UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

For Quarterly Period Ended September 30, 2009      Commission File No. 000-29640


                         COMMUNITY FIRST BANCORPORATION
             -------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


         South Carolina                                 58-2322486
  -------------------------------              --------------------------------
  (State or other jurisdiction of              (IRS Employer Identification No.)
  incorporation or organization)


                             449 HIGHWAY 123 BYPASS
                          SENECA, SOUTH CAROLINA 29678
--------------------------------------------------------------------------------
               (Address of principal executive offices, zip code)


                                 (864) 886-0206
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

         Yes [X]  No [ ]

         Indicate  by  check  mark   whether  the   registrant   has   submitted
electronically  and posted on its corporate web site, if any, every  Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T  during  the  preceding  12  months  (or for such  shorter  period  that the
registrant was required to submit and post such files).

         Yes [ ]  No [ ]    (Not yet applicable to Registrant)

         Indicate by check mark whether the  registrant  is a large  accelerated
filer, an accelerated  filer, a  non-accelerated  filer, or a smaller  reporting
company.  See the definitions of "large accelerated filer,"  "accelerated filer"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

         Large accelerated filer [ ]     Accelerated filer         [ ]

         Non-accelerated filer   [ ]     Smaller reporting company [X]
         (Do not check if a smaller reporting company)

         Indicate by check mark whether the  registrant  is a shell  company (as
defined in Rule 12b-2 of the Exchange Act).

         Yes [ ]  No [X]

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date: Common Stock, no par
or stated value, 3,609,811 Shares Outstanding on November 1, 2009



<PAGE>


                         COMMUNITY FIRST BANCORPORATION

                                    FORM 10-Q

                                      Index

<TABLE>
<CAPTION>
                                                                                                                     Page
PART I -          FINANCIAL INFORMATION

Item 1.           Financial Statements

<S>               <C>                                                                                                    <C>
                  Consolidated Balance Sheets ........................................................................    3
                  Consolidated Statements of Income ..................................................................    4
                  Consolidated Statements of Changes in Shareholders' Equity .........................................    5
                  Consolidated Statements of Cash Flows ..............................................................    6
                  Notes to Unaudited Consolidated Financial Statements ...............................................    7

Item 2.           Management's Discussion and Analysis of Financial Condition and Results of Operations ..............   15
Item 3.           Quantitative and Qualitative Disclosures About Market Risk .........................................   25
Item 4T.          Controls and Procedures ............................................................................   26

PART II -         OTHER INFORMATION

Item 6.           Exhibits ...........................................................................................   26

SIGNATURE                                                                                                                27
</TABLE>




                                       2
<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1. - Financial Statements

COMMUNITY FIRST BANCORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                                (Unaudited)
                                                                                                September 30,        December 31,
                                                                                                    2009                2008
                                                                                                    ----                ----
                                                                                         (Dollars in thousands, except per share)
Assets
<S>                                                                                              <C>                <C>
     Cash and due from banks ...........................................................         $   1,918          $   9,204
     Interest bearing balances due from banks ..........................................            23,661             12,969
     Federal funds sold ................................................................                 -             18,793
                                                                                                 ---------          ---------
         Cash and cash equivalents .....................................................            25,579             40,966
     Securities available-for-sale .....................................................           148,065            126,636
     Securities held-to-maturity (fair value $10,070 for 2009
            and $12,238 for 2008) ......................................................             9,590             11,910
     Other investments .................................................................             1,307              1,220
     Loans .............................................................................           269,725            270,413
         Allowance for loan losses .....................................................            (5,408)            (5,475)
                                                                                                 ---------          ---------
            Loans - net ................................................................           264,317            264,938
     Premises and equipment - net ......................................................             8,539              8,655
     Accrued interest receivable .......................................................             2,742              2,776
     Bank-owned life insurance .........................................................             9,195              8,483
     Foreclosed assets .................................................................             3,862                706
     Other assets ......................................................................             2,327              3,183
                                                                                                 ---------          ---------
            Total assets ...............................................................         $ 475,523          $ 469,473
                                                                                                 =========          =========
Liabilities
     Deposits
         Noninterest bearing ...........................................................         $  44,451          $  41,962
         Interest bearing ..............................................................           373,343            374,153
                                                                                                 ---------          ---------
            Total deposits .............................................................           417,794            416,115
     Short-term borrowings .............................................................             1,710                  -
     Long-term debt ....................................................................             9,500              9,500
     Accrued interest payable ..........................................................             2,322              3,045
     Other liabilities .................................................................             1,492                885
                                                                                                 ---------          ---------
            Total liabilities ..........................................................           432,818            429,545
                                                                                                 ---------          ---------
Shareholders' equity
     Preferred stock, Class A - non-voting, 5% cumulative - $1,000 per share
         liquidation preference; 5,000 shares authorized;
         None issued and outstanding ...................................................                 -                  -
     Preferred stock - no par value; 9,995,000 shares authorized;
         None issued and outstanding ...................................................                 -                  -
     Common stock - no par value; 10,000,000 shares authorized;
         issued and outstanding - 3,609,811 for 2009 and 3,564,279 for 2008 ............            37,570             37,084
     Additional paid-in capital ........................................................               748                748
     Retained earnings .................................................................             2,992              1,769
     Accumulated other comprehensive income (loss) .....................................             1,395                327
                                                                                                 ---------          ---------
            Total shareholders' equity .................................................            42,705             39,928
                                                                                                 ---------          ---------
            Total liabilities and shareholders' equity .................................         $ 475,523          $ 469,473
                                                                                                 =========          =========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       3
<PAGE>

COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Income
<TABLE>
<CAPTION>
                                                                                               (Unaudited)
                                                                                       Period Ended September 30,
                                                                              Three Months                      Nine Months
                                                                              ------------                      -----------
                                                                          2009            2008             2009              2008
                                                                          ----            ----             ----              ----
                                                                                  (Dollars in thousands, except per share)

Interest income
<S>                                                                    <C>              <C>               <C>              <C>
     Loans, including fees ...................................         $  4,214         $  4,647          $ 12,460         $ 13,902
     Interest bearing balances due from banks ................               14               10                36               17
     Securities
       Taxable ...............................................            1,298            1,275             4,260            3,464
       Tax-exempt ............................................              201              209               612              623
     Other investments .......................................                3               14                 3               39
     Federal funds sold ......................................                -               81                 3              584
                                                                       --------         --------          --------         --------
         Total interest income ...............................            5,730            6,236            17,374           18,629
                                                                       --------         --------          --------         --------
Interest expense
     Time deposits $100M and over ............................              904            1,021             2,987            3,231
     Other deposits ..........................................            1,709            1,885             5,282            6,323
     Short-term borrowings ...................................                -                8                 -                8
     Long-term debt ..........................................               93               92               275              179
                                                                       --------         --------          --------         --------
         Total interest expense ..............................            2,706            3,006             8,544            9,741
                                                                       --------         --------          --------         --------
Net interest income ..........................................            3,024            3,230             8,830            8,888
Provision for loan losses ....................................            1,010              965             2,460            1,375
                                                                       --------         --------          --------         --------
Net interest income after provision ..........................            2,014            2,265             6,370            7,513
                                                                       --------         --------          --------         --------
Other income
     Service charges on deposit accounts .....................              377              374             1,048            1,109
     ATM interchange and other fees ..........................              154              142               450              412
     Net gains (losses) on sales of securities
         available-for-sale ..................................                -               (3)               90               (3)
     Credit life insurance commissions .......................                3                5                12               12
     Increase in value of bank-owned
         life insurance ......................................               91               94               274              280
     Other income ............................................               79               22               153               58
                                                                       --------         --------          --------         --------
         Total other income ..................................              704              634             2,027            1,868
                                                                       --------         --------          --------         --------
Other expenses
     Salaries and employee benefits ..........................            1,206            1,073             3,631            3,218
     Net occupancy expense ...................................              132              135               401              384
     Furniture and equipment expense .........................               94              110               287              326
     Amortization of computer software .......................              112               85               319              241
     ATM interchange and related expenses ....................              101               96               315              301
     Directors' fees .........................................               28               20                85               81
     FDIC insurance assessment ...............................              165               58               535              128
     Other expense ...........................................              459              361             1,247            1,151
                                                                       --------         --------          --------         --------
         Total other expenses ................................            2,297            1,938             6,820            5,830
                                                                       --------         --------          --------         --------
Income before income taxes ...................................              421              961             1,577            3,551
Income tax expense ...........................................              101              252               354            1,037
                                                                       --------         --------          --------         --------
Net income ...................................................         $    320         $    709          $  1,223         $  2,514
                                                                       ========         ========          ========         ========

Per share*
     Net income ..............................................         $   0.09         $   0.20          $   0.34         $   0.71
     Net income, assuming dilution ...........................             0.09             0.19              0.34             0.68
</TABLE>
--------
* Per share  information has been  retroactively  adjusted to reflect a 5% stock
dividend effective December 20, 2008.

See accompanying notes to unaudited consolidated financial statements.

                                       4
<PAGE>

COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Changes in Shareholders' Equity

<TABLE>
<CAPTION>
                                                                    (Unaudited)

                                                               Common Stock                                 Accumulated
                                                               ------------        Additional                  Other
                                                             Number of               Paid-in    Retained  Comprehensive
                                                              Shares       Amount    Capital    Earnings   Income (Loss)    Total
                                                              ------       ------    -------    --------   -------------    -----
                                                                                   (Dollars in thousands)
<S>                                                          <C>         <C>         <C>         <C>         <C>          <C>
Balance, January 1, 2008 .................................   3,324,105   $  35,009   $     681   $   2,140   $      80    $  37,910
                                                                                                                          ---------
Comprehensive income:
    Net income ...........................................           -           -           -       2,514           -        2,514
                                                                                                                          ---------
    Unrealized holding gains and (losses)
      on available-for-sale securities arising
      during the period, net of income taxes of $1 .......           -           -           -           -          (1)          (1)
    Reclassification adjustment for losses (gains)
      realized in income, net of income taxes of $1 ......           -           -           -           -           2            2
                                                                                                                          ---------
        Total other comprehensive income (loss) ..........                                                                        1
                                                                                                                          ---------
          Total comprehensive income .....................           -           -           -           -           -        2,515
                                                                                                                          ---------
Exercise of employee stock options .......................      70,768         365           -           -           -          365
                                                             ---------   ---------   ---------   ---------   ---------    ---------
Balance, September 30, 2008 ..............................   3,394,873   $  35,374   $     681   $   4,654   $      81    $  40,790
                                                             =========   =========   =========   =========   =========    =========


Balance, January 1, 2009 .................................   3,564,279   $  37,084   $     748   $   1,769   $     327    $  39,928
                                                                                                                          ---------
Comprehensive income:
    Net income ...........................................           -           -           -       1,223           -        1,223
                                                                                                                          ---------
    Unrealized holding gains and (losses)
      on available-for-sale securities arising
      during the period, net of income taxes of $630 .....           -           -           -           -       1,126        1,126
    Reclassification adjustment for losses (gains)
      realized in income, net of income taxes of $32 .....           -           -           -           -         (58)         (58)
                                                                                                                          ---------
        Total other comprehensive income (loss) ..........                                                                    1,068
                                                                                                                          ---------
          Total comprehensive income .....................           -           -           -           -           -        2,291
                                                                                                                          ---------
Exercise of employee stock options .......................      45,532         486           -           -           -          486
                                                             ---------   ---------   ---------   ---------   ---------    ---------
Balance, September 30, 2009 ..............................   3,609,811   $  37,570   $     748   $   2,992   $   1,395    $  42,705
                                                             =========   =========   =========   =========   =========    =========
</TABLE>









See accompanying notes to unaudited consolidated financial statements.

                                       5
<PAGE>

COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                                               (Unaudited)
                                                                                                            Nine Months Ended
                                                                                                              September 30,
                                                                                                              -------------
                                                                                                        2009                 2008
                                                                                                        ----                 ----
                                                                                                         (Dollars in thousands)
Operating activities
<S>                                                                                                   <C>                 <C>
     Net income ............................................................................          $   1,223           $   2,514
     Adjustments to reconcile net income to net
         cash provided by operating activities
            Provision for loan losses ......................................................              2,460               1,375
            Depreciation ...................................................................                293                 316
            Amortization of net loan (fees) and costs ......................................               (105)               (147)
            Securities accretion and premium amortization ..................................                576                  45
            Net (gains) losses on sales of securities available-for-sale ...................                (90)                  3
            Net (gains) losses on sales of foreclosed assets ...............................                 (4)                  6
            Increase in value of bank-owned life insurance .................................               (274)               (280)
            Decrease (increase) in interest receivable .....................................                 34                 (28)
            Decrease in interest payable ...................................................               (723)             (1,569)
            Decrease in prepaid expenses and other assets ..................................                258                  29
            Increase in other accrued expenses .............................................                610                 551
                                                                                                      ---------           ---------
                Net cash provided by operating activities ..................................              4,258               2,815
                                                                                                      ---------           ---------

Investing activities
     Purchases of available-for-sale securities ............................................           (121,643)            (55,484)
     Purchases of securities held-to-maturity ..............................................                  -              (7,490)
     Maturities, calls and paydowns of securities available-for-sale .......................             95,545              34,204
     Maturities, calls and paydowns of securities held-to-maturity .........................              2,316                 848
     Proceeds of sales of securities available-for-sale ....................................              5,853               9,732
     Purchases of other investments ........................................................               (125)               (380)
     Proceeds from sales of other investments ..............................................                 38                   -
     Net increase in loans made to customers ...............................................             (5,105)            (23,242)
     Purchases of premises and equipment ...................................................               (177)               (386)
     Proceeds of sale of foreclosed assets .................................................                463                  34
     Additional investments in foreclosed assets ...........................................               (244)                  -
     Proceeds of redemption of bank-owned life insurance ...................................              1,062                   -
     Investment in bank-owned life insurance ...............................................             (1,500)             (1,000)
                                                                                                      ---------           ---------
                Net cash used by investing activities ......................................            (23,517)            (43,164)
                                                                                                      ---------           ---------

Financing activities
     Net decrease in demand deposits, interest
         bearing transaction accounts and savings accounts .................................            (14,506)             (8,289)
     Net increase in certificates of deposit and other
         time deposits .....................................................................             16,185              36,144
     Net increase in short-term borrowings .................................................              1,710               1,500
     Proceeds from issuing long-term debt ..................................................                  -               6,000
     Repayments of long-term debt ..........................................................                  -              (1,000)
     Cash paid in lieu of issuing fractional shares ........................................                 (3)                  -
     Exercise of employee stock options ....................................................                486                 365
                                                                                                      ---------           ---------
                Net cash provided by financing activities ..................................              3,872              34,720
                                                                                                      ---------           ---------
Decrease in cash and cash equivalents ......................................................            (15,387)             (5,629)
Cash and cash equivalents, beginning .......................................................             40,966              34,673
                                                                                                      ---------           ---------
Cash and cash equivalents, ending ..........................................................          $  25,579           $  29,044
                                                                                                      =========           =========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       6
<PAGE>

COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Cash Flows - continued
<TABLE>
<CAPTION>
                                                                                                                 (Unaudited)
                                                                                                              Nine Months Ended
                                                                                                                September 30,
                                                                                                                -------------
                                                                                                          2009                2008
                                                                                                          ----                ----
                                                                                                           (Dollars in thousands)
Supplemental Disclosure of
     Cash Flow Information Cash paid during the year for:
<S>                                                                                                    <C>                   <C>
         Interest ......................................................................               $ 9,267               $11,310
         Income taxes ..................................................................                    27                 1,240
     Net transfers from loans to foreclosed assets .....................................                 3,371                     -
     Noncash investing and financing activities:
         Other comprehensive income ....................................................                 1,068                     1
</TABLE>

See accompanying notes to unaudited consolidated financial statements.


COMMUNITY FIRST BANCORPORATION

Notes to Unaudited Consolidated Financial Statements

Accounting  Policies - A summary of significant  accounting policies is included
in Community First  Bancorporation's  (the "Company") Annual Report on Form 10-K
for the year ended  December  31, 2008 filed with the  Securities  and  Exchange
Commission.   Certain  amounts  in  the  2008  financial  statements  have  been
reclassified to conform to the current presentation.  Such reclassifications had
no effect on net income or retained earnings for any period.  All dollar amounts
are stated in thousands, except per share.

Management  Opinion - In the opinion of management,  the accompanying  unaudited
consolidated  financial statements of Community First Bancorporation reflect all
adjustments  necessary  for a fair  presentation  of the  results of the periods
presented. Such adjustments were of a normal, recurring nature.

Investment Securities - The following table presents information about amortized
cost,  unrealized  gains,   unrealized  losses  and  estimated  fair  values  of
securities:

                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                                                        September 30, 2009
                                                                                        ------------------
                                                                                      Gross              Gross
                                                                                   Unrealized          Unrealized          Estimated
                                                                Amortized            Holding             Holding             Fair
                                                                   Cost               Gains              Losses              Value
                                                                   ----               -----              ------              -----
                                                                                      (Dollars in thousands)
Available-for-sale
<S>                                                             <C>                 <C>                 <C>                 <C>
Mortgage-backed securities
     issued by US Government agencies ..............            $  1,520            $     53            $      -            $  1,573
Government sponsored
     enterprises (GSEs) ............................              89,310                 908                 406              89,812
Mortgage-backed securities
     issued by GSEs ................................              35,532               1,111                   2              36,641
State, county and municipal ........................              19,527                 597                  85              20,039
                                                                --------            --------            --------            --------
           Total ...................................            $145,889            $  2,669            $    493            $148,065
                                                                ========            ========            ========            ========

Held-to-maturity
Mortgage-backed securities
     issued by US Government agencies ..............            $      -            $      -            $      -            $      -
Government sponsored enterprises ...................                   -                   -                   -                   -
Mortgage-backed securities
     issued by GSEs ................................               9,590                 480                   -              10,070
State, county and municipal ........................                   -                   -                   -                   -
                                                                --------            --------            --------            --------
           Total ...................................            $  9,590            $    480            $      -            $ 10,070
                                                                ========            ========            ========            ========
</TABLE>


The  amortized  cost and  estimated  fair  value of  securities  by  contractual
maturity are shown below:

<TABLE>
<CAPTION>
                                                                                       September 30, 2009
                                                                                       ------------------
                                                                     Available-for-sale                      Held-to-maturity
                                                                     ------------------                      ----------------
                                                                   Amortized         Estimated         Amortized         Estimated
                                                                      Cost           Fair Value           Cost           Fair Value
                                                                      ----           ----------           ----           ----------
                                                                                       (Dollars in thousands)
<S>                                                                <C>                <C>                <C>                <C>
Due within one year ....................................           $  2,506           $  2,542           $      -           $      -
Due after one through five years .......................             11,321             11,421                  -                  -
Due after five through ten years .......................             41,584             41,759                  -                  -
Due after ten years ....................................             53,426             54,129                  -                  -
                                                                   --------           --------           --------           --------
                                                                    108,837            109,851                  -                  -
Mortgage-backed securities issued by:
   US Government agencies ..............................              1,520              1,573                  -                  -
   GSEs ................................................             35,532             36,641              9,590             10,070
                                                                   --------           --------           --------           --------
   Total ...............................................           $145,889           $148,065           $  9,590           $ 10,070
                                                                   ========           ========           ========           ========
</TABLE>

The estimated  fair values and gross  unrealized  losses of all of the Company's
investment  securities whose estimated fair values were less than amortized cost
as  of   September   30,   2009   which   had   not   been   determined   to  be
other-than-temporarily  impaired are presented below. The Company  evaluates all
available-for-sale securities and all held-to-maturity securities for impairment
as of each balance sheet date. The securities  have been segregated in the table
by investment  category and the length of time that  individual  securities have
been in a continuous unrealized loss position.

                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                                 September 30, 2009
                                                                                 ------------------
                                                             Continuously in Unrealized Loss Position for a Period of
                                                             --------------------------------------------------------
                                                    Less than 12 Months           12 Months or more                  Total
                                                    -------------------           -----------------                  -----
                                                  Estimated     Unrealized      Estimated    Unrealized      Estimated    Unrealized
                                                  Fair Value       Loss         Fair Value      Loss         Fair Value      Loss
                                                  ----------       ----         ----------      ----         ----------      ----
                                                                            (Dollars in thousands)
Available-for-sale
<S>                                                <C>            <C>            <C>           <C>           <C>            <C>
  US Government agencies ...................       $     -        $     -        $    -        $    -        $     -        $     -
  Government-sponsored
    enterprises (GSEs) .....................        20,928            406             -             -         20,928            406
  Mortgage-backed securities
    issued by GSEs .........................         3,047              2             -             -          3,047              2
  State, county and
    municipal securities ...................         1,329             85             -             -          1,329             85
                                                   -------        -------        ------        ------        -------        -------
                  Total ....................       $25,304        $   493        $    -        $    -        $25,304        $   493
                                                   =======        =======        ======        ======        =======        =======

Held-to-maturity
  GSEs .....................................       $     -        $     -        $    -        $    -        $     -        $     -
                                                   -------        -------        ------        ------        -------        -------
                  Total ....................       $     -        $     -        $    -        $    -        $     -        $     -
                                                   =======        =======        ======        ======        =======        =======
</TABLE>

As of September 30, 2009, 22 securities had been  continuously  in an unrealized
loss position for less than 12 months and no securities had been continuously in
an unrealized loss position for 12 months or more. The Company does not consider
these investments to be  other-than-temporarily  impaired because the unrealized
losses  involve  primarily  issuances of  government-sponsored  enterprises  and
state, county and municipal  government issuers.  The Company also believes that
the impairments resulted from current credit market disruptions,  and notes that
there have been no failures by the issuers to remit periodic  interest  payments
as required nor is the Company  aware that any such issuer has given notice that
it expects that it will be unable to make any such future  payment  according to
the terms of the bond indenture.  Although the Company  classifies a majority of
its investment securities as  available-for-sale,  management has not determined
that any specific  securities will be disposed of prior to maturity and believes
that the Company  has both the ability and the intent to hold those  investments
until a recovery of fair  value,  including  until  maturity.  Furthermore,  the
Company  does not believe  that it will be required to sell any such  securities
prior to  recovery of the  unrealized  losses.  Substantially  all of the state,
county and municipal securities were rated at least "investment grade" by either
S&P or Moody's, or both, as of September 30, 2009.

The  Company's  subsidiary  bank is a member  of the  Federal  Home Loan Bank of
Atlanta ("FHLB") and,  accordingly,  is required to own restricted stock in that
institution  in  amounts  that  may  vary  from  time to  time.  Because  of the
restrictions  imposed,  the  stock  may  not be sold to  other  parties,  but is
redeemable by the FHLB at the same price as that at which it was acquired by the
Company's  subsidiary.  The Company evaluates this security for impairment based
on  the  probability  of  ultimate  recoverability  of  the  par  value  of  the
investment. No impairment has been recognized based on this evaluation.

During the first nine  months of 2009,  the  Company  sold 3  available-for-sale
securities  for gross sales proceeds of $5,853.  Gross realized gains  resulting
from these sales  totaled $90.  There were no  transfers  of  available-for-sale
securities to other categories in the 2009 nine-month period.

Nonperforming Loans - As of September 30, 2009, there were $14,884 in nonaccrual
loans and no loans 90 days or more past due and still accruing interest.

Earnings Per Share - Basic earnings per common share is computed by dividing net
income  applicable  to common  shares by the weighted  average  number of common
shares  outstanding.   Diluted  earnings  per  share  is  computed  by  dividing
applicable  net  income  by  the  weighted   average  number  of  common  shares
outstanding and any dilutive potential common shares and dilutive stock options.
It is assumed that all dilutive  stock options are exercised at the beginning of
each period and that the proceeds are used to purchase  shares of the  Company's
common stock at the average  market price during the period.  Outstanding  stock
options  were not  dilutive  for  either the three  month or nine month  periods
ending September 30, 2009. All 2008 per share information has been retroactively
adjusted to give effect to a 5% stock dividend  effective December 20, 2008. Net
income per share and net income per share,  assuming dilution,  were computed as
follows:


                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                                                                 (Unaudited)
                                                                                        Period Ended September 30,
                                                                                        --------------------------
                                                                              Three Months                          Nine Months
                                                                              ------------                          -----------
                                                                        2009              2008              2009              2008
                                                                        -----             -----             -----             ----
                                                                              (Dollars in thousands, except per share amounts)
<S>                                                                   <C>              <C>               <C>              <C>
Net income per share, basic
  Numerator - net income .....................................        $     320        $      709        $   1,223        $    2,514
                                                                      =========        ==========        =========        ==========
  Denominator
    Weighted average common shares
      issued and outstanding .................................        3,609,811         3,564,617        3,601,515         3,534,926
                                                                      =========        ==========        =========        ==========

      Net income per share, basic ............................        $     .09        $      .20        $     .34        $      .71
                                                                      =========        ==========        =========        ==========

Net income per share, assuming dilution
  Numerator - net income .....................................        $     320        $      709        $   1,223        $    2,514
                                                                      =========        ==========        =========        ==========
  Denominator
    Weighted average common shares
      issued and outstanding .................................        3,609,811         3,564,617        3,601,515         3,534,926
    Effect of dilutive stock options .........................                -           130,249                -           168,635
                                                                      ---------        ----------        ---------        ----------
               Total shares ..................................        3,609,811         3,694,866        3,601,515         3,703,561
                                                                      =========        ==========        =========        ==========

      Net income per share, assuming dilution ................        $     .09        $      .19        $     .34        $      .68
                                                                      =========        ==========        =========        ==========
</TABLE>


Shareholders' Equity

On April 28, 2009, the Corporation's  Board of Directors adopted an amendment to
the Corporation's  Articles of Incorporation for which shareholder  approval was
not required.  As a result of this amendment,  a "Series A" of the Corporation's
Preferred  Stock  with a  liquidation  amount of $1,000  per share was  created.
Series A consists of 5,000 shares of fixed rate cumulative  perpetual  preferred
stock which shares, except in certain very limited circumstances, have no voting
rights. Upon issuance,  such preferred stock would accrue dividends at a rate of
5.00% per annum.  Cumulative dividends would be payable on each February 15, May
15,  August  15 and  November  15, if  declared  by the  Corporation's  Board of
Directors.  No dividends may be declared and paid on other stock issuances,  nor
may the Company  effect any plan to purchase,  redeem or  otherwise  acquire any
issue of stock that is  subordinate to the Series A Preferred  Stock,  including
the Company's  outstanding Common Stock, unless all cumulative  dividends due on
the Series A Preferred Stock have been paid in their entirety.

Unless  previously  called for redemption,  each  outstanding  share of Series A
Preferred  Stock would be  convertible  into 100 shares of the Company's  Common
Stock after June 17, 2019. If the Corporation calls the Series A Preferred Stock
for redemption prior to that date, each  outstanding  share would be convertible
into 100 shares of the Corporation's  common stock until the second business day
preceding the redemption  date.  The conversion  ratio would be adjusted for any
stock dividends  declared and payable on the Corporation's  Common Stock and for
any stock splits or reverse stock splits applicable thereto.

No shares of Fixed  Rate  Cumulative  Perpetual  Preferred  Stock,  Series A are
issued and  outstanding  as of  September  30,  2009;  however,  the Company has
received cash deposits totaling $1,710 which the depositors intend to be applied
toward the  Company's  issuance of $3,000 of the Series A preferred  stock.  The
Company is  accumulating  deposits and paying  interest at the rate of 5.00% per
annum until all of the investors who committed to purchase such preferred  stock
have submitted funds  sufficient to purchase the number of shares they committed
to purchase. Once all funds are received, the Company will immediately issue the
preferred  stock.  If the  investors  fail to deposit an  aggregate of $3,000 by
December 31, 2009, the entire amount of the accumulated deposits and the related
interest will be returned to the depositors.

Fair  Value  Measurements  - Fair  value is  defined  as the price that would be
received to sell an asset or paid to transfer a liability in an orderly  fashion
between market participants at the measurement date. A three-level  hierarchy is
used for fair value  measurements  based upon the  transparency of inputs to the
valuation of an asset or liability as of the  measurement  date.  In  developing
estimates  of the fair values of assets and  liabilities,  no  consideration  of

                                       10
<PAGE>

large position  discounts for financial  instruments quoted in active markets is
allowed.  However,  an entity is required to consider  its own  creditworthiness
when valuing its liabilities.  For disclosure  purposes,  fair values for assets
and liabilities are shown in the level of the hierarchy that correlates with the
lowest  level input that is  significant  to the fair value  measurement  in its
entirety.

The three levels of the fair value input hierarchy are described as follows:

Level 1 inputs reflect  quoted prices in active markets for identical  assets or
liabilities.

Level 2 inputs  reflect  observable  inputs  that may  consist of quoted  market
prices for  similar  assets or  liabilities,  quoted  prices  that are not in an
active  market,  or other  inputs that are  observable  in the market and can be
corroborated by observable  market data for  substantially  the full term of the
assets or liabilities being valued.

Level 3 inputs  reflect the use of pricing  models and/or  discounted  cash flow
methodologies using other than contractual  interest rates or methodologies that
incorporate a significant amount of management judgment, use of the entity's own
data, or other forms of unobservable data.

The following is a summary of the measurement attributes applicable to financial
assets and liabilities that are measured at fair value on a recurring basis:

<TABLE>
<CAPTION>
                                                                    Fair Value Measurement at Reporting Date Using
                                                                    ----------------------------------------------
                                                                  Quoted Prices
                                                                    in Active         Significant
                                                                   Markets for           Other           Significant
                                                                    Identical         Observable        Unobservable
                                                                      Assets            Inputs             Inputs
Description                                  September 30, 2009     (Level 1)         (Level 2)          (Level 3)
-----------                                  ------------------     ---------         ---------          ---------
                                                                       (Dollars in thousands)

<S>                                                                 <C>                <C>                  <C>
Securities available-for-sale ............                          $ 4,000            $ 144,065            $   -
</TABLE>

Pricing for the  Company's  securities  available-for-sale  is obtained  from an
independent  third-party that uses a process that may incorporate current market
prices,  benchmark  yields,  broker/dealer  quotes,  issuer  spreads,  two-sided
markets,  benchmark securities,  bids, offers, other reference data and industry
and  economic  events  that a market  participant  would be  expected  to use in
valuing the  securities.  Not all of the inputs listed apply to each  individual
security at each measurement  date. The independent third party assigns specific
securities  into an "asset  class" for the purpose of assigning  the  applicable
level  of  the   fair   value   hierarchy   used  to   value   the   securities.
Available-for-sale  securities  continue  to be  measured  at  fair  value  with
unrealized   gains  and  losses,   net  of  income  taxes,   recorded  in  other
comprehensive income.

In February 2008,  the Financial  Accounting  Standards  Board Staff issued FASB
Staff  Position  No.  FAS  157-2  (now  codified  as FASB  Accounting  Standards
Codification ("FASB ASC") 820-10-15-1a) which delayed for one year the effective
date of the application of disclosure  requirements  of nonfinancial  assets and
liabilities,  except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually).  Accordingly,
the Company has not provided the fair value disclosure  requirements of FASB ASC
820-10-50-5 in periods ending prior to March 31, 2009.

The following is a summary of the  measurement  attributes  applicable to assets
and liabilities that were measured at fair value on a non-recurring basis during
the periods indicated and that remained outstanding at the end of the period:


                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                  Fair Value Measurement at Reporting Date Using
                                                  ----------------------------------------------
                                                 Quoted Prices
                                                  in Active       Significant
                                                 Markets for         Other          Significant         Total Gains (Losses)
                                                  Identical        Observable        Unobservable       --------------------
                                                   Assets            Inputs           Inputs             Three         Nine
Description          September 30, 2009          (Level 1)         (Level 2)        (Level 3)           Months        Months
-----------          ------------------          ---------         ---------        ---------           ------        ------
                                                                (Dollars in thousands)
<S>                                              <C>               <C>              <C>                <C>            <C>
Collateral-dependent impaired loans              $       -         $ 1,644          $       -          $   (542)      $(1,074)
</TABLE>

U.  S.  Generally  Accepted  Accounting  Principles  require  disclosure  of the
estimated fair value of certain on-balance sheet and off-balance sheet financial
instruments and the methods and assumptions  used to estimate their fair values.
A financial  instrument is defined as cash, evidence of an ownership interest in
an entity  or a  contract  that  creates a  contractual  obligation  or right to
deliver or receive cash or another financial  instrument from a second entity on
potentially  favorable or unfavorable terms.  Financial instruments that are not
carried at fair value on the  Consolidated  Balance Sheets are discussed  below.
Certain financial instruments and all nonfinancial instruments are excluded from
the  scope of these  disclosure  requirements.  Accordingly,  these  fair  value
disclosures do not provide a complete estimate of the Company's fair value.

For cash and due from  banks,  interest  bearing  deposits  due from  banks  and
federal funds sold, the carrying  amount  approximates  fair value because these
instruments generally mature in 90 days or less. The carrying amounts of accrued
interest receivable or payable approximate fair values.

The  fair  value  of  held-to-maturity   mortgage-backed  securities  issued  by
Government  sponsored  enterprises is estimated based on dealers' quotes for the
same or similar securities.

The  fair  value  of FHLB  stock  is  estimated  at its  cost  because  the FHLB
historically has redeemed its outstanding stock at that value.

Fair values are estimated for loans using  discounted cash flow analyses,  using
interest  rates  currently  offered  for loans  with  similar  terms and  credit
quality.  The Company  does not engage in  originating,  holding,  guaranteeing,
servicing or investing in loans where the terms of the loan product give rise to
a concentration of credit risk.

The fair value of deposits with no stated maturity  (noninterest bearing demand,
interest  bearing  transaction  accounts and savings) is estimated as the amount
payable on demand,  or carrying  amount,  as required by SFAS No. 157.  The fair
value of time  deposits is estimated  using a discounted  cash flow  calculation
that applies rates currently offered to aggregate expected maturities.

The fair values of the  Company's  short-term  borrowings,  if any,  approximate
their carrying amounts.

The fair values of fixed rate long-term  debt  instruments  are estimated  using
discounted cash flow analyses,  based on the borrowing rates currently in effect
for  similar  borrowings.  The fair  values  of  variable  rate  long-term  debt
instruments are estimated at the carrying amount.

The estimated fair values of  off-balance-sheet  financial  instruments  such as
loan  commitments  and standby  letters of credit are generally  based upon fees
charged to enter into  similar  agreements,  taking into  account the  remaining
terms  of the  agreements  and the  counterparties'  creditworthiness.  The vast
majority  of the  banking  subsidiary's  loan  commitments  do not  involve  the
charging of a fee,  and fees  associated  with  outstanding  standby  letters of
credit are not material. For loan commitments and standby letters of credit, the
committed  interest rates are either  variable or approximate  current  interest
rates offered for similar commitments.  Therefore,  the estimated fair values of
these off-balance-sheet financial instruments are nominal.

The following is a summary of the carrying  amounts and estimated fair values of
the Company's financial assets and liabilities:

                                       12
<PAGE>

                                                          September 30, 2009
                                                          ------------------
                                                       Carrying       Estimated
                                                        Amount        Fair Value
                                                        ------        ----------
                                                        (Dollars in thousands)
Financial assets
  Cash and due from banks .........................     $  1,918      $  1,918
  Interest bearing deposits due from banks ........       23,661        23,661
  Securities available-for-sale ...................      148,065       148,065
  Securities held-to-maturity .....................        9,590        10,070
  Federal Home Loan Bank stock ....................        1,307         1,307
  Loans - net .....................................      264,317       262,851
  Accrued interest receivable .....................        2,742         2,742
Financial liabilities
  Deposits ........................................      417,794       417,807
  Accrued interest payable ........................        2,322         2,322
  Short-term borrowing ............................        1,710         1,710
  Long-term debt ..................................        9,500         9,516

The following is a summary of the notional or contractual  amounts and estimated
fair values of the Company's off-balance sheet financial instruments:

                                                          September 30, 2009
                                                          ------------------
                                                      Notional/       Estimated
                                                       Contract          Fair
                                                       Amount           Value
                                                       ------           -----
                                                        (Dollars in thousands)
Off-balance sheet commitments
Loan commitments .................................      $19,373       $    -
Standby letters of credit ........................        1,268            -

Subsequent  Events - The Company has evaluated events  subsequent to the balance
sheet date  through  November  __,  2009,  which is the date that the  financial
statements were issued.

Subsequent events may either provide  additional  evidence about conditions that
existed at the balance sheet date,  including  estimates inherent in the process
of preparing  financial  statements  (recognized  subsequent events), or provide
evidence about conditions that did not exist at the balance sheet date but arose
after the balance  sheet date but before the  financial  statements  were issued
(nonrecognized  subsequent events). The effects of recognized subsequent events,
if any,  have been  included  in the  financial  statements.  If the  effects of
nonrecognized  subsequent  events,  if any,  are of a nature  that  they must be
disclosed to keep the financial  statements from being  misleading,  the Company
would disclose both the nature of the event, an estimate of its financial effect
or would state that an estimate of the  financial  effect  cannot be made. As of
September 30, 2009, there were no nonrecognized  subsequent events that required
disclosure.

New Accounting  Pronouncements - Accounting principles generally accepted in the
United States recently have been  reorganized into a consistent  framework,  the
"Financial  Accounting  Standards Board Accounting  Standards  Codification," or
"FASB  ASC,"  which is now the source of  authoritative  accounting  literature.
References to accounting  standards  will now be based on a structure of Topic -
Subtopic - Section - Paragraph.  In the future,  the FASB will issue  Accounting
Standards  Updates  ("ASU"s) which will not be authoritative in their own right,
but will serve only to update the Codification,  provide background  information
about the guidance, and provide the reasons that the FASB has made the changes.

In December 2008 the FASB issued FASB Staff Position ("FSP") SFAS 132(R)-1 (FASB
ASC  715-20-65),  "Employers'  Disclosures  about  Postretirement  Benefit  Plan
Assets,"  ("FSP SFAS  132(R)-1").  This FSP provides  guidance on an  employer's
disclosures   about  plan  assets  of  a  defined   benefit   pension  or  other
postretirement  plan.  The  objective  of the FSP is to  provide  the  users  of
financial  statements with an  understanding  of: (a) how investment  allocation
decisions are made, including the factors that are pertinent to an understanding
of investment policies and strategies;  (b) the major categories of plan assets;
(c) the inputs and valuation techniques used to


                                       13
<PAGE>

measure the fair value of plan assets; (d) the effect of fair value measurements
using  significant  unobservable  inputs (Level 3) on changes in plan assets for
the period;  and (e) significant  concentrations of risk within plan assets. The
FSP also  requires a nonpublic  entity,  as defined in  Statement  of  Financial
Accounting Standard ("SFAS") 132, to disclose net periodic benefit cost for each
period  for which a  statement  of income is  presented.  FSP SFAS  132(R)-1  is
effective for fiscal years ending after  December 15, 2009.  The Staff  Position
will  require  the  Company to  provide  additional  disclosures  related to its
benefit plans.

In August,  2009, ASU 2009-5  "Measuring  Liabilities at Fair Value" was issued.
This ASU amends FASB ASC Topic 820 "Fair Value  Measurement and Disclosures" and
is intended to reduce  ambiguity  when  measuring the fair value of  liabilities
which will lead to improved  understanding of how such fair values were measured
and improve consistency in the application of Topic 820. The Company is required
to apply this Update for reporting  periods  beginning after September 30, 2009.
The  requirements of the Update relate to disclosure items only and will have no
effect on the Company's financial position, results of operations or cash flows.

Other  accounting  standards  that have been  issued or  proposed by the FASB or
other standards-setting bodies are not expected to have a material impact on the
Company's financial position, results of operations or cash flows.


          CAUTIONARY NOTICE WITH RESPECT TO FORWARD-LOOKING STATEMENTS

         This report contains "forward-looking statements" within the meaning of
the  securities  laws.  The  Private  Securities  Litigation  Reform Act of 1995
provides a safe harbor for forward-looking  statements.  In order to comply with
the terms of the safe harbor,  the Company notes that a variety of factors could
cause the Company's actual results and experience to differ  materially from the
anticipated   results  or  other   expectations   expressed  in  the   Company's
forward-looking statements.

         All statements that are not historical  facts are statements that could
be  "forward-looking   statements."  You  can  identify  these   forward-looking
statements  through the use of words such as "may," "will,"  "should,"  "could,"
"would," "expect,"  "anticipate,"  "assume," "indicate,"  "contemplate," "seek,"
"plan,"  "predict,"  "target,"  "potential,"  "believe,"  "intend,"  "estimate,"
"project,"  "continue,"  or  other  similar  words.  Forward-looking  statements
include,  but are not limited to,  statements  regarding  the  Company's  future
business  prospects,   revenues,  working  capital,  liquidity,  capital  needs,
interest costs, income, business operations and proposed services.

         These  forward-looking  statements  are based on current  expectations,
estimates and projections about the banking industry,  management's beliefs, and
assumptions made by management.  Such information includes,  without limitation,
discussions  as to estimates,  expectations,  beliefs,  plans,  strategies,  and
objectives  concerning  future  financial  and  operating   performance.   These
statements  are not guarantees of future  performance  and are subject to risks,
uncertainties and assumptions that are difficult to predict.  Therefore,  actual
results  may  differ  materially  from those  expressed  or  forecasted  in such
forward-looking  statements.  The risks and uncertainties  include,  but are not
limited to:

          o    future economic and business conditions;
          o    lack of sustained  growth and disruptions in the economies of the
               Company's market areas;
          o    government monetary and fiscal policies;
          o    the  effects  of  changes  in  interest   rates  on  the  levels,
               composition and costs of deposits, loan demand, and the values of
               loan collateral,  securities,  and interest  sensitive assets and
               liabilities;
          o    the  effects  of  competition  from  a  wide  variety  of  local,
               regional, national and other providers of financial,  investment,
               and insurance services, as well as competitors that offer banking
               products and  services by mail,  telephone,  computer  and/or the
               Internet;
          o    credit risks;
          o    higher than anticipated levels of defaults on loans;
          o    perceptions by depositors about the safety of their deposits;
          o    capital adequacy;
          o    the failure of assumptions  underlying the  establishment  of the
               allowance  for loan  losses and other  estimates,  including  the
               value of collateral securing loans;
          o    ability to weather the current economic downturn;
          o    loss of consumer or investor confidence;
          o    availability of liquidity sources;
          o    the risks of opening new offices, including,  without limitation,
               the related costs and time of building customer relationships and
               integrating operations as part of these endeavors and the failure
               to achieve expected gains,  revenue growth and/or expense savings
               from such endeavors;


                                       14
<PAGE>

          o    changes  in laws and  regulations,  including  tax,  banking  and
               securities laws and regulations;
          o    changes in accounting policies, rules and practices;
          o    changes  in  technology  or  products  may be more  difficult  or
               costly, or less effective, than anticipated;
          o    the effects of war or other conflicts, acts of terrorism or other
               catastrophic  events that may affect general economic  conditions
               and economic confidence; and
          o    other factors and information described in this report and in any
               of the  other  reports  that  we file  with  the  Securities  and
               Exchange Commission under the Securities Exchange Act of 1934.

         All  forward-looking   statements  are  expressly  qualified  in  their
entirety by this cautionary notice. The Company has no obligation,  and does not
undertake,  to update,  revise or correct any of the forward-looking  statements
after the date of this  report.  The Company  has  expressed  its  expectations,
beliefs and projections in good faith and believes they have a reasonable basis.
However,  there is no assurance that these expectations,  beliefs or projections
will result or be achieved or accomplished.


Item 2. -  Management's  Discussion  and  Analysis of  Financial  Condition  and
           Results of Operations (Dollar amounts, except per share data, are  in
           thousands)

Changes in Financial Condition

During  the first  nine  months of 2009,  the  Company  focused  its  efforts on
monitoring the performance of its portfolio of loans outstanding and maintaining
contact  with its loan and deposit  customers.  For the 2009 nine month  period,
loans  decreased by $688,  or .3%,  securities  available-for-sale  increased by
$21,429, or 16.9%, and securities  held-to-maturity decreased by $2,320. Federal
funds sold  decreased by $18,793,  or 100.0%.  The potential for growth in loans
outstanding  during the first  nine  months of 2009 was  constrained  by several
factors.   Economic   conditions  in  the  Company's  market  area  deteriorated
significantly, primarily as a result of ongoing reductions in real estate values
both  locally  and  nation-wide.  Those  lower  values  have  resulted,  and are
continuing to result,  in a significant  contraction  in the amount of "lendable
margin"  available to potential  borrowers.  When  collateral  is required to be
provided as a condition  to the Company  engaging in a loan  transaction  with a
borrower,  the  borrower  generally  is expected to have or  establish an equity
interest in the collateral. The extent of the bank's interest in the collateral,
or "lendable  margin," may vary  depending on the other terms and  conditions of
the loan, the borrower's  financial  condition and other factors.  However,  the
Company has generally  established  certain  percentage levels of the collateral
value  at the  time the loan is made as the  amount  of the  required  "lendable
margin."  Recently,  as the value of real  estate  has  generally  fallen in the
Company's market area,  collateral values have fallen to levels that may be less
than the  amount  owed on the  loans.  Furthermore,  lower  real  estate  values
decrease the amounts that potential  borrowers will be able to borrow currently,
based on those decreased values.  This diminished ability to borrow against real
estate  collateral has contributed to lower consumption of goods and services in
the Company's  market areas.  Commercial  customers,  despite the slower current
business  environment,  are  obligated  to  continue  making  payments  on debts
contracted  for  during  better  economic  periods.  Because  of  the  resulting
"squeeze," a growing number of commercial customers are finding it impossible to
remain in business.  This potentially affects the Company on at least two levels
- the business  and some of its  displaced  workers may stop making  payments on
their loans.  Accordingly,  the Company has experienced  increasing  numbers and
amounts of non-performing loans, has taken possession of several real properties
and some personal  property,  and has experienced a significant  increase in net
charge-offs. The Company expects that it will continue to experience higher than
normal levels of non-performing loans,  increasing amounts of foreclosed assets,
and higher net  charge-offs for at least the remainder of 2009 and probably into
the second or third quarter of 2010. Management  anticipates,  however, that the
rate of increase in each of these areas will decrease as time progresses.

         Deposits  increased by $1,679 during the first nine months of 2009. The
Company  opted  out  of  the  recently   extended   Federal  Deposit   Insurance
Corporation's  Transaction  Account  Guarantee  program  under  which  unlimited
insurance  coverage for certain  transaction  account  deposits  would have been
provided  until  June 30,  2010.  Such  deposits  will  revert  to the  $250,000
insurance limit after December 31, 2009. Nevertheless, the Company believes that
its liquidity  position  continues to provide it with sufficient  flexibility to
fund good quality loan requests or make  investments in securities at attractive
yields,  and to meet normal  demands for deposit  withdrawals  by its customers.
Management also believes that the current  balance sheet position  maintains the
Company's exposures to changes in interest rates at acceptable levels.


Results of Operations

Three Months Ended September 30, 2009 and 2008


                                       15
<PAGE>

         The Company recorded  consolidated net income of $320 or $.09 per share
for the third  quarter of 2009 compared with net income of $709 and earnings per
share of $.20 for the third  quarter of 2008.  Net  income  per share,  assuming
dilution was $.09 for the 2009 quarter and $.19 for the 2008 period.  Net income
per share  amounts for 2008 have been  retroactively  adjusted to reflect a five
percent stock dividend effective December 20, 2008.

         Interest  income for the third  quarter of 2009  decreased by $506 from
the same period of 2008 primarily due to lower rates earned on loans and taxable
investment  securities.  Interest rates  associated  with loans are lower in the
2009  period  due to two  factors:  (1) the  effects  of the  Federal  Reserve's
monetary policy which is keeping  interest rates at historically  low levels and
(2) higher  amounts of  non-accrual  loans.  When a loan is placed on nonaccrual
status,  all income earned but not collected is reversed  against  income in the
current  period and no further  income is  recognized  unless and until  certain
strict conditions are achieved.  During the third quarter of 2009, approximately
$201 of previously recorded income was reversed at the time loans were placed in
nonaccrual status.

         The continuing low interest rate environment also is responsible,  to a
significant   degree,   for  continuing  calls  and  prepayments  of  investment
securities  because it is often  advantageous  for the issuer of  securities  to
retire a bond issue and replace it with an issue that bears  interest at a lower
rate. To mitigate the effects of these  actions on its  investment  yields,  the
Company  must  either  extend  the  maturity  of the bonds it  holds,  invest in
lower-quality  bonds (which  generally  carry higher interest  rates),  or both.
However,  regulatory constraints do not allow the Company to fully utilize these
methods.

         No  interest  was  earned  on  federal   funds  sold  during  the  2009
three-month  period  because  no such  amounts  were  outstanding.  The  Company
recorded $81 of interest  income on federal  funds sold during the third quarter
of 2008. The Company currently  maintains its excess cash reserves on deposit at
the  Federal  Reserve  Bank,  which  pays only a nominal  interest  rate on such
deposits.

         Interest  expense for the third quarter of 2009 was $300 lower than for
the same prior year period due primarily to lower rates paid. A systemic problem
became apparent in the third quarter of 2008 whereby some  depositors,  who were
extremely  concerned about maximizing the deposit  insurance  coverage for their
funds,  diversified  those  funds  among  several  federally-insured   financial
institutions to ensure safety of principal.  To mitigate those depositors' risks
and to reduce the associated costs, the FDIC implemented its Transaction Account
Guarantee  program  which  provides  unlimited  deposit  insurance  coverage for
transaction  deposit  accounts  that meet certain  criteria.  As a result of its
participation in this program, the Company is limited in the interest rates that
it  can  pay  with  respect  to  transaction  accounts.   Other  companies  that
participate in the program are similarly limited. The Company does not intend to
increase the rates it pays on the deposits  that are  currently  covered by this
program when its participation ends.

         The Company  increased  the provision for loan losses to $1,010 for the
third  quarter  of 2009 from  $965 for the same  period  of 2008.  Factors  that
management considered when determining the amount to be provided for loan losses
included  high volumes of  nonaccrual,  past due and  potential  problem  loans,
higher  charge-offs  taken during the quarter,  and lower property values in the
local real estate markets.

         Noninterest  income for the third quarter of 2009 increased by $70 over
the same 2008 period  primarily  due to higher  fees  earned on  mortgage  loans
originated for another financial  institution and higher amounts of card-related
transaction fees earned.

         Noninterest  expenses for the 2009 period  increased  primarily  due to
higher  salaries and wages  expenses,  higher  professional  services  expenses,
higher expenses  associated with foreclosed assets, and higher expenses for FDIC
insurance.  Income tax expense is lower for 2009 due to lower amounts of taxable
income.


                                       16
<PAGE>

<TABLE>
<CAPTION>
                                                                             Summary Income Statement
                                                                             ------------------------
                                                                              (Dollars in thousands)
For the Three Months Ended September 30,                   2009                2008            Dollar Change     Percentage Change
                                                           ----                ----            -------------     -----------------
<S>                                                       <C>                 <C>                 <C>                  <C>
Interest income ...................................       $5,730              $6,236              $ (506)               -8.1%
Interest expense ..................................        2,706               3,006                (300)              -10.0%
                                                          ------              ------              ------
Net interest income ...............................        3,024               3,230                (206)               -6.4%
Provision for loan losses .........................        1,010                 965                  45                 4.7%
Noninterest income ................................          704                 634                  70                11.0%
Noninterest expenses ..............................        2,297               1,938                 359                18.5%
Income tax expense ................................          101                 252                (151)              -59.9%
                                                          ------              ------              ------
Net income ........................................       $  320              $  709              $ (389)              -54.9%
                                                          ======              ======              ======
</TABLE>

Nine Months Ended September 30, 2009 and 2008

         The  Company  recorded  consolidated  net  income of $1,223 or $.34 per
share for the first nine months of 2009  compared  with net income of $2,514 and
earnings  per share of $.71 for the same  period of 2008.  Net income per share,
assuming dilution was $.34 for the 2009 nine months and $.68 for the same period
of 2008. Net income per share amounts for 2008 have been retroactively  adjusted
to reflect a five percent stock dividend effective December 20, 2008.

         Lower  amounts of  interest  income and  interest  expense for the 2009
period  primarily   reflect  the  lower  interest  rate  environment   currently
prevailing.  The  average  rate  earned on loans in the 2009 period is 116 basis
points lower than the rate earned in the 2008  year-to-date  period. In addition
to the lower interest  rates related to general  economic  conditions,  interest
income  from loans is  negatively  affected by the higher  levels of  nonaccrual
loans in the 2009 period. The Company's investment  securities on average earned
54  basis  points  less in the 2009  nine-month  period  than  they did the 2008
period.

         The Company  increased  the  provision  for loan  losses  significantly
during the 2009 nine-month period in response to deteriorating  general economic
conditions and because of specific problems related to individual  borrowers and
groups of borrowers.  The  well-publicized  problems in the residential  housing
markets are contributing factors affecting the Company's loan customers.

         Noninterest  income for the 2009 nine  month  period was $159 more than
for the same  period of 2008  primarily  due to $90 of net gains on the sales of
investment  securities in the 2009 period compared with net losses on such sales
of $3 in the 2008 period, and an increase of $100 in the amount of fees received
to originate mortgage loans for another financial institution.

         Noninterest  expenses  for the 2009 period  increased  by $990 over the
prior year amount. Salaries and employee benefits for the 2009 nine month period
were $413 more than for the same prior year period  primarily due to an increase
of $322 in salaries and wages.  Professional  services expenses increased by $79
primarily   reflecting   higher  legal  expenses  incurred  in  connection  with
initiatives  expected to bolster the Company's capital  position.  The Company's
FDIC insurance  expense for the 2009 period increased by $407, or 318%, over the
amount for the 2008  year-to-date  period due to higher assessment rates imposed
by the FDIC and due to the  Company's  participation  in the FDIC's  Transaction
Account Guarantee Program. The FDIC has voted to require that insured depository
institutions  prepay their  estimated  assessments  for each of the years 2010 -
2012.  The  Company  will  recognize  the  related  expenses  ratably  over  the
three-year  period.  Higher  expenses  related to larger  volumes of  foreclosed
assets were also recorded in the 2009 period.


                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                                              Summary Income Statement
                                                                              ------------------------
                                                                               (Dollars in thousands)
For the Nine Months Ended September 30,                     2009               2008            Dollar Change   Percentage Change
                                                            ----               ----            -------------   -----------------
<S>                                                      <C>                <C>                <C>                 <C>
Interest income ...................................      $      17,374      $      18,629      $      (1,255)       -6.7%
Interest expense ..................................              8,544              9,741             (1,197)      -12.3%
                                                         -------------      -------------       ------------
Net interest income ...............................              8,830              8,888                (58)       -0.7%
Provision for loan losses .........................              2,460              1,375              1,085        78.9%
Noninterest income ................................              2,027              1,868                159         8.5%
Noninterest expenses ..............................              6,820              5,830                990        17.0%
Income tax expense ................................                354              1,037               (683)      -65.9%
                                                         -------------      -------------      -------------
Net income ........................................      $       1,223      $       2,514      $      (1,291)      -51.4%
                                                         =============      =============      =============
</TABLE>

Net Interest Income

         Net interest income,  the principal  source of the Company's  earnings,
was lower in both the 2009 three month and nine month periods. The deterioration
of real estate  markets  that began in other areas of the country  more than one
year ago is now  evident  within  the  Company's  market.  Primarily  because of
constrained demand for residential properties,  some developers and builders are
finding it  difficult  or  impossible  to satisfy  their  obligations  except by
surrendering,  either  voluntarily or  involuntarily  through  foreclosure,  the
properties that were pledged to secure their loans.  As a consequence,  property
values  have  fallen  due to related  conditions  such as  oversupply  of unsold
housing  units and the  physical  deterioration  that  sometimes  occurs  during
prolonged sales periods.  In some cases,  individual homes or entire development
projects  have been only  partially  completed  when the builders or  developers
suspended work and left completion of the project in the hands of lenders.

         Recently,  governmental economic policy makers including Congress,  the
Federal  Reserve and the  Department  of the Treasury  have  endeavored to enact
legislation, promulgate regulations and implement strategies intended to provide
stimulus to the  economy by creating  jobs,  maintaining  interest  rates at low
levels and through the  provision of other  incentives,  such as tax credits for
first-time home buyers or for the purchase and installation of  energy-efficient
residential   heating  and  cooling  systems  and  other  energy  efficient  and
alternative  energy projects.  To date, the observable effects of these measures
on the broad economy have been minimal.

Three Months Ended September 30, 2009 and 2008

         For the third quarter of 2009, net interest  income totaled  $3,024,  a
decrease of $206 from $3,230 for the same period of 2008. The Company's interest
rate  spread for the third  quarter of 2009 was  2.28%,  a decrease  of 40 basis
points from the 2.68%  interest rate spread for the third  quarter of 2008.  Net
yield on earning  assets for the 2009 third quarter was 2.68%,  a decrease of 50
basis  points  from the 2008  third  quarter  net yield of  3.18%.  The yield on
taxable  investment  securities for the third quarter of 2009 was 3.86% compared
with 4.98% for the same period of 2008. The average yield on the Company's loans
outstanding  was 6.15% for the third quarter of 2009 compared with 7.03% for the
same period of 2008.  The average  amount of the Company's loan category for the
third  quarter  of 2009 was 3.3% more than for the third  quarter  of 2008.  The
Company  derecognized  approximately $201 of accrued interest on loans that were
initially  included in  nonaccrual  loans during the third quarter of 2009. As a
result of all of these factors,  interest  income on loans was $433 lower in the
2009 three month period.

         Interest  expense for the 2009  three-month  period was $300 lower than
for the same period of 2008  primarily  due to lower  rates paid,  which were 67
basis  points  lower  than the prior  year  level.  Rates  paid for all types of
deposits in the 2009  quarter were 69 basis points lower and rates paid for time
deposits were 74 basis points lower in the 2009 quarter than for the same period
of 2008.  Average  amounts  of time  deposits  outstanding  for the 2009  period
increased by $45,640, or 17.6%, over the amount for the 2008 period.

                                       18
<PAGE>

<TABLE>
<CAPTION>
                                                                            Average Balances, Yields and Rates
                                                                             Three Months Ended September 30,
                                                                             --------------------------------
                                                                       2009                                     2008
                                                                       ----                                     ----
                                                                     Interest                                 Interest
                                                         Average      Income/      Yields/        Average      Income/     Yields/
                                                         Balances     Expense      Rates (1)      Balances     Expense    Rates (1)
                                                         --------     -------      ---------      --------     -------    ---------
                                                                                      (Dollars in thousands)
Assets
<S>                                                     <C>           <C>           <C>          <C>           <C>            <C>
Interest-bearing balances due from banks ..........     $  22,205     $    14       0.25%        $   1,533     $    10        2.60%
Securities
      Taxable .....................................       133,282       1,298       3.86%          101,802       1,275        4.98%
      Tax exempt (2) ..............................        19,780         201       4.03%           20,998         209        3.96%
                                                        ---------     -------                    ---------     -------
           Total investment securities ............       153,062       1,499       3.89%          122,800       1,484        4.81%
Other investments .................................         1,307           3       0.91%            1,216          14        4.58%
Federal funds sold ................................             -           -       0.00%           15,844          81        2.03%
Loans (2) (3) (4) .................................       271,751       4,214       6.15%          262,977       4,647        7.03%
                                                        ---------     -------                    ---------     -------
           Total interest earning assets ..........       448,325       5,730       5.07%          404,370       6,236        6.14%
Cash and due from banks ...........................         5,249                                    8,122
Allowance for loan losses .........................        (5,373)                                  (2,956)
Valuation allowance - Available-for-
      sale securities .............................           828                                     (596)
Premises and equipment ............................         8,565                                    8,768
Other assets ......................................        18,715                                   12,572
                                                        ---------                                ---------
           Total assets ...........................     $ 476,309                                $ 430,280
                                                        =========                                =========

Liabilities and shareholders' equity
Interest bearing deposits
      Interest bearing transaction accounts .......     $  52,724     $    93       0.70%        $  56,370     $   250        1.76%
      Savings .....................................        17,663          20       0.45%           18,700          46        0.98%
      Time deposits $100M and over ................       131,673         904       2.72%          113,755       1,021        3.57%
      Other time deposits .........................       173,608       1,596       3.65%          145,886       1,589        4.33%
                                                        ---------     -------                    ---------     -------
           Total interest bearing
             deposits .............................       375,668       2,613       2.76%          334,711       2,906        3.45%
Short-term borrowings .............................            19           -       0.00%            1,500           8        2.12%
Long-term debt ....................................         9,500          93       3.88%            9,500          92        3.85%
                                                        ---------     -------                    ---------     -------
           Total interest bearing
             liabilities ..........................       385,187       2,706       2.79%          345,711       3,006        3.46%
Noninterest bearing demand deposits ...............        43,500                                   41,637
Other liabilities .................................         6,119                                    2,907
Shareholders' equity ..............................        41,503                                   40,025
                                                        ---------                                ---------
           Total liabilities and shareholders'
           equity .................................     $ 476,309                                $ 430,280
                                                        =========                                =========
Interest rate spread ..............................                                 2.28%                                     2.68%
Net interest income and net yield
      on earning assets ...........................                   $ 3,024       2.68%                      $ 3,230        3.18%
Interest free funds supporting earning
      assets ......................................     $  63,138                                $  58,659
</TABLE>
-----------------------------------------
(1)  Yields and rates are annualized.
(2)  Yields on tax exempt instruments have not been adjusted to a tax-equivalent
     basis.
(3)  Nonaccrual  loans are included in the average  loan  balances and income on
     such loans is recognized on a cash basis.
(4)  Includes immaterial amounts of loan fees.


                                       19
<PAGE>

Nine Months Ended September 30, 2009 and 2008

         For the first nine months of 2009, net interest  income totaled $8,830,
a decrease of $58, or 0.7%,  from the $8,888 amount for the same period of 2008.
The Company's  interest rate spread for the 2009 nine month period was 2.19%,  a
decrease of 22 basis points over the 2.41% spread for the 2008 period. The yield
on interest earning assets decreased to 5.12% for the 2009 period, compared with
6.17% for the 2008  period,  primarily  due to lower  rates  earned on loans.  A
significant  portion of the Company's loans are variable rate  instruments  that
are  repriced  in response  to changes in the "prime  rate"  which is  currently
3.25%,  a very low  level.  The  Company  recently  implemented  a change in its
pricing  policy with respect to variable  rate loans by utilizing  "floor" rates
for all newly made and renewed  variable rate loans.  The yield on loans is also
negatively  impacted when loans are placed into nonaccrual  status. As discussed
later,  the  Company  has seen a  significant  increase in the number and dollar
amount of nonperforming  and nonaccrual loans in 2009. Higher average volumes of
investment  securities  held in the 2009  period more than offset the effects of
lower  rates  earned on those  instruments.  Federal  funds sold by the  Company
during the 2009 period were  significantly  reduced from the amounts sold during
the same period of 2008.  Excess  cash  reserves  are  currently  maintained  on
deposit  with the  Federal  Reserve  Bank,  which is paying a nominal  amount of
interest on those deposits. Actions taken by the Federal Reserve since the third
quarter of 2008  generally  were  intended  initially to reduce  market rates of
interest and, more recently, to maintain those rates at lower levels.

         Rates paid for interest bearing  liabilities during the 2009 nine month
period were 83 basis points lower than for the 2008 period.  Rates paid for time
deposits $100 and over were 95 basis points lower during the 2009 period than in
the 2008  period and rates paid for other time  deposits  decreased  by 93 basis
points compared with the same 2008 period.  The average amounts of time deposits
outstanding during the 2009 period were $50,553, or 20.0%, more than in the 2008
period.  Rates paid for interest bearing transaction  accounts for the 2009 nine
month period were 126 basis points less than for the same period of 2008 and the
average  amount of such  accounts in the 2009 period was $2,915,  or 5.0%,  less
than for the 2008 period.



                                       20
<PAGE>
<TABLE>
<CAPTION>

                                                                        Average Balances, Yields and Rates
                                                                         Nine Months Ended September 30,
                                                                         -------------------------------
                                                                    2009                                       2008
                                                                    ----                                       ----
                                                                  Interest                                   Interest
                                                     Average       Income/        Yields/       Average       Income/       Yields/
                                                    Balances       Expense       Rates (1)      Balances      Expense      Rates (1)
                                                    --------       -------       ---------      --------      -------      ---------
                                                                                  (Dollars in thousands)
Assets
<S>                                                <C>            <C>           <C>          <C>            <C>              <C>
Interest-bearing balances due from banks .......   $  19,291      $    36       0.25%        $   1,251      $    17          1.82%
Securities
      Taxable ..................................     137,055        4,260       4.16%           95,782        3,464          4.83%
      Tax exempt (2) ...........................      20,043          612       4.08%           20,683          623          4.02%
                                                   ---------      -------                    ---------      -------
           Total investment securities .........     157,098        4,872       4.15%          116,465        4,087          4.69%
Other investments ..............................       1,283            3       0.31%              997           39          5.23%
Federal funds sold .............................       2,649            3       0.15%           28,624          584          2.73%
Loans (2) (3) (4) ..............................     273,201       12,460       6.10%          255,866       13,902          7.26%
                                                   ---------      -------                    ---------      -------
           Total interest earning assets .......     453,522       17,374       5.12%          403,203       18,629          6.17%
Cash and due from banks ........................       6,953                                     7,916
Allowance for loan losses ......................      (5,439)                                   (2,725)
Valuation allowance - Available-for-
      sale securities ..........................       1,178                                       347
Premises and equipment .........................       8,611                                     8,812
Other assets ...................................      15,975                                    12,355
                                                   ---------                                 ---------
           Total assets ........................   $ 480,800                                 $ 429,908
                                                   =========                                 =========

Liabilities and shareholders' equity
Interest bearing deposits
      Interest bearing transaction accounts ....   $  55,107      $   281       0.68%        $  58,022      $   843          1.94%
      Savings ..................................      22,607           63       0.37%           28,523          323          1.51%
      Time deposits $100M and over .............     131,612        2,987       3.03%          108,347        3,231          3.98%
      Other time deposits ......................     171,169        4,938       3.86%          143,881        5,157          4.79%
                                                   ---------      -------                    ---------      -------
           Total interest bearing
             deposits ..........................     380,495        8,269       2.91%          338,773        9,554          3.77%
Short-term borrowings ..........................          14            -       0.00%              504            8          2.12%
Long-term debt .................................       9,500          275       3.87%            6,321          179          3.78%
                                                   ---------      -------                    ---------      -------
           Total interest bearing
             liabilities .......................     390,009        8,544       2.93%          345,598        9,741          3.76%
Noninterest bearing demand deposits ............      44,567                                    40,910
Other liabilities ..............................       4,998                                     3,787
Shareholders' equity ...........................      41,226                                    39,613
                                                   ---------                                 ---------
           Total liabilities and shareholders'
           equity ..............................   $ 480,800                                 $ 429,908
                                                   =========                                 =========
Interest rate spread ...........................                                2.19%                                        2.41%
Net interest income and net yield
      on earning assets ........................                  $ 8,830       2.60%                       $ 8,888          2.94%
Interest free funds supporting earning
      assets ...................................   $  63,513                                 $  57,605
</TABLE>
-----------------------------------------
(1)  Yields and rates are annualized.
(2)  Yields on tax exempt instruments have not been adjusted to a tax-equivalent
     basis.
(3)  Nonaccrual  loans are included in the average  loan  balances and income on
     such loans is recognized on a cash basis.
(4)  Includes immaterial amounts of loan fees.

                                       21
<PAGE>


Provision and Allowance for Loan Losses

         The  provision for loan losses was $1,010 for the third quarter of 2009
compared with $965 for the third  quarter of 2008.  For the first nine months of
2009,  the  provision  for loan losses was $2,460,  compared with $1,375 for the
first nine months of 2008. At September 30, 2009,  the allowance for loan losses
was 2.01% of loans,  compared  with 2.02% at  December  31, 2008 and 1.31% as of
September  30, 2008.  The increase in the  provision and allowance was made as a
result of  significant  increases  in the amounts of  nonaccrual  and  potential
problem loans, increased net charge-offs, higher volumes of loans and heightened
concerns  about the state of the local economy and the resultant  ability of the
Company's customers to perform in accordance with the terms of their loans.

         For the first nine  months of 2009,  net  charge-offs  totaled  $2,527,
compared  with $446 in net charge  offs  during the same  period of 2008.  As of
September 30, 2009,  nonaccrual loans totaled $14,884 and there were no loans 90
days or more past due and still  accruing  interest.  As of September  30, 2008,
nonaccrual  loans totaled $4,725.  The activity in the allowance for loan losses
is summarized in the table below:

<TABLE>
<CAPTION>
                                                                            Nine Months                                Nine Months
                                                                               Ended             Year Ended                Ended
                                                                            September 30,        December 31,          September 30,
                                                                                2009                 2008                  2008
                                                                                ----                 ----                  ----
                                                                                             (Dollars in thousands)
<S>                                                                          <C>                   <C>                   <C>
Allowance at beginning of period .................................           $   5,475             $   2,574             $   2,574
Provision for loan losses ........................................               2,460                 4,550                 1,375
Net charge-offs ..................................................              (2,527)               (1,649)                 (446)
                                                                             ---------             ---------             ---------
Allowance at end of period .......................................           $   5,408             $   5,475             $   3,503
                                                                             =========             =========             =========
Allowance as a percentage of loans outstanding
  at period end ..................................................                2.01%                 2.02%                 1.31%
Loans at end of period ...........................................           $ 269,725             $ 270,413             $ 267,075
                                                                             =========             =========             =========
</TABLE>




                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                      90 Days or
                                                     More Past Due       Total         Percentage                       Percentage
                                        Nonaccrual     and Still    Nonperforming      of Total      Potential          of Total
                                            Loans      Accruing           Loans           Loans     Problem Loans          Loans
                                            -----      --------           -----           -----     -------------          -----
                                                                      (Dollars in thousands)
<S>                                       <C>           <C>             <C>                <C>         <C>                 <C>
January 1, 2008 .................         $    625      $     -         $    625           0.26%       $  3,088            1.26%
Net change ......................             (181)           -             (181)                           962
                                          --------      -------         --------                       --------
March 31, 2008 ..................              444            -              444           0.18%          4,050            1.61%
Net change ......................            1,436            -            1,436                          1,338
                                          --------      -------         --------                       --------
June 30, 2008 ...................            1,880            -            1,880           0.73%          5,388            2.10%
Net change ......................            2,845            -            2,845                          1,194
                                          --------      -------         --------                       --------
September 30, 2008 ..............            4,725            -            4,725           1.77%          6,582            2.46%
Net change ......................            7,074            -            7,074                            328
                                          --------      -------         --------                       --------
December 31, 2008 ...............           11,799            -           11,799           4.36%          6,910            2.56%
Net change ......................            2,835            -            2,835                          2,367
                                          --------      -------         --------                       --------
March 31, 2009 ..................           14,634            -           14,634           5.31%          9,277            3.37%
Net change ......................            2,882            -            2,882                         (1,511)
                                          --------      -------         --------                       --------
June 30, 2009 ...................           17,516            -           17,516           6.41%          7,766            2.84%
Net change ......................           (2,632)           -           (2,632)                         3,490
                                          --------      -------         --------                       --------
September 30, 2009 ..............         $ 14,884      $     -         $ 14,884           5.52%       $ 11,256            4.17%
                                          ========      =======         ========                       ========
</TABLE>

         Potential problem loans include loans, other than non-performing loans,
that management has identified as having possible credit problems  sufficient to
cast  doubt upon the  abilities  of the  borrowers  to comply  with the  current
repayment  terms.  Such  loans  are  assigned  to one of  several  below-average
risk-rating  grades  depending  on factors  such as past due status,  collateral
values,  and other factors  affecting  the  customers'  ability to repay.  As of
September 30, 2009,  approximately 66% of the Company's  potential problem loans
were included in the Company's  least severe  below-average  risk-rating  grade.
Approximately  92% of  potential  problem  loans were  secured  by real  estate.
Management expects that further  deterioration of economic conditions within the
Company's  market areas is likely in the short-term,  especially with respect to
real estate related  activities and real property  values.  Consequently,  it is
expected that increased provisions for loan losses will be needed in the future.

         The  statewide   unemployment   rate  for  South   Carolina  was  11.6%
(seasonally  adjusted)  as of  September  30,  2009,  compared  with  8.8% as of
December 31, 2008 and 7.5% as of September 30, 2008. The unemployment rates (not
seasonally adjusted) in Oconee and Anderson Counties,  South Carolina were 14.2%
and 12.5%, respectively,  as of September 30, 2009 compared with 10.6% and 9.6%,
respectively,  as of December  31, 2008 and 8.0% and 7.2%,  respectively,  as of
September 30, 2008.

Noninterest Income

         Noninterest income totaled $704 for the third quarter of 2009, compared
with $634 for the 2008 quarter.  Fees associated with originating mortgage loans
for  another  financial  institution  totaled  $48 in the third  quarter of 2009
compared with $6 for the same period of 2008.  Fees  associated  with card-based
services  were $154 in the 2009  quarter  compared  with $142 in the prior  year
period.

         For the nine  months  ended  September  30,  2009,  noninterest  income
totaled  $2,027,  compared  with  $1,868  for the same  period of 2008.  Service
charges on deposit  accounts  in the 2009  period  were  $1,048  representing  a
decrease  of $61 from the  prior  year  period's  $1,109.  Net gains on sales of
investment securities totaled $90 for the 2009 year-to-date period compared with
net losses on such sales of $3 for the same 2008 period.  Fees  associated  with
card-based  services were $450 for the 2009 period and $412 for the 2008 period.
During  the 2009 and 2008 nine  month  periods,  increases  in the value of life
insurance assets totaling $274 and $280 were recognized, respectively. Fees from
originating  mortgage loans were $119 for the 2009 year period compared with $19
for the same period of 2008.


                                       23
<PAGE>

Noninterest Expenses

         Noninterest  expenses  totaled  $2,297  for the third  quarter  of 2009
compared  with $1,938 for the same period of 2008,  representing  an increase of
$359 or 18.5%.  Salaries and employee  benefits  increased by $133, or 12.4%, to
$1,206. Higher deferred  compensation  expenses,  decreased deferrals of current
compensation expenses under applicable accounting standards resulting from lower
loan  origination  activity in 2009,  and the hiring in 2009 of a special assets
officer to fill a newly created position  contributed to the increased  salaries
and benefits.

         The cost of deposit  insurance  was $165 for the third quarter of 2009,
compared  with $58 for the third  quarter of 2008.  Further  increases  in these
expenses are expected to occur due to the imposition of higher  assessment rates
on the banking industry generally.  Expenses for professional services increased
to $130 for the 2009 three month period from $51 for the same period of 2008 due
to legal fees  incurred  in the 2009  period  with  respect to  foreclosure  and
repossession  actions and in connection with the Company's  proposed issuance of
preferred stock.  Expenses associated with holding foreclosed assets totaled $53
in the 2009  three  month  period  compared  with no such  expenses  in the 2008
period.

         Noninterest  expenses  for the nine  months  ended  September  30, 2009
totaled  $6,820,  an  increase of $990,  or 17.0%,  over the amount for the same
period of 2008. Salaries and employee benefits increased by $413, or 12.8%, over
the amount for 2008 for the  reasons discussed  previously.  Net  occupancy  and
furniture  and  equipment  expenses  decreased  by an aggregate of $22, or 3.1%,
primarily  because of lower  depreciation  expenses.  Amounts  assessed for FDIC
insurance  increased by $407 due to the special assessment in the second quarter
of 2009  and  other  factors  discussed  previously.  Expenses  associated  with
foreclosed assets increased by $71 in the 2009 period. Expenses for professional
services  increased  by $101 for the 2009  period due to the  factors  discussed
previously as well as higher fees related to recurring independent loan reviews,
internal audits and other accounting and compliance assistance.

         The Company continues to pursue a strategy to increase its market share
in its local  market areas in Anderson  and Oconee  Counties of South  Carolina.
Oconee  County is served from two  offices in Seneca,  and one office in each of
Walhalla and Westminster.  The Anderson County market is served from two offices
in Anderson and one office in Williamston.

Liquidity

         Liquidity is the ability to meet current and future obligations through
the  liquidation or maturity of existing assets or the acquisition of additional
liabilities.  The  Company  manages  both  assets  and  liabilities  to  achieve
appropriate  levels  of  liquidity.  Cash  and  short-term  investments  are the
Company's  primary  sources of asset  liquidity.  These funds  provide a cushion
against  short-term  fluctuations  in cash flow from both  deposits  and  loans.
Securities  available-for-sale  are the Company's  principal source of secondary
asset  liquidity.  However,  the  availability  of this source is  influenced by
market conditions.  Individual and commercial deposits are the Company's primary
source of funds for credit activities.  The Company has approximately $42,180 of
credit  availability  under its FHLB lines of credit and additional  amounts are
available under federal funds purchased facilities.

         As of  September  30,  2009,  the ratio of loans to total  deposits was
64.6%, compared with 65.0% as of December 31, 2008. Deposits as of September 30,
2009 were $417,794,  an increase of $1,679 or .4% over the amount as of December
31, 2008.  Management believes that the Company's liquidity sources are adequate
to meet its operating needs.

Capital Resources

         The Company's  capital base increased by $2,777 since December 31, 2008
as the  result of net income of $1,223  for the first  nine  months of 2009,  an
increase of $486 from the  exercise of stock  options,  plus a $1,068  change in
unrealized gains and losses on  available-for-sale  securities,  net of deferred
income tax effects.

         The  Company  and its banking  subsidiary  (the  "Bank") are subject to
regulatory  risk-based capital adequacy standards.  Under these standards,  bank
holding  companies and banks are required to maintain  certain minimum ratios of
capital to risk-weighted  assets and average total assets.  Under the provisions
of the Federal Deposit Insurance  Corporation  Improvement Act of 1991 (FDICIA),
federal bank regulatory authorities are required to implement prescribed "prompt
corrective actions" upon the deterioration of the capital position of a bank. If
the  capital  position  of an affected  institution  were to fall below  certain
levels, increasingly stringent regulatory corrective actions are mandated.

         The September  30, 2009 risk based  capital  ratios for the Company and
the  Bank  are  presented  in the  following  table,  compared  with  the  "well
capitalized" and minimum ratios under the regulatory definitions and guidelines:

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<PAGE>

                                                             Total
                                               Tier 1       Capital    Leverage
                                               ------       -------    --------
Community First Bancorporation ...............  13.4%        14.7%        8.7%
Community First Bank .........................  12.7%        13.9%        8.2%
Minimum "well-capitalized" requirement .......   6.0%        10.0%        6.0%
Minimum requirement ..........................   4.0%         8.0%        5.0%

Off-Balance-Sheet Arrangements

         In the  normal  course  of  business,  the Bank is  party to  financial
instruments with  off-balance-sheet  risk including commitments to extend credit
and standby letters of credit.  Such instruments have elements of credit risk in
excess of the amount  recognized  in the balance  sheet.  The exposure to credit
loss in the  event of  nonperformance  by the  other  parties  to the  financial
instruments  for  commitments to extend credit and standby  letters of credit is
represented by the contractual notional amount of those instruments.  Generally,
the same credit policies used for on-balance-sheet  instruments,  such as loans,
are used in extending loan commitments and standby letters of credit.

         Following  are  the   off-balance-sheet   financial  instruments  whose
contract amounts represent credit risk:

                                            September 30, 2009
                                            ------------------
                                          (Dollars in thousands)
Loan commitments ....................            $ 19,373
Standby letters of credit ...........               1,268

         Loan  commitments  involve  agreements to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses and some
involve payment of a fee. Many of the commitments are expected to expire without
being fully  drawn;  therefore,  the total amount of loan  commitments  does not
necessarily represent future cash requirements. Each customer's creditworthiness
is evaluated on a case-by-case basis. The amount of collateral obtained, if any,
upon  extension  of credit is based on  management's  credit  evaluation  of the
borrower. Collateral held varies but may include commercial and residential real
properties, accounts receivable, inventory and equipment.

         Standby letters of credit are conditional  commitments to guarantee the
performance of a customer to a third party.  The credit risk involved in issuing
standby  letters  of  credit  is the  same  as  that  involved  in  making  loan
commitments to customers. Many letters of credit will expire without being drawn
upon  and do not  necessarily  represent  future  cash  requirements.  The  Bank
receives fees for loan commitments and standby letters of credit.  The amount of
such fees was not  material  for either the nine  months or three  months  ended
September 30, 2009.

         As described under  "Liquidity,"  management  believes that its various
sources of liquidity  provide the  resources  necessary for the Bank to fund the
loan  commitments  and to perform under standby  letters of credit,  if the need
arises. Neither the Company nor the Bank are involved in other off-balance sheet
contractual  relationships or transactions  that could result in liquidity needs
or other commitments or significantly impact earnings.

Item 3.  - Quantitative and Qualitative Disclosures About Market Risk

         The Company's  exposure to market risk is primarily related to the risk
of loss from  adverse  changes  in market  prices and  rates.  This risk  arises
principally from interest rate risk inherent in the Company's  lending,  deposit
gathering and borrowing activities. Management actively monitors and manages its
interest rate risk exposure.  Although the Company manages other risks,  such as
credit quality and liquidity  risk in the normal course of business,  management
considers  interest  rate risk to be its most  significant  market risk and this
risk  could  potentially  have the  largest  material  effect  on the  Company's
financial condition and results of operations.  Other types of market risk, such
as commodity price risk and foreign currency  exchange risk, do not arise in the
normal course of the Company's community banking operations.

         The Company uses a simulation  model to assist in achieving  consistent
growth in net interest income while managing interest rate risk. As of September
30 2009, the model indicates that net interest income would decrease $58 and net
income would  decrease $37 in the next twelve  months if interest  rates rose by
100 basis points.  Conversely,  net interest  income would  increase $39 and net
income would  increase $25 in the next twelve months if interest  rates declined
by 100 basis  points.  In the  current  interest  rate  environment,  it appears
unlikely that there will be any large changes in interest rates in the immediate
future. The prospective effects of hypothetical  interest rate changes are based


                                       25
<PAGE>

on a number of  assumptions,  including the relative  levels of market  interest
rates and prepayment assumptions affecting loans, and should not be relied on as
indicative  of  actual  future  results.  The  prospective  effects  also do not
contemplate potential actions that the Company, its customers and the issuers of
its  investment  securities  could  undertake in response to changes in interest
rates.

         As of September  30,  2009,  there was no  significant  change from the
interest rate  sensitivity  analysis for the various  changes in interest  rates
calculated  as of December 31, 2008.  The foregoing  disclosures  related to the
Company's market risk should be read in conjunction with Management's Discussion
and Analysis of Financial  Condition and Results of  Operations  included in the
2008  Annual  Report  on Form  10-K  filed  with  the  Securities  and  Exchange
Commission.


Item 4T. - Controls and Procedures

Based  on  the  evaluation  required  by  17  C.F.R.  Section  240.13a-15(b)  or
240.15d-15(b) of the issuer's  disclosure controls and procedures (as defined in
17  C.F.R.  Sections  240.13a-15(e)  and  240.15d-15(e)),   the  issuer's  chief
executive  officer and chief  financial  officer  concluded  such  controls  and
procedures, as of the end of the period covered by this report, were effective.

There  has been no change  in the  Company's  internal  control  over  financial
reporting during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially  affect,  the Company's internal control over
financial reporting.


                           PART II - OTHER INFORMATION

Item 6. - Exhibits

Exhibits
                      31. Rule 13a-14(a)/15d-14(a) Certifications

                      32.  Certifications Pursuant to 18  U.S.C. Section 1350





                                       26
<PAGE>


SIGNATURE

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                         COMMUNITY FIRST BANCORPORATION

November 13, 2009                         /s/ Frederick D. Shepherd, Jr.
-----------------                        ---------------------------------------
         Date                             Frederick D. Shepherd, Jr., Chief
                                          Executive Officer and
                                          Chief Financial Officer


























                                       27
<PAGE>


                                  EXHIBIT INDEX


                  31. Rule 13a-14(a)/15d-14(a) Certifications

                  32.  Certifications  Pursuant  to 18  U.S.C. Section 1350





















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