----

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| [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(State or other jurisdiction of incorporation or organization)          |   | 54-1702380(I.R.S. Employer Identification No.) |
|---------------------------------------------------------------------------------|--------|------------------------------------------------|
|                                                                            |   |                                           |
| 36 Church Avenue, S.W.Roanoke, Virginia(Address of principal executive offices) |   |  24011(Zip Code)                          |

----

----

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|                                     |    |                                                                                  |   |
|------------------------------------------|---------|---------------------------------------------------------------------------------------|--------|
| 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 | 26     |
|                                     |    |                                                                                  |   |
|                                     | Item 3  | Quantitative and Qualitative Disclosures about Market Risk                            | 33     |
|                                     |    |                                                                                  |   |
|                                     | Item 4  | Controls and Procedures                                                               | 34     |
|                                     |    |                                                                                  |   |
| Part II.  OTHER INFORMATION    |    |
|                                     |    |                                                                                  |   |
|                                     | Item 1  | Legal Proceedings                                                                     | 34     |
|                                     | Item 1A | Risk Factors                                                                          | 34     |
|                                     | Item 2  | Unregistered Sales of Equity Securities and Use of Proceeds                           | 34     |
|                                     | Item 3  | Defaults Upon Senior Securities                                                       | 34     |
|                                     | Item 4  | (Removed and Reserved)                                                                | 34     |
|                                     | Item 5  | Other Information                                                                     | 35     |
|                                     | Item 6  | Exhibits                                                                              | 35     |
|                                     |    |                                                                                  |   |
| SIGNATURES                               | 36      |
|                                     |    |                                                                                  |   |
| EXHIBITS INDEX                           | 37      |
|                                     |    |                                                                                  |   |
| CERTIFICATIONS                           | 45      |

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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)3/31/11 |    |   | (Audited)12/31/10 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
| Assets                                                                                                                                                                               |   |               |    |   |              |   |
|  Cash and due from banks                                                                                                                                                        |   | $                  | 5,651   |   |              | $      | 4,318 |   |
| Interest-bearing deposits in banks                                                                                                                                                   |   |               | 63,450  |   |              |   | 19,994 |   |
|              Total cash and cash equivalents                                                                        |   |               | 69,101  |   |              |   | 24,312 |   |
|                                                                                                                                                                                 |   |               |    |   |              |   |   |   |
| Securities available-for-sale                                                                                                                                                        |   |               | 143,073 |   |              |   | 145,894 |   |
| Securities held-to-maturity (fair value:  3/31/11: $6,906  ; 12/31/10: $7,868)                                                                                   |   |               | 6,640   |   |              |   | 7,634 |   |
| Restricted equity securities                                                                                                                                                         |   |               | 5,661   |   |              |   | 5,661 |   |
| Loans, net of allowance for loan losses, 3/31/11: $10,500 ; 12/31/10:  $11,003                                                                                             |   |               | 525,558 |   |              |   | 533,291 |   |
| Foreclosed assets                                                                                                                                                                    |   |               | 15,887  |   |              |   | 16,081 |   |
| Premises and equipment, net                                                                                                                                                          |   |               | 7,709   |   |              |   | 7,736 |   |
| Bank owned life insurance                                                                                                                                                            |   |               | 14,618  |   |              |   | 14,475 |   |
| Accrued interest receivable                                                                                                                                                          |   |               | 2,555   |   |              |   | 2,274 |   |
| Other assets                                                                                                                                                                         |   |               | 8,601   |   |              |   | 10,230 |   |
| Total assets                                                                                                                                                                         |   | $                  | 799,403 |   |              | $      | 767,588 |   |
|                                                                                                                                                                                 |   |               |    |   |              |   |   |   |
|                                                                                                                                                                                 |   |               |    |   |              |   |   |   |
| Liabilities and Shareholders’ Equity                                                                                                                                           |   |               |    |   |              |   |   |   |
| Liabilities:                                                                                                                                                                         |   |               |    |   |              |   |   |   |
| Noninterest-bearing deposits                                                                                                                                                         |   | $                  | 17,039  |   |              | $      | 17,768 |   |
| Interest-bearing deposits                                                                                                                                                            |   |               | 639,706 |   |              |   | 609,644 |   |
| Total deposits                                                                                                                                                                       |   |               | 656,745 |   |              |   | 627,412 |   |
|                                                                                                                                                                                 |   |               |    |   |              |   |   |   |
| Federal funds purchased and securities sold under agreements to repurchase                                                                                                           |   |               | 17,558  |   |              |   | 17,296 |   |
| Short-term borrowings                                                                                                                                                                |   |               | 15,000  |   |              |   | 5,000 |   |
| Long-term borrowings                                                                                                                                                                 |   |               | 33,000  |   |              |   | 43,000 |   |
| Junior subordinated debentures                                                                                                                                                       |   |               | 16,496  |   |              |   | 16,496 |   |
| Accrued interest payable                                                                                                                                                             |   |               | 1,017   |   |              |   | 1,058 |   |
| Other liabilities                                                                                                                                                                    |   |               | 3,762   |   |              |   | 3,398 |   |
| Total liabilities                                                                                                                                                                    |   |               | 743,578 |   |              |   | 713,660 |   |
|                                                                                                                                                                                 |   |               |    |   |              |   |   |   |
| Commitments and contingencies                                                                                                                                                        |   |               | -       |   |              |   | - |   |
|                                                                                                                                                                                 |   |               |    |   |              |   |   |   |
| Shareholders' equity:                                                                                                                                                                |   |               |    |   |              |   |   |   |
| Preferred stock, no par value; 10,000,000 shares authorized; 16,019 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively                              |   |               | 15,535  |   |              |   | 15,494 |   |
| Common stock, no par value; 10,000,000 shares authorized; 4,697,256 shares issued and outstanding at March 31, 2011 and 4,680,251 shares issued and outstanding at December 31, 2010 |   |               | 23,598  |   |              |   | 23,542 |   |
| Retained earnings                                                                                                                                                                    |   |               | 17,071  |   |              |   | 16,011 |   |
| Accumulated other comprehensive loss                                                                                                                                                 |   |               | (379    | )      |              |   | (1,119 | ) |
| Total shareholders’ equity                                                                                                                                                     |   |               | 55,825  |   |              |   | 53,928 |   |
| Total liabilities and shareholders’ equity                                                                                                                                     |   | $                  | 799,403 |   |              | $      | 767,588 |   |
| See accompanying notes to consolidated financial statements                                                                                                                          |   |

----

|                                                                                                    |   | Three Months Ended |      |
|---------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|
|                                                                                                    |   | 3/31/11            |      |   | 3/31/10 |   |
| Interest Income:                                                                                        |   |               |      |   |   |   |
|      Interest and fees on loans                                                |   | $                  | 7,051     |   |   | $ | 7,331 |   |
|      Interest on securities–taxable                                      |   |               | 1,013     |   |   |   | 716 |   |
|      Interest on securities-nontaxable                                         |   |               | 160       |   |   |   | 121 |   |
|      Interest on deposits in banks                                             |   |               | 19        |   |   |   | 19 |   |
|           Total interest income                       |   |               | 8,243     |   |   |   | 8,187 |   |
| Interest Expense:                                                                                       |   |               |      |   |   |   |   |   |
|      Interest on deposits                                                      |   |               | 1,794     |   |   |   | 2,428 |   |
|      Interest on short-term borrowings                                         |   |               | 33        |   |   |   | 258 |   |
|      Interest on long-term borrowings                                          |   |               | 396       |   |   |   | 423 |   |
|      Interest on junior subordinated debentures                                |   |               | 93        |   |   |   | 89 |   |
|      Interest on federal funds purchased and securities sold                   |   |               |      |   |   |   |   |   |
|          under agreements to repurchase                    |   |               | 11        |   |   |   | 11 |   |
|           Total interest expense                      |   |               | 2,327     |   |   |   | 3,209 |   |
|           Net interest income                         |   |               | 5,916     |   |   |   | 4,978 |   |
| Provision for loan losses                                                                               |   |               | (436      | ) |   |   | 208 |   |
|      Net interest income after provision for loan losses                       |   |               | 6,352     |   |   |   | 4,770 |   |
|                                                                                                    |   |               |      |   |   |   |   |   |
| Noninterest Income:                                                                                     |   |               |      |   |   |   |   |   |
| Service charges on deposit accounts                                                                     |   |               | 331       |   |   |   | 307 |   |
| Income earned on bank owned life insurance                                                              |   |               | 143       |   |   |   | 134 |   |
| Mortgage fee income                                                                                     |   |               | 67        |   |   |   | 16 |   |
| Brokerage fee income, net                                                                               |   |               | 55        |   |   |   | 59 |   |
| Realized gain on sale of securities                                                                     |   |               | 14        |   |   |   | - |   |
| Other income                                                                                            |   |               | 31        |   |   |   | 21 |   |
|         Total noninterest income                                |   |               | 641       |   |   |   | 537 |   |
|                                                                                                    |   |               |      |   |   |   |   |   |
| Noninterest Expense:                                                                                    |   |               |      |   |   |   |   |   |
| Compensation expense                                                                                    |   |               | 2,347     |   |   |   | 1,985 |   |
| Occupancy and equipment expense                                                                         |   |               | 393       |   |   |   | 397 |   |
| Data processing expense                                                                                 |   |               | 273       |   |   |   | 282 |   |
| Advertising and marketing expense                                                                       |   |               | 79        |   |   |   | 117 |   |
| Insurance expense                                                                                       |   |               | 1,047     |   |   |   | 362 |   |
| Audit expense                                                                                           |   |               | 61        |   |   |   | 64 |   |
| Legal expense                                                                                           |   |               | 303       |   |   |   | 88 |   |
| Franchise tax expense                                                                                   |   |               | 124       |   |   |   | 123 |   |
| Deposit expense                                                                                         |   |               | 104       |   |   |   | 93 |   |
| Loan expense                                                                                            |   |               | 53        |   |   |   | 78 |   |
| Computer software expense                                                                               |   |               | 89        |   |   |   | 97 |   |
| Consulting expense                                                                                      |   |               | 97        |   |   |   | 99 |   |
| Foreclosed asset expense, net                                                                           |   |               | 199       |   |   |   | 78 |   |
| Other expense                                                                                           |   |               | 289       |   |   |   | 322 |   |
|           Total noninterest expense                   |   |               | 5,458     |   |   |   | 4,185 |   |
|           Income before income taxes                  |   |               | 1,535     |   |   |   | 1,122 |   |
|                                                                                                    |   |               |      |   |   |   |   |   |
| Income tax expense                                                                                      |   |               | 434       |   |   |   | 274 |   |
|           Net income                                  |   | $                  | 1,101     |   |   | $ | 848 |   |
| Preferred dividends and accretion of discounts on warrants                                              |   |               | 242       |   |   |   | 239 |   |
|           Net income available to common shareholders |   | $                  | 859       |   |   | $ | 609 |   |
|                                                                                                    |   |               |      |   |   |   |   |   |
| Earnings per share                                                                                      |   |               |      |   |   |   |   |   |
| Basic earnings per common share                                                                         |   | $                  | 0.18      |   |   | $ | 0.13 |   |
| Diluted earnings per common share                                                                       |   | $                  | 0.18      |   |   | $ | 0.13 |   |
| Weighted average shares outstanding                                                                     |   |               | 4,688,286 |   |   |   | 4,680,251 |   |
| Diluted average shares outstanding                                                                      |   |               | 4,714,961 |   |   |   | 4,685,799 |   |
| Dividends declared per common share                                                                     |   | $                  | -         |   |   | $ | - |   |

----

|                                                                                                        |   | Three Months Ended |    |
|-------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|
|                                                                                                        |   | 3/31/11            |    |   | 3/31/10 |   |
| Cash flows from operating activities                                                                        |   |               |    |   |   |   |
| Net income                                                                                                  |   | $                  | 1,101   |   |   | $ | 848 |   |
| Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:      |   |               |    |   |   |   |   |   |
| Provision for loan losses                                                                                   |   |               | (436    | ) |   |   | 208 |   |
| Depreciation and amortization of bank premises, equipment and software                                      |   |               | 186     |   |   |   | 206 |   |
| Stock compensation expense                                                                                  |   |               | 56      |   |   |   | 46 |   |
| (Increase) decrease in deferred income tax                                                                  |   |               | 432     |   |   |   | (113 | ) |
| Net gains on sale of securities                                                                             |   |               | (14     | ) |   |   | - |   |
| Net (gains) losses on foreclosed and repossessed assets                                                     |   |               | 88      |   |   |   | (18 | ) |
| Net losses on equipment disposals                                                                           |   |               | 23      |   |   |   | 5 |   |
| Net amortization of bond premiums/discounts                                                                 |   |               | 380     |   |   |   | 159 |   |
| (Increase) decrease in unearned loan fees                                                                   |   |               | 1       |   |   |   | (28 | ) |
| (Increase) decrease in accrued interest receivable                                                          |   |               | (281    | ) |   |   | 22 |   |
| (Increase) decrease in other assets                                                                         |   |               | 1,177   |   |   |   | (420 | ) |
| Increase in value of life insurance contracts                                                               |   |               | (143    | ) |   |   | (134 | ) |
| Decrease in accrued interest payable                                                                        |   |               | (41     | ) |   |   | (717 | ) |
| Increase in other liabilities                                                                               |   |               | 364     |   |   |   | 1,947 |   |
| Net cash and cash equivalents provided by operating activities                                              |   |               | 2,893   |   |   |   | 2,011 |   |
|                                                                                                        |   |               |    |   |   |   |   |   |
| Cash flows from investing activities                                                                        |   |               |    |   |   |   |   |   |
| Purchases of bank premises, equipment and software                                                          |   |               | (162    | ) |   |   | (79 | ) |
| Purchases of securities available-for-sale                                                                  |   |               | (12,897 | ) |   |   | (14,829 | ) |
| Proceeds from sales/calls/paydowns/maturities of securities available-for-sale                              |   |               | 16,091  |   |   |   | 9,119 |   |
| Proceeds from sales/calls/paydowns/maturities of securities held-to-maturity                                |   |               | 995     |   |   |   | 503 |   |
| Proceeds from sale of foreclosed and repossessed assets                                                     |   |               | 1,708   |   |   |   | 76 |   |
| Capitalized costs related to foreclosed assets                                                              |   |               | -       |   |   |   | (398 | ) |
| Decrease in loans, net                                                                                      |   |               | 6,566   |   |   |   | 1,754 |   |
| Net cash and cash equivalents provided by / (used in) investing activities                                  |   |               | 12,301  |   |   |   | (3,854 | ) |
|                                                                                                        |   |               |    |   |   |   |   |   |
| Cash flows from financing activities                                                                        |   |               |    |   |   |   |   |   |
| Increase (decrease) in non-interest bearing deposits                                                        |   |               | (729    | ) |   |   | 3,159 |   |
| Increase in interest bearing deposits                                                                       |   |               | 30,062  |   |   |   | 22,379 |   |
| Proceeds from short-term borrowings                                                                         |   |               | 15,000  |   |   |   | - |   |
| Principal repayments of short-term borrowings                                                               |   |               | (5,000  | ) |   |   | - |   |
| Principal repayments of long-term borrowings                                                                |   |               | (10,000 | ) |   |   | - |   |
| Increase (decrease) in securities sold under agreements to repurchase                                       |   |               | 262     |   |   |   | (3,336 | ) |
| Cash dividends paid                                                                                         |   |               | -       |   |   |   | (200 | ) |
| Net cash and cash equivalents provided by financing activities                                              |   |               | 29,595  |   |   |   | 22,002 |   |
| Net increase in cash and cash equivalents                                                                   |   |               | 44,789  |   |   |   | 20,159 |   |
|                                                                                                        |   |               |    |   |   |   |   |   |
| Cash and cash equivalents at beginning of year                                                              |   |               | 24,312  |   |   |   | 31,878 |   |
| Cash and cash equivalents at end of year                                                                    |   | $                  | 69,101  |   |   | $ | 52,037 |   |
|                                                                                                        |   |               |    |   |   |   |   |   |
| Supplemental disclosure of cash flow information                                                            |   |               |    |   |   |   |   |   |
|         Cash paid during the period for interest                    |   | $                  | 2,368   |   |   | $ | 3,926 |   |
|         Cash paid during the period for income taxes                |   | $                  | -       |   |   | $ | - |   |
|                                                                                                        |   |               |    |   |   |   |   |   |
| Noncash financing and investing activities                                                                  |   |               |    |   |   |   |   |   |
|         Transfer of loans to foreclosed property                    |   | $                  | 1,602   |   |   | $ | 405 |   |
|         Reclassification of borrowings from long-term to short-term |   | $                  | -       |   |   | $ | 5,000 |   |
|                                                                                                        |   |               |    |   |   |   |   |   |
| See accompanying notes to consolidated financial statements.                                                |   |               |    |   |   |   |   |   |

----

|                                |   | AmortizedCosts |    |   | UnrealizedGains |   |   | UnrealizedLosses |   |   | FairValues |   |
|-------------------------------------|--------|----------------|---------|--------|-----------------|--------|--------|------------------|--------|--------|------------|--------|
| March 31, 2011                      |   |           |    |   |            |   |   |             |   |   |       |   |
| U.S. Government and federal agency  |   | $              | 6,669   |   |            | $      | 90     |             |   | $      | (145       | )      |   | $ | 6,614 |   |
| Government-sponsored enterprises    |   |           | 41,694  |   |            |   | 14     |             |   |   | (883       | )      |   |   | 40,825 |   |
| Mortgage-backed securities          |   |           | 69,734  |   |            |   | 551    |             |   |   | (414       | )      |   |   | 69,871 |   |
| Collateralized mortgage obligations |   |           | 10,165  |   |            |   | 370    |             |   |   | (1         | )      |   |   | 10,534 |   |
| States and political subdivisions   |   |           | 15,385  |   |            |   | 137    |             |   |   | (293       | )      |   |   | 15,229 |   |
|                                |   | $              | 143,647 |   |            | $      | 1,162  |             |   | $      | (1,736     | )      |   | $ | 143,073 |   |

| December 31, 2010                   |   |   |    |   |   |   |   |   |   |   |   |   |
|-------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| U.S. Government and federal agency  |   | $      | 6,892   |   |   | $      | 71     |   |   | $      | (143   | )      |   | $ | 6,820 |   |
| Government-sponsored enterprises    |   |   | 34,695  |   |   |   | -      |   |   |   | (1,198 | )      |   |   | 33,497 |   |
| Mortgage-backed securities          |   |   | 76,724  |   |   |   | 376    |   |   |   | (889   | )      |   |   | 76,211 |   |
| Collateralized mortgage obligations |   |   | 13,599  |   |   |   | 533    |   |   |   | (1     | )      |   |   | 14,131 |   |
| States and political subdivisions   |   |   | 15,680  |   |   |   | 93     |   |   |   | (538   | )      |   |   | 15,235 |   |
|                                |   | $      | 147,590 |   |   | $      | 1,073  |   |   | $      | (2,769 | )      |   | $ | 145,894 |   |

----

|                                |   | AmortizedCosts |   |   | UnrealizedGains |   |   | UnrealizedLosses |   |   | FairValues |   |
|-------------------------------------|--------|----------------|--------|--------|-----------------|--------|--------|------------------|--------|--------|------------|--------|
| March 31, 2011                      |   |           |   |   |            |   |   |             |   |   |       |   |
| Mortgage-backed securities          |   | $              | 479    |   |            | $      | 27     |             |   | $      | -          |   |   | $ | 506 |   |
| Collateralized mortgage obligations |   |           | 3,400  |   |            |   | 189    |             |   |   | -          |   |   |   | 3,589 |   |
| States and political subdivisions   |   |           | 2,761  |   |            |   | 78     |             |   |   | (28        | )      |   |   | 2,811 |   |
|                                |   | $              | 6,640  |   |            | $      | 294    |             |   | $      | (28        | )      |   | $ | 6,906 |   |
| December 31, 2010                   |   |           |   |   |            |   |   |             |   |   |       |   |   |   |   |   |
| Mortgage-backed securities          |   | $              | 573    |   |            | $      | 30     |             |   | $      | -          |   |   | $ | 603 |   |
| Collateralized mortgage obligations |   |           | 3,707  |   |            |   | 152    |             |   |   | -          |   |   |   | 3,859 |   |
| States and political subdivisions   |   |           | 3,354  |   |            |   | 85     |             |   |   | (33        | )      |   |   | 3,406 |   |
|                                |   | $              | 7,634  |   |            | $      | 267    |             |   | $      | (33        | )      |   | $ | 7,868 |   |

|                                    |   | Available for Sale |    |   | Held to Maturity |   |
|-----------------------------------------|--------|--------------------|---------|--------|------------------|--------|
|  In thousands                      |   | AmortizedCosts     |    |   | FairValue        |   |   | Yield |   |   | AmortizedCosts |   |   | FairValue |   |   | Yield |   |
| U.S. Government and federal agency:     |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Within one year                         |   | $                  | 15      |   |             | $      | 15 |   |   |   | 5.86 | % |   | $ | - |   |   | $ | - |   |   |   | - |   |
| After one but within five years         |   |               | 200     |   |             |   | 202 |   |   |   | 1.38 | % |   |   | - |   |   |   | - |   |   |   | - |   |
| After five but within ten years         |   |               | 5,065   |   |             |   | 5,058 |   |   |   | 3.44 | % |   |   | - |   |   |   | - |   |   |   | - |   |
| After ten years                         |   |               | 1,389   |   |             |   | 1,339 |   |   |   | 4.10 | % |   |   | - |   |   |   | - |   |   |   | - |   |
| Government-sponsored enterprises:       |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| After five but within ten years         |   |               | 8,998   |   |             |   | 8,835 |   |   |   | 4.06 | % |   |   | - |   |   |   | - |   |   |   | - |   |
| After ten years                         |   |               | 32,696  |   |             |   | 31,990 |   |   |   | 4.85 | % |   |   | - |   |   |   | - |   |   |   | - |   |
| Obligations of states and subdivisions: |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| After one but within five years         |   |               | -       |   |             |   | - |   |   |   | - |   |   |   | 599 |   |   |   | 630 |   |   |   | 3.90 | % |
| After five but within ten years         |   |               | 1,280   |   |             |   | 1,304 |   |   |   | 4.66 | % |   |   | 1,104 |   |   |   | 1,128 |   |   |   | 4.93 | % |
| After ten years                         |   |               | 14,105  |   |             |   | 13,925 |   |   |   | 6.25 | % |   |   | 1,058 |   |   |   | 1,053 |   |   |   | 6.72 | % |
| Mortgage-backed securities              |   |               | 69,734  |   |             |   | 69,871 |   |   |   | 2.87 | % |   |   | 479 |   |   |   | 506 |   |   |   | 4.31 | % |
| Collateralized mortgage obligations     |   |               | 10,165  |   |             |   | 10,534 |   |   |   | 3.87 | % |   |   | 3,400 |   |   |   | 3,589 |   |   |   | 5.56 | % |
| Total                                   |   | $                  | 143,647 |   |             | $      | 143,073 |   |   |   |   |   |   | $ | 6,640 |   |   | $ | 6,906 |   |   |   |   |   |
|                                    |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Securities by Maturity Period *   |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Within one year                         |   | $                  | 15      |   |             | $      | 15 |   |   |   |   |   |   | $ | - |   |   | $ | - |   |   |   |   |   |
| After one but within five years         |   | $                  | 200     |   |             | $      | 202 |   |   |   |   |   |   | $ | 599 |   |   | $ | 630 |   |   |   |   |   |
| After five but within ten years         |   | $                  | 15,343  |   |             | $      | 15,197 |   |   |   |   |   |   | $ | 1,104 |   |   | $ | 1,128 |   |   |   |   |   |
| After ten years                         |   | $                  | 48,190  |   |             | $      | 47,254 |   |   |   |   |   |   | $ | 1,058 |   |   | $ | 1,053 |   |   |   |   |   |
| Mortgage-backed securities              |   | $                  | 69,734  |   |             | $      | 69,871 |   |   |   |   |   |   | $ | 479 |   |   | $ | 506 |   |   |   |   |   |
| Collateralized mortgage obligations     |   | $                  | 10,165  |   |             | $      | 10,534 |   |   |   |   |   |   | $ | 3,400 |   |   | $ | 3,589 |   |   |   |   |   |
| Total by Maturity Period                |   | $                  | 143,647 |   |             | $      | 143,073 |   |   |   |   |   |   | $ | 6,640 |   |   | $ | 6,906 |   |   |   |   |   |

----

| In thousands                      |   | Less than 12 months |   |   | Greater than 12 months |   |   | Total  |   |
|-----------------------------------|--------|---------------------|--------|--------|------------------------|--------|--------|--------|--------|
|                              |   | Fair                |   |   | Unrealized             |   |   | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
| March 31, 2011                    |   | Value               |   |   | Losses                 |   |   | Value  |   |   | Losses |   |   | Value |   |   | Losses |   |
| US Government and federal agency  |   | $                   | 4,258  |   |                   | $      | (145   | )      |   | $ | - |   |   | $ | - |   |   | $ | 4,258 |   |   | $ | (145 | ) |
| Government-sponsored enterprises* |   |                | 33,813 |   |                   |   | (883   | )      |   |   | - |   |   |   | - |   |   |   | 33,813 |   |   |   | (883 | ) |
| Mortgage-backed securities        |   |                | 34,947 |   |                   |   | (414   | )      |   |   | 21 |   |   |   | (1 | ) |   |   | 34,968 |   |   |   | (415 | ) |
| State and political subdivisions  |   |                | 9,617  |   |                   |   | (286   | )      |   |   | 666 |   |   |   | (7 | ) |   |   | 10,283 |   |   |   | (293 | ) |
| Total                             |   | $                   | 82,635 |   |                   | $      | (1,728 | )      |   | $ | 687 |   |   | $ | (8 | ) |   | $ | 83,322 |   |   | $ | (1,736 | ) |
|                              |   |                |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2010                 |   |                |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US Government and federal agency  |   | $                   | 4,336  |   |                   | $      | (143   | )      |   | $ | - |   |   | $ | - |   |   | $ | 4,336 |   |   | $ | (143 | ) |
| Government-sponsored enterprises* |   |                | 30,496 |   |                   |   | (1,198 | )      |   |   | - |   |   |   | - |   |   |   | 30,496 |   |   |   | (1,198 | ) |
| Mortgage-backed securities        |   |                | 44,768 |   |                   |   | (889   | )      |   |   | 23 |   |   |   | (1 | ) |   |   | 44,791 |   |   |   | (890 | ) |
| State and political subdivisions  |   |                | 11,887 |   |                   |   | (538   | )      |   |   | - |   |   |   | - |   |   |   | 11,887 |   |   |   | (538 | ) |
| Total                             |   | $                   | 91,487 |   |                   | $      | (2,768 | )      |   | $ | 23 |   |   | $ | (1 | ) |   | $ | 91,510 |   |   | $ | (2,769 | ) |

|  In thousands               |   | Less than 12 months |   |   | Greater than 12 months |   |   | Total  |   |
|----------------------------------|--------|---------------------|--------|--------|------------------------|--------|--------|--------|--------|
|                             |   | Fair                |   |   | Unrealized             |   |   | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
| March 31, 2011                   |   | Value               |   |   | Losses                 |   |   | Value  |   |   | Losses |   |   | Value |   |   | Losses |   |
| State and political subdivisions |   | $                   | 237    |   |                   | $      | (28    | )      |   | $ | - |   |   | $ | - |   |   | $ | 237 |   |   | $ | (28 | ) |
| Total                            |   | $                   | 237    |   |                   | $      | (28    | )      |   | $ | - |   |   | $ | - |   |   | $ | 237 |   |   | $ | (28 | ) |
|                             |   |                |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2010                |   |                |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| State and political subdivisions |   | $                   | 230    |   |                   | $      | (33    | )      |   | $ | - |   |   | $ | - |   |   | $ | 230 |   |   | $ | (33 | ) |
| Total                            |   | $                   | 230    |   |                   | $      | (33    | )      |   | $ | - |   |   | $ | - |   |   | $ | 230 |   |   | $ | (33 | ) |

----

|                                                |   | 3/31/11 |    |   | 12/31/10 |   |
|-----------------------------------------------------|--------|---------|---------|--------|----------|--------|
|                                                |   |    |    |   |     |   |
| Commercial                                          |   | $       | 91,753  |   |     | $      | 92,809 |   |
| Real estate:                                        |   |    |    |   |     |   |   |   |
|    Construction and land development |   |    | 55,030  |   |     |   | 57,865 |   |
|    Residential, 1-4 families         |   |    | 126,497 |   |     |   | 126,657 |   |
|    Commercial real estate            |   |    | 257,762 |   |     |   | 261,969 |   |
| Consumer                                            |   |    | 4,729   |   |     |   | 4,707 |   |
| Deferred loan fees                                  |   |    | 287     |   |     |   | 287 |   |
|                                                |   |    | 536,058 |   |     |   | 544,294 |   |
|                                                |   |    |    |   |     |   |   |   |
| Allowance for loan losses                           |   |    | (10,500 | )      |     |   | (11,003 | ) |
| Net Loans                                           |   | $       | 525,558 |   |     | $      | 533,291 |   |

----

| §   | Assess the adequacy of the Allowance for Loan and Lease Losses |
|--------------------|----------------------------------------------------------------|

| §   | Identify and track high risk situations and ensure appropriate risk management |
|--------------------|--------------------------------------------------------------------------------|

| §   | Conduct portfolio risk analysis and make informed portfolio planning and strategic decisions. |
|--------------------|-----------------------------------------------------------------------------------------------|

| §   | Provide risk profile information to management, regulators and independent accountants as requested in a timely manner. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------|

| 1)   | Risk Identification -  The primary responsibility for risk identification lies with the account officer.  It is the account officer's responsibility for the initial and ongoing risk rating of all notes and commitments in his or her portfolio.  The loan officer is the one individual who is closest to the credit relationship and is in the best position to identify changing risks.  Account officers are required to continually review the risk ratings for their credit relationships and make timely adjustments, up or down, at the time the circumstances warrant a change.  Account officers are responsible for ensuring that accurate and timely risk ratings are maintained at all times.   Account officers are allowed a maximum 30-day period to assess current financial information (e.g. prepare credit analysis) which may influence the current risk rating. Account officers are required to review the risk ratings of loans assigned to their portfolios on a monthly basis and to certify to the accuracy of the ratings.  Certifications are submitted to the Chief Credit Officer and Chief Lending Officer for review.  All risk rating changes (upgrades and downgrades) must be approved by the Chief Credit Officer prior to submission for input onto the Fidelity Commercial Loan System. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2)   | Risk Supervision -  In addition to the account officer’s process of assigning and managing risk ratings, the Chief Credit Officer is responsible for periodically reviewing the risk rating process employed by lending officers.  Through credit administration, the Chief Credit Officer manages the credit process which, among other things, includes maintaining and managing the risk identification process.  The Chief Credit Officer is responsible for the accuracy and timeliness of account officer risk ratings and has the authority to override account officer risk ratings and initiate rating changes, if warranted.  Upgrades from a criticized or classified category to a pass category or upgrades within the criticized/classified categories require the approval of the Senior Loan Committee or Directors’ Loan Committee based upon aggregate exposure. Upgrades must be reported to the Directors' Loan Committee and Board of Directors at their next scheduled meetings. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3)   | Risk Monitoring - Valley Bank has a loan review program to provide an independent validation of portfolio quality. This independent review is intended to assess adherence to underwriting guidelines, proper credit analysis and documentation.  In addition, the loan review process is required to test the integrity, accuracy, and timeliness of account officer risk ratings and to test the effectiveness of the credit administration function's controls over the risk identification process.  Portfolio quality and risk rating accuracy will be evaluated during regularly scheduled portfolio reviews.  Risk Management is required to report all loan review findings to the quarterly joint meeting of the Audit Committee and Directors’ Loan Committee. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| In thousands                                        |   | 30 - 59 Days Past Due |   |   | 60 - 89 Days Past Due |   |   | 90 Days or More Past Due |   |   | Total Past Due and Accruing |   |   | Non-accruals |   |   | Current and Accruing |   |   | Total Loans |   |
|-----------------------------------------------------|--------|-----------------------|--------|--------|-----------------------|--------|--------|--------------------------|--------|--------|-----------------------------|--------|--------|--------------|--------|--------|----------------------|--------|--------|-------------|--------|
| March 31, 2011                                      |   |                  |   |   |                  |   |   |                     |   |   |                        |   |   |         |   |   |                 |   |   |        |   |
| Commercial - Non Real Estate                        |   |                  |   |   |                  |   |   |                     |   |   |                        |   |   |         |   |   |                 |   |   |        |   |
|     Commercial & Industrial |   | $                     | 1,174  |   |                  | $      | -      |                     |   | $      | -                           |   |   | $            | 1,174  |   |                 | $      | 1,892  |        |   | $ | 87,706 |   |   | $ | 90,772 |   |
|     Business Manager            |   |                  | -      |   |                  |   | -      |                     |   |   | -                           |   |   |         | -      |   |                 |   | 561    |        |   |   | 420 |   |   |   | 981 |   |
| Commercial Real Estate                              |   |                  |   |   |                  |   |   |                     |   |   |                        |   |   |         |   |   |                 |   |   |        |   |   |   |   |   |   |   |   |
|     Owner occupied              |   |                  | 1,990  |   |                  |   | -      |                     |   |   | -                           |   |   |         | 1,990  |   |                 |   | 1,034  |        |   |   | 109,172 |   |   |   | 112,196 |   |
|     Income producing            |   |                  | -      |   |                  |   | -      |                     |   |   | -                           |   |   |         | -      |   |                 |   | 808    |        |   |   | 129,826 |   |   |   | 130,634 |   |
|     Multifamily                 |   |                  | -      |   |                  |   | -      |                     |   |   | -                           |   |   |         | -      |   |                 |   | 140    |        |   |   | 14,792 |   |   |   | 14,932 |   |
| Construction & Development                      |   |                  |   |   |                  |   |   |                     |   |   |                        |   |   |         |   |   |                 |   |   |        |   |   |   |   |   |   |   |   |
|     1 - 4 Family                |   |                  | -      |   |                  |   | -      |                     |   |   | 679                         |   |   |         | 679    |   |                 |   | -      |        |   |   | 20,595 |   |   |   | 21,274 |   |
|     Other                       |   |                  | -      |   |                  |   | -      |                     |   |   | 1,457                       |   |   |         | 1,457  |   |                 |   | 5,577  |        |   |   | 25,300 |   |   |   | 32,334 |   |
|     Farmland                    |   |                  | -      |   |                  |   | -      |                     |   |   | -                           |   |   |         | -      |   |                 |   | -      |        |   |   | 1,422 |   |   |   | 1,422 |   |
| Residential                                         |   |                  |   |   |                  |   |   |                     |   |   |                        |   |   |         |   |   |                 |   |   |        |   |   |   |   |   |   |   |   |
|     Equity Lines                |   |                  | 732    |   |                  |   | 75     |                     |   |   | -                           |   |   |         | 807    |   |                 |   | -      |        |   |   | 29,693 |   |   |   | 30,500 |   |
|     1 - 4 Family                |   |                  | 964    |   |                  |   | -      |                     |   |   | -                           |   |   |         | 964    |   |                 |   | 1,749  |        |   |   | 88,232 |   |   |   | 90,945 |   |
|     Junior Liens                |   |                  | 74     |   |                  |   | -      |                     |   |   | -                           |   |   |         | 74     |   |                 |   | 50     |        |   |   | 4,928 |   |   |   | 5,052 |   |
| Consumer - Non Real Estate                          |   |                  |   |   |                  |   |   |                     |   |   |                        |   |   |         |   |   |                 |   |   |        |   |   |   |   |   |   |   |   |
|     Credit Cards                |   |                  | 2      |   |                  |   | 3      |                     |   |   | 4                           |   |   |         | 9      |   |                 |   | -      |        |   |   | 1,187 |   |   |   | 1,196 |   |
|     Other                       |   |                  | 28     |   |                  |   | -      |                     |   |   | -                           |   |   |         | 28     |   |                 |   | -      |        |   |   | 3,505 |   |   |   | 3,533 |   |
| Total                                               |   | $                     | 4,964  |   |                  | $      | 78     |                     |   | $      | 2,140                       |   |   |         | 7,182  |   |                 | $      | 11,811 |        |   | $ | 516,778 |   |   | $ | 535,771 |   |
|                                                |   |                  |   |   |                  |   |   |                     |   |   |                        |   |   |         |   |   |                 |   |   |        |   |   |   |   |   |   |   |   |
| December 31, 2010                                   |   |                  |   |   |                  |   |   |                     |   |   |                        |   |   |         |   |   |                 |   |   |        |   |   |   |   |   |   |   |   |
| Commercial - Non Real Estate                        |   |                  |   |   |                  |   |   |                     |   |   |                        |   |   |         |   |   |                 |   |   |        |   |   |   |   |   |   |   |   |
|     Commercial & Industrial |   | $                     | 6      |   |                  | $      | -      |                     |   | $      | -                           |   |   | $            | 6      |   |                 | $      | 1,873  |        |   | $ | 89,166 |   |   | $ | 91,045 |   |
|     Business Manager            |   |                  | -      |   |                  |   | -      |                     |   |   | -                           |   |   |         | -      |   |                 |   | -      |        |   |   | 1,762 |   |   |   | 1,762 |   |
| Commercial Real Estate                              |   |                  |   |   |                  |   |   |                     |   |   |                        |   |   |         |   |   |                 |   |   |        |   |   |   |   |   |   |   |   |
|     Owner occupied              |   |                  | 880    |   |                  |   | -      |                     |   |   | -                           |   |   |         | 880    |   |                 |   | 1,037  |        |   |   | 112,647 |   |   |   | 114,564 |   |
|     Income producing            |   |                  | 29     |   |                  |   | -      |                     |   |   | 474                         |   |   |         | 503    |   |                 |   | 969    |        |   |   | 131,179 |   |   |   | 132,651 |   |
|     Multifamily                 |   |                  | -      |   |                  |   | -      |                     |   |   | -                           |   |   |         | -      |   |                 |   | 140    |        |   |   | 14,901 |   |   |   | 15,041 |   |
| Construction & Development                      |   |                  |   |   |                  |   |   |                     |   |   |                        |   |   |         |   |   |                 |   |   |        |   |   |   |   |   |   |   |   |
|     1 - 4 Family                |   |                  | -      |   |                  |   | 679    |                     |   |   | -                           |   |   |         | 679    |   |                 |   | -      |        |   |   | 17,154 |   |   |   | 17,833 |   |
|     Other                       |   |                  | 1,458  |   |                  |   | -      |                     |   |   | -                           |   |   |         | 1,458  |   |                 |   | 6,360  |        |   |   | 30,789 |   |   |   | 38,607 |   |
|     Farmland                    |   |                  | -      |   |                  |   | -      |                     |   |   | -                           |   |   |         | -      |   |                 |   | -      |        |   |   | 1,426 |   |   |   | 1,426 |   |
| Residential                                         |   |                  |   |   |                  |   |   |                     |   |   |                        |   |   |         |   |   |                 |   |   |        |   |   |   |   |   |   |   |   |
|     Equity Lines                |   |                  | 24     |   |                  |   | 65     |                     |   |   | 503                         |   |   |         | 592    |   |                 |   | 43     |        |   |   | 29,777 |   |   |   | 30,412 |   |
|     1 - 4 Family                |   |                  | 878    |   |                  |   | 112    |                     |   |   | 1,265                       |   |   |         | 2,255  |   |                 |   | 1,820  |        |   |   | 87,210 |   |   |   | 91,285 |   |
|     Junior Liens                |   |                  | 5      |   |                  |   | 29     |                     |   |   | -                           |   |   |         | 34     |   |                 |   | -      |        |   |   | 4,926 |   |   |   | 4,960 |   |
| Consumer - Non Real Estate                          |   |                  |   |   |                  |   |   |                     |   |   |                        |   |   |         |   |   |                 |   |   |        |   |   |   |   |   |   |   |   |
|     Credit Cards                |   |                  | 17     |   |                  |   | 19     |                     |   |   | 2                           |   |   |         | 38     |   |                 |   | -      |        |   |   | 1,168 |   |   |   | 1,206 |   |
|     Other                       |   |                  | 43     |   |                  |   | 3      |                     |   |   | -                           |   |   |         | 46     |   |                 |   | -      |        |   |   | 3,456 |   |   |   | 3,502 |   |
| Total                                               |   | $                     | 3,340  |   |                  | $      | 907    |                     |   | $      | 2,244                       |   |   | $            | 6,491  |   |                 | $      | 12,242 |        |   | $ | 525,561 |   |   | $ | 554,294 |   |

----

----

| In thousands                       |   | Recorded Investment |   |   | Unpaid Principal Balance |   |   | Related Allowance |   |   | Average Recorded Investment |   |   | Interest Income Recognized |   |
|------------------------------------|--------|---------------------|--------|--------|--------------------------|--------|--------|-------------------|--------|--------|-----------------------------|--------|--------|----------------------------|--------|
| March 31, 2011                     |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |
| With no related allowance:         |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |
| Commercial - Non Real Estate       |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |
| Commercial & Industrial        |   | $                   | 2,626  |   |                     | $      | 2,954  |              |   | $      | -                           |   |   | $                          | 3,978  |   |   | $ | 10 |   |
| Business Manager                   |   |                | -      |   |                     |   | -      |              |   |   | -                           |   |   |                       | -      |   |   |   | - |   |
| Commercial Real Estate             |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Owner occupied                     |   |                | 12,098 |   |                     |   | 12,108 |              |   |   | -                           |   |   |                       | 12,192 |   |   |   | 172 |   |
| Income producing                   |   |                | 808    |   |                     |   | 830    |              |   |   | -                           |   |   |                       | 1,004  |   |   |   | - |   |
| Multifamily                        |   |                | 140    |   |                     |   | 354    |              |   |   | -                           |   |   |                       | 354    |   |   |   | - |   |
| Construction & Development     |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| 1 - 4 Family                       |   |                | -      |   |                     |   | -      |              |   |   | -                           |   |   |                       | -      |   |   |   | - |   |
| Other                              |   |                | 3,827  |   |                     |   | 3,964  |              |   |   | -                           |   |   |                       | 4,639  |   |   |   | - |   |
| Farmland                           |   |                | -      |   |                     |   | -      |              |   |   | -                           |   |   |                       | -      |   |   |   | - |   |
| Consumer - Non Real Estate         |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Credit Cards                       |   |                | -      |   |                     |   | -      |              |   |   | -                           |   |   |                       | -      |   |   |   | - |   |
| Other                              |   |                | -      |   |                     |   | -      |              |   |   | -                           |   |   |                       | -      |   |   |   | - |   |
| Residential                        |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Equity Lines                       |   |                | 75     |   |                     |   | 75     |              |   |   | -                           |   |   |                       | 75     |   |   |   | - |   |
| 1st D/T                            |   |                | 2,129  |   |                     |   | 2,643  |              |   |   | -                           |   |   |                       | 4,309  |   |   |   | 23 |   |
| Junior Liens                       |   |                | 70     |   |                     |   | 70     |              |   |   | -                           |   |   |                       | 70     |   |   |   | - |   |
| Total loans with no allowance      |   | $                   | 21,773 |   |                     | $      | 22,998 |              |   | $      | -                           |   |   | $                          | 26,621 |   |   | $ | 205 |   |
|                               |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| With an allowance recorded:        |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Commercial - Non Real Estate       |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Commercial & Industrial        |   | $                   | 983    |   |                     |   | 999    |              |   |   | 16                          |   |   |                       | 1,030  |   |   |   | 16 |   |
| Business Manager                   |   |                | 361    |   |                     |   | 561    |              |   |   | 200                         |   |   |                       | 1,067  |   |   |   | - |   |
| Construction & Development     |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| 1 - 4 Family                       |   |                | 627    |   |                     |   | 679    |              |   |   | 52                          |   |   |                       | 679    |   |   |   | 7 |   |
| Other                              |   |                | 2,062  |   |                     |   | 4,092  |              |   |   | 1,145                       |   |   |                       | 4,092  |   |   |   | 15 |   |
| Consumer - Non Real Estate         |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Other                              |   |                | 18     |   |                     |   | 24     |              |   |   | 6                           |   |   |                       | 26     |   |   |   | - |   |
| Residential                        |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| 1st D/T                            |   |                | 651    |   |                     |   | 701    |              |   |   | 50                          |   |   |                       | 703    |   |   |   | 10 |   |
| Total loans with an allowance      |   | $                   | 4,702  |   |                     | $      | 7,056  |              |   | $      | 1,469                       |   |   | $                          | 7,597  |   |   | $ | 48 |   |
|                               |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Total:                             |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Commercial – Non Real Estate |   |                | 3,970  |   |                     |   | 4,514  |              |   |   | 216                         |   |   |                       | 6,075  |   |   |   | 26 |   |
| Commercial Real Estate             |   |                | 13,046 |   |                     |   | 13,292 |              |   |   | -                           |   |   |                       | 13,550 |   |   |   | 172 |   |
| Construction & Development     |   |                | 6,516  |   |                     |   | 8,735  |              |   |   | 1,197                       |   |   |                       | 9,410  |   |   |   | 22 |   |
| Consumer – Non Real Estate   |   |                | 18     |   |                     |   | 24     |              |   |   | 6                           |   |   |                       | 26     |   |   |   | - |   |
| Residential                        |   |                | 2,925  |   |                     |   | 3,489  |              |   |   | 50                          |   |   |                       | 5,157  |   |   |   | 33 |   |
| Totals                             |   | $                   | 26,475 |   |                     | $      | 30,054 |              |   | $      | 1,469                       |   |   | $                          | 34,218 |   |   | $ | 253 |   |

----

| December 31, 2010                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| With no related allowance:         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial - Non Real Estate       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial & Industrial        |   | $      | 2,644  |   |   | $      | 3,676  |   |   | $      | -      |   |   | $      | 2,293  |   |   | $ | 36 |   |
| Business Manager                   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | - |   |
| Commercial Real Estate             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Owner occupied                     |   |   | 12,301 |   |   |   | 12,310 |   |   |   | -      |   |   |   | 12,553 |   |   |   | 705 |   |
| Income producing                   |   |   | 1,801  |   |   |   | 1,912  |   |   |   | -      |   |   |   | 1,295  |   |   |   | 58 |   |
| Multifamily                        |   |   | 140    |   |   |   | 354    |   |   |   | -      |   |   |   | 229    |   |   |   | - |   |
| Construction & Development     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 1 - 4 Family                       |   |   | 679    |   |   |   | 679    |   |   |   | -      |   |   |   | 639    |   |   |   | 26 |   |
| Other                              |   |   | 4,610  |   |   |   | 6,241  |   |   |   | -      |   |   |   | 9,773  |   |   |   | - |   |
| Farmland                           |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | - |   |
| Consumer - Non Real Estate         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Credit Cards                       |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | - |   |
| Other                              |   |   | 20     |   |   |   | 20     |   |   |   | -      |   |   |   | 22     |   |   |   | 1 |   |
| Residential                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity Lines                       |   |   | 597    |   |   |   | 597    |   |   |   | -      |   |   |   | 667    |   |   |   | 22 |   |
| 1st D/T                            |   |   | 3,966  |   |   |   | 4,477  |   |   |   | -      |   |   |   | 4,233  |   |   |   | 166 |   |
| Junior Liens                       |   |   | 21     |   |   |   | 21     |   |   |   | -      |   |   |   | 22     |   |   |   | 1 |   |
| Total loans with no allowance      |   | $      | 26,779 |   |   | $      | 30,287 |   |   | $      | -      |   |   | $      | 31,726 |   |   | $ | 1,015 |   |
|                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| With an allowance recorded:        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial - Non Real Estate       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial & Industrial        |   |   | 1,029  |   |   |   | 1,045  |   |   |   | 16     |   |   |   | 1,168  |   |   |   | 73 |   |
| Construction & Development     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 1 - 4 Family                       |   |   | 3,388  |   |   |   | 3,863  |   |   |   | 463    |   |   |   | 5,341  |   |   |   | 179 |   |
| Other                              |   |   | 2,470  |   |   |   | 4,092  |   |   |   | 737    |   |   |   | 3,726  |   |   |   | - |   |
| Residential                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 1st D/T                            |   |   | 641    |   |   |   | 705    |   |   |   | 64     |   |   |   | 712    |   |   |   | 42 |   |
| Total loans with an allowance      |   | $      | 7,528  |   |   | $      | 9,705  |   |   | $      | 1,280  |   |   | $      | 10,947 |   |   | $ | 294 |   |
|                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total:                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial – Non Real Estate |   | $      | 3,673  |   |   | $      | 4,721  |   |   | $      | 16     |   |   | $      | 3,461  |   |   | $ | 109 |   |
| Commercial Real Estate             |   | $      | 14,242 |   |   | $      | 14,576 |   |   | $      | -      |   |   | $      | 14,077 |   |   | $ | 763 |   |
| Construction & Development     |   | $      | 11,147 |   |   | $      | 14,875 |   |   | $      | 1,200  |   |   | $      | 19,479 |   |   | $ | 205 |   |
| Consumer – Non Real Estate   |   | $      | 20     |   |   | $      | 20     |   |   | $      | -      |   |   | $      | 22     |   |   | $ | 1 |   |
| Residential                        |   | $      | 5,225  |   |   | $      | 5,800  |   |   | $      | 64     |   |   | $      | 5,634  |   |   | $ | 231 |   |
| Totals                             |   | $      | 34,307 |   |   | $      | 39,992 |   |   | $      | 1,280  |   |   | $      | 42,673 |   |   | $ | 1,309 |   |

----

| Internal Risk Rating GradesIn thousands |   | Pass   |    |   | Special Mention |   |   | Substandard |   |   | Doubtful |   |   | Loss   |   |
|-----------------------------------------|--------|--------|---------|--------|-----------------|--------|--------|-------------|--------|--------|----------|--------|--------|--------|--------|
| March 31, 2011                          |   |   |    |   |            |   |   |        |   |   |     |   |   |   |   |
| Commercial - Non Real Estate            |   |   |    |   |            |   |   |        |   |   |     |   |   |   |   |
| Commercial & Industrial             |   | $      | 79,636  |   |            | $      | 5,706  |        |   | $      | 5,430    |   |   | $      | -      |   |   | $ | - |   |
| Business Manager                        |   |   | 380     |   |            |   | -      |        |   |   | 601      |   |   |   | -      |   |   |   | - |   |
| Commercial Real Estate                  |   |   |    |   |            |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |
| Owner occupied                          |   |   | 88,969  |   |            |   | 3,372  |        |   |   | 19,855   |   |   |   | -      |   |   |   | - |   |
| Income producing                        |   |   | 119,856 |   |            |   | 7,918  |        |   |   | 2,860    |   |   |   | -      |   |   |   | - |   |
| Multifamily                             |   |   | 14,792  |   |            |   | -      |        |   |   | 140      |   |   |   | -      |   |   |   | - |   |
| Construction & Development          |   |   |    |   |            |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |
| 1 - 4 Family                            |   |   | 12,088  |   |            |   | 1,631  |        |   |   | 7,555    |   |   |   | -      |   |   |   | - |   |
| Other                                   |   |   | 16,174  |   |            |   | 599    |        |   |   | 15,561   |   |   |   | -      |   |   |   | - |   |
| Farmland                                |   |   | 352     |   |            |   | 881    |        |   |   | 189      |   |   |   | -      |   |   |   | - |   |
| Totals                                  |   | $      | 332,247 |   |            | $      | 20,107 |        |   | $      | 52,191   |   |   | $      | -      |   |   | $ | - |   |
|                                    |   |   |    |   |            |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |
| Total:                                  |   |   |    |   |            |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |
| Commercial - Non Real Estate            |   |   | 80,016  |   |            |   | 5,706  |        |   |   | 6,031    |   |   |   | -      |   |   |   | - |   |
| Commercial Real Estate                  |   |   | 223,617 |   |            |   | 11,290 |        |   |   | 22,855   |   |   |   | -      |   |   |   | - |   |
| Construction & Development          |   |   | 28,614  |   |            |   | 3,111  |        |   |   | 23,305   |   |   |   | -      |   |   |   | - |   |
| Totals                                  |   | $      | 332,247 |   |            | $      | 20,107 |        |   | $      | 52,191   |   |   | $      | -      |   |   | $ | - |   |
|                                    |   |   |    |   |            |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |
| December 31, 2010                       |   |   |    |   |            |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |
| Commercial - Non Real Estate            |   |   |    |   |            |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |
| Commercial & Industrial             |   | $      | 78,132  |   |            | $      | 6,637  |        |   | $      | 6,278    |   |   | $      | -      |   |   | $ | - |   |
| Business Manager                        |   |   | 416     |   |            |   | -      |        |   |   | 1,346    |   |   |   | -      |   |   |   | - |   |
| Commercial Real Estate                  |   |   |    |   |            |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |
| Owner occupied                          |   |   | 88,985  |   |            |   | 4,248  |        |   |   | 21,508   |   |   |   | -      |   |   |   | - |   |
| Income producing                        |   |   | 120,851 |   |            |   | 7,556  |        |   |   | 3,780    |   |   |   | -      |   |   |   | - |   |
| Multifamily                             |   |   | 14,901  |   |            |   | -      |        |   |   | 140      |   |   |   | -      |   |   |   | - |   |
| Construction & Development          |   |   |    |   |            |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |
| 1 - 4 Family                            |   |   | 5,162   |   |            |   | 1,178  |        |   |   | 11,493   |   |   |   | -      |   |   |   | - |   |
| Other                                   |   |   | 18,708  |   |            |   | 749    |        |   |   | 19,149   |   |   |   | -      |   |   |   | - |   |
| Farmland                                |   |   | 352     |   |            |   | 883    |        |   |   | 191      |   |   |   | -      |   |   |   | - |   |
| Totals                                  |   | $      | 327,507 |   |            | $      | 21,251 |        |   | $      | 63,885   |   |   | $      | -      |   |   | $ | - |   |
|                                    |   |   |    |   |            |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |
| Total:                                  |   |   |    |   |            |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |
| Commercial - Non Real Estate            |   | $      | 78,548  |   |            | $      | 6,637  |        |   | $      | 7,624    |   |   | $      | -      |   |   | $ | - |   |
| Commercial Real Estate                  |   | $      | 224,737 |   |            | $      | 11,804 |        |   | $      | 25,428   |   |   | $      | -      |   |   | $ | - |   |
| Construction & Development          |   | $      | 24,222  |   |            | $      | 2,810  |        |   | $      | 30,833   |   |   | $      | -      |   |   | $ | - |   |

| Totals |   | $ | 327,507 |   |   | $ | 21,251 |   |   | $ | 63,885 |   |   | $ | - |   |   | $ | - |   |
|--------|--------|---|---------|--------|--------|---|--------|--------|--------|---|--------|--------|--------|---|---|--------|--------|---|---|--------|

----

| Risk Based on Payment Activity |   | Performing |    |   | Non-Performing |   |
|--------------------------------|--------|------------|---------|--------|----------------|--------|
| In thousands                   |   | 3/31/11    |    |   | 12/31/10       |   |   | 3/31/11 |   |   | 12/31/10 |   |
| Residential                    |   |       |    |   |           |   |   |   |   |   |   |   |
| Equity Lines                   |   | $          | 30,500  |   |           | $      | 29,866 |   |   | $ | - |   |   | $ | 546 |   |
| 1st D/T                        |   |       | 88,972  |   |           |   | 88,200 |   |   |   | 1,973 |   |   |   | 3,085 |   |
| Junior Liens                   |   |       | 5,002   |   |           |   | 4,960 |   |   |   | 50 |   |   |   | - |   |
| Consumer - Non Real Estate     |   |       |    |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Credit Cards                   |   |       | 1,192   |   |           |   | 1,203 |   |   |   | 4 |   |   |   | 2 |   |
| Other                          |   |       | 3,533   |   |           |   | 3,502 |   |   |   | - |   |   |   | - |   |
| Totals                         |   | $          | 129,199 |   |           | $      | 127,731 |   |   | $ | 2,027 |   |   | $ | 3,633 |   |
|                           |   |       |    |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Total:                         |   |       |    |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Residential                    |   | $          | 124,474 |   |           | $      | 123,026 |   |   | $ | 2,023 |   |   | $ | 3,631 |   |
| Consumer                       |   |       | 4,725   |   |           |   | 4,705 |   |   |   | 4 |   |   |   | 2 |   |
| Totals                         |   | $          | 129,199 |   |           | $      | 127,731 |   |   | $ | 2,027 |   |   | $ | 3,633 |   |

----

| In thousands                       |   | Beginning Balance |   |   | Charge-offs |   |   |  Recoveries |   |   | Provision |   |   | EndingBalance |   |
|------------------------------------|--------|-------------------|--------|--------|-------------|--------|--------|------------------|--------|--------|-----------|--------|--------|---------------|--------|
| March 31, 2011                     |   |              |   |   |        |   |   |             |   |   |      |   |   |          |   |
| Commercial – Non Real Estate |   | $                 | 1,356  |   |        | $      | -      |             |   | $      | 1         |   |   | $             | 163    |   |   | $ | 1,520 |   |
| Commercial Real Estate             |   |              | 3,651  |   |        |   | -      |             |   |   | 5         |   |   |          | (298   | ) |   |   | 3,358 |   |
| Construction/Development           |   |              | 3,806  |   |        |   | -      |             |   |   | -         |   |   |          | 190    |   |   |   | 3,996 |   |
| Residential Real Estate            |   |              | 2,138  |   |        |   | (43    | )                |   |   | -         |   |   |          | (533   | ) |   |   | 1,562 |   |
| Consumer                           |   |              | 52     |   |        |   | (33    | )                |   |   | 3         |   |   |          | 42     |   |   |   | 64 |   |
| Total                              |   | $                 | 11,003 |   |        | $      | (76    | )                |   | $      | 9         |   |   | $             | (436   | ) |   | $ | 10,500 |   |

| In thousands                       |   | Individually Evaluated for Impairment |   |
|------------------------------------|--------|---------------------------------------|--------|
|                               |   | 3/31/11                               |   |   | 12/31/10 |   |
|                               |   | Allowance                             |   |   | Total Loans |   |   | Allowance |   |   | Total Loans |   |
| Commercial – Non Real Estate |   | $                                     | 216    |   |   | $ | 4,186 |   |   | $ | 16 |   |   | $ | 3,689 |   |
| Commercial Real Estate             |   |                                  | -      |   |   |   | 13,046 |   |   |   | - |   |   |   | 14,242 |   |
| Construction/Development           |   |                                  | 1,197  |   |   |   | 7,713 |   |   |   | 1,200 |   |   |   | 12,347 |   |
| Residential Real Estate            |   |                                  | 50     |   |   |   | 2,975 |   |   |   | 64 |   |   |   | 20 |   |
| Consumer                           |   |                                  | 6      |   |   |   | 24 |   |   |   | - |   |   |   | 5,289 |   |
| Unallocated                        |   |                                  | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total                              |   | $                                     | 1,469  |   |   | $ | 27,944 |   |   | $ | 1,280 |   |   | $ | 35,587 |   |

| In thousands                       |   | Collectively Evaluated for Impairment |   |
|------------------------------------|--------|---------------------------------------|--------|
|                               |   | 3/31/11                               |   |   | 12/31/10 |   |
|                               |   | Allowance                             |   |   | Total Loans |   |   | Allowance |   |   | Total Loans |   |
| Commercial – Non Real Estate |   | $                                     | 1,304  |   |   | $ | 87,567 |   |   | $ | 1,340 |   |   | $ | 89,120 |   |
| Commercial Real Estate             |   |                                  | 3,358  |   |   |   | 245,003 |   |   |   | 3,651 |   |   |   | 248,014 |   |
| Construction/Development           |   |                                  | 2,799  |   |   |   | 47,317 |   |   |   | 2,606 |   |   |   | 45,518 |   |
| Residential Real Estate            |   |                                  | 1,512  |   |   |   | 123,522 |   |   |   | 2,074 |   |   |   | 121,368 |   |
| Consumer                           |   |                                  | 58     |   |   |   | 4,705 |   |   |   | 52 |   |   |   | 4,687 |   |
| Unallocated                        |   |                                  | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total                              |   | $                                     | 9,031  |   |   | $ | 508,114 |   |   | $ | 9,723 |   |   | $ | 508,707 |   |

----

|                         |   | 3/31/11 |   |   | 12/31/10 |   |
|------------------------------|--------|---------|--------|--------|----------|--------|
| Balance, beginning of period |   | $       | 16,081 |   |     | $      | 2,513 |   |
| Additions                    |   |    | 1,602  |   |     |   | 16,781 |   |
| Capitalized items            |   |    | -      |   |     |   | 400 |   |
| Sales                        |   |    | (1,708 | )      |     |   | (3,213 | ) |
| Gain (loss)                  |   |    | (88    | )      |     |   | (400 | ) |
| Balance, end of period       |   | $       | 15,887 |   |     | $      | 16,081 |   |

|                                                |   | Net Income Available to Common Shareholders (in thousands) |   |   | WeightedAverageShares |   |      | PerShareAmount |   |
|-----------------------------------------------------|--------|------------------------------------------------------------|--------|--------|-----------------------|--------|-----------|----------------|--------|
| Quarter Ended March 31, 2011                        |   |                                                       |   |   |                  |   |      |           |   |
|    Basic earnings per common share   |   | $                                                          | 859    |   |                  |   | 4,688,286 |           |   | $ | 0.18 |   |
|    Effect of dilutive stock options  |   |                                                       | -      |   |                  |   | 26,675    |           |   |   | - |   |
|    Effect of dilutive stock warrants |   |                                                       | -      |   |                  |   | -         |           |   |   | - |   |
|    Diluted earnings per common share |   | $                                                          | 859    |   |                  |   | 4,714,961 |           |   | $ | 0.18 |   |
|                                                |   |                                                       |   |   |                  |   |      |           |   |   |   |   |
| Quarter Ended March 31, 2010                        |   |                                                       |   |   |                  |   |      |           |   |   |   |   |
|    Basic earnings per common share   |   | $                                                          | 609    |   |                  |   | 4,680,251 |           |   | $ | 0.13 |   |
|    Effect of dilutive stock options  |   |                                                       | -      |   |                  |   | 5,548     |           |   |   | - |   |
|    Effect of dilutive stock warrants |   |                                                       | -      |   |                  |   | -         |           |   |   | - |   |
|    Diluted earnings per common share |   | $                                                          | 609    |   |                  |   | 4,685,799 |           |   | $ | 0.13 |   |

| In thousands                                                           |   | 3 Months Ended |   |
|------------------------------------------------------------------------|--------|----------------|--------|
|                                                                   |   | 3/31/11        |   |   | 3/31/10 |   |
| Net unrealized gains on securities available for sale:                 |   |           |   |   |   |   |
| Net unrealized holding gains during the year                           |   | $              | 1,136  |   |   | $ | 599 |   |
| Reclassification adjustment for gains realized in income, net of taxes |   |           | (9     | ) |   |   | - |   |
| Income tax expense                                                     |   |           | (386   | ) |   |   | (204 | ) |
| Other comprehensive income, net of income taxes                        |   | $              | 741    |   |   | $ | 395 |   |

----

|   March 31, 2011 |   |   OptionsOutstanding |    |   | Weighted AverageExercisePrice |   |   | Weighted Average Grant Date Fair Value |   |   | Intrinsic Value of Options Exercised |   |  WeightedAverageContractualTerm |
|----------------------------|--------|--------------------------------|---------|--------|-------------------------------|--------|--------|----------------------------------------|--------|--------|--------------------------------------|--------|--------------------------------------|
| Balance at 12/31/10        |   |                           | 232,550 |   |                          | $      | 8.44   |                                   |   | $      | 2.64                                 |   |                                 | $ | - |   | 5.78 years |
|                       |   |                           |    |   |                          |   |   |                                   |   |   |                                 |   |                                 |   |   |   |   |
| Granted                    |   |                           | 1,000   |   |                          |   | 4.87   |                                   |   |   | 2.09                                 |   |                                 |   |   |   |   |
| Expired                    |   |                           | (13,800 | )      |                          |   | 5.17   |                                   |   |   | 0.95                                 |   |                                 |   |   |   |   |
|                       |   |                           |    |   |                          |   |   |                                   |   |   |                                 |   |                                 |   |   |   |   |
| Balance at 3/31/11         |   |                           | 219,750 |   |                          | $      | 8.63   |                                   |   | $      | 2.75                                 |   |                                 | $ | 60,817 |   | 5.91 years |
|                       |   |                           |    |   |                          |   |   |                                   |   |   |                                 |   |                                 |   |   |   |   |
| Exercisable at 3/31/11     |   |                           | 143,458 |   |                          | $      | 10.00  |                                   |   | $      | 3.14                                 |   |                                 | $ | 11,069 |   | 4.85 years |

|   March 31, 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                                 |   |                                 | $ | (125 | ) | 6.65 years |
|                       |   |                           |    |   |                          |   |   |                                   |   |   |                                 |   |                                 |   |   |   |   |
| Granted                    |   |                           | 6,700   |   |                          |   | 4.05   |                                   |   |   | 1.42                                 |   |                                 |   |   |   |   |
| Balance at 3/31/10         |   |                           | 244,550 |   |                          | $      | 8.64   |                                   |   | $      | 2.72                                 |   |                                 | $ | 41 |   | 6.49 years |
|                       |   |                           |    |   |                          |   |   |                                   |   |   |                                 |   |                                 |   |   |   |   |
| Exercisable at 3/31/10     |   |                           | 130,950 |   |                          | $      | 10.03  |                                   |   | $      | 3.01                                 |   |                                 | $ | n/a |   | 4.80 years |
|                       |   |                           |    |   |                          |   |   |                                   |   |   |                                 |   |                                 |   |   |   |   |

|                                           | 3 Months Ended |    |
|------------------------------------------------|----------------|---------|
|                                           |           | 3/31/11 |   |   | 3/31/10 |   |
| Number of options vested:                      |           |    | 9,040 |   |   |   | 7,700 |   |
| Total grant date fair value of options vested: |           | $       | 28 |   |   | $ | 26 |   |

----

|                          |   | 3/31/11                               |    |   | 3/31/10                              |   |
|-------------------------------|--------|---------------------------------------|---------|--------|--------------------------------------|--------|
|                          |   | Non-VestedRestricted StockOutstanding |    |   | Weighted AverageGrant DateFair Value |   |   | Non-VestedRestricted StockOutstanding |   |   | Weighted AverageGrant DateFair Value |   |
| Beginning balance outstanding |   |                                  | 64,015  |   |                                 | $      | 4.26 |   |   |   | 30,000 |   |   | $ | 4.62 |   |
|                          |   |                                  |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Granted                       |   |                                  | 5,000   |   |                                 | $      | 3.44 |   |   |   | 36,195 |   |   | $ | 4.05 |   |
| Vested                        |   |                                  | (10,405 | )      |                                 | $      | 4.05 |   |   |   | - |   |   |   | - |   |
| Ending balance outstanding    |   |                                  | 58,610  |   |                                 | $      | 4.22 |   |   |   | 66,195 |   |   | $ | 4.31 |   |

----

|  In thousands                                                |   | Total  |    |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|-------------------------------------------------------------------|--------|--------|---------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
| Investment securities available-for-sale:                         |   |   |    |   |    |   |   |    |   |   |    |   |
|      U.S. Government and federal agency  |   | $      | 6,614   |   |    | $      | -      |    |   | $      | 6,614   |   |   | $ | - |   |
|      Government-sponsored enterprises    |   |   | 40,825  |   |    |   | -      |    |   |   | 40,825  |   |   |   | - |   |
|      Mortgage-backed securities          |   |   | 69,871  |   |    |   | -      |    |   |   | 69,871  |   |   |   | - |   |
|      Collateralized mortgage obligations |   |   | 10,534  |   |    |   | -      |    |   |   | 10,534  |   |   |   | - |   |
|      States and political subdivisions   |   |   | 15,229  |   |    |   | -      |    |   |   | 15,229  |   |   |   | - |   |
| Total assets at fair value                                        |   | $      | 143,073 |   |    | $      | -      |    |   | $      | 143,073 |   |   | $ | - |   |
|                                                              |   |   |    |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Total liabilities at fair value                                   |   | $      | -       |   |    | $      | -      |    |   | $      | -       |   |   | $ | - |   |

|  In thousands                                                                                 |   | Total  |   |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|----------------------------------------------------------------------------------------------------|--------|--------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
| Impaired loans                                                                                     |   |   |   |   |    |   |   |    |   |   |    |   |
|      Commercial                                                           |   | $      | 3,970  |   |    | $      | -      |    |   | $      | 3,609   |   |   | $ | 361 |   |
|      Commercial Real Estate                                               |   |   | 13,046 |   |    |   | -      |    |   |   | 13,046  |   |   |   | - |   |
|      Residential Real Estate                                              |   |   | 2,919  |   |    |   | -      |    |   |   | 2,919   |   |   |   | - |   |
|      Construction Real Estate                                             |   |   | 6,516  |   |    |   | -      |    |   |   | 6,516   |   |   |   |   |   |
|      Construction Real Estate                                             |   |   | 24     |   |    |   | -      |    |   |   | 24      |   |   |   | - |   |
| Foreclosed assets                                                                                  |   |   | 15,887 |   |    |   | -      |    |   |   | 15,327  |   |   |   | 560 |   |
|             Total assets at fair value |   | $      | 42,362 |   |    | $      | -      |    |   | $      | 41,441  |   |   | $ | 921 |   |
|                                                                                               |   |   |   |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Total liabilities at fair value                                                                    |   | $      | -      |   |    | $      | -      |    |   | $      | -       |   |   | $ | - |   |

----

|                               |   | March 31, 2011  |    |   | December 31, 2010      |   |
|------------------------------------|--------|-----------------|---------|--------|------------------------|--------|
| In thousands                       |   | CarryingAmounts |    |   | ApproximateFair Values |   |   | CarryingAmounts |   |   | ApproximateFair Values |   |
| Financial assets                   |   |            |    |   |                   |   |   |   |   |   |   |   |
| Cash and due from banks            |   | $               | 5,651   |   |                   | $      | 5,651 |   |   | $ | 4,318 |   |   | $ | 4,318 |   |
| Interest-bearing deposits in banks |   |            | 63,450  |   |                   |   | 63,450 |   |   |   | 19,994 |   |   |   | 19,994 |   |
| Securities available-for-sale      |   |            | 143,073 |   |                   |   | 143,073 |   |   |   | 145,894 |   |   |   | 145,894 |   |
| Securities held-to-maturity        |   |            | 6,640   |   |                   |   | 6,906 |   |   |   | 7,634 |   |   |   | 7,868 |   |
| Restricted equity securities       |   |            | 5,661   |   |                   |   | 5,661 |   |   |   | 5,661 |   |   |   | 5,661 |   |
| Loans, net                         |   |            | 525,558 |   |                   |   | 531,547 |   |   |   | 533,791 |   |   |   | 539,953 |   |
| Bank owned life insurance          |   |            | 14,618  |   |                   |   | 14,618 |   |   |   | 14,475 |   |   |   | 14,475 |   |
|                               |   |            |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities              |   |            |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Total deposits                     |   |            | 656,745 |   |                   |   | 657,951 |   |   |   | 627,412 |   |   |   | 628,827 |   |
| Short-term borrowings              |   |            | 17,558  |   |                   |   | 17,558 |   |   |   | 17,296 |   |   |   | 17,296 |   |
| Federal Home Loan Bank Advances    |   |            | 48,000  |   |                   |   | 50,653 |   |   |   | 48,000 |   |   |   | 51,232 |   |
| Junior subordinated debentures     |   |            | 16,496  |   |                   |   | 15,865 |   |   |   | 16,496 |   |   |   | 15,864 |   |

----

----

|                                           |   |    Actual |   |   |  Minimum RequiredFor CapitalAdequacy Purposes |   |   | Minimum to be Well Capitalized Under Prompt Corrective Action Provisions |   |
|------------------------------------------------|--------|--------------------------|--------|--------|----------------------------------------------------|--------|--------|--------------------------------------------------------------------------|--------|
|                                           |   | Amount                   |   |   | Ratio                                              |   |   | Amount                                                                   |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
|                                           |   |                     |   |   |                                               |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
| March 31, 2011                                 |   |                     |   |   |                                               |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
| Total Capital (to Risk Weighted Assets):       |   |                     |   |   |                                               |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                   |   | $                        | 79,458 |   |                                               |   | 13.8   | %                                                                        |   | $ | 46,167 |   |   |   | 8.0 | % |   |   | n/a |   |   |   | n/a |   |
| Valley Bank                                    |   | $                        | 73,145 |   |                                               |   | 12.7   | %                                                                        |   | $ | 46,025 |   |   |   | 8.0 | % |   | $ | 57,531 |   |   |   | 10.0 | % |
| Tier 1 Capital (to Risk Weighted Assets):      |   |                     |   |   |                                               |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                   |   | $                        | 72,204 |   |                                               |   | 12.5   | %                                                                        |   | $ | 23,083 |   |   |   | 4.0 | % |   |   | n/a |   |   |   | n/a |   |
| Valley Bank                                    |   | $                        | 65,913 |   |                                               |   | 11.5   | %                                                                        |   | $ | 23,012 |   |   |   | 4.0 | % |   | $ | 34,519 |   |   |   | 6.0 | % |
| Tier 1 Capital - Leverage (to Average Assets): |   |                     |   |   |                                               |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                   |   | $                        | 72,204 |   |                                               |   | 9.3    | %                                                                        |   | $ | 30,941 |   |   |   | 4.0 | % |   |   | n/a |   |   |   | n/a |   |
| Valley Bank                                    |   | $                        | 65,913 |   |                                               |   | 8.5    | %                                                                        |   | $ | 30,855 |   |   |   | 4.0 | % |   | $ | 38,568 |   |   |   | 5.0 | % |
|                                           |   |                     |   |   |                                               |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2010                              |   |                     |   |   |                                               |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Capital (to Risk Weighted Assets):       |   |                     |   |   |                                               |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                   |   | $                        | 78,423 |   |                                               |   | 13.4   | %                                                                        |   | $ | 46,918 |   |   |   | 8.0 | % |   |   | n/a |   |   |   | n/a |   |
| Valley Bank                                    |   | $                        | 72,031 |   |                                               |   | 12.3   | %                                                                        |   | $ | 46,783 |   |   |   | 8.0 | % |   | $ | 58,479 |   |   |   | 10.0 | % |
| Tier 1 Capital (to Risk Weighted Assets):      |   |                     |   |   |                                               |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                   |   | $                        | 71,047 |   |                                               |   | 12.1   | %                                                                        |   | $ | 23,459 |   |   |   | 4.0 | % |   |   | n/a |   |   |   | n/a |   |
| Valley Bank                                    |   | $                        | 64,674 |   |                                               |   | 11.1   | %                                                                        |   | $ | 23,392 |   |   |   | 4.0 | % |   | $ | 35,087 |   |   |   | 6.0 | % |
| Tier 1 Capital - Leverage (to Average Assets): |   |                     |   |   |                                               |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                   |   | $                        | 71,047 |   |                                               |   | 9.1    | %                                                                        |   | $ | 31,372 |   |   |   | 4.0 | % |   |   | n/a |   |   |   | n/a |   |
| Valley Bank                                    |   | $                        | 64,674 |   |                                               |   | 8.3    | %                                                                        |   | $ | 31,293 |   |   |   | 4.0 | % |   | $ | 39,117 |   |   |   | 5.0 | % |

----

----

| In thousands                                      |   | Three months ended 3/31/11 |   |   | Twelve months ended 12/31/10 |   |   | Three months ended 3/31/10 |   |
|---------------------------------------------------|--------|----------------------------|--------|--------|------------------------------|--------|--------|----------------------------|--------|
| Net interest income, non tax-equivalent           |   | $                          | 5,916  |   |                         | $      | 21,063 |                       |   | $ | 4,978 |   |
| Less: tax-exempt interest income                  |   |                       | (160   | )      |                         |   | (563   | )                          |   |   | (121 | ) |
| Add: tax-equivalent of tax-exempt interest income |   |                       | 242    |   |                         |   | 853    |                       |   |   | 183 |   |
| Net interest income, tax-equivalent               |   | $                          | 5,998  |   |                         | $      | 21,353 |                       |   | $ | 5,040 |   |

| Key Performance Ratios (1)            |   |
|---------------------------------------|--------|
|                                  |   |   |   |   |   |   |   |   |   |
|                                  |   | 3 months |   |   | 12 months |   |   | 3 months |   |
|                                  |   | Ended |   |   | Ended |   |   | Ended |   |
|                                  |   | 3/31/11 |   |   | 12/31/10 |   |   | 3/31/10 |   |
| Return on average assets              |   |   | 0.58 | % |   |   | 0.46 | % |   |   | 0.48 | % |
| Return on average equity (2)          |   |   | 7.97 | % |   |   | 6.49 | % |   |   | 6.58 | % |
| Net interest margin (3)               |   |   | 3.33 | % |   |   | 2.97 | % |   |   | 2.95 | % |
| Cost of funds                         |   |   | 1.32 | % |   |   | 1.72 | % |   |   | 1.96 | % |
| Yield on earning assets               |   |   | 4.63 | % |   |   | 4.64 | % |   |   | 4.83 | % |
| Basic net earnings per common share   |   | $ | 0.18 |   |   | $ | 0.54 |   |   | $ | 0.13 |   |
| Diluted net earnings per common share |   | $ | 0.18 |   |   | $ | 0.54 |   |   | $ | 0.13 |   |

----

----

| ·   | Compensation expense increased $362,205 due primarily to profit sharing payments of $200,000 made as the result of the improvement in impaired loans during the quarter and increased retirement expenses of $87,000.  The increase in retirement expenses is due to the reversal of $66,000 as the result of the retirement of one of our executives during the first quarter of 2010.  The remaining increase is due to merit, equity, and promotional increases that went into effect January 1, 2011; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Insurance expense increased $685,000 primarily due to FDIC adjustments totaling $433,482.  The remaining increase is due to an increase in the assessment rate as well as the increase in deposits as compared to the quarter ended March 31, 2010; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Legal fees increased $215,000 due to increased litigation costs; and |
|--------------------|----------------------------------------------------------------------|

| ·   | Net foreclosed asset expense increased by $121,000 due to the $88,000 loss recognized on the sale of foreclosed assets in comparison to the $18,000 gain recognized in the first three months of 2010. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the Company successfully collected full payment on a relationship that included a $463,000 specific reserve at December 31, 2010, and as a result reversed the entire reserve; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the Company set aside additional specific reserves on one residential real estate development totaling $460,000; |
|--------------------|------------------------------------------------------------------------------------------------------------------|

| ·   | the Company established new specific reserves of $200,000 on an operating company that closed its doors and filed Chapter 7 Bankruptcy during the first quarter; and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | the Company recorded a reduction to general reserves of $624,000 as a result of the reduction in impaired loans, the reduction in charge-offs, the continued decline in loan balances, as well as a reduction in the environmental risk assessment associated with the Company’s real estate portfolios. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Nonperforming Assets                         |   |
|----------------------------------------------|--------|
|                                         |   |   |   |   |   |   |   |   |   |
| In thousands                                 |   | 3/31/11 |   |   | 12/31/10 |   |   | 3/31/10 |   |
| Nonaccrual loans                             |   | $ | 11,811 |   |   | $ | 12,242 |   |   | $ | 29,695 |   |
| Loans past due 90 days or more               |   |   | 2,140 |   |   |   | 2,244 |   |   |   | 4 |   |
| Restructured loans                           |   |   | 224 |   |   |   | - |   |   |   | - |   |
| Total nonperforming loans                    |   | $ | 14,175 |   |   | $ | 14,486 |   |   | $ | 29,699 |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreclosed, repossessed and idled properties |   |   | 15,887 |   |   |   | 16,081 |   |   |   | 3,258 |   |
| Total nonperforming assets                   |   | $ | 30,062 |   |   | $ | 30,567 |   |   | $ | 32,957 |   |

----

----

|   Change in Yield Curve |   | Change in Net Interest IncomeDecember 31, 2010 |   |   | Change in Net Interest Income March 31, 2011 |   |
|-----------------------------------|--------|------------------------------------------------|--------|--------|---------------------------------------------------|--------|
| +200 basis points                 |   |                                           | (3     | %)     |                                              | $      | (703 | ) |   |   | 5 | % |   | $ | 1,222 |   |
| + 100 basis points                |   |                                           | (2     | %)     |                                              |   | (526 | ) |   |   | 2 | % |   |   | 479 |   |
| Level – Base Case           |   |                                           | -      |   |                                              |   | - |   |   |   | - |   |   |   | - |   |
| - 100 basis points                |   |                                           | 5      | %      |                                              |   | 1,099 |   |   |   | 0 | % |   |   | 113 |   |
| - 200 basis points                |   |                                           | 9      | %      |                                              |   | 2,107 |   |   |   | 1 | % |   |   | 153 |   |

|  Change in Yield Curve |   | Change in EVE December 31, 2010 |   |   | Change in EVE March 31, 2011 |   |
|-----------------------------|--------|--------------------------------------|--------|--------|-----------------------------------|--------|
| +200 basis points           |   |                                 | (12    | %)     |                              | $      | (8,429 | ) |   |   | (9 | %) |   | $ | (7,038 | ) |
| + 100 basis points          |   |                                 | (6     | %)     |                              |   | (3,923 | ) |   |   | (4 | %) |   |   | (3,188 | ) |
| Level – Base Case     |   |                                 | -      |   |                              |   | - |   |   |   | - |   |   |   | - |   |
| - 100 basis points          |   |                                 | 6      | %      |                              |   | 3,986 |   |   |   | 4 | % |   |   | 2,993 |   |
| - 200 basis points          |   |                                 | 8      | %      |                              |   | 5,329 |   |   |   | 5 | % |   |   | 3,425 |   |

----

----

----

| ExhibitNumber |   |  Description                                                                                                                                |
|---------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|          |   |                                                                                                                                             |
| 3.1           |   | Bylaws, as amended and restated May 4, 2011*                                                                                                     |
|          |   |                                                                                                                                             |
| 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 |                                  |
|--------------------------|------------------------------|---------------------------------------|
|                     |                         |                                  |   |
| Date:  May 11, 2011 | By:                          | /s/ Ellis L. Gutshall                 |   |
|                     |                         | Ellis L. Gutshall                     |   |
|                     |                         | President and Chief Executive Officer |   |
|                     |                         |                                  |   |

|                     |   |                        |   |
|--------------------------|--------|-----------------------------|--------|
| Date:  May 11, 2011 | By:    | /s/ Kimberly B. Snyder |   |
|                     |   | Kimberly B. Snyder          |   |
|                     |   | Chief Financial Officer     |   |
|                     |   |                        |   |

----

| ExhibitNumber |   |  Description                                                                                                                                |
|---------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|          |   |                                                                                                                                             |
| 3.1           |   | Bylaws, as amended and restated May 4, 2011*                                                                                                     |
|          |   |                                                                                                                                             |
| 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.* |
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| 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.* |

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