| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|-----------------------------------------------------------------------------------------|

|  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|------------------------------------------------------------------------------------------|

| VIRGINIA                                                       |           | 54-1702380                           |
|----------------------------------------------------------------|----------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) |           | (I.R.S. Employer Identification No.) |
|                                                           |           |                                 |
| 36 Church Avenue, S.W.Roanoke, Virginia                        |           | 24011                                |
| (Address of principal executive offices)                       |           | (Zip Code)                           |
|                                                           |           |                                 |
|                                                           | (540) 342-2265 |                                 |
| (Registrant’s telephone number, including area code)     |

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

----

|                                     |    |                                                                                  |   |
|------------------------------------------|---------|---------------------------------------------------------------------------------------|--------|
| Part I.  FINANCIAL INFORMATION |
|                                     |    |                                                                                  |   |
|                                     | Item 1  | Financial Statements                                                                  |
|                                     |    | Consolidated Balance Sheets                                                           | 4      |
|                                     |    | Consolidated Statements of Operations                                                 | 5      |
|                                     |    | Consolidated Statements of Cash Flows                                                 | 6      |
|                                     |    | Notes to Consolidated Financial Statements                                            | 7      |
|                                     |    |                                                                                  |   |
|                                     | Item 2  | Management's Discussion and Analysis of Financial Condition and Results of Operations | 17     |
|                                     |    |                                                                                  |   |
|                                     | Item 3  | Quantitative and Qualitative Disclosures about Market Risk                            | 25     |
|                                     |    |                                                                                  |   |
|                                     | Item 4  | Controls and Procedures                                                               | 25     |
|                                     |    |                                                                                  |   |
| Part II.  OTHER INFORMATION    |    |
|                                     |    |                                                                                  |   |
|                                     | Item 1  | Legal Proceedings                                                                     | 25     |
|                                     | Item 1A | Risk Factors                                                                          | 25     |
|                                     | Item 2  | Unregistered Sales of Equity Securities and Use of Proceeds                           | 25     |
|                                     | Item 3  | Defaults Upon Senior Securities                                                       | 25     |
|                                     | Item 4  | (Removed and Reserved)                                                                | 25     |
|                                     | Item 5  | Other Information                                                                     | 25     |
|                                     | Item 6  | Exhibits                                                                              | 25     |
|                                     |    |                                                                                  |   |
| SIGNATURES                               | 26      |
|                                     |    |                                                                                  |   |
| EXHIBITS INDEX                           | 27      |
|                                     |    |                                                                                  |   |

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|   | • |   | General economic conditions may deteriorate and negatively impact the ability of borrowers to repay loans and depositors to maintain balances; |
|--------|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | General decline in the residential real estate construction and finance market; |
|--------|---------|--------|---------------------------------------------------------------------------------|

|   | • |   | Decline in market value of real estate in the Company’s markets; |
|--------|---------|--------|------------------------------------------------------------------------|

|   | • |   | Changes in interest rates could reduce net interest income and/or the borrower’s ability to repay loans; |
|--------|---------|--------|----------------------------------------------------------------------------------------------------------------|

|   | • |   | Competitive pressures among financial institutions may reduce yields and profitability; |
|--------|---------|--------|-----------------------------------------------------------------------------------------|

|   | • |   | Legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses that the Company is engaged in; |
|--------|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|

|   |    |   |                                                                                                                                                         |
|--------|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | Increased regulatory supervision could limit our ability to grow and could require considerable time and attention of our management and board of directors; |

|   | • |   | New products developed or new methods of delivering products could result in a reduction in business and income for the Company; |
|--------|---------|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | The Company’s ability to continue to improve operating efficiencies; |
|--------|---------|--------|----------------------------------------------------------------------------|

|   | • |   | Natural events and acts of God such as earthquakes, fires and floods; |
|--------|---------|--------|-----------------------------------------------------------------------|

|   | • |   | Loss or retirement of key executives; and |
|--------|---------|--------|-------------------------------------------|

|   | • |   | Adverse changes may occur in the securities market. |
|--------|---------|--------|-----------------------------------------------------|

----

|                                                                                                                                                        |   | (Unaudited)9/30/10 |    |   | (Audited)12/31/09 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
| Assets                                                                                                                                                      |   |               |    |   |              |   |
|  Cash and due from banks                                                                                                                               |   | $                  | 6,296   |   |              | $      | 8,179 |   |
| Interest-bearing deposits in banks                                                                                                                          |   |               | 76,993  |   |              |   | 23,699 |   |
|              Total Cash and Cash Equivalents                                               |   |               | 83,289  |   |              |   | 31,878 |   |
|                                                                                                                                                        |   |               |    |   |              |   |   |   |
| Securities available-for-sale                                                                                                                               |   |               | 102,575 |   |              |   | 70,485 |   |
| Securities held-to-maturity (approximate market values of $10,415 at September 30, 2010 and $12,246 at December 31, 2009, respectively)                     |   |               | 10,082  |   |              |   | 11,991 |   |
| Restricted equity securities                                                                                                                                |   |               | 5,828   |   |              |   | 6,172 |   |
| Loans, net of allowance for loan losses of $10,669 at September 30, 2010 and $14,630 at December 31, 2009                                                   |   |               | 527,448 |   |              |   | 556,391 |   |
| Foreclosed assets                                                                                                                                           |   |               | 18,608  |   |              |   | 2,513 |   |
| Premises and equipment, net                                                                                                                                 |   |               | 7,429   |   |              |   | 7,742 |   |
| Bank owned life insurance                                                                                                                                   |   |               | 14,336  |   |              |   | 12,930 |   |
| Accrued interest receivable                                                                                                                                 |   |               | 2,363   |   |              |   | 2,498 |   |
| Other assets                                                                                                                                                |   |               | 9,981   |   |              |   | 11,125 |   |
| Total assets                                                                                                                                                |   | $                  | 781,939 |   |              | $      | 713,725 |   |
|                                                                                                                                                        |   |               |    |   |              |   |   |   |
|                                                                                                                                                        |   |               |    |   |              |   |   |   |
| Liabilities and Shareholders’ Equity                                                                                                                  |   |               |    |   |              |   |   |   |
| Liabilities:                                                                                                                                                |   |               |    |   |              |   |   |   |
| Noninterest-bearing deposits                                                                                                                                |   | $                  | 15,632  |   |              | $      | 17,629 |   |
| Interest-bearing deposits                                                                                                                                   |   |               | 610,508 |   |              |   | 535,299 |   |
| Total deposits                                                                                                                                              |   |               | 626,140 |   |              |   | 552,928 |   |
|                                                                                                                                                        |   |               |    |   |              |   |   |   |
| Federal funds purchased and securities sold under agreements to repurchase                                                                                  |   |               | 17,019  |   |              |   | 21,304 |   |
| Short-term borrowings                                                                                                                                       |   |               | 20,000  |   |              |   | 20,000 |   |
| Long-term borrowings                                                                                                                                        |   |               | 43,000  |   |              |   | 48,000 |   |
| Junior subordinated debentures                                                                                                                              |   |               | 16,496  |   |              |   | 16,496 |   |
| Accrued interest payable                                                                                                                                    |   |               | 1,190   |   |              |   | 2,462 |   |
| Other liabilities                                                                                                                                           |   |               | 2,405   |   |              |   | 996 |   |
| Total liabilities                                                                                                                                           |   |               | 726,250 |   |              |   | 662,186 |   |
|                                                                                                                                                        |   |               |    |   |              |   |   |   |
| Commitments and contingencies                                                                                                                               |   |               | -       |   |              |   | - |   |
|                                                                                                                                                        |   |               |    |   |              |   |   |   |
| Shareholders' equity:                                                                                                                                       |   |               |    |   |              |   |   |   |
| Preferred stock, no par value; 10,000,000 shares authorized; 16,019 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively |   |               | 15,454  |   |              |   | 15,336 |   |
| Common stock, no par value; 10,000,000 shares authorized; 4,680,251 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively |   |               | 23,508  |   |              |   | 23,369 |   |
| Retained earnings                                                                                                                                           |   |               | 15,710  |   |              |   | 12,878 |   |
| Accumulated other comprehensive income (loss)                                                                                                               |   |               | 1,017   |   |              |   | (44 | ) |
| Total shareholders’ equity                                                                                                                            |   |               | 55,689  |   |              |   | 51,539 |   |
| Total liabilities and shareholders’ equity                                                                                                            |   | $                  | 781,939 |   |              | $      | 713,725 |   |

----

|                                                                                                           |   | 3 Months Ended |      |   | 9 Months Ended |   |
|----------------------------------------------------------------------------------------------------------------|--------|----------------|-----------|--------|----------------|--------|
|                                                                                                           |   | 9/30/10        |      |   | 9/30/09        |   |   | 9/30/10 |   |   | 9/30/09 |   |
| Interest Income:                                                                                               |   |           |      |   |           |   |   |   |   |   |   |   |
|      Interest and fees on loans                                                       |   | $              | 7,154     |   |           | $      | 7,840 |   |   | $ | 21,828 |   |   | $ | 22,638 |   |
|      Interest on securities–taxable                                             |   |           | 789       |   |           |   | 665 |   |   |   | 2,309 |   |   |   | 2,590 |   |
|      Interest on securities-nontaxable                                                |   |           | 148       |   |           |   | 144 |   |   |   | 401 |   |   |   | 389 |   |
|      Interest on deposits in banks                                                    |   |           | 46        |   |           |   | 8 |   |   |   | 91 |   |   |   | 10 |   |
|           Total interest income                              |   |           | 8,137     |   |           |   | 8,657 |   |   |   | 24,629 |   |   |   | 25,627 |   |
| Interest Expense:                                                                                              |   |           |      |   |           |   |   |   |   |   |   |   |   |   |   |   |
|      Interest on deposits                                                             |   |           | 2,333     |   |           |   | 2,754 |   |   |   | 7,112 |   |   |   | 8,322 |   |
|      Interest on short-term borrowings                                                |   |           | 209       |   |           |   | 153 |   |   |   | 721 |   |   |   | 341 |   |
|      Interest on long-term borrowings                                                 |   |           | 405       |   |           |   | 588 |   |   |   | 1,227 |   |   |   | 1,875 |   |
|      Interest on junior subordinated debentures                                       |   |           | 100       |   |           |   | 106 |   |   |   | 281 |   |   |   | 382 |   |
|      Interest on federal funds purchased and securities sold                          |   |           |      |   |           |   |   |   |   |   |   |   |   |   |   |   |
|          under agreements to repurchase                           |   |           | 12        |   |           |   | 15 |   |   |   | 33 |   |   |   | 63 |   |
|           Total interest expense                             |   |           | 3,059     |   |           |   | 3,616 |   |   |   | 9,374 |   |   |   | 10,983 |   |
|           Net interest income                                |   |           | 5,078     |   |           |   | 5,041 |   |   |   | 15,255 |   |   |   | 14,644 |   |
| Provision for loan losses                                                                                      |   |           | 232       |   |           |   | 438 |   |   |   | 105 |   |   |   | 9,872 |   |
|      Net interest income after provision for loan losses                              |   |           | 4,846     |   |           |   | 4,603 |   |   |   | 15,150 |   |   |   | 4,772 |   |
|                                                                                                           |   |           |      |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest Income:                                                                                            |   |           |      |   |           |   |   |   |   |   |   |   |   |   |   |   |
|      Service charges on deposit accounts                                              |   |           | 361       |   |           |   | 306 |   |   |   | 1,003 |   |   |   | 875 |   |
|      Income earned on bank owned life insurance                                       |   |           | 137       |   |           |   | 138 |   |   |   | 407 |   |   |   | 408 |   |
|      Realized gain on sale of securities                                              |   |           | -         |   |           |   | 702 |   |   |   | - |   |   |   | 969 |   |
|      Realized (loss) on sale of foreclosed assets                                     |   |           | (187      | )      |           |   | - |   |   |   | (195 | ) |   |   | (165 | ) |
|      Other income                                                                     |   |           | 477       |   |           |   | 178 |   |   |   | 788 |   |   |   | 395 |   |
|           Total noninterest income                           |   |           | 788       |   |           |   | 1,324 |   |   |   | 2,003 |   |   |   | 2,482 |   |
|                                                                                                           |   |           |      |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest Expense:                                                                                           |   |           |      |   |           |   |   |   |   |   |   |   |   |   |   |   |
|      Compensation expense                                                             |   |           | 2,043     |   |           |   | 1,958 |   |   |   | 6,080 |   |   |   | 5,607 |   |
|      Occupancy and equipment expense                                                  |   |           | 390       |   |           |   | 394 |   |   |   | 1,185 |   |   |   | 1,230 |   |
|      Data processing expense                                                          |   |           | 263       |   |           |   | 264 |   |   |   | 820 |   |   |   | 762 |   |
|      Advertising and marketing expense                                                |   |           | 102       |   |           |   | 80 |   |   |   | 303 |   |   |   | 216 |   |
|      Insurance                                                                        |   |           | 287       |   |           |   | 274 |   |   |   | 1,159 |   |   |   | 1,012 |   |
|      Audit fees                                                                       |   |           | 53        |   |           |   | 62 |   |   |   | 180 |   |   |   | 168 |   |
|      Legal                                                                            |   |           | 149       |   |           |   | 181 |   |   |   | 290 |   |   |   | 463 |   |
|      Franchise tax expense                                                            |   |           | 123       |   |           |   | 106 |   |   |   | 370 |   |   |   | 319 |   |
|      Deposit expense                                                                  |   |           | 122       |   |           |   | 115 |   |   |   | 343 |   |   |   | 290 |   |
|      Loan expense                                                                     |   |           | 60        |   |           |   | 71 |   |   |   | 215 |   |   |   | 264 |   |
|      Computer software expense                                                        |   |           | 105       |   |           |   | 108 |   |   |   | 296 |   |   |   | 325 |   |
|      Consulting fees                                                                  |   |           | 103       |   |           |   | 86 |   |   |   | 312 |   |   |   | 260 |   |
|      Foreclosed assets expense, net                                                   |   |           | 91        |   |           |   | 23 |   |   |   | 262 |   |   |   | 101 |   |
|      Other expense                                                                    |   |           | 301       |   |           |   | 289 |   |   |   | 932 |   |   |   | 921 |   |
|           Total noninterest expense                          |   |           | 4,192     |   |           |   | 4,011 |   |   |   | 12,747 |   |   |   | 11,938 |   |
|           Income (loss) before income taxes                  |   |           | 1,442     |   |           |   | 1,916 |   |   |   | 4,406 |   |   |   | (4,684 | ) |
|                                                                                                           |   |           |      |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense (benefit)                                                                                   |   |           | 394       |   |           |   | 603 |   |   |   | 1,255 |   |   |   | (1,719 | ) |
|           Net income (loss)                                  |   | $              | 1,048     |   |           | $      | 1,313 |   |   | $ | 3,151 |   |   | $ | (2,965 | ) |
| Preferred dividends and accretion of discounts on warrants                                                     |   |           | 239       |   |           |   | 242 |   |   |   | 718 |   |   |   | 716 |   |
|           Net income (loss) available to common shareholders |   | $              | 809       |   |           | $      | 1,071 |   |   | $ | 2,433 |   |   | $ | (3,681 | ) |
|                                                                                                           |   |           |      |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per share                                                                                      |   |           |      |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings (loss) per common share                                                                         |   | $              | 0.17      |   |           | $      | 0.23 |   |   | $ | 0.52 |   |   | $ | (0.79 | ) |
| Diluted earnings (loss) per common share                                                                       |   | $              | 0.17      |   |           | $      | 0.23 |   |   | $ | 0.52 |   |   | $ | (0.79 | ) |
| Weighted average shares outstanding                                                                            |   |           | 4,680,251 |   |           |   | 4,680,251 |   |   |   | 4,680,251 |   |   |   | 4,680,215 |   |
| Diluted average shares outstanding                                                                             |   |           | 4,694,170 |   |           |   | 4,680,251 |   |   |   | 4,688,946 |   |   |   | 4,680,215 |   |
| Dividends declared per common share                                                                            |   | $              | -         |   |           | $      | - |   |   | $ | - |   |   | $ | 0.04 |   |

----

|                                                                                                                           |   | Nine Months Ended |    |
|--------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                                           |   | 9/30/10           |    |   | 9/30/09 |   |
| Cash flows from operating activities                                                                                           |   |              |    |   |   |   |
| Net income (loss)                                                                                                              |   | $                 | 3,151   |   |   | $ | (2,965 | ) |
| Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by   operating activities: |   |              |    |   |   |   |   |   |
| Provision for loan losses                                                                                                      |   |              | 105     |   |   |   | 9,872 |   |
| Depreciation and amortization of bank premises, equipment and software                                                         |   |              | 593     |   |   |   | 657 |   |
| Stock compensation expense                                                                                                     |   |              | 139     |   |   |   | 110 |   |
| (Increase) decrease in deferred income tax                                                                                     |   |              | 1,035   |   |   |   | (1,392 | ) |
| Net gains on sale of securities                                                                                                |   |              | -       |   |   |   | (969 | ) |
| Net losses on foreclosed and repossessed assets                                                                                |   |              | 195     |   |   |   | 165 |   |
| Net losses on equipment disposals                                                                                              |   |              | 5       |   |   |   | 5 |   |
| Net amortization of bond premiums/discounts                                                                                    |   |              | 634     |   |   |   | 118 |   |
| Increase in unearned loan fees                                                                                                 |   |              | (9      | ) |   |   | (39 | ) |
| Decrease in accrued interest receivable                                                                                        |   |              | 135     |   |   |   | 46 |   |
| (Increase) decrease in other assets                                                                                            |   |              | 68      |   |   |   | (396 | ) |
| Increase in value of life insurance contracts                                                                                  |   |              | (407    | ) |   |   | (408 | ) |
| Increase (decrease) in accrued interest payable                                                                                |   |              | (1,272  | ) |   |   | 157 |   |
| Increase (decrease) in other liabilities                                                                                       |   |              | 1,408   |   |   |   | (102 | ) |
| Net cash and cash equivalents provided by operating activities                                                                 |   |              | 5,780   |   |   |   | 4,859 |   |
|                                                                                                                           |   |              |    |   |   |   |   |   |
| Cash flows from investing activities                                                                                           |   |              |    |   |   |   |   |   |
| Purchases of bank premises, equipment and software                                                                             |   |              | (244    | ) |   |   | (393 | ) |
| Purchases of securities available-for-sale                                                                                     |   |              | (63,952 | ) |   |   | (49,274 | ) |
| Purchases of securities held-to-maturity                                                                                       |   |              | -       |   |   |   | (6,315 | ) |
| Purchases of restricted equity securities                                                                                      |   |              | -       |   |   |   | (130 | ) |
| Proceeds from sales/calls/paydowns/maturities of securities available-for-sale                                                 |   |              | 32,305  |   |   |   | 73,374 |   |
| Proceeds from sales/calls/paydowns/maturities of securities held-to-maturity                                                   |   |              | 1,893   |   |   |   | 3,801 |   |
| Proceeds from sales/calls/paydowns/maturities of restricted equity securities                                                  |   |              | 344     |   |   |   | - |   |
| Purchase of bank owned life insurance                                                                                          |   |              | (1,000  | ) |   |   | - |   |
| Proceeds from sale of foreclosed and repossessed assets                                                                        |   |              | 2,653   |   |   |   | 1,916 |   |
| Capitalized costs related to foreclosed assets                                                                                 |   |              | (400    | ) |   |   | (20 | ) |
| (Increase) decrease in loans, net                                                                                              |   |              | 10,305  |   |   |   | (42,697 | ) |
| Net cash and cash equivalents used in investing activities                                                                     |   |              | (18,096 | ) |   |   | (19,738 | ) |
|                                                                                                                           |   |              |    |   |   |   |   |   |
| Cash flows from financing activities                                                                                           |   |              |    |   |   |   |   |   |
| Increase (decrease) in non-interest bearing deposits                                                                           |   |              | (1,997  | ) |   |   | 2,901 |   |
| Increase in interest bearing deposits                                                                                          |   |              | 75,209  |   |   |   | 75,076 |   |
| Proceeds from short-term borrowings                                                                                            |   |              | -       |   |   |   | 46,000 |   |
| Principal repayments of short-term borrowings                                                                                  |   |              | (5,000  | ) |   |   | (58,000 | ) |
| Decrease in securities sold under agreements to repurchase                                                                     |   |              | (4,285  | ) |   |   | (14,577 | ) |
| Decrease in federal funds purchased                                                                                            |   |              | -       |   |   |   | (11,326 | ) |
| Cash dividends paid                                                                                                            |   |              | (200    | ) |   |   | (1,055 | ) |
| Net proceeds from issuance of common stock                                                                                     |   |              | -       |   |   |   | (7 | ) |
| Net cash and cash equivalents provided by financing activities                                                                 |   |              | 63,727  |   |   |   | 39,012 |   |
| Net increase in cash and cash equivalents                                                                                      |   |              | 51,411  |   |   |   | 24,133 |   |
|                                                                                                                           |   |              |    |   |   |   |   |   |
| Cash and cash equivalents at beginning of year                                                                                 |   |              | 31,878  |   |   |   | 7,296 |   |
| Cash and cash equivalents at end of year                                                                                       |   | $                 | 83,289  |   |   | $ | 31,429 |   |
|                                                                                                                           |   |              |    |   |   |   |   |   |
| Supplemental disclosure of cash flow information                                                                               |   |              |    |   |   |   |   |   |
|         Cash paid during the period for interest                                       |   | $                 | 10,651  |   |   | $ | 10,826 |   |
|         Cash paid during the period for income taxes                                   |   | $                 | 501     |   |   | $ | 610 |   |
|                                                                                                                           |   |              |    |   |   |   |   |   |
| Noncash financing and investing activities                                                                                     |   |              |    |   |   |   |   |   |
|         Transfer of loans to foreclosed property                                       |   | $                 | 18,542  |   |   | $ | 3,656 |   |
|         Reclassification of borrowings from long-term to short-term                    |   | $                 | 5,000   |   |   | $ | 5,000 |   |
|                                                                                                                           |   |              |    |   |   |   |   |   |
| See accompanying notes to consolidated financial statements.                                                                   |   |              |    |   |   |   |   |   |

----

----

|                               |   | AmortizedCosts |    |   | UnrealizedGains |   |   | UnrealizedLosses |   |   | FairValues |   |
|------------------------------------|--------|----------------|---------|--------|-----------------|--------|--------|------------------|--------|--------|------------|--------|
| September 30, 2010                 |   |           |    |   |            |   |   |             |   |   |       |   |
| U.S. Government and federal agency |   | $              | 6,903   |   |            | $      | 110    |             |   | $      | (10        | )      |   | $ | 7,003 |   |
| Government-sponsored enterprises   |   |           | 11,696  |   |            |   | 51     |             |   |   | (5         | )      |   |   | 11,742 |   |
| Mortgage-backed securities         |   |           | 72,820  |   |            |   | 1,121  |             |   |   | (60        | )      |   |   | 73,881 |   |
| States and political subdivisions  |   |           | 9,616   |   |            |   | 359    |             |   |   | (26        | )      |   |   | 9,949 |   |
|                               |   | $              | 101,035 |   |            | $      | 1,641  |             |   | $      | (101       | )      |   | $ | 102,575 |   |

| December 31, 2009                  |   |   |   |   |   |   |   |   |   |   |   |   |
|------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| U.S. Government and federal agency |   | $      | 552    |   |   | $      | 7      |   |   | $      | (1     | )      |   | $ | 558 |   |
| Government-sponsored enterprises   |   |   | 15,007 |   |   |   | 48     |   |   |   | (182   | )      |   |   | 14,873 |   |
| Mortgage-backed securities         |   |   | 49,522 |   |   |   | 423    |   |   |   | (470   | )      |   |   | 49,475 |   |
| States and political subdivisions  |   |   | 5,471  |   |   |   | 115    |   |   |   | (7     | )      |   |   | 5,579 |   |
|                               |   | $      | 70,552 |   |   | $      | 593    |   |   | $      | (660   | )      |   | $ | 70,485 |   |

|                              |   | AmortizedCosts |   |   | UnrealizedGains |   |   | UnrealizedLosses |   |   | FairValues |   |
|-----------------------------------|--------|----------------|--------|--------|-----------------|--------|--------|------------------|--------|--------|------------|--------|
| September 30, 2010                |   |           |   |   |            |   |   |             |   |   |       |   |
| Mortgage-backed securities        |   | $              | 4,904  |   |            | $      | 184    |             |   | $      | -          |   |   | $ | 5,088 |   |
| States and political subdivisions |   |           | 5,178  |   |            |   | 149    |             |   |   | -          |   |   |   | 5,327 |   |
|                              |   | $              | 10,082 |   |            | $      | 333    |             |   | $      | -          |   |   | $ | 10,415 |   |

|                              |   | AmortizedCosts |   |   | UnrealizedGains |   |   | UnrealizedLosses |   |   | FairValues |   |
|-----------------------------------|--------|----------------|--------|--------|-----------------|--------|--------|------------------|--------|--------|------------|--------|
| December 31, 2009                 |   |           |   |   |            |   |   |             |   |   |       |   |
| Mortgage-backed securities        |   | $              | 6,379  |   |            | $      | 121    |             |   | $      | -          |   |   | $ | 6,500 |   |
| States and political subdivisions |   |           | 5,612  |   |            |   | 157    |             |   |   | (23        | )      |   |   | 5,746 |   |
|                              |   | $              | 11,991 |   |            | $      | 278    |             |   | $      | (23        | )      |   | $ | 12,246 |   |

----

|                                    |   | Available for Sale |    |
|-----------------------------------------|--------|--------------------|---------|
|                                    |   | September 30, 2010 |    |
|                                    |   | AmortizedCosts     |    |   | FairValue |   |   | Yield |   |
|                                    |   |               |    |   |   |   |   |   |   |
| U.S.Government and federal agency:      |   |               |    |   |   |   |   |   |   |
| Within one year                         |   | $                  | 135     |   |   | $ | 140 |   |   |   | 5.88 | % |
| After one but within five years         |   |               | 200     |   |   |   | 204 |   |   |   | 1.38 | % |
| After five but within ten years         |   |               | 5,035   |   |   |   | 5,112 |   |   |   | 3.45 | % |
| After ten years                         |   |               | 1,533   |   |   |   | 1,547 |   |   |   | 4.01 | % |
|                                    |   |               |    |   |   |   |   |   |   |   |   |   |
| Government-sponsored enterprises:       |   |               |    |   |   |   |   |   |   |   |   |   |
| After five but within ten years         |   |               | 3,000   |   |   |   | 3,004 |   |   |   | 5.20 | % |
| After ten years                         |   |               | 8,696   |   |   |   | 8,738 |   |   |   | 4.96 | % |
|                                    |   |               |    |   |   |   |   |   |   |   |   |   |
| Obligations of states and subdivisions: |   |               |    |   |   |   |   |   |   |   |   |   |
| After five but within ten years         |   |               | 1,055   |   |   |   | 1,122 |   |   |   | 5.34 | % |
| After ten years                         |   |               | 8,561   |   |   |   | 8,827 |   |   |   | 4.35 | % |
|                                    |   |               |    |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities              |   |               | 58,153  |   |   |   | 58,650 |   |   |   | 3.24 | % |
|                                    |   |               |    |   |   |   |   |   |   |   |   |   |
| Collateralized mortgage obligations     |   |               | 14,667  |   |   |   | 15,231 |   |   |   | 3.49 | % |
|                                    |   |               |    |   |   |   |   |   |   |   |   |   |
| Total                                   |   | $                  | 101,035 |   |   | $ | 102,575 |   |   |   |   |   |
|                                    |   |               |    |   |   |   |   |   |   |   |   |   |
| Total Securities by Maturity Period *   |   |               |    |   |   |   |   |   |   |   |   |   |
| Within one year                         |   | $                  | 135     |   |   | $ | 140 |   |   |   |   |   |
| After one but within five years         |   |               | 200     |   |   |   | 204 |   |   |   |   |   |
| After five but within ten years         |   |               | 9,090   |   |   |   | 9,238 |   |   |   |   |   |
| After ten years                         |   |               | 18,790  |   |   |   | 19,112 |   |   |   |   |   |
| Mortgage-backed securities              |   |               | 58,153  |   |   |   | 58,650 |   |   |   |   |   |
| Collateralized mortgage obligations     |   |               | 14,667  |   |   |   | 15,231 |   |   |   |   |   |
|                                    |   |               |    |   |   |   |   |   |   |   |   |   |
| Total by Maturity Period                |   | $                  | 101,035 |   |   | $ | 102,575 |   |   |   |   |   |

----

|                                    |   | Held to Maturity   |
|-----------------------------------------|--------|--------------------|
|                                    |   | September 30, 2010 |
|                                    |   | AmortizedCosts     |   |   | FairValue |   |   | Yield |
|                                    |   |               |   |   |   |   |   |   |
| Obligations of states and subdivisions: |   |               |   |   |   |   |   |   |
| Within one year                         |   | $                  | 140 |   |   | $ | 141 |   |   |   | 4.00 | % |
| After one but within five years         |   |               | 650 |   |   |   | 676 |   |   |   | 4.26 | % |
| After five but within ten years         |   |               | 2,279 |   |   |   | 2,344 |   |   |   | 4.91 | % |
| After ten years                         |   |               | 2,109 |   |   |   | 2,166 |   |   |   | 6.04 | % |
|                                    |   |               |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities              |   |               | 636 |   |   |   | 674 |   |   |   | 4.25 | % |
|                                    |   |               |   |   |   |   |   |   |   |   |   |   |
| Collateralized mortgage obligations     |   |               | 4,268 |   |   |   | 4,414 |   |   |   | 5.54 | % |
|                                    |   |               |   |   |   |   |   |   |   |   |   |   |
| Total                                   |   | $                  | 10,082 |   |   | $ | 10,415 |   |   |   |   |   |
|                                    |   |               |   |   |   |   |   |   |   |   |   |   |
| Total Securities by Maturity Period *   |   |               |   |   |   |   |   |   |   |   |   |   |
| Within one year                         |   | $                  | 140 |   |   | $ | 141 |   |   |   |   |   |
| After one but within five years         |   |               | 650 |   |   |   | 676 |   |   |   |   |   |
| After five but within ten years         |   |               | 2,279 |   |   |   | 2,344 |   |   |   |   |   |
| After ten years                         |   |               | 2,109 |   |   |   | 2,166 |   |   |   |   |   |
| Mortgage-backed securities              |   |               | 636 |   |   |   | 674 |   |   |   |   |   |
| Collateralized mortgage obligations     |   |               | 4,268 |   |   |   | 4,414 |   |   |   |   |   |
| Total by Maturity Period                |   | $                  | 10,082 |   |   | $ | 10,415 |   |   |   |   |   |

| September 30, 2010                    |   | Less than 12 Months |   |   | 12 Months or More |   |   | Total |   |
|---------------------------------------|--------|---------------------|--------|--------|-------------------|--------|--------|-------|--------|
|                                  |   | Fair                |   |   | Unrealized        |   |   | Fair  |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                  |   | Value               |   |   | Losses            |   |   | Value |   |   | Losses |   |   | Value |   |   | Losses |   |
| U.S. Government and federal agency    |   | $                   | 3,020  |   |              | $      | (10    | )     |   | $ | - |   |   | $ | - |   |   | $ | 3,020 |   |   | $ | (10 | ) |
| Government-sponsored enterprises*     |   |                | 1,695  |   |              |   | (5     | )     |   |   | - |   |   |   | - |   |   |   | 1,695 |   |   |   | (5 | ) |
| Mortgage-backed securities            |   |                | 17,965 |   |              |   | (59    | )     |   |   | 26 |   |   |   | (1 | ) |   |   | 17,991 |   |   |   | (60 | ) |
| State and political subdivisions      |   |                | 1,130  |   |              |   | (26    | )     |   |   | - |   |   |   | - |   |   |   | 1,130 |   |   |   | (26 | ) |
| Total temporarily impaired securities |   | $                   | 23,810 |   |              | $      | (100   | )     |   | $ | 26 |   |   | $ | (1 | ) |   | $ | 23,836 |   |   | $ | (101 | ) |

----

| December 31, 2009                     |   | Less than 12 Months |   |   | 12 Months or More |   |   | Total |   |
|---------------------------------------|--------|---------------------|--------|--------|-------------------|--------|--------|-------|--------|
|                                  |   | Fair                |   |   | Unrealized        |   |   | Fair  |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                  |   | Value               |   |   | Losses            |   |   | Value |   |   | Losses |   |   | Value |   |   | Losses |   |
| U.S. Government and federal agency    |   | $                   | 199    |   |              | $      | (1     | )     |   | $ | - |   |   | $ | - |   |   | $ | 199 |   |   | $ | (1 | ) |
| Government-sponsored enterprises*     |   |                | 10,555 |   |              |   | (182   | )     |   |   | - |   |   |   | - |   |   |   | 10,555 |   |   |   | (182 | ) |
| Mortgage-backed securities            |   |                | 28,863 |   |              |   | (468   | )     |   |   | 32 |   |   |   | (2 | ) |   |   | 28,895 |   |   |   | (470 | ) |
| State and political subdivisions      |   |                | 666    |   |              |   | (7     | )     |   |   | - |   |   |   | - |   |   |   | 666 |   |   |   | (7 | ) |
| Total temporarily impaired securities |   | $                   | 40,283 |   |              | $      | (658   | )     |   | $ | 32 |   |   | $ | (2 | ) |   | $ | 40,315 |   |   | $ | (660 | ) |

| December 31, 2009                     |   | Less than 12 months |   |   | 12 Months or More |   |   | Total |   |
|---------------------------------------|--------|---------------------|--------|--------|-------------------|--------|--------|-------|--------|
|                                  |   | Fair                |   |   | Unrealized        |   |   | Fair  |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                  |   | Value               |   |   | Losses            |   |   | Value |   |   | Losses |   |   | Value |   |   | Losses |   |
| State and political subdivisions      |   | $                   | 237    |   |              | $      | (17    | )     |   | $ | 509 |   |   | $ | (6 | ) |   | $ | 746 |   |   | $ | (23 | ) |
| Total temporarily impaired securities |   | $                   | 237    |   |              | $      | (17    | )     |   | $ | 509 |   |   | $ | (6 | ) |   | $ | 746 |   |   | $ | (23 | ) |

----

|                                                         |   | 9/30/10 |   |   | 9/30/09 |   |
|--------------------------------------------------------------|--------|---------|--------|--------|---------|--------|
| Balance at January 1                                         |   | $       | 14,630 |   |    | $      | 7,592 |   |
| Provision for loan losses                                    |   |    | 105    |   |    |   | 9,872 |   |
| Recoveries:                                                  |   |    |   |   |    |   |   |   |
|      Commercial                     |   |    | 23     |   |    |   | 5 |   |
|      Loans to individuals           |   |    | 8      |   |    |   | 2 |   |
|      Residential Real Estate        |   |    | 17     |   |    |   | - |   |
|      Real Estate Construction       |   |    | 3      |   |    |   | - |   |
| Charged off loans:                                           |   |    |   |   |    |   |   |   |
|       Commercial               |   |    | (921   | )      |    |   | (2,342 | ) |
|       Loans to individuals     |   |    | (11    | )      |    |   | (80 | ) |
|       Commercial Real Estate   |   |    | (340   | )      |    |   | (204 | ) |
|       Residential Real Estate  |   |    | (1,016 | )      |    |   | (214 | ) |
|       Real Estate Construction |   |    | (1,829 | )      |    |   | (1,310 | ) |
| Balance at September 30                                      |   | $       | 10,669 |   |    | $      | 13,321 |   |

|    |   | Earnings/(Loss) Per Share |   |
|---------|--------|---------------------------|--------|
|    |   | 3 Months Ending           |   |   | 9 Months Ending |   |
|    |   | 9/30/10                   |   |   | 9/30/09 |   |   | 9/30//10 |   |   | 9/30//09 |   |
|    |   |                      |   |   |   |   |   |   |   |   |   |   |
| Basic   |   | $                         | 0.17   |   |   | $ | 0.23 |   |   | $ | 0.52 |   |   | $ | (0.79 | ) |
|    |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted |   | $                         | 0.17   |   |   | $ | 0.23 |   |   | $ | 0.52 |   |   | $ | (0.79 | ) |

|    |   | Weighted Average Shares Outstanding |      |
|---------|--------|-------------------------------------|-----------|
|    |   | 3 Months Ending                     |      |   | 9 Months Ending |   |
|    |   | 9/30/10                             |      |   | 9/30/09 |   |   | 9/30/10 |   |   | 9/30/09 |   |
|    |   |                                |      |   |   |   |   |   |   |   |   |   |
| Basic   |   |                                | 4,680,251 |   |   |   | 4,680,251 |   |   |   | 4,680,251 |   |   |   | 4,680,215 |   |
|    |   |                                |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted |   |                                | 4,694,170 |   |   |   | 4,680,251 |   |   |   | 4,688,946 |   |   |   | 4,680,215 |   |

----

|                                                                   |   | 3 Months Ended(dollars in 000s) |   |   | 9 Months Ended(dollars in 000s) |   |
|------------------------------------------------------------------------|--------|---------------------------------|--------|--------|---------------------------------|--------|
|                                                                   |   | 9/30/10                         |   |   | 9/30/09                         |   |   | 9/30/10 |   |   | 9/30/09 |   |
| Net unrealized gains (losses) on securities available for sale:        |   |                            |   |   |                            |   |   |   |   |   |   |   |
| Net unrealized holding gains (losses) during the year                  |   | $                               | (38    | )      |                            | $      | 339 |   |   | $ | 1,607 |   |   | $ | 887 |   |
| Reclassification adjustment for gains realized in income, net of taxes |   |                            | -      |   |                            |   | (463 | ) |   |   | - |   |   |   | (640 | ) |
| Income tax (expense) benefit                                           |   |                            | 13     |   |                            |   | (115 | ) |   |   | (546 | ) |   |   | (302 | ) |
| Other comprehensive income (loss), net of income taxes                 |   | $                               | (25    | )      |                            | $      | (239 | ) |   | $ | 1,061 |   |   | $ | (55 | ) |

----

|   September 30, 2010 |   | OptionsOutstanding |    |   | Weighted AverageExercisePrice |   |   | Weighted Average Grant Date Fair Value |   |   | Intrinsic Value of Options Exercised |   |  WeightedAverageContractualTerm |
|--------------------------------|--------|--------------------|---------|--------|-------------------------------|--------|--------|----------------------------------------|--------|--------|--------------------------------------|--------|--------------------------------------|
| Balance at 12/31/09            |   |               | 237,850 |   |                          | $      | 8.77   |                                   |   | $      | 2.76                                 |   |                                 | $ | 12 |   | 6.65 years |
|                           |   |               |    |   |                          |   |   |                                   |   |   |                                 |   |                                 |   |   |   |   |
| Granted                        |   |               | 9,200   |   |                          |   | 3.94   |                                   |   |   | 1.38                                 |   |                                 |   | - |   |   |
| Forfeited                      |   |               | (15,600 | )      |                          |   | 10.33  |                                   |   |   | 3.51                                 |   |                                 |   |   |   |   |
|                           |   |               |    |   |                          |   |   |                                   |   |   |                                 |   |                                 |   |   |   |   |
| Balance at 9/30/10             |   |               | 231,450 |   |                          | $      | 8.47   |                                   |   | $      | 2.65                                 |   |                                 | $ | 17 |   | 6.01 years |
|                           |   |               |    |   |                          |   |   |                                   |   |   |                                 |   |                                 |   |   |   |   |
| Exercisable at 9/30/10         |   |               | 131,428 |   |                          | $      | 9.97   |                                   |   | $      | 3.04                                 |   |                                 |   | n/a |   | 4.34 years |
|                           |   |               |    |   |                          |   |   |                                   |   |   |                                 |   |                                 |   |   |   |   |

|   September 30, 2009 |   |  OptionsOutstanding |    |   | Weighted AverageExercisePrice |   |   | Weighted Average Grant Date Fair Value |   |   | Intrinsic Value of Options Exercised |   |  WeightedAverageContractualTerm |
|--------------------------------|--------|--------------------------|---------|--------|-------------------------------|--------|--------|----------------------------------------|--------|--------|--------------------------------------|--------|--------------------------------------|
| Balance at 12/31/08            |   |                     | 256,982 |   |                          | $      | 8.79   |                                   |   | $      | 2.66                                 |   |                                 | $ | 302 |   | 5.97 years |
|                           |   |                     |    |   |                          |   |   |                                   |   |   |                                 |   |                                 |   |   |   |   |
| Exercised                      |   |                     | (1,400  | )      |                          |   | 5.08   |                                   |   |   | 0.95                                 |   |                                 |   | - |   |   |
| Forfeited                      |   |                     | (2,500  | )      |                          |   | 11.01  |                                   |   |   | 4.03                                 |   |                                 |   |   |   |   |
| Granted                        |   |                     | 2,000   |   |                          |   | 5.11   |                                   |   |   | 1.49                                 |   |                                 |   |   |   |   |
| Expired                        |   |                     | (33,250 | )      |                          |   | 5.08   |                                   |   |   | 0.95                                 |   |                                 |   |   |   |   |
| Balance at 9/30/09             |   |                     | 221,832 |   |                          | $      | 9.32   |                                   |   | $      | 2.90                                 |   |                                 | $ | - |   | 6.15 years |
|                           |   |                     |    |   |                          |   |   |                                   |   |   |                                 |   |                                 |   |   |   |   |
| Exercisable at 9/30/09         |   |                     | 119,722 |   |                          | $      | 9.69   |                                   |   | $      | 2.79                                 |   |                                 | $ | n/a |   | 4.33 years |
|                           |   |                     |    |   |                          |   |   |                                   |   |   |                                 |   |                                 |   |   |   |   |

----

|                                           |   | 3 Months Ended(dollars in 000s) |   |   | 9 Months Ended(dollars in 000s) |   |
|------------------------------------------------|--------|---------------------------------|--------|--------|---------------------------------|--------|
|                                           |   | 9/30/10                         |   |   | 9/30/09                         |   |   | 9/30/10 |   |   | 9/30/09 |   |
| Number of options vested:                      |   |                            | 7,000  |   |                            |   | 7,560 |   |   |   | 16,480 |   |   |   | 17,740 |   |
| Total grant date fair value of options vested: |   | $                               | 35     |   |                            | $      | 37 |   |   | $ | 67 |   |   | $ | 73 |   |

|                    |   | Non-VestedRestricted StockOutstanding |   |   | Weighted AverageGrant DateFair Value |   |
|-------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                    |   |                                  |   |   |                                 |   |
| Outstanding at 12/31/09 |   |                                  | 30,000 |   |                                 | $      | 4.62 |   |
|                    |   |                                  |   |   |                                 |   |   |   |
| Granted                 |   |                                  | 36,195 |   |                                 | $      | 4.05 |   |
| Forfeited               |   |                                  | (2,000 | )      |                                 | $      | 6.00 |   |
|                    |   |                                  |   |   |                                 |   |   |   |
| Outstanding at 9/30/10  |   |                                  | 64,195 |   |                                 | $      | 4.26 |   |

|  (in 000’s)                                           |   | Total  |    |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|------------------------------------------------------------------|--------|--------|---------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
| Investment securities available-for-sale:                        |   |   |    |   |    |   |   |    |   |   |    |   |
|      U.S. Government and federal agency |   | $      | 7,003   |   |    | $      | -      |    |   | $      | 7,003   |   |   | $ | - |   |
|      Government-sponsored enterprises   |   |   | 11,742  |   |    |   | -      |    |   |   | 11,742  |   |   |   | - |   |
|      Mortgage-backed securities         |   |   | 73,881  |   |    |   | -      |    |   |   | 73,881  |   |   |   | - |   |
|      States and political subdivisions  |   |   | 9,949   |   |    |   | -      |    |   |   | 9,949   |   |   |   | - |   |
| Total assets at fair value                                       |   | $      | 102,575 |   |    | $      | -      |    |   | $      | 102,575 |   |   | $ | - |   |
|                                                             |   |   |    |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Total liabilities at fair value                                  |   | $      | -       |   |    | $      | -      |    |   | $      | -       |   |   | $ | - |   |
|                                                             |   |   |    |   |    |   |   |    |   |   |    |   |   |   |   |   |

----

|  (in 000’s)                                                                             |   | Total  |   |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|----------------------------------------------------------------------------------------------------|--------|--------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
| Impaired loans                                                                                     |   |   |   |   |    |   |   |    |   |   |    |   |
|      Commercial                                                           |   | $      | 4,564  |   |    | $      | -      |    |   | $      | 4,564   |   |   | $ | - |   |
|      Commercial Real Estate                                               |   |   | 14,659 |   |    |   | -      |    |   |   | 14,659  |   |   |   | - |   |
|      Residential Real Estate                                              |   |   | 4,505  |   |    |   | -      |    |   |   | 4,505   |   |   |   | - |   |
|      Construction Real Estate                                             |   |   | 10,959 |   |    |   | -      |    |   |   | 10,959  |   |   |   | - |   |
|             Total impaired loans       |   |   | 34,687 |   |    |   | -      |    |   |   | 34,687  |   |   |   | - |   |
| Foreclosed assets                                                                                  |   |   | 18,608 |   |    |   | -      |    |   |   | 18,608  |   |   |   | - |   |
|             Total assets at fair value |   | $      | 53,295 |   |    | $      | -      |    |   | $      | 53,295  |   |   | $ | - |   |
|                                                                                               |   |   |   |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Total liabilities at fair value                                                                    |   | $      | -      |   |    | $      | -      |    |   | $      | -       |   |   | $ | - |   |

|                                                             |   | September 30, 2010 |    |   | December 31, 2009      |   |
|------------------------------------------------------------------|--------|--------------------|---------|--------|------------------------|--------|
| (in 000’s)                                                 |   | CarryingAmounts    |    |   | ApproximateFair Values |   |   | CarryingAmounts |   |   | ApproximateFair Values |   |
| Financial assets                                                 |   |               |    |   |                   |   |   |   |   |   |   |   |
|    Cash and due from banks                        |   | $                  | 6,296   |   |                   | $      | 6,296 |   |   | $ | 8,179 |   |   | $ | 8,179 |   |
|    Interest-bearing deposits in banks             |   |               | 76,993  |   |                   |   | 76,993 |   |   |   | 23,699 |   |   |   | 23,699 |   |
|    Securities available-for-sale                  |   |               | 102,575 |   |                   |   | 102,575 |   |   |   | 70,485 |   |   |   | 70,485 |   |
|    Securities held-to-maturity                    |   |               | 10,082  |   |                   |   | 10,415 |   |   |   | 11,991 |   |   |   | 12,246 |   |
|    Restricted equity securities                   |   |               | 5,828   |   |                   |   | 5,828 |   |   |   | 6,172 |   |   |   | 6,172 |   |
|    Loans, net                                     |   |               | 527,448 |   |                   |   | 533,718 |   |   |   | 556,391 |   |   |   | 557,975 |   |
|    Bank owned life insurance                      |   |               | 14,336  |   |                   |   | 14,336 |   |   |   | 12,930 |   |   |   | 12,930 |   |
|    Foreclosed Assets                              |   |               | 18,608  |   |                   |   | 18,608 |   |   |   | 2,513 |   |   |   | 2,513 |   |
|                                                             |   |               |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities                                            |   |               |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
|    Total deposits                                 |   |               | 626,140 |   |                   |   | 627,794 |   |   |   | 552,928 |   |   |   | 553,908 |   |
|    Securities sold under agreements to repurchase |   |               | 17,019  |   |                   |   | 17,019 |   |   |   | 21,304 |   |   |   | 21,304 |   |
|    Short-term borrowings                          |   |               | 20,000  |   |                   |   | 20,000 |   |   |   | 20,000 |   |   |   | 20,000 |   |
|     Long-term borrowings                     |   |               | 43,000  |   |                   |   | 47,842 |   |   |   | 48,000 |   |   |   | 51,403 |   |
|     Junior subordinated debentures           |   |               | 16,496  |   |                   |   | 15,866 |   |   |   | 16,496 |   |   |   | 15,864 |   |

----

----

|   | · | the Company added new specific loan loss reserves totaling $1,047,000 on commercial real estate, residential real estate and construction and development relationships as a result of continued market devaluation; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the Company successfully resolved two problem loan relationships without incurring any principal or interest loss to the Bank and as a result, reversed $680,000 in specific loan loss reserves; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the Company recorded a reduction to general loan loss reserves of $135,000 as a result of the reduction in the loan portfolio balances. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Service charge revenue increased $55,000, or 18.0%, from $306,000 to $361,000. |
|--------|--------|--------------------------------------------------------------------------------|

|   | · | Valley Wealth Management Services grew revenues by $68,000, or 119.0%, from $57,000 to $125,000. |
|--------|--------|--------------------------------------------------------------------------------------------------|

|   | · | Revenue from the sale of mortgages into the secondary market increased $52,000, or 149.0%, from $35,000 to $87,000. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------|

|   | · | Rental income from foreclosed property was $96,000 in current period compared to $0 in the same three-month period last year. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------|

|   | · | Gains from partnership interests were $110,000 in the current period compared to $0 in the same three-month period last year. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------|

| Key Performance Ratios (1)       |   |
|---------------------------------------|--------|
|                                  |   |   |   |   |   |   |   |   |   |
|                                  |   | 9 months |   |   | 12 months |   |   | 9 months |   |
|                                  |   | Ended |   |   | Ended |   |   | Ended |   |
|                                  |   | 9/30/10 |   |   | 12/31/09 |   |   | 9/30/09 |   |
| Return on average assets              |   |   | 0.56 | % |   |   | (0.81 | %) |   |   | (0.57 | %) |
| Return on average equity (2)          |   |   | 7.92 | % |   |   | (10.03 | %) |   |   | (6.93 | %) |
| Net interest margin (3)               |   |   | 2.91 | % |   |   | 2.99 | % |   |   | 2.99 | % |
| Cost of funds                         |   |   | 1.82 | % |   |   | 2.26 | % |   |   | 2.33 | % |
| Yield on earning assets               |   |   | 4.67 | % |   |   | 5.14 | % |   |   | 5.20 | % |
| Basic net earnings per common share   |   | $ | 0.52 |   |   | $ | (1.42 | ) |   | $ | (0.79 | ) |
| Diluted net earnings per common share |   | $ | 0.52 |   |   | $ | (1.42 | ) |   | $ | (0.79 | ) |

|                                              |   | Nine months ended 9/30/10 |   |   | Twelve months ended 12/31/09 |   |   | Nine months ended 9/30/09 |   |
|---------------------------------------------------|--------|---------------------------|--------|--------|------------------------------|--------|--------|---------------------------|--------|
| Net interest income, non tax-equivalent           |   | $                         | 15,255 |   |                         | $      | 19,824 |                      |   | $ | 14,644 |   |
| Less: tax-exempt interest income                  |   |                      | (401   | )      |                         |   | (511   | )                         |   |   | (389 | ) |
| Add: tax-equivalent of tax-exempt interest income |   |                      | 608    |   |                         |   | 774    |                      |   |   | 589 |   |
| Net interest income, tax-equivalent               |   | $                         | 15,462 |   |                         | $      | 20,087 |                      |   | $ | 14,844 |   |

----

|  Ratio  |   | Well Capitalized |   |  9/30/10 |   |  12/31/09 |   | 9/30/09 |
|--------------|--------|------------------|--------|---------------|--------|----------------|--------|---------|
|  Tier 1 |   | 6.0%             |   | 12.4%         |   | 11.7%          |   | 11.9%   |
| Total        |   | 10.0%            |   | 13.6%         |   | 13.0%          |   | 13.2%   |
| Leverage     |   | 5.0%             |   | 9.1%          |   | 9.4%           |   | 10.0%   |

|  Ratio |   | Well Capitalized |   |  9/30/10 |   |  12/31/09 |   | 9/30/09 |
|-------------|--------|------------------|--------|---------------|--------|----------------|--------|---------|
| Tier 1      |   | 6.0%             |   | 11.3%         |   | 10.6%          |   | 10.8%   |
| Total       |   | 10.0%            |   | 12.5%         |   | 11.9%          |   | 12.1%   |
| Leverage    |   | 5.0%             |   | 8.3%          |   | 8.5%           |   | 9.1%    |

| Key Growth Indicators |   |
|-----------------------|--------|
| (dollars in 000s)     |   |
|                  |   |   |   |   |   |   |   |   |   |
|                  |   | 9/30/10 |   |   | 12/31/09 |   |   | 9/30/09 |   |
| Investment securities |   | $ | 118,485 |   |   | $ | 88,648 |   |   | $ | 72,192 |   |
| Loans, net            |   | $ | 527,448 |   |   | $ | 556,391 |   |   | $ | 574,662 |   |
| Deposits              |   | $ | 626,140 |   |   | $ | 552,928 |   |   | $ | 544,312 |   |
| Total assets          |   | $ | 781,939 |   |   | $ | 713,725 |   |   | $ | 710,635 |   |

----

| Non-performing Assets                        |   |
|----------------------------------------------|--------|
| (dollars in 000s)                            |   |
|                                         |   |   |   |   |   |   |   |   |   |
|                                         |   | 9/30/10 |   |   | 12/31/09 |   |   | 9/30/09 |   |
| Nonaccrual loans                             |   | $ | 16,474 |   |   | $ | 28,568 |   |   | $ | 17,285 |   |
| Loans past due 90 days or more               |   |   | 2,231 |   |   |   | 24 |   |   |   | 2,217 |   |
| Restructured loans                           |   |   | - |   |   |   | - |   |   |   | 42 |   |
| Total nonperforming loans                    |   | $ | 18,705 |   |   | $ | 28,592 |   |   | $ | 19,544 |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreclosed, repossessed and idled properties |   |   | 18,608 |   |   |   | 2,513 |   |   |   | 2,018 |   |
| Total nonperforming assets                   |   | $ | 37,313 |   |   | $ | 31,105 |   |   | $ | 21,562 |   |

----

----

----

----

| ExhibitNumber |   |  Description                                                                                                                                                                                   |
|---------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |   |                                                                                                                                                                                                |
| 10.1          |   | Written Agreement between the Federal Reserve Bank of Richmond and the Company (incorporated herein by reference to Exhibit 10.1 of Form 8-K, filed October 6, 2010, File No.  33-77568). |
|          |   |                                                                                                                                                                                                |
| 31.1          |   | Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                   |
|          |   |                                                                                                                                                                                                |
| 31.2          |   | Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                   |
|          |   |                                                                                                                                                                                                |
| 32.1          |   | Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                    |
|          |   |                                                                                                                                                                                                |
| 32.2          |   | Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                    |

----

|              |   |                                                                     |   |
|-------------------|--------|--------------------------------------------------------------------------|--------|
|              |   | VALLEY FINANCIAL CORPORATION                                             |
|              |   |                                                                     |   |
|              |   |                                                                     |   |
|              |   |                                                                     |   |
| November 12, 2010 |   |  /s/ Ellis L. Gutshall                                              |   |
| Date              |   | Ellis L. Gutshall, President and ChiefExecutive Officer                  |   |
|              |   |                                                                     |   |
|              |   |                                                                     |   |
|              |   |                                                                     |   |
| November 12, 2010 |   |  /s/ Kimberly B. Snyder                                             |   |
| Date              |   | Kimberly B. Snyder, Executive Vice President and Chief Financial Officer |   |
|              |   |                                                                     |   |

----

| ExhibitNumber |   |  Description                                                                                                                                                                                   |
|---------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |   |                                                                                                                                                                                                |
| 10.1          |   | Written Agreement between the Federal Reserve Bank of Richmond and the Company (incorporated herein by reference to Exhibit 10.1 of Form 8-K, filed October 6, 2010, File No.  33-77568). |
|          |   |                                                                                                                                                                                                |
| 31.1          |   | Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                   |
|          |   |                                                                                                                                                                                                |
| 31.2          |   | Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                   |
|          |   |                                                                                                                                                                                                |
| 32.1          |   | Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                    |
|          |   |                                                                                                                                                                                                |
| 32.2          |   | Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                    |