----

| [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 |
|----------------|------------------------------------------------------------------------------------------|

----

|                                     |    |                                                                                  |   |
|------------------------------------------|---------|---------------------------------------------------------------------------------------|--------|
| Part I.  FINANCIAL INFORMATION |
|                                     |    |                                                                                  |   |
|                                     | Item 1  | Financial Statements                                                                  |
|                                     |    | Consolidated Balance Sheets                                                           | 4      |
|                                     |    | Consolidated Statements of Operations                                                 | 5      |
|                                     |    | Consolidated Statements of Cash Flows                                                 | 6      |
|                                     |    | Notes to Consolidated Financial Statements                                            | 7      |
|                                     |    |                                                                                  |   |
|                                     | Item 2  | Management's Discussion and Analysis of Financial Condition and Results of Operations | 17     |
|                                     |    |                                                                                  |   |
|                                     | Item 3  | Quantitative and Qualitative Disclosures about Market Risk                            | 23     |
|                                     |    |                                                                                  |   |
|                                     | Item 4  | Controls and Procedures                                                               | 23     |
|                                     |    |                                                                                  |   |
| Part II.  OTHER INFORMATION    |    |
|                                     |    |                                                                                  |   |
|                                     | Item 1  | Legal Proceedings                                                                     | 24     |
|                                     | Item 1A | Risk Factors                                                                          | 24     |
|                                     | Item 2  | Unregistered Sales of Equity Securities and Use of Proceeds                           | 24     |
|                                     | Item 3  | Defaults Upon Senior Securities                                                       | 24     |
|                                     | Item 4  | (Removed and Reserved)                                                                | 24     |
|                                     | Item 5  | Other Information                                                                     | 24     |
|                                     | Item 6  | Exhibits                                                                              | 25     |
|                                     |    |                                                                                  |   |
| SIGNATURES                               | 26      |
|                                     |    |                                                                                  |   |
| EXHIBITS INDEX                           | 27      |
|                                     |    |                                                                                  |   |
| CERTIFICATIONS                           |    |

----

|   | • |   | 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)6/30/10 |   |    | (Audited)12/31/09 |
|-------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|---------|-------------------|
| Assets                                                            |                                                                                                                                                                           |   |               |   |    |
|                                                              |  Cash and due from banks                                                                                                                                                  | $      |  6,794        |   |  $ | 8,179             |
|                                                              | Interest-bearing deposits in banks                                                                                                                                             |   | 65,452             |   |    | 23,699            |
|                                                              | Total Cash and Cash Equivalents                                                                                                                                                | $      | 72,246             |   | $       | 31,878            |
|                                                              |                                                                                                                                                                           |   |               |   |    |              |
|                                                              | Securities available-for-sale                                                                                                                                                  |   | 88,957             |   |    | 70,485            |
|                                                              | Securities held-to-maturity (approximate market values of $11,384 at June 30, 2010     and $12,246 at December 31, 2009, respectively)                     |   | 10,969             |   |    | 11,991            |
|                                                              | Restricted equity securities                                                                                                                                                   |   | 6,172              |   |    | 6,172             |
|                                                              | Loans, net of allowance for loan losses of $10,811 at June 30, 2010 and $14,630 at December 31, 2009                                                                           |   | 530,677            |   |    | 556,391           |
|                                                              | Foreclosed asset                                                                                                                                                               |   | 19,243             |   |    | 2,513             |
|                                                              | Premises and equipment, net                                                                                                                                                    |   | 7,537              |   |    | 7,742             |
|                                                              | Bank owned life insurance                                                                                                                                                      |   | 13,199             |   |    | 12,930            |
|                                                              | Accrued interest receivable                                                                                                                                                    |   | 2,515              |   |    | 2,498             |
|                                                              | Other assets                                                                                                                                                                   |   | 10,893             |   |    | 11,125            |
|                                                              | Total assets                                                                                                                                                                   | $      | 762,408            |   | $       | 713,725           |
|                                                              |                                                                                                                                                                           |   |               |   |    |              |
|                                                              |                                                                                                                                                                           |   |               |   |    |              |
| Liabilities and Shareholders’ Equity                        |                                                                                                                                                                           |   |               |   |    |
| Liabilities:                                                      |                                                                                                                                                                           |   |               |   |    |
|                                                              | Noninterest-bearing deposits                                                                                                                                                   | $      | 21,740             |   | $       | 17,629            |
|                                                              | Interest-bearing deposits                                                                                                                                                      |   | 587,561            |   |    | 535,299           |
|                                                              | Total deposits                                                                                                                                                                 |   | 609,301            |   |    | 552,928           |
|                                                              |                                                                                                                                                                           |   |               |   |    |              |
|                                                              | Federal funds purchased and securities sold under agreements to repurchase                                                                                                     |   | 15,364             |   |    | 21,304            |
|                                                              | Short-term borrowings                                                                                                                                                          |   | 20,000             |   |    | 20,000            |
|                                                              | Long-term borrowings                                                                                                                                                           |   | 43,000             |   |    | 48,000            |
|                                                              | Junior subordinated debentures                                                                                                                                                 |   | 16,496             |   |    | 16,496            |
|                                                              | Accrued interest payable                                                                                                                                                       |   | 1,161              |   |    | 2,462             |
|                                                              | Other liabilities                                                                                                                                                              |   | 2,664              |   |    | 996               |
|                                                              | Total liabilities                                                                                                                                                              |   | 707,986            |   |    | 662,186           |
|                                                              |                                                                                                                                                                           |   |               |   |    |              |
|                                                              | Commitments and contingencies                                                                                                                                                  |   | -                  |   |    | -                 |
|                                                              |                                                                                                                                                                           |   |               |   |    |              |
| Shareholders' equity:                                             |                                                                                                                                                                           |   |               |   |    |
|                                                              | Preferred stock, no par value; 10,000,000 shares authorized; 16,019 shares issued and outstanding     at June 30, 2010 and December 31, 2009, respectively |   | 15,415             |   |    | 15,336            |
|                                                              | Common stock, no par value; 10,000,000 shares authorized; 4,680,251 shares issued and outstanding     at June 30, 2010 and December 31, 2009, respectively |   | 23,464             |   |    | 23,369            |
|                                                              | Retained earnings                                                                                                                                                              |   | 14,501             |   |    | 12,878            |
|                                                              | Accumulated other comprehensive income (loss)                                                                                                                                  |   | 1,042              |   |    | (44)              |
|                                                              | Total shareholders’ equity                                                                                                                                               |   | 54,422             |   |    | 51,539            |
|                                                              | Total liabilities and shareholders’ equity                                                                                                                               | $      | 762,408            |   | $       | 713,725           |
|  See accompanying notes to consolidated financial statements |                                                                                                                                                                           |   |               |   |    |              |

----

|                                                                                                           |   | 3 Months Ended |   |      | 6 Months Ended |
|----------------------------------------------------------------------------------------------------------------|--------|----------------|--------|-----------|----------------|
|                                                                                                           |   | 6/30/10        |   | 6/30/09   |           |   | 6/30/10 |   | 6/30/09 |
| Interest Income:                                                                                               |   |           |   |      |           |   |   |   |   |
|      Interest and fees on loans                                                       | $      | 7,343          |   | 7,602     |           | $ | 14,674 | $ | 14,798 |
|      Interest on securities–taxable                                             |   | 804            |   | 914       |           |   | 1,520 |   | 1,925 |
|      Interest on securities-nontaxable                                                |   | 132            |   | 135       |           |   | 253 |   | 245 |
|      Interest on deposits in banks                                                    |   | 26             |   | 2         |           |   | 45 |   | 2 |
|           Total interest income                              |   | 8,305          |   | 8,653     |           |   | 16,492 |   | 16,970 |
| Interest Expense:                                                                                              |   |           |   |      |           |   |   |   |   |
|      Interest on deposits                                                             |   | 2,351          |   | 2,764     |           |   | 4,779 |   | 5,568 |
|      Interest on short-term borrowings                                                |   | 254            |   | 103       |           |   | 512 |   | 188 |
|      Interest on long-term borrowings                                                 |   | 399            |   | 631       |           |   | 822 |   | 1,287 |
|      Interest on junior subordinated debentures                                       |   | 92             |   | 126       |           |   | 181 |   | 276 |
|      Interest on federal funds purchased and securities sold                          |   |           |   |      |           |   |   |   |   |
|          under agreements to repurchase                           |   | 10             |   | 20        |           |   | 21 |   | 48 |
|           Total interest expense                             |   | 3,106          |   | 3,644     |           |   | 6,315 |   | 7,367 |
|           Net interest income                                |   | 5,199          |   | 5,009     |           |   | 10,177 |   | 9,603 |
| Provision for loan losses                                                                                      |   | (335)          |   | 8,001     |           |   | (127) |   | 9,434 |
|      Net interest income after provision for loan losses                              |   | 5,534          |   | (2,992)   |           |   | 10,304 |   | 169 |
|                                                                                                           |   |           |   |      |           |   |   |   |   |
| Noninterest Income:                                                                                            |   |           |   |      |           |   |   |   |   |
|      Service charges on deposit accounts                                              |   | 335            |   | 298       |           |   | 642 |   | 569 |
|      Income earned on bank owned life insurance                                       |   | 136            |   | 135       |           |   | 270 |   | 270 |
|      Realized gain on sale of securities                                              |   | -              |   | -         |           |   | - |   | 267 |
|      Realized (loss) on sale of foreclosed assets                                     |   | (26)           |   | (135)     |           |   | (8) |   | (165) |
|      Other income                                                                     |   | 197            |   | 161       |           |   | 311 |   | 217 |
|           Total noninterest income                           |   | 642            |   | 459       |           |   | 1,215 |   | 1,158 |
|                                                                                                           |   |           |   |      |           |   |   |   |   |
| Noninterest Expense:                                                                                           |   |           |   |      |           |   |   |   |   |
|      Compensation expense                                                             |   | 2,052          |   | 1,867     |           |   | 4,037 |   | 3,649 |
|      Occupancy and equipment expense                                                  |   | 398            |   | 414       |           |   | 795 |   | 836 |
|      Data processing expense                                                          |   | 282            |   | 264       |           |   | 571 |   | 513 |
|      Advertising and marketing expense                                                |   | 84             |   | 79        |           |   | 201 |   | 136 |
|      Insurance                                                                        |   | 510            |   | 534       |           |   | 872 |   | 738 |
|      Audit fees                                                                       |   | 111            |   | 84        |           |   | 222 |   | 169 |
|      Legal                                                                            |   | 53             |   | 159       |           |   | 141 |   | 282 |
|      Franchise tax expense                                                            |   | 124            |   | 107       |           |   | 247 |   | 213 |
|      Deposit expense                                                                  |   | 130            |   | 122       |           |   | 255 |   | 216 |
|      Loan expenses                                                                    |   | 77             |   | 96        |           |   | 155 |   | 193 |
|      Computer software expense                                                        |   | 94             |   | 110       |           |   | 191 |   | 217 |
|      Foreclosed asset expenses, net                                                   |   | 75             |   | 60        |           |   | 171 |   | 78 |
|      Other expense                                                                    |   | 344            |   | 337       |           |   | 697 |   | 687 |
|           Total noninterest expense                          |   | 4,334          |   | 4,233     |           |   | 8,555 |   | 7,927 |
|           Income (loss) before income taxes                  |   | 1,842          |   | (6,766)   |           |   | 2,964 |   | (6,600) |
|                                                                                                           |   |           |   |      |           |   |   |   |   |
| Income tax expense (benefit)                                                                                   |   | 587            |   | (2,340)   |           |   | 861 |   | (2,322) |
|           Net income (loss)                                  | $      | 1,255          | $      | (4,426)   |           | $ | 2,103 |   | (4,278) |
| Preferred dividends and accretion of discounts on warrants                                                     |   | 240            |   | 239       |           |   | 479 |   | 474 |
|           Net income (loss) available to common shareholders | $      | 1,015          | $      | (4,665)   |           | $ | 1,624 |   | (4,752) |
|                                                                                                           |   |           |   |      |           |   |   |   |   |
| Earnings (loss) per share                                                                                      |   |           |   |      |           |   |   |   |   |
| Basic earnings (loss) per common share                                                                         | $      | 0.22           | $      | (1.00)    |           | $ | 0.35 | $ | (1.02) |
| Diluted earnings (loss) per common share                                                                       | $      | 0.22           | $      | (1.00)    |           | $ | 0.35 | $ | (1.02) |
| Weighted average shares outstanding                                                                            |   | 4,680,251      |   | 4,680,251 |           |   | 4,680,251 |   | 4,680,197 |
| Diluted average shares outstanding                                                                             |   | 4,699,097      |   | 4,680,251 |           |   | 4,690,061 |   | 4,680,197 |
| Dividends declared per common share                                                                            | $      | -              | $      | 0.04      |           | $ | - | $ | 0.04 |

----

|                                                                                                                           | Six Months Ended                                                                                                                                                                                                                                |
|--------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                           | 6/30/10                                                                                                                                                                                                                                         |   | 6/30/09 |
| Cash flows from operating activities                                                                                           |                                                                                                                                                                                                                                            |   |   |
| Net income (loss)                                                                                                              | $                                     2,103                      |   | $                               (4,278) |
| Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by   operating activities: |                                                                                                                                                                                                                                            |   |   |
|                                                                                                                           | Increase (decrease) in provision for loan losses                                                                                                                                                                                                | (127) |   | 9,434 |
|                                                                                                                           | Depreciation and amortization of bank premises, equipment and software                                                                                                                                                                          | 402 |   | 442 |
|                                                                                                                           | Stock compensation expense                                                                                                                                                                                                                      | 95 |   | 73 |
|                                                                                                                           | (Increase) decrease in deferred income tax                                                                                                                                                                                                      | (149) |   | 191 |
|                                                                                                                           | Net (gains) on sale of securities                                                                                                                                                                                                               | - |   | (267) |
|                                                                                                                           | Net losses on foreclosed and repossessed assets                                                                                                                                                                                                 | 8 |   | 165 |
|                                                                                                                           | Net losses on equipment disposals                                                                                                                                                                                                               | 5 |   | 3 |
|                                                                                                                           | Net amortization of bond premiums/discounts                                                                                                                                                                                                     | 401 |   | 53 |
|                                                                                                                           | Decrease in unearned fees                                                                                                                                                                                                                       | (35) |   | (21) |
|                                                                                                                           | (Increase) decrease in accrued interest receivable                                                                                                                                                                                              | (17) |   | 30 |
|                                                                                                                           | Decrease in other assets                                                                                                                                                                                                                        | 359 |   | 257 |
|                                                                                                                           | Increase in value of life insurance contracts                                                                                                                                                                                                   | (270) |   | (270) |
|                                                                                                                           | Decrease in accrued interest payable                                                                                                                                                                                                            | (1,301) |   | (312) |
|                                                                                                                           | Increase (decrease) in other liabilities                                                                                                                                                                                                        | 1,467 |   | (2,761) |
|                                                                                                                           | Net cash and cash equivalents provided by operating activities                                                                                                                                                                                  | 2,941 |   | 2,739 |
|                                                                                                                           |                                                                                                                                                                                                                                            |   |   |
| Cash flows from investing activities                                                                                           |                                                                                                                                                                                                                                            |   |   |
|                                                                                                                           | Purchases of bank premises, equipment and software                                                                                                                                                                                              | (179) |   | (329) |
|                                                                                                                           | Purchases of securities available-for-sale                                                                                                                                                                                                      | (35,031) |   | (7,833) |
|                                                                                                                           | Purchases of securities held-to-maturity                                                                                                                                                                                                        | - |   | (6,314) |
|                                                                                                                           | Purchases of restricted equity securities                                                                                                                                                                                                       | - |   | (130) |
|                                                                                                                           | Proceeds from sales/calls/paydowns/maturities of securities available-for-sale                                                                                                                                                                  | 17,256 |   | 24,190 |
|                                                                                                                           | Proceeds from paydowns on securities held-to-maturity                                                                                                                                                                                           | 1,010 |   | 2,862 |
|                                                                                                                           | Proceeds from sale of foreclosed and repossessed assets                                                                                                                                                                                         | 1,651 |   |                   1,899 |
|                                                                                                                           | Capitalized costs related to foreclosed assets                                                                                                                                                                                                  | (398) |   | (19) |
|                                                                                                                           | (Increase) decrease in loans, net                                                                                                                                                                                                               | 7,885 |   | (41,801) |
|                                                                                                                           | Net cash and cash equivalents used in investing activities                                                                                                                                                                                      | (7,806) |   | (27,475) |
|                                                                                                                           |                                                                                                                                                                                                                                            |   |   |   |
| Cash flows from financing activities                                                                                           |                                                                                                                                                                                                                                            |   |   |
|                                                                                                                           | Increase in non-interest bearing deposits                                                                                                                                                                                                       | 4,111 |   | 3,503 |
|                                                                                                                           | Increase in interest bearing deposits                                                                                                                                                                                                           | 52,262 |   | 59,922 |
|                                                                                                                           | Proceeds from short-term borrowings                                                                                                                                                                                                             | - |   | 36,000 |
|                                                                                                                           | Principal repayments of short-term borrowings                                                                                                                                                                                                   | (5,000) |   | (48,000) |
|                                                                                                                           | Decrease in securities sold under agreements to repurchase                                                                                                                                                                                      | (5,940) |   | (12,151) |
|                                                                                                                           | Decrease in federal funds purchased                                                                                                                                                                                                             | - |   | (11,326) |
|                                                                                                                           | Cash dividends paid                                                                                                                                                                                                                             | (200) |   | (668) |
|                                                                                                                           | Net proceeds from issuance of common stock                                                                                                                                                                                                      | - |   | (7) |
|                                                                                                                           | Net cash and cash equivalents provided by financing activities                                                                                                                                                                                  | 45,233 |   | 27,273 |
|                                                                                                                           | Net increase in cash and cash equivalents                                                                                                                                                                                                       | 40,368 |   | 2,537 |
|                                                                                                                           |                                                                                                                                                                                                                                            |   |   |
| Cash and cash equivalents at beginning of year                                                                                 | 31,878                                                                                                                                                                                                                                          |   | 7,296 |
| Cash and cash equivalents at end of year                                                                                       | $                                   72,246                            |   | $                                  9,833 |
|                                                                                                                           |                                                                                                                                                                                                                                            |   |   |
| Supplemental disclosure of cash flow information                                                                               |                                                                                                                                                                                                                                            |   |   |
|         Cash paid during the period for interest                                       | $                                     7,616                 |   | $                                  7,679 |
|         Cash paid during the period for income taxes                                   | $                                        501 |   | $                                     558 |
|                                                                                                                           |                                                                                                                                                                                                                                            |   |   |
| Noncash financing and investing activities                                                                                     |                                                                                                                                                                                                                                            |   |   |
|         Transfer of loans to foreclosed property                                       | $                                   17,991                            |   | $                                  3,064 |
|         Reclassification of borrowings from long-term to short-term                    | $                                     5,000            |   | $                                  5,000 |
|                                                                                                                           |                                                                                                                                                                                                                                            |   |   |
| See accompanying notes to consolidated financial statements.                                                                   |                                                                                                                                                                                                                                            |   |   |

----

----

|                               |   AmortizedCosts |   |   UnrealizedGains |   |   UnrealizedLosses |   |   FairValues |
|------------------------------------|-----------------------|--------|------------------------|--------|-------------------------|--------|-------------------|
| June 30, 2010                      |                  |   |                   |   |                    |   |              |   |   |   |   |
| U.S. Government and federal agency | $                     | 2,494  |                   | $      | 8                       |   | $                 | - |   | $ | 2,502 |
| Government-sponsored enterprises   |                  | 17,647 |                   |   | 79                      |   |              | - |   |   | 17,726 |
| Mortgage-backed securities         |                  | 59,897 |                   |   | 1,346                   |   |              | (25) |   |   | 61,218 |
| States and political subdivisions  |                  | 7,341  |                   |   | 174                     |   |              | (4) |   |   | 7,511 |
|                               | $                     | 87,379 |                   | $      | 1,607                   |   | $                 | (29) |   | $ | 88,957 |

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

|                              |   Amortized Costs |   |   UnrealizedGains |   |   Unrealized Losses |   |   FairValues |
|-----------------------------------|-----------------------------|--------|------------------------|--------|-------------------------------|--------|-------------------|
| June 30, 2010                     |                        |   |                   |   |                          |   |              |   |   |   |   |
| Mortgage-backed securities        |                        | 5,380  |                   |   | 300                           |   |              | - |   |   | 5,680 |
| States and political subdivisions |                        | 5,589  |                   |   | 130                           |   |              | (15) |   |   | 5,704 |
|                              | $                           | 10,969 |                   | $      | 430                           |   | $                 | (15) |   | $ | 11,384 |

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

----

|                                    |                                                                                                           | Available for Sale                                                                                       |
|-----------------------------------------|----------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
|                                    |                                                                                                           | June 30, 2010                                                                                            |
|                                    |                                                                                                           | AmortizedCosts                                                                                           | FairValue |  Yield |
|                                    |                                                                                                           |                                                                                                     |   |   |
| U.S.Government and federal agency:      |                                                                                                           |                                                                                                     |   |
|                                    | After one but within five years                                                                                | 390                                                                                                      | 397 | 3.57% |
|                                    | After five but within ten years                                                                                | 2,019                                                                                                    | 2,020 | 3.99% |
|                                    | After ten years                                                                                                | 85                                                                                                       | 85 | 2.71% |
|                                    |                                                                                                           |                                                                                                     |   |   |
| Government-sponsored enterprises:       |                                                                                                           |                                                                                                     |   |
|                                    | After five but within ten years                                                                                | 14,647                                                                                                   | 14,713 | 4.75% |
|                                    | After ten years                                                                                                | 3,000                                                                                                    | 3,013 | 5.45% |
|                                    |                                                                                                           |                                                                                                     |   |
| Obligations of states and subdivisions: |                                                                                                           |                                                                                                     |   |
|                                    | After five but within ten years                                                                                | 278                                                                                                      | 281 | 4.85% |
|                                    | After ten years                                                                                                | 7,063                                                                                                    | 7,230 | 4.55% |
|                                    |                                                                                                           |                                                                                                     |   |
| Mortgage-backed securities              | 44,478                                                                                                         | 45,294                                                                                                   | 3.21% |
|                                    |                                                                                                           |                                                                                                     |   |
| Collateralized mortgage obligations     | 15,419                                                                                                         | 15,924                                                                                                   | 3.65% |
|                                    |                                                                                                           |                                                                                                     |   |   |
| Total                                   | $                  87,379 | $                 88,957 |   |
|                                    |                                                                                                           |                                                                                                     |   |
| Total Securities by Maturity Period *   |                                                                                                           |                                                                                                     |   |
| After one but within five years         | 390                                                                                                            | 397                                                                                                      |   |
| After five but within ten years         | 16,944                                                                                                         | 17,014                                                                                                   |   |
| After ten years                         | 10,148                                                                                                         | 10,328                                                                                                   |   |
| Mortgage-backed securities              | 44,478                                                                                                         | 45,294                                                                                                   |   |
| Collateralized mortgage obligations     | 15,419                                                                                                         | 15,924                                                                                                   |   |
|                                    |                                                                                                           |                                                                                                     |   |
| Total by Maturity Period                | $                 87,379       | $                88,957       |   |

----

|                                    |                            | Held to Maturity |
|-----------------------------------------|---------------------------------|------------------|
|                                    |                            | June 30, 2010    |
|                                    |                            | AmortizedCosts   | FairValue |  Yield |
|                                    |                            |             |   |   |
| Obligations of states and subdivisions: |                            |             |   |
|                                    | Within one year                 | 141              | 143 | 4.00% |
|                                    | After one but within five years | 300              | 323 | 3.75% |
|                                    | After five but within ten years | 2,325            | 2,382 | 4.86% |
|                                    | After ten years                 | 2,823            | 2,856 | 5.78% |
|                                    |                            |             |   |
| Mortgage-backed securities              | 757                             | 796              | 4.37% |
|                                    |                            |             |   |
| Collateralized mortgage obligations     | 4,623                           | 4,884            | 5.54% |
|                                    |                            |             |   |   |

| Total                                 | $           10,969 | $              11,384 |   |
|---------------------------------------|---------------------------------------------------------------------------|----------------------------------------------------------------------------------------|--------|
|                                  |                                                                      |                                                                                   |   |
| Total Securities by Maturity Period * |                                                                      |                                                                                   |   |

| Within one year                     | $                  141 | $                    143 |   |
|-------------------------------------|-------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------|--------|
| After one but within five years     | 300                                                                                                         | 323                                                                                                                     |   |
| After five but within ten years     | 2,325                                                                                                       | 2,382                                                                                                                   |   |
| After ten years                     | 2,823                                                                                                       | 2,856                                                                                                                   |   |
| Mortgage-backed securities          | 757                                                                                                         | 796                                                                                                                     |   |
| Collateralized mortgage obligations | 4,623                                                                                                       | 4,884                                                                                                                   |   |

| Total by Maturity Period | $           10,969 | $           11,384 |   |
|--------------------------|---------------------------------------------------------------------------|---------------------------------------------------------------------------|--------|

| June 30, 2010                         |   Less than 12 Months |   |   12 Months or More |   |   Total |
|---------------------------------------|----------------------------|--------|--------------------------|--------|--------------|
|                                  |   Fair                |   |   Unrealized        |   |   Fair  |   |   | Unrealized |   |   Fair |   |   Unrealized |
|                                  |   Value               |   |   Losses            |   |   Value |   |   | Losses |   |   Value |   |   Losses |
| Mortgage-backed securities            |                       | 2,610  |                     |   | (23)         |   |   | 28 |   |   | (2) |   |   | 2,638 |   |   | (25) |
| State and political subdivisions      |                       | 670    |                     |   | (4)          |   |   | - |   |   | - |   |   | 670 |   |   | (4) |
| Total temporarily impaired securities | $                          | 3,280  |                     | $      | (27)         |   | $ | 28 |   | $ | (2) |   | $ | 3,308 |   | $ | (29) |

----

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

| June 30, 2010                         |   | Less than 12 months |   |   |       | 12 Months or More |         |   |   Total      |
|---------------------------------------|--------|---------------------|--------|--------|------------|-------------------|--------------|--------|-------------------|
|                                  |   | Fair                |   |   | Unrealized |              |   Fair  |   |   Unrealized |   |   Fair |   |   Unrealized |
|                                  |   | Value               |   |   | Losses     |              |   Value |   |   Losses     |   |   Value |   |   Losses |
| State and political subdivisions      | $      | 244                 |   | $      | (14)       |              | $            | 205    |              | $ | (1) |   | $ | 449 |   | $ | (15) |
| Total temporarily impaired securities | $      | 244                 |   | $      | (14)       |              | $            | 205    |              | $ | (1) |   | $ | 449 |   | $ | (15) |

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

----

|                                                         | 6/30/10                                                                                                 | 6/30/09                                                                                                       |
|--------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|
| Balance at January 1                                         | $                14,630 |    $               7,592 |
| Provision for loan losses                                    | (127)                                                                                                   | 9,434                                                                                                         |
| Recoveries:                                                  |                                                                                                    |                                                                                                          |
|      Commercial                     | 16                                                                                                      | -                                                                                                             |
|      Loans to individuals           | 6                                                                                                       | -                                                                                                             |
|      Residential Real Estate        | 7                                                                                                       | -                                                                                                             |
|      Real Estate Construction       | 3                                                                                                       | -                                                                                                             |
| Charged off loans:                                           |                                                                                                    |                                                                                                          |
|       Commercial               | (917)                                                                                                   | (2,312)                                                                                                       |
|       Loans to individuals     | (11)                                                                                                    | (80)                                                                                                          |
|       Commercial Real Estate   | (266)                                                                                                   | (129)                                                                                                         |
|       Residential Real Estate  | (701)                                                                                                   | (180)                                                                                                         |
|       Real Estate Construction | (1,829)                                                                                                 | (1,112)                                                                                                       |
| Balance at June 30                                           | $                10,811      | $           13,213                                     |

|    | Earnings/(Loss) Per Share |
|---------|---------------------------|
|    | 3 Months Ending           |   | 6 Months Ending |
|    | 6/30/10                   | 6/30/09 |   | 6/30//10 | 6/30//09 |
|    |                      |   |   |   |   |
| Basic   | $ 0.22                    | ($1.00) |   | $ 0.35 | ($1.02) |
|    |                      |   |   |   |   |
| Diluted | $ 0.22                    | ($1.00) |   | $ 0.35 | ($1.02) |

|    | Weighted Average Shares Outstanding |
|---------|-------------------------------------|
|    | 3 Months Ending                     |   | 6 Months Ending |
|    | 6/30/10                             | 6/30/09 |   | 6/30/10 | 6/30/09 |
|    |                                |   |   |   |   |
| Basic   | 4,680,251                           | 4,680,251 |   | 4,680,251 | 4,680,197 |
|    |                                |   |   |   |   |
| Diluted | 4,699,097                           | 4,680,251 |   | 4,690,061 | 4,680,197 |

----

|                                                                   |   | 3 Months Ended(dollars in 000s) |    | 6 Months Ended(dollars in 000s) |
|------------------------------------------------------------------------|--------|---------------------------------|---------|---------------------------------|
|                                                                   |   |                            | 6/30/10 |                            | 6/30/09 |   | 6/30/10 |   | 6/30/09 |
| Net unrealized gains on securities available for sale:                 |   |                            |    |                            |   |   |   |   |
| Net unrealized holding gains during the year                           | $      | 1,046                           | $       | 236                             | $ | 1,645 | $ | 548 |
| Reclassification adjustment for gains realized in income, net of taxes |   | -                               |    | -                               |   | - |   | (176) |
| Income tax expense                                                     |   | (356)                           |    | (80)                            |   | (559) |   | (186) |
| Other comprehensive income, net of income taxes                        | $      | 690                             | $       | 156                             | $ | 1,086 | $ | 186 |

----

|   June 30, 2010 |    OptionsOutstanding |   |  Weighted AverageExercisePrice |   | Weighted Average Grant Date Fair Value |   |  Intrinsic Value of Options Exercised |  WeightedAverageContractualTerm |
|---------------------------|--------------------------------------|--------|-------------------------------------|--------|----------------------------------------|--------|--------------------------------------------|--------------------------------------|
| Balance at 12/31/09       | 237,850                              | $      | 8.77                                | $      | 2.76                                   | $      | 12                                         | 6.65 years                           |
|                      |                                 |   |                                |   |                                   |   |                                       |                                 |
| Granted                   | 6,700                                |   | 4.05                                |   | 1.42                                   |   | -                                          |                                 |
| Forfeited                 | (15,600)                             |   | 10.33                               |   | 3.51                                   |   |                                       |                                 |
|                      |                                 |   |                                |   |                                   |   |                                       |                                 |
| Balance at 6/30/10        | 228,950                              | $      | 8.52                                | $      | 2.67                                   | $      | 23                                         | 6.22 years                           |
|                      |                                 |   |                                |   |                                   |   |                                       |                                 |
| Exercisable at 6/30/10    | 124,430                              | $      | 9.83                                | $      | 2.94                                   |   | n/a                                        | 4.56 years                           |
|                      |                                 |   |                                |   |                                   |   |                                       |                                 |

|   June 30, 2009 |    OptionsOutstanding |   |  Weighted AverageExercisePrice |   | Weighted Average Grant Date Fair Value |   |  Intrinsic Value of Options Exercised |  WeightedAverageContractualTerm |
|---------------------------|--------------------------------------|--------|-------------------------------------|--------|---------------------------------------------|--------|--------------------------------------------|--------------------------------------|
| Balance at 12/31/08       | 256,982                              | $      | 8.79                                | $      | 2.66                                        | $      | 302                                        | 5.97 years                           |
|                      |                                 |   |                                |   |                                        |   |                                       |                                 |
| Exercised                 | (1,400)                              |   | 5.08                                |   | 0.95                                        |   | -                                          |                                 |
| Forfeited                 | (35,750)                             |   | 5.49                                |   | 1.17                                        |   |                                       |                                 |
| Granted                   | 2,000                                |   | 5.11                                |   | 1.49                                        |   |                                       |                                 |
| Expired                   | -                                    |   | -                                   |   | -                                           |   |                                       |                                 |
| Balance at 6/30/09        | 221,832                              | $      | 9.32                                | $      | 2.90                                        | $      | -                                          | 6.41 years                           |
|                      |                                 |   |                                |   |                                        |   |                                       |                                 |
| Exercisable at 6/30/09    | 112,162                              | $      | 9.49                                | $      | 2.64                                        | $      | n/a                                        | 4.47 years                           |
|                      |                                 |   |                                |   |                                        |   |                                       |                                 |

----

|   |   | 3 Months Ended(dollars in 000s) |   | 6 Months Ended(dollars in 000s) |
|--------|--------|---------------------------------|--------|---------------------------------|

|                                           |   | 6/30/10 |   | 6/30/09 |   | 6/30/10 |   | 6/30/09 |
|------------------------------------------------|--------|---------|--------|---------|--------|---------|--------|---------|
| Number of options vested:                      |   | 1,780   |   | 2,780   |   | 9,480   |   | 10,180  |   |
| Total grant date fair value of options vested: | $      | 6       | $      | 9       | $      | 32      | $      | 36      |   |

|                    |  Non-VestedRestricted StockOutstanding | Weighted AverageGrant DateFair Value |
|-------------------------|---------------------------------------------|--------------------------------------|
|                    |                                        |                                 |
| Outstanding at 12/31/09 | 30,000                                      | $4.62                                |
|                    |                                        |                                 |
| Granted                 | 36,195                                      | $4.05                                |
|                    |                                        |                                 |
| Outstanding at 6/30/10  | 66,195                                      | $4.31                                |

|  (in 000’s)                                           |   |  Total |   |  Level 1 |   |  Level 2 |   |  Level 3 |
|------------------------------------------------------------------|--------|-------------|--------|---------------|--------|---------------|--------|---------------|
| Investment securities available-for-sale:                        |   |        |   |          |   |          |   |          |
|      U.S. Government and federal agency | $      | 2,502       | $      | -             | $      | 2,502         | $      | -             |
|      Government-sponsored enterprises   |   | 17,726      |   | -             |   | 17,726        |   | -             |
|      Mortgage-backed securities         |   | 61,218      |   | -             |   | 61,218        |   | -             |
|      States and political subdivisions  |   | 7,511       |   | -             |   | 7,511         |   | -             |
| Total assets at fair value                                       | $      | 88,957      | $      | -             | $      | 88,957        | $      | -             |
|                                                             |   |        |   |          |   |          |   |          |
| Total liabilities at fair value                                  | $      | -           | $      | -             | $      | -             | $      | -             |
|                                                             |   |        |   |          |   |          |   |          |

----

|  (in 000’s)                                                                             |   |  Total |   |  Level 1 |   |  Level 2 |   |  Level 3 |
|----------------------------------------------------------------------------------------------------|--------|-------------|--------|---------------|--------|---------------|--------|---------------|
| Impaired loans                                                                                     |   |        |   |          |   |          |   |          |
|      Commercial                                                           | $      | 3,588       | $      | -             | $      | 3,588         | $      | -             |
|      Commercial Real Estate                                               |   | 14,426      |   | -             |   | 14,426        |   | -             |
|      Residential Real Estate                                              |   | 5,853       |   | -             |   | 5,853         |   | -             |
|      Construction Real Estate                                             |   | 11,655      |   | -             |   | 11,655        |   | -             |
|             Total impaired loans       |   | 33,522      |   | -             |   | 33,522        |   | -             |
| Foreclosed assets                                                                                  |   | 19,243      |   | -             |   | 19,243        |   | -             |
|             Total assets at fair value | $      | 54,765      | $      | -             | $      | 54,765        | $      | -             |
|                                                                                               |   |        |   |          |   |          |   |          |
| Total liabilities at fair value                                                                    | $      | -           | $      | -             | $      | -             | $      | -             |

|                                                             |   | June 30, 2010   |   |   | December 31, 2009      |
|------------------------------------------------------------------|--------|-----------------|--------|--------|------------------------|
| (in 000’s)                                                 |   | CarryingAmounts |   |   | ApproximateFair Values |   |   | CarryingAmounts |   |   | ApproximateFair Values |
| Financial assets                                                 |   |            |   |   |                   |   |   |   |   |   |   |
|    Cash and due from banks                        | $      | 6,794           |   | $      | 6,794                  |   | $ | 8,179 |   | $ | 8,179 |
|    Interest-bearing deposits in banks             |   | 65,452          |   |   | 65,452                 |   |   | 23,699 |   |   | 23,699 |
|    Securities available-for-sale                  |   | 88,957          |   |   | 88,957                 |   |   | 70,485 |   |   | 70,485 |
|    Securities held-to-maturity                    |   | 10,969          |   |   | 11,384                 |   |   | 11,991 |   |   | 12,246 |
|    Restricted equity securities                   |   | 6,172           |   |   | 6,172                  |   |   | 6,172 |   |   | 6,172 |
|    Loans, net                                     |   | 530,677         |   |   | 532,959                |   |   | 556,391 |   |   | 557,975 |
|    Bank owned life insurance                      |   | 13,199          |   |   | 13,199                 |   |   | 12,930 |   |   | 12,930 |
|    Foreclosed Assets                              |   | 19,243          |   |   | 19,243                 |   |   | 2,513 |   |   | 2,513 |
|                                                             |   |            |   |   |                   |   |   |   |   |   |   |
| Financial liabilities                                            |   |            |   |   |                   |   |   |   |   |   |   |
|    Total deposits                                 |   | 609,301         |   |   | 610,265                |   |   | 552,928 |   |   | 553,908 |
|    Short-term borrowings                          |   | 20,000          |   |   | 20,000                 |   |   | 20,000 |   |   | 20,000 |
|    Securities sold under agreements to repurchase |   | 15,364          |   |   | 15,364                 |   |   | 21,304 |   |   | 21,304 |
|     Long-term borrowings                     |   | 43,000          |   |   | 47,071                 |   |   | 48,000 |   |   | 51,403 |
|     Junior subordinated debentures           |   | 16,496          |   |   | 15,866                 |   |   | 16,496 |   |   | 15,864 |

----

----

| ·   | The Company was aggressive during 2009 in recognizing loss exposures on its impaired loans and as a result, the charge-offs taken during 2010 were previously recognized in prior periods.  The provision for the three-month period ended June 30, 2009 was adversely impacted by specific reserves taken on four real estate relationships as a result of the significant devaluation of real estate that occurred during that period and specific reserves taken on one customer operating in the automobile industry.  As a result, new specific reserves recognized during the second quarter of 2009 totaled $5.9 million in comparison to $76,000 for the second quarter of 2010. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The Company’s total investment in impaired loans has decreased by approximately 14% as compared to June 30, 2009. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------|

| ·   | The Company’s total loan portfolio grew by $34.9 million during the first six months of 2009 as compared to a reduction in total loans of $29.5 million during the same period for 2010. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Key Performance Ratios (1)       |
|---------------------------------------|
|                                  |   |   |   |   |   |
|                                  | 6 months |   | 12 months |   | 6 months |
|                                  | Ended |   | Ended |   | Ended |
|                                  | 6/30/10 |   | 12/31/09 |   | 6/30/09 |
| Return on average assets              | 0.58% |   | (0.81%) |   | (1.25%) |
| Return on average equity (2)          | 8.05% |   | (10.03%) |   | (14.72%) |
| Net interest margin (3)               | 2.96% |   | 2.99% |   | 2.98% |
| Cost of funds                         | 1.88% |   | 2.26% |   | 2.38% |
| Yield on earning assets               | 4.77% |   | 5.14% |   | 5.24% |
| Basic net earnings per common share   | $ 0.35 |   | ($1.42) |   | ($1.02) |
| Diluted net earnings per common share | $ 0.35 |   | ($1.42) |   | ($1.02) |

|   | (1) | Ratios are annualized. |
|--------|-----|------------------------|

|   | (2) | The calculation of ROE excludes the effect of any unrealized gains or losses on investment securities available-for-sale. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------|

|   | (3)   |  Calculated on a fully taxable equivalent basis (“FTE”). |
|--------|-----------------|---------------------------------------------------------------------------|

|                                              |   | Six months ended 6/30/10 |   | Twelve months ended 12/31/09 |   | Six months ended 6/30/09 |
|---------------------------------------------------|--------|--------------------------|--------|------------------------------|--------|--------------------------|
| Net interest income, non tax-equivalent           | $      | 10,177                   | $      | 19,824                       | $      | 9,603                    |
| Less: tax-exempt interest income                  |   | (253)                    |   | (511)                        |   | (245)                    |
| Add: tax-equivalent of tax-exempt interest income |   | 383                      |   | 774                          |   | 371                      |
| Net interest income, tax-equivalent               | $      | 10,307                   | $      | 20,087                       | $      | 9,729                    |

----

| Ratio    |   | Well Capitalized |   | 6/30/10 |   | 12/31/09 |   | 6/30/09 |
|----------|--------|------------------|--------|---------|--------|----------|--------|---------|
| Tier 1   |   | 6.0%             |   | 12.1%   |   | 11.7%    |   | 11.8%   |
| Total    |   | 10.0%            |   | 13.3%   |   | 13.0%    |   | 13.0%   |
| Leverage |   | 5.0%             |   | 9.3%    |   | 9.4%     |   | 10.0%   |

| Ratio    |   | Well Capitalized |   | 6/30/10 |   | 12/31/09 |   | 6/30/09 |
|----------|--------|------------------|--------|---------|--------|----------|--------|---------|
| Tier 1   |   | 6.0%             |   | 11.0%   |   | 10.6%    |   | 10.2%   |
| Total    |   | 10.0%            |   | 12.3%   |   | 11.9%    |   | 11.4%   |
| Leverage |   | 5.0%             |   | 8.5%    |   | 8.5%     |   | 8.7%    |

| Key Growth Indicators |
|-----------------------|
| (dollars in 000s)     |
|                  |   |   |   |   |   |   |
|                  |   | 6/30/10 |   | 12/31/09 |   | 6/30/09 |
| Investment securities | $ | 106,098 | $ | 88,648 | $ | 80,475 |
| Loans, net            | $ | 530,677 | $ | 556,391 | $ | 574,778 |
| Deposits              | $ | 609,301 | $ | 552,928 | $ | 529,760 |
| Total assets          | $ | 762,408 | $ | 713,725 | $ | 694,659 |

----

| Non-performing Assets                        |
|----------------------------------------------|
| (dollars in 000s)                            |
|                                         |   |   |   |   |   |   |
|                                         |   | 6/30/10 |   | 12/31/09 |   | 6/30/09 |
| Nonaccrual loans                             | $ | 16,662 | $ | 28,568 | $ | 23,070 |
| Loans past due 90 days or more               |   | 1,394 |   | 24 |   | - |
| Restructured loans                           |   | 628 |   | - |   | 43 |
| Total nonperforming loans                    | $ | 18,684 | $ | 28,592 | $ | 23,113 |
|                                         |   |   |   |   |   |   |
| Foreclosed, repossessed and idled properties |   | 19,243 |   | 2,513 |   | 1,443 |
| Total nonperforming assets                   | $ | 37,927 | $ | 31,105 | $ | 24,556 |

----

----

----

| Financial reform legislation recently enacted by Congress will result in new laws and regulations that are expected to increase our costs of operation. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ExhibitNumber |   |  Description                                                                                                                                |
|---------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|          |   |                                                                                                                                             |
|          |   |                                                                                                                                             |
| 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:  August 10, 2010 | By:                          | /s/Ellis L. Gutshall                  |   |
|                        |                         | Ellis L. Gutshall                |   |
|                        |                         | President and Chief Executive Officer |   |

|                   |   |                    |   |
|-----------------------------|--------|-------------------------|--------|
| Date:  August 10, 2010 | By:    | /s/Kimberly B. Snyder   |   |
|                        |   | Kimberly B. Snyder      |   |
|                        |   | Chief Financial Officer |   |
|                        |   |                    |   |

----

| ExhibitNumber |   |  Description                                                                                                                                |
|---------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|          |   |                                                                                                                                             |
|          |   |                                                                                                                                             |
| 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.* |

----