   | (2,477 | ) |
| Total interest income                            |   | $                                                          | (735   | )  |                                                           | $  | (736 | )  |   | $  | (1,471 | )  |   | $ | (1,891 | )  |   | $ | (2,259 | ) |   | $ | (4,150 | ) |
| Interest Expense:                                |   |                                                            |   |    |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits                 |   | $                                                          | 20     |    |                                                           | $  | (136 | )  |   | $  | (116 | )  |   | $ | 108 |   |   | $ | (316 | ) |   | $ | (208 | ) |
| Savings deposits                                 |   |                                                            | 187    |    |                                                           |    | (580 | )  |   |   | (393 | )  |   |   | 1,022 |   |   |   | (1,342 | ) |   |   | (320 | ) |
| Time deposits                                    |   |                                                            | (945   | )  |                                                           |    | (555 | )  |   |   | (1,500 | )  |   |   | (3,141 | )  |   |   | (1,991 | ) |   |   | (5,132 | ) |
| Total deposits                                   |   |                                                            | (738   | )  |                                                           |    | (1,271 | )  |   |   | (2,009 | )  |   |   | (2,011 | ) |   |   | (3,649 | ) |   |   | (5,660 | ) |
| Borrowed funds and subordinated debentures       |   |                                                            | 30     |    |                                                           |    | (34 | )  |   |   | (4 | )  |   |   | (438 | )  |   |   | 326 |   |   |   | (112 | ) |
| Total interest expense                           |   |                                                            | (708   | )  |                                                           |    | (1,305 | )  |   |   | (2,013 | )  |   |   | (2,449 | )  |   |   | (3,323 | ) |   |   | (5,772 | ) |
| Net interest income – fully tax-equivalent |   | $                                                          | (27    | )       |                                                           | $  | 569 |   |   |   | 542 |   |   | $ | 558 |   |   | $ | 1,064 |   |   |   | 1,622 |   |
| Decrease in tax-equivalent adjustment            |   |                                                            |   |    |                                                           |    |   |   |   |   |  12 |   |   |   |   |   |   |   |   |   |   |   | 26 |   |
| Net interest income                              |   |                                                            |   |    |                                                           |    |   |   |   | $ |  554 |   |   |   |   |   |   |   |   |   |   | $ | 1,648 |   |

|                                                      |   |    | For the three months ended September 30, |   |   | For the nine months ended September 30, |   |
|-----------------------------------------------------------|--------|---------|------------------------------------------|--------|--------|-----------------------------------------|--------|
| (In thousands)                                            |   |    | 2010                                     |   |   |                                    | 2009   |   |   | 2010 |   |   | 2009 |   |
| Branch fee income                                         |   | $  | 359                                      |   |   | $                                       | 373    |   |   | $ | 1,051 |   |   | $ | 1,038 |   |
| Service and loan fee income                               |   |    | 251                                      |   |   |                                    | 398    |   |   |   | 705 |   |   |   | 946 |   |
| Gain on sale of SBA loans held for sale, net              |   |    | 269                                      |   |   |                                    | -      |   |   |   | 416 |   |   |   | 29 |   |
| Gain on sale of mortgage loans                            |   |    | 247                                      |   |   |                                    | 71     |   |   |   | 504 |   |   |   | 184 |   |
| Bank owned life insurance                                 |   |    | 79                                       |   |   |                                    | 56     |   |   |   | 230 |   |   |   | 166 |   |
| Net other-than-temporary impairment charges on securities |   |    | -                                        |   |   |                                    | -      |   |   |   | -  |   |   |   |  (1,749 | )  |
| Net security gains                                        |   |    | 35                                       |   |   |                                    | 158    |   |   |   | 42 |   |   |   | 675 |   |
| Other income                                              |   |    | 220                                      |   |   |                                    | 106    |   |   |   | 592 |   |   |   | 316 |   |
| Total noninterest income                                  |   | $  | 1,460                                    |   |   | $                                       | 1,162  |   |   | $ | 3,540 |   |   | $ | 1,605 |   |

| ·   | Branch fee income was relatively flat for the three and nine months ended September 30, 2010, when compared to the same periods a year ago. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | For the three and nine months ended September 30, 2010, service and loan fee income decreased $147 thousand and $241 thousand, respectively, when compared to the same periods in the prior year.  The decreases were primarily the result of lower levels of prepayment fees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Net gains on SBA loan sales amounted to $269 thousand and $416 thousand for the three and nine months ended September 30, 2010, respectively.  Due to new authoritative accounting guidance under FASBASC Topic 860, “Transfers and Servicing,” the gains on sales of SBA 7(a) loans must be deferred for a 90-day period after the sale.  Consequently, net gains of $269 thousand on $2.5 million of SBA loans sold during the second quarter of 2010 were recorded during the third quarter of 2010.  For the nine months ended September 30, 2010, $416 thousand in net gains were recognized on SBA loan sales of $3.8 million.  Net gains on SBA loan sales amounted to zero and $29 thousand for the three and nine months ended September 30, 2009, respectively, due to little or no sales volume as a result of market conditions. |

| ·   | For the three and nine months ended September 30, 2010, gains on the sale of mortgage loans increased $176 thousand and $320 thousand, respectively, when compared to the same periods in the prior year.  The increases are directly related to a higher volume of loan sales in 2010.  Sales of mortgage loans totaled $11.9 million and $7.0 million for the three months ended September 30, 2010 and 2009, respectively, and $26.2 million and $15.7 million for the nine months ended September 30, 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 offset the rising costs of employee benefits.  The increase in the cash surrender value of the BOLI was $79 thousand for the three months ended September 30, 2010, compared to $56 thousand for the same period in the prior year.  For the nine months ended September 30, 2010, the increase in the cash surrender value of the BOLI was $230 thousand compared to $166 thousand for the same period in 2009. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | No OTTI charges on securities have been recorded in 2010, compared to OTTI charges of $1.7 million recorded during the second quarter of 2009.  At June 30, 2009, the Company’s held to maturity portfolio included two pooled bank trust preferred securities. Due to the declines in their market value and the uncertainty that they would recover their book value, the Company took an impairment charge of $1.7 million on these securities at June 30, 2009. The securities, which had a cost basis of $3.0 million, had been previously written down by approximately $306 thousand in December of 2008 and were written down again by $862 thousand in December 2009. After the above charges, the two issues of pooled trust preferred securities have a remaining book value of approximately $50 thousand as of September 30, 2010. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | For the three months ended September 30, 2010 and 2009, net realized gains on sales of securities amounted to $35 thousand and $158 thousand, respectively.  For the nine months ended September 30, 2010 and 2009, net realized gains amounted to $42 thousand and $675 thousand, respectively.  The net gains during the nine months ended September 30, 2010 are primarily attributed to the Company selling approximately $9.0 million in book value of mortgage-backed securities, resulting in pretax gains of approximately $272 thousand on the sales, two called structured agency security with resulting gains of $6 thousand, and one called municipal security with a resulting gain of $4 thousand, partially offset by losses of $150 thousand on the sale of two 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 issuers' creditworthiness, as evidenced by downgrades in their credit ratings.  The net gains of $675 thousand for the same period in 2009 are attributed to the Company selling approximately $19.6 million in book value of mortgage-backed securities. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | For the three and nine months ended September 30, 2010, other income increased $114 thousand and $276 thousand, respectively, when compared to the same periods in the prior year.  The increases are primarily due to a refund of NJ state sales tax for overpayment in previous years received during the second quarter of 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

|                          |   | For the three months ended September 30, |   |   | For the nine months ended September 30, |   |
|-------------------------------|--------|-----------------------------------------------|--------|--------|-----------------------------------------|--------|
| (In thousands)                |   |                                          | 2010   |   |                                    |   | 2009 |   |   | 2010 |   |   | 2009 |   |
| Compensation and benefits     |   | $                                        | 2,960  |   |                                    | $      | 2,909 |   |   | $ | 8,781 |   |   | $ | 8,386 |   |
| Occupancy                     |   |                                          | 624    |   |                                    |   | 595 |   |   |   | 1,910 |   |   |   | 1,929 |   |
| Processing and communications |   |                                          | 529    |   |                                    |   |  531 |   |   |   | 1,609 |   |   |   | 1,554 |   |
| Furniture and equipment       |   |                                          | 440    |   |                                    |   | 414 |   |   |   | 1,311 |   |   |   | 1,381 |   |
| Professional services         |   |                                          | 229    |   |                                    |   |  274 |   |   |   | 657 |   |   |   | 780 |   |
| Loan collection costs         |   |                                          | 272    |   |                                    |   | 315 |   |   |   | 698 |   |   |   | 694 |   |
| OREO expenses                 |   |                                          | 482    |   |                                    |   | 176 |   |   |   | 669 |   |   |   | 193 |   |
| Deposit insurance             |   |                                          | 333    |   |                                    |   | 351 |   |   |   | 983 |   |   |   | 1,361 |   |
| Advertising                   |   |                                          | 130    |   |                                    |   | 147 |   |   |   | 478 |   |   |   | 373 |   |
| Other expenses                |   |                                          | 405    |   |                                    |   | 398 |   |   |   | 1,288 |   |   |   | 1,218 |   |
| Total noninterest expense     |   | $                                        | 6,404  |   |                                    | $      |  6,110 |   |   | $ | 18,384 |   |   | $ | 17,869 |   |

| ·   | Compensation and benefits expense, the largest component of noninterest expense, increased $51 thousand and $395 thousand for the three and nine months ended September 30, 2010, respectively, when compared to the same periods in 2009.  These increases are attributed to an increase in compensation, higher employee medical benefits costs and increased residential mortgage commissions due to a higher sales volume, partially offset by lower incentive bonus payments.                                                                                                                                                                                       |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Occupancy expense increased $29 thousand and decreased $19 thousand for the three and nine months ended September 30, 2010, respectively, when compared to the same periods in 2009.  The quarter over quarter increase is primarily due to an increase in janitorial expenses, partially offset by a decline in depreciation expense on capital expenditures.  The year over year decline is primarily due to the renegotiation of the lease on the Company’s corporate headquarters and a decline in depreciation expense on capital expenditures, partially offset by an increase in seasonal snow removal costs, property taxes, and janitorial expenses. |

| ·   | Processing and communications expenses remained relatively flat for the three months ended September 30, 2010 when compared to the same period in 2009 and increased $55 thousand for the nine months ended September 30, 2010 when compared to the same period in 2009.  This increase was primarily the result of increased data processing line costs and cell phone expenses.                                                                                                                                                                          |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Furniture and equipment expense increased $26 thousand and decreased $70 thousand for the three and nine months ended September 30, 2010, respectively, when compared to the same periods in 2009.  Quarter over quarter, the increase was primarily due to increased software and network maintenance costs, partially offset by decreased equipment maintenance costs.  Year over year, the decrease was primarily due to lower depreciation expense as capital expenditures declined, as well as lower maintenance costs on software and security. |

| ·   | Professional service fees decreased $45 thousand and $123 thousand for the three and nine months ended September 30, 2010, respectively, when compared to the same periods in 2009, due to lower consulting, audit, tax and loan review fees.                                                      |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Loan collection costs decreased $43 thousand and increased $4 thousand for the three and nine months ended September 30, 2010, respectively, when compared to the same periods in 2009.  The quarter over quarter decrease is primarily due to decreased collections costs on past due loans. |

| ·   | OREO expenses increased $306 thousand and $476 thousand for the three and nine months ended September 30, 2010, respectively, when compared to the same periods in 2009, due to increased maintenance and valuation related expenses on OREO properties.                                                                                                                                                                                                       |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Deposit insurance expense decreased $18 thousand and $378 thousand for the three and nine months ended September 30, 2010, respectively, when compared to the same periods in 2009.  The quarter over quarter decrease is primarily due to a lower deposit base at September 30, 2010 compared to September 30, 2009.  The year over year decrease is due primarily to the $408 thousand special assessment in the second quarter of 2009. |

| ·   | Advertising expense decreased $17 thousand and increased $105 thousand for the three and nine months ended September 30, 2010, respectively, when compared to the same periods in 2009.  The quarter over quarter decrease is due to fewer newspaper and billboard advertisements during the third quarter of 2010.  The year over year increase reflects the Company’s sales initiatives and brand recognition efforts. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Other expenses increased $7 thousand and $70 thousand for the three and nine months ended September 30, 2010, respectively, when compared to the same periods in 2009.  The year over year increase is primarily due to uninsured losses and a higher reserve for outstanding loan commitments.                                                                                                                                          |

----

| ·   | $46.5 million in principal payments, maturities and called bonds, |
|--------------------|-------------------------------------------------------------------|

| ·   | $27.7 million in purchases of collateralized mortgage obligations (“CMOs”), structured agencies, and Community Reinvestment Act ("CRA") investments, |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $11.4 million in sales net of realized gains, which consisted primarily of mortgage-backed securities and CMOs, |
|--------------------|---------------------------------------------------------------------------------------------------------------------------|

| ·   | $600 thousand in net amortization of premiums, partially offset by |
|--------------------|--------------------------------------------------------------------|

| ·   | $1.8 million of appreciation in the market value of the portfolio.  At September 30, 2010, the portfolio had a net unrealized gain of $1.8 million compared to a net unrealized loss of $8 thousand at December 31, 2009. These unrealized gains (losses) are reflected net of tax in shareholders’ equity as accumulated other comprehensive income (loss). |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $2.3 million in purchases of mortgage-backed securities, |
|--------------------|----------------------------------------------------------|

| ·   | $2.0 million in sales net of realized losses, which consisted primarily of tax-exempt municipal securities due to declines in their ratings, |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | $5.5 million in principal payments, maturities and called bonds, and                                                                              |

| ·   | $44 thousand in net amortization of premiums. |
|--------------------|-----------------------------------------------|

----

|                 |   | September 30, 2010 |    |   | December 31, 2009 |   |
|----------------------|--------|--------------------|---------|--------|-------------------|--------|
| (In thousands)       |   | Amount             |    |   | % of Total        |   |   | Amount |   |   | % of Total |   |
| SBA held for sale    |   | $                  | 19,021  |   |              |   | 3.0 | % |   | $ | 21,406 |   |   |   | 3.3 | % |
| SBA held to maturity |   |               | 72,197  |   |              |   | 11.5 |   |   |   | 77,844 |   |   |   | 11.8 |   |
| SBA 504              |   |               | 65,075  |   |              |   | 10.3 |   |   |   | 70,683 |   |   |   | 10.8 |   |
| Commercial           |   |               | 284,875 |   |              |   | 45.3 |   |   |   | 293,739 |   |   |   | 44.6 |   |
| Residential mortgage |   |               | 131,479 |   |              |   | 20.9 |   |   |   | 133,059 |   |   |   | 20.3 |   |
| Consumer             |   |               | 56,869  |   |              |   | 9.0 |   |   |   | 60,285 |   |   |   | 9.2 |   |
| Total loans          |   | $                  | 629,516 |   |              |   | 100.0 | %  |   | $ | 657,016 |   |   |   | 100.0 | % |

----

|                                               |   | Concentration |    |
|----------------------------------------------------|--------|---------------|---------|
| (In thousands)                                     |   | Balance       |    |   | Percent |   |
| Commercial real estate – owner occupied      |   | $             | 139,516 |   |   |   | 49.0 | % |
| Commercial real estate – investment property |   |          | 118,423 |   |   |   | 41.3 |   |
| Undeveloped land                                   |   |          | 16,897  |   |   |   | 5.9 |   |
| Other non-real estate collateral                   |   |          | 10,039  |   |   |   | 3.8 |   |
| Total commercial loans                             |   | $             | 284,875 |   |   |   | 100.0 | %  |

----

| (In thousands)                                        |   | September 30, 2010 |   |   | December 31, 2009 |   |   | September 30, 2009 |   |
|-------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|--------|--------------------|--------|
| Nonperforming by category:                            |   |               |   |   |              |   |   |               |   |
| SBA (1)                                               |   | $                  | 6,331  |   |              | $      | 6,559  |               |   | $ | 5,761 |   |
| SBA 504                                               |   |               | 5,212  |   |              |   | 5,575  |               |   |   | 6,026 |   |
| Commercial                                            |   |               | 9,461  |   |              |   | 7,397  |               |   |   | 6,548 |   |
| Residential mortgage                                  |   |               | 6,065  |   |              |   | 5,578  |               |   |   | 6,105 |   |
| Consumer                                              |   |               | 235    |   |              |   | 387    |               |   |   | 247 |   |
| Total nonperforming loans                             |   |               | 27,304 |   |              | $      | 25,496 |               |   | $ | 24,687 |   |
| OREO                                                  |   |               | 5,773  |   |              |   | 1,530  |               |   |   | 2,774 |   |
| Total nonperforming assets                            |   | $                  | 33,077 |   |              | $      | 27,026 |               |   | $ | 27,461 |   |
| Past due 90 days or more and still accruing interest: |   |               |   |   |              |   |   |               |   |   |   |   |
| SBA                                                   |   | $                  | 995    |   |              | $      | 592    |               |   | $ | - |   |
| SBA 504                                               |   |               | -      |   |              |   | -      |               |   |   | 174 |   |
| Commercial                                            |   |               | 456    |   |              |   | 469    |               |   |   | 1,180 |   |
| Residential mortgage                                  |   |               | 992    |   |              |   | 1,196  |               |   |   | 255 |   |
| Consumer                                              |   |               | 24     |   |              |   | 29     |               |   |   | - |   |
| Total                                                 |   | $                  | 2,467  |   |              | $      | 2,286  |               |   | $ | 1,609 |   |
| Nonperforming loans to total loans                    |   |               | 4.34   | %      |              |   | 3.88   | %                  |   |   | 3.76 | % |
| Nonperforming assets to total loans and OREO          |   |               | 5.21   | %      |              |   | 4.10   | %                  |   |   | 4.17 | % |
| Nonperforming assets to total assets                  |   |               | 3.91   | %      |              |   | 2.90   | %                  |   |   | 2.98 | % |
| (1) SBA loans guaranteed                              |   | $                  | 2,094  |   |              | $      | 1,931  |               |   | $ | 1,759 |   |

----

|                              |   | For the three months ended September 30, |         |    | For the nine months ended September 30, |    |
|-----------------------------------|--------|------------------------------------------|--------------|---------|-----------------------------------------|---------|
| (In thousands)                    |   |                                     | 2010         |    |                                    |    | 2009 |   |   | 2010 |   |   | 2009 |   |
| Balance, beginning of period      |   | $                                   | 13,946       |    |                                    | $  | 10,665 |   |   | $ | 13,842 |   |   | $ | 10,326 |   |
| Provision charged to expense      |   |                                     |  1,500  |    |                                    |    |  3,000 |   |   |   | 4,500 |   |   |   | 6,000 |   |
| Charge-offs:                      |   |                                     |         |    |                                    |    |   |   |   |   |   |   |   |   |   |   |
| SBA                               |   |                                     | 389          |    |                                    |    | 448 |   |   |   | 906 |   |   |   | 1,877 |   |
| SBA 504                           |   |                                     |  -      |    |                                    |    | - |   |   |   | 750 |   |   |   | 312 |   |
| Commercial                        |   |                                     | 989          |    |                                    |    |  674 |   |   |   | 2,512 |   |   |   | 1,720 |   |
| Residential mortgage              |   |                                     |  95     |    |                                    |    | 125 |   |   |   | 310 |   |   |   | 216 |   |
| Consumer                          |   |                                     |  9      |    |                                    |    | 11 |   |   |   | 11 |   |   |   | 22 |   |
| Total charge-offs                 |   |                                     |  1,482  |    |                                    |    | 1,258 |   |   |   | 4,489 |   |   |   | 4,147 |   |
| Recoveries:                       |   |                                     |         |    |                                    |    |   |   |   |   |   |   |   |   |   |   |
| SBA                               |   |                                     | 17           |    |                                    |    | 14 |   |   |   | 115 |   |   |   | 103 |   |
| SBA 504                           |   |                                     |  -      |    |                                    |    | 22 |   |   |   | - |   |   |   | 27 |   |
| Commercial                        |   |                                     |  178    |    |                                    |    | - |   |   |   | 191 |   |   |   | 131 |   |
| Residential mortgage              |   |                                     |  -      |    |                                    |    | - |   |   |   | - |   |   |   | - |   |
| Consumer                          |   |                                     | 4            |    |                                    |    | 2 |   |   |   | 4 |   |   |   | 5 |   |
| Total recoveries                  |   |                                     | 199          |    |                                    |    | 38 |   |   |   | 310 |   |   |   | 266 |   |
| Total net charge-offs             |   | $                                   |  1,283  |    |                                    | $       | 1,220 |   |   | $ | 4,179 |   |   | $ | 3,881 |   |
| Balance, end of period            |   | $                                        |  14,163 |    |                                    | $       |  12,445 |   |   | $ | 14,163 |   |   | $ | 12,445 |   |
| Selected loan quality ratios:     |   |                                     |         |    |                                    |    |   |   |   |   |   |   |   |   |   |   |
| Net charge-offs to average loans: |   |                                     |         |    |                                    |    |   |   |   |   |   |   |   |   |   |   |
| SBA                               |   |                                     |  1.56   | %  |                                    |    | 1.68 | % |   |   | 1.09 | % |   |   | 2.30 | % |
| SBA 504                           |   |                                     |  -      |    |                                    |    |  (0.12 | ) |   |   | 1.49 |   |   |   | 0.51 |   |
| Commercial                        |   |                                     |  1.14   |    |                                    |    | 0.89 |   |   |   | 1.08 |   |   |   | 0.70 |   |
| Residential mortgage              |   |                                     |  0.29   |    |                                    |    | 0.40 |   |   |   | 0.31 |   |   |   | 0.23 |   |
| Consumer                          |   |                                     |  0.03   |    |                                    |    | 0.06 |   |   |   | 0.02 |   |   |   | 0.04 |   |
| Total loans                       |   |                                     |  0.80   |    |                                    |    | 0.73 |   |   |   | 0.87 |   |   |   | 0.78 |   |
| Allowance to total loans          |   |                                     |  2.25   |    |                                    |    | 1.90 |   |   |   | 2.25 |   |   |   | 1.90 |   |
| Allowance to nonperforming loans  |   |                                     |  51.87  |    |                                    |    |  50.41 |   |   |   | 51.87 |   |   |   | 50.41 |   |

----

| (In thousands)                   |   | September 30, 2010 |   |   | December 31, 2009 |   |
|----------------------------------|--------|--------------------|--------|--------|-------------------|--------|
| FHLB borrowings:                 |   |               |   |   |              |   |
| Fixed rate advances              |   | $                  | 40,000 |   |              | $      | 40,000 |   |
| Repurchase agreements            |   |               | 30,000 |   |              |   | 30,000 |   |
| Other repurchase agreements      |   |               | 15,000 |   |              |   | 15,000 |   |
| SBA loan sales    |   |               | 1,044  |   |              |   | - |   |
| Subordinated debentures          |   |               | 15,465 |   |              |   | 15,465 |   |

----

----

|                            |   | Actual |   |   | For CapitalAdequacy Purposes |   |   | To Be Well-CapitalizedUnder Prompt Corrective Action Provisions |   |
|---------------------------------|--------|--------|--------|--------|------------------------------|--------|--------|-----------------------------------------------------------------|--------|
| (In thousands)                  |   | Amount |   |   | Ratio                        |   |   | Amount                                                          |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
| As of September 30, 2010        |   |   |   |   |                         |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |
| Leverage ratio                  |   | $      | 83,621 |   |                         |   | 9.83   | %                                                               |   | ≥ $ 34,026 |   |   |   | 4.00 | % |   | ≥ $ 42,533 |   |   |   | N/A |   |
| Tier I risk-based capital ratio |   |   | 83,621 |   |                         |   | 12.67  |                                                            |   |   | 26,399 |   |   |   | 4.00 |   |   |   | 39,598 |   |   |   | N/A |   |
| Total risk-based capital ratio  |   |   | 91,944 |   |                         |   | 13.93  |                                                            |   |   | 52,798 |   |   |   | 8.00 |   |   |   | 65,997 |   |   |   | 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 September 30, 2010        |   |   |   |   |                         |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |
| Leverage ratio                  |   | $      | 70,855 |   |                         |   | 8.34   | %                                                               |   | ≥ $ 33,991 |   |   |   | 4.00 | % |   | ≥ $ 42,489 |   |   |   | 5.00 | % |
| Tier I risk-based capital ratio |   |   | 70,855 |   |                         |   | 10.75  |                                                            |   |   | 26,364 |   |   |   | 4.00 |   |   |   | 39,546 |   |   |   | 6.00 |   |
| Total risk-based capital ratio  |   |   | 87,668 |   |                         |   | 13.30  |                                                            |   |   | 52,728 |   |   |   | 8.00 |   |   |   | 65,910 |   |   |   | 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 |   |

----

| (In thousands, except percentages and years)      |   | September 30, 2010 |   |   | December 31, 2009 |   |
|---------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
| Notional amount                                   |   | $                  | 15,000 |   |              | $      | 15,000 |   |
| Weighted average pay rate                         |   |               | 4.05   | %      |              |   | 4.05 | % |
| Weighted average receive rate (three-month LIBOR) |   |               | 0.36   | %      |              |   | 0.90 | % |
| Weighted average maturity in years                |   |               | 1.16   |   |              |   | 1.90 |   |
| Unrealized loss relating to interest rate swaps   |   | $                  | (623   | )      |              | $      | (777 | ) |

----

ITEM 3

ITEM 4

| (a) | The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures as of September 30, 2010.  Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective for recording, processing, summarizing and reporting the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC's rules and forms. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | Changes in internal controls over financial reporting – No significant change in the Company’s internal control over financial reporting has occurred during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s control over financial reporting. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

PART II 

Item 1

Item 2.

Item 3.

Item 4

Item 5.    Other Information 

Item 6.    Exhibits

| (a)    | Exhibits     |   Description                                                                                                                                                                                            |
|--------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Exhibit 31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002                                                                       |
|   | Exhibit 31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002                                                                       |
|   | Exhibit 32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

----

SIGNATURES

|                                     | UNITY BANCORP, INC.                                  |
|------------------------------------------|------------------------------------------------------|
|                                     |                                                 |
| Dated:   November 9, 2010 |                                                 |
|                                     |  ALAN J. BEDNER, JR.                            |
|                                     | Executive Vice President and Chief Financial Officer |

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EXHIBIT INDEX

|  EXHIBIT NO.  |   DESCRIPTION                                                                                                                                                                                          |
|-------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  31.1              |  Exhibit 31.1-Certification of James A. Hughes.  Required by Rule 13a-14(a) or Rule 15d-14(a) and section 302 of the Sarbanes-Oxley Act of 2002.                                                  |
|  31.2              |  Exhibit 31.2-Certification of Alan J. Bedner, Jr.  Required by Rule 13a-14(a) or Rule 15d-14(a) and section 302 of the Sarbanes-Oxley Act of 2002.                                          |
|  32.1              |  Exhibit 32.1-Certification of James A. Hughes and Alan J. Bedner.  Required by Rule 13a-14(b) or Rule 15d-14(b) and section 906 of the  Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. |

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