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| Virginia                                                                                                                                                                                                                                                                                                             |   | 16-1694602          |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|
| (State or other jurisdiction of                                                                                                                                                                                                                                                                                      |   | (I.R.S. Employer    |
| incorporation or organization)                                                                                                                                                                                                                                                                                       |   | Identification No.) |
|                                                                                                                                                                                                                                                                                                                 |   |                |
| 15521 Midlothian Turnpike, Suite 200, Midlothian, Virginia             23113                                                                                                                                                                             |
|                        (Address of principal executive offices)                    (Zip Code) |
|                                                                                                                                                                                                                                                                                                                 |   |                |
| Issuer’s telephone number 804-897-3900                                                                                                                                                                                                                                                                         |

| Title of each class           | Name of each exchange on which registered |
|-------------------------------|-------------------------------------------|
| Common Stock, $4.00 par value | The Nasdaq Stock Market                   |

| Large Accelerated Filer o                                          | Accelerated Filer o              |
|--------------------------------------------------------------------|----------------------------------|
| Non-Accelerated Filer o(Do not check if smaller reporting company) | Smaller Reporting Company þ |

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TABLE OF CONTENTS

| Part I     |
|------------|
|       | Item 1. | Business | 3 |
|       | Item 1A. | Risk Factors | 19 |
|       | Item 1B. | Unresolved Staff Comments | 27 |
|       | Item 2. | Properties | 27 |
|       | Item 3. | Legal Proceedings | 27 |
|       | Item 4. | Removed and Reserved | 27 |
|       |   |   |   |   |
| Part II    |
|       | Item 5. | Market for Registrant’s Common Equity, Related Stockholder |   |
|       |   |   | Matters and Issuer Purchases of Equity Securities | 28 |
|       | Item 6. | Selected Financial Data | 30 |
|       | Item 7. | Management’s Discussion and Analysis of Financial Condition |   |
|       |   |   | And Results of Operations | 31 |
|       | Item 8. | Financial Statements and Supplementary Data | 56 |
|       | Item 9. | Changes In and Disagreements with Accountants |   |
|       |   |   | on Accounting and Financial Disclosure | 99 |
|       | Item 9A. | Controls and Procedures | 99 |
|       | Item 9B. | Other Information | 100 |
|       |   |   |   |   |
| Part III   |
|       | Item 10. | Directors, Executive Officers, and Corporate Governance | 101 |
|       | Item 11. | Executive Compensation | 101 |
|       | Item 12. | Security Ownership of Certain Beneficial Owners and |   |
|       |   |   | Management and Related Stockholder Matters | 101 |
|       | Item 13. | Certain Relationships and Related Transactions, |   |
|       |   |   | and Director Independence | 101 |
|       | Item 14. | Principal Accounting Fees and Services | 101 |
|       |   |   |   |   |
| Part IV    |
|       | Item 15. | Exhibits, Financial Statement Schedules | 102 |
|       |   |   |   |   |
| Signatures | 104 |

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PART I

ITEM 1.       BUSINESS

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|   | · | To be a full service financial services provider enabling us to establish and maintain relationships with our customers. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | · | To attract customers by providing the breadth of products offered by larger banks while maintaining the quick response and personal service of a community bank.  We will continue to look for opportunities to expand our products and services.  We have established a diverse product line, including commercial, mortgage and consumer loans as well as a full array of deposit products and services. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | To reduce the level of our nonperforming assets.  Nonperforming assets, consisting of nonaccrual loans and real estate acquired through foreclosure, reached record highs in 2010 and continue to have a negative affect on profitability.  We have committed significant resources to reduce the level of nonperforming assets. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | To expand our capacity to generate noninterest income through the sale of mortgage loans.  Our mortgage company has experienced a significant increase in loan production as a result of the addition of a loan production office in Northern Virginia. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | To continue to emphasize commercial banking products and services.  Small-business commercial customers are a source of prime-based loans, fee income from cash management services, and low cost deposits, which we need to fund our growth.  We have been able to build a commercial business base because our staff of commercial bankers seeks opportunities to network within the local business community.  Significant additional growth in this banking area will depend on expanding our lending staff. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | eliminate from its books, by charge-offs or collections, all assets or portions of assets classified “Loss” and 50 percent of those assets classified “Doubtful” in the regulatory examination reports that have not been previously collected or charged-off; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | submit to the FDIC and the BFI specific plans and proposals to effect the reduction and improvement of any loans or lines of credit which are adversely classified in the regulatory examination reports or any internal or external loan review, and which aggregate $500,000 or more; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | not extend, directly or indirectly, any additional credit to or for the benefit of any borrower who is obligated in any manner to the Bank on any extension of credit or portion thereof that has been charged off by the Bank or classified Loss or Doubtful in any report of examination, so long as such credit remains uncollected; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | enhance the formal loan review program to provide accurate and timely identification of problem loans; |
|--------|--------|--------------------------------------------------------------------------------------------------------|

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|   | · | formulate a management plan that shall contain a review of each existing officer’s performance, abilities and assignments to positions within the Bank, the need, if any, for personnel outside the Bank, and an organizational chart and written job descriptions for personnel in the supervisory, administrative, and accounting functions; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | review and update the written profit and strategic plan; |
|--------|--------|----------------------------------------------------------|

|   | · | adopt a written plan for monitoring and reducing the Commercial Real Estate (CRE) concentration; |
|--------|--------|--------------------------------------------------------------------------------------------------|

|   | · | maintain the Allowance for Loan and Lease Losses at a level that is appropriate to cover estimated losses on individually evaluated loans determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan portfolio; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | limit asset growth to no more than five (5) percent per annum; |
|--------|--------|----------------------------------------------------------------|

|   | · | incorporate within the Bank’s Contingency Funding Plan certain recommendations contained in the regulatory examination reports; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | · | maintain a Tier 1 Leverage Capital Ratio of not less than eight (8) percent and a Total Risk-Based Capital Ratio of not less than 11.5 percent; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | take steps necessary, consistent with sound banking practices, to correct all violations of law and regulations cited in the regulatory examination reports; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | not pay any cash dividends without the prior written consent of the FDIC and BFI; and |
|--------|--------|---------------------------------------------------------------------------------------|

|   | · | furnish written quarterly progress reports to the FDIC and BFI detailing steps taken to comply with the various provisions of the Memorandum of Understanding. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | declare or pay any dividends on its common stock or preferred stock; |
|--------|--------|----------------------------------------------------------------------|

|   | · | take dividends or any other form of payment representing a reduction in capital from the Bank; |
|--------|--------|------------------------------------------------------------------------------------------------|

|   | · | make any payments on trust preferred securities; |
|--------|--------|--------------------------------------------------|

|   | · | incur, increase, repay, refinance or guarantee any debt; or |
|--------|--------|-------------------------------------------------------------|

|   | · | purchase or redeem any shares of its stock. |
|--------|--------|---------------------------------------------|

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|   | · | FDIC Assessments. The Dodd-Frank Act changes the assessment base for federal deposit insurance from the amount of insured deposits to average consolidated total assets less its average tangible equity.  In addition, it increases the minimum size of the Deposit Insurance Fund (“DIF”) and eliminates its ceiling, with the burden of the increase in the minimum size on institutions with more than $10 billion in assets. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Deposit Insurance.  The Dodd-Frank Act makes permanent the $250,000 limit for federal deposit insurance and provides unlimited federal deposit insurance until December 31, 2012 for non-interest-bearing demand transaction accounts at all insured depository institutions. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Interest on Demand Deposits.  The Dodd- Frank Act also provides that, effective one year after the date of enactment, depository institutions may pay interest on demand deposits, including business transaction and other accounts. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Consumer Financial Protection Bureau.  The Dodd-Frank Act centralizes responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, responsible for implementing federal consumer protection laws, although banks below $10 billion in assets will continue to be examined and supervised for compliance with these laws by their federal bank regulator. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Mortgage Lending.  New requirements are imposed on mortgage lending, including new minimum underwriting standards, prohibitions on certain yield-spread compensation to mortgage originators, special consumer protections for mortgage loans that do not meet certain provision qualifications, prohibitions and limitations on certain mortgage terms and various new mandated disclosures to mortgage borrowers. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Holding Company Capital Levels.  Bank regulators are required to establish minimum capital levels for holding companies that are at least as stringent as those currently applicable to banks.  In addition, all trust preferred securities issued after May 19, 2010 will be counted as Tier 2 capital, but the Company’s currently outstanding trust preferred securities will continue to qualify as Tier 1 capital. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | De Novo Interstate Branching.  National and state banks are permitted to establish de novo interstate branches outside of their home state, and bank holding companies and banks must be well-capitalized and well managed in order to acquire banks located outside their home state. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Transactions with Affiliates. The Dodd-Frank Act enhances the requirements for certain transactions with affiliates under Section 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and increasing the amount of time for which collateral requirements regarding covered transactions must be maintained. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Transactions with Insiders. Insider transaction limitations are expanded through the strengthening of loan restrictions to insiders and the expansion of the types of transactions subject to the various limits, including derivative transactions, repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions. Restrictions are also placed on certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution’s board of directors. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Corporate Governance.  The Dodd-Frank Act includes corporate governance revisions that apply to all public companies, not just financial institutions, including with regard to executive compensation and proxy access to shareholders. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | Total Risk-Based Capital ratio, which is the total of Tier 1 Risk-Based Capital (which includes common shareholders’ equity, trust preferred securities, minority interests and qualifying preferred stock, less goodwill and other adjustments)  and Tier 2 Capital (which includes preferred stock not qualifying as Tier 1 capital, mandatory convertible debt, limited amounts of subordinated debt, other qualifying term debt and the allowance for loan losses up to 1.25 percent of risk-weighted assets and other adjustments) as a percentage of total risk-weighted assets, |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Tier 1 Risk-Based Capital ratio (Tier 1 capital divided by total risk-weighted assets), and |
|--------|--------|---------------------------------------------------------------------------------------------|

|   | · | the Leverage ratio (Tier 1 capital divided by adjusted average total assets). |
|--------|--------|-------------------------------------------------------------------------------|

|   | · | “well capitalized” if it has a Total Risk-Based Capital ratio of 10% or greater, a Tier 1 Risk-Based Capital ratio of 6% or greater, a Leverage ratio of 5% or greater, and is not subject to any written agreement, order, capital directive, or prompt corrective action directive by a federal bank regulatory agency to meet and maintain a specific capital level for any capital measure, |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | “adequately capitalized” if it has a Total Risk-Based Capital ratio of 8% or greater, a Tier 1 Risk-Based Capital ratio of 4% or greater, and a Leverage ratio of 4% or greater (or 3% in certain circumstances) and is not well capitalized, |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | “undercapitalized” if it has a Total Risk-Based Capital ratio of less than 8%, a Tier 1 Risk-Based Capital ratio of less than 4% (or 3% in certain circumstances), or a Leverage ratio of less than 4% (or 3% in certain circumstances), |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | “significantly undercapitalized” if it has a Total Risk-Based Capital ratio of less than 6%, a Tier 1 Risk-Based Capital ratio of less than 3%, or a Leverage ratio of less than 3%, or |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | “critically undercapitalized” if its tangible equity is equal to or less than 2% of tangible assets. |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

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|   | · | A bank’s loans or extensions of credit, including purchases of assets subject to an agreement to repurchase, to affiliates; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------|

|   | · | A bank’s investment in affiliates; |
|--------|--------|------------------------------------------|

|   | · | Assets a bank may purchase from affiliates, except for real and personal property exempted by the Federal Reserve; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|

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|   | · | The amount of loans or extensions of credit to third parties collateralized by the securities or debt obligations of affiliates; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | · | Transactions involving the borrowing or lending of securities and any derivative transaction that results in credit exposure to an affiliate; and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A bank’s guarantee, acceptance or letter of credit issued on behalf of an affiliate. |
|--------|--------|--------------------------------------------------------------------------------------------|

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ITEM 1A.     RISK FACTORS

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ITEM 1B.     UNRESOLVED STAFF COMMENTS

ITEM 2.       PROPERTIES

ITEM 3.       LEGAL PROCEEDINGS

ITEM 4.       RESERVED

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PART II

ITEM 5.     MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER 

      MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

|        |   | High   |   |   | Low    |   |
|-------------|--------|--------|--------|--------|--------|--------|
| 2009        |   |   |   |   |   |   |
| 1st quarter |   | $      | 5.00   |   |   | $      | 3.77 |   |
| 2nd quarter |   |   | 4.95   |   |   |   | 4.12 |   |
| 3rd quarter |   |   | 5.98   |   |   |   | 3.85 |   |
| 4th quarter |   |   | 4.43   |   |   |   | 2.01 |   |
|        |   |   |   |   |   |   |   |   |
| 2010        |   |   |   |   |   |   |   |   |
| 1st quarter |   | $      | 5.00   |   |   | $      | 2.02 |   |
| 2nd quarter |   |   | 4.24   |   |   |   | 2.82 |   |
| 3rd quarter |   |   | 2.90   |   |   |   | 1.40 |   |
| 4th quarter |   |   | 1.98   |   |   |   | 1.40 |   |

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|                                   |     | Period Ending |     |
|----------------------------------------|----------|---------------|----------|
| Index                                  | 12/31/05 | 12/31/06      | 12/31/07 | 12/31/08 | 12/31/09 | 12/31/10 |
| Village Bank and Trust Financial Corp. | 100.00   | 110.51        | 83.27    | 35.02 | 18.15 | 11.60 |
| NASDAQ Composite                       | 100.00   | 110.39        | 122.15   | 73.32 | 106.57 | 125.91 |
| SNL Bank $250M-$500M                   | 100.00   | 104.48        | 84.92    | 48.50 | 44.89 | 50.24 |
| SNL Bank $500M-$1B                     | 100.00   | 113.73        | 91.14    | 58.40 | 55.62 | 60.72 |
|                                   |     |          |     |   |   |   |

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ITEM 6.       SELECTED FINANCIAL DATA

|                                                                                                                                     |   | Year Ended December 31, |        |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-------------|
|                                                                                                                                     |   | 2010                    |        |   | 2009(1) |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Balance Sheet Data                                                                                                                       |   |                    |        |   |   |   |   |   |   |   |   |   |   |   |   |
| At year-end                                                                                                                              |   |                    |        |   |   |   |   |   |   |   |   |   |   |   |   |
| Assets                                                                                                                                   |   | $                       | 591,779,215 |   |   | $ | 601,993,355 |   |   | $ | 572,407,993 |   |   | $ | 393,263,999 |   |   | $ | 291,217,760 |   |
| Loans, net of unearned income                                                                                                            |   |                    | 453,866,801 |   |   |   | 467,568,547 |   |   |   | 470,722,286 |   |   |   | 327,343,013 |   |   |   | 241,051,025 |   |
| Investment securities                                                                                                                    |   |                    | 53,597,174  |   |   |   | 54,857,211 |   |   |   | 24,300,962 |   |   |   | 13,711,399 |   |   |   | 12,787,644 |   |
| Goodwill                                                                                                                                 |   |                    | -           |   |   |   | - |   |   |   | 7,422,141 |   |   |   | 689,108 |   |   |   | 689,108 |   |
| Deposits                                                                                                                                 |   |                    | 499,012,193 |   |   |   | 498,285,124 |   |   |   | 466,232,043 |   |   |   | 339,297,258 |   |   |   | 253,309,881 |   |
| Borrowings                                                                                                                               |   |                    | 41,679,430  |   |   |   | 52,593,521 |   |   |   | 57,726,898 |   |   |   | 24,736,569 |   |   |   | 9,859,265 |   |
| Stockholders' equity                                                                                                                     |   |                    | 48,320,194  |   |   |   | 47,848,091 |   |   |   | 46,162,574 |   |   |   | 26,893,299 |   |   |   | 25,644,115 |   |
| Number of shares outstanding                                                                                                             |   |                    | 4,238,416   |   |   |   | 4,230,628 |   |   |   | 4,229,372 |   |   |   | 2,575,985 |   |   |   | 2,562,088 |   |
|                                                                                                                                     |   |                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average for the year                                                                                                                     |   |                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Assets                                                                                                                                   |   |                    | 603,760,108 |   |   |   | 600,034,107 |   |   |   | 442,604,327 |   |   |   | 337,750,179 |   |   |   | 246,562,178 |   |
| Stockholders' equity                                                                                                                     |   |                    | 49,801,210  |   |   |   | 56,089,455 |   |   |   | 31,067,165 |   |   |   | 27,798,307 |   |   |   | 22,278,897 |   |
| Weighted average shares outstanding                                                                                                      |   |                    | 4,237,735   |   |   |   | 4,230,462 |   |   |   | 3,013,175 |   |   |   | 2,569,529 |   |   |   | 2,269,092 |   |
|                                                                                                                                     |   |                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income Statement Data                                                                                                                    |   |                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                                                                                          |   | $                       | 30,181,838  |   |   | $ | 33,195,973 |   |   | $ | 29,072,146 |   |   | $ | 25,665,235 |   |   | $ | 19,019,111 |   |
| Interest expense                                                                                                                         |   |                    | 10,885,413  |   |   |   | 16,407,679 |   |   |   | 15,969,783 |   |   |   | 13,806,715 |   |   |   | 8,786,600 |   |
| Net interest income                                                                                                                      |   |                    | 19,296,425  |   |   |   | 16,788,294 |   |   |   | 13,102,363 |   |   |   | 11,858,520 |   |   |   | 10,232,511 |   |
| Provision for loan losses                                                                                                                |   |                    | 4,842,000   |   |   |   | 13,220,000 |   |   |   | 2,005,633 |   |   |   | 1,187,482 |   |   |   | 796,006 |   |
| Noninterest income                                                                                                                       |   |                    | 10,990,667  |   |   |   | 8,285,100 |   |   |   | 4,184,727 |   |   |   | 2,666,956 |   |   |   | 2,482,793 |   |
| Goodwill impairment                                                                                                                      |   |                    | -           |   |   |   | 7,422,141 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Noninterest expense                                                                                                                      |   |                    | 23,303,156  |   |   |   | 20,915,735 |   |   |   | 14,572,271 |   |   |   | 11,821,232 |   |   |   | 9,817,089 |   |
| Income tax expense (benefit)                                                                                                             |   |                    | 711,627     |   |   |   | (3,879,386 | ) |   |   | 241,097 |   |   |   | 515,699 |   |   |   | 702,990 |   |
| Net income (loss)                                                                                                                        |   |                    | 1,430,309   |   |   |   | (12,605,096 | ) |   |   | 468,089 |   |   |   | 1,001,063 |   |   |   | 1,399,219 |   |
| Preferred stock dividends and                                                                                                            |   |                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| amortization of discount                                                                                                                 |   |                    | 881,402     |   |   |   | 590,151 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Net income (loss) available to                                                                                                           |   |                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| common shareholders                                                                                                                      |   | $                       | 548,907     |   |   | $ | (13,195,247 | ) |   | $ | 468,089 |   |   | $ | 1,001,063 |   |   | $ | 1,399,219 |   |
|                                                                                                                                     |   |                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per Share Data                                                                                                                           |   |                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per share - basic                                                                                                        |   | $                       | 0.13        |   |   | $ | (3.12 | ) |   | $ | 0.16 |   |   | $ | 0.39 |   |   | $ | 0.62 |   |
| Earnings (loss) per share - diluted                                                                                                      |   | $                       | 0.13        |   |   | $ | (3.12 | ) |   | $ | 0.16 |   |   | $ | 0.37 |   |   | $ | 0.59 |   |
| Book value at year-end                                                                                                                   |   | $                       | 7.87        |   |   | $ | 7.81 |   |   | $ | 10.91 |   |   | $ | 10.44 |   |   | $ | 10.01 |   |
|                                                                                                                                     |   |                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Performance Ratios                                                                                                                       |   |                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return on average assets                                                                                                                 |   |                    | 0.24        | % |   |   | (2.10 | )% |   |   | 0.11 | % |   |   | 0.30 | % |   |   | 0.57 | % |
| Return on average equity                                                                                                                 |   |                    | 2.87        | % |   |   | (22.47 | )% |   |   | 1.51 | % |   |   | 3.60 | % |   |   | 6.28 | % |
| Net interest margin(2)                                                                                                                   |   |                    | 3.57        | % |   |   | 3.13 | % |   |   | 3.27 | % |   |   | 3.80 | % |   |   | 4.48 | % |
| Efficiency(3)                                                                                                                            |   |                    | 76.94       | % |   |   | 83.42 | % |   |   | 84.30 | % |   |   | 81.38 | % |   |   | 77.21 | % |
| Loans to deposits                                                                                                                        |   |                    | 90.95       | % |   |   | 93.84 | % |   |   | 100.96 | % |   |   | 96.48 | % |   |   | 95.16 | % |
| Equity to assets                                                                                                                         |   |                    | 8.17        | % |   |   | 7.95 | % |   |   | 8.06 | % |   |   | 6.84 | % |   |   | 8.81 | % |
|                                                                                                                                     |   |                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Asset Quality Ratios                                                                                                                     |   |                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ALLL to loans at year-end                                                                                                                |   |                    | 1.61        | % |   |   | 2.25 | % |   |   | 1.29 | % |   |   | 1.06 | % |   |   | 1.06 | % |
| ALLL to nonaccrual loans                                                                                                                 |   |                    | 35.98       | % |   |   | 40.61 | % |   |   | 71.05 | % |   |   | 134.20 | % |   |   | 91.12 | % |
| Nonperforming assets to total assets                                                                                                     |   |                    | 5.47        | % |   |   | 6.17 | % |   |   | 2.00 | % |   |   | 0.73 | % |   |   | 0.96 | % |
| Nonperforming loans to total loans                                                                                                       |   |                    | 7.13        | % |   |   | 7.95 | % |   |   | 2.43 | % |   |   | 0.87 | % |   |   | 1.16 | % |
| Net charge-offs to average loans                                                                                                         |   |                    | 1.74        | % |   |   | 1.83 | % |   |   | 0.49 | % |   |   | 0.10 | % |   |   | 0.08 | % |
|                                                                                                                                     |   |                    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) Certain December 31, 2009 amounts have been revised. See Note 2 to the consolidated financial statements.                       |   |
| (2) Net interest margin is computed by dividing net interest income for the period by average interest earning assets.                   |   |
| (3) Efficiency ratio is computed by dividing noninterest expense by the sum of net interest income and noninterest income. The |   |
| goodwill impairment write-off is excluded in 2009 from noninterest expense.                                                              |   |

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ITEM 7.             MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

|   | · | the risks of changes in interest rates on levels, composition and costs of deposits, loan demand, and the values and liquidity of loan collateral, securities, and interest sensitive assets and liabilities; |
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|   | · | changes in assumptions underlying the establishment of allowances for loan losses, and other estimates; |
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|   | · | changes in market conditions, specifically declines in the residential and commercial real estate market, volatility and disruption of the capital and credit markets, soundness of other financial institutions we do business with; |
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|   | · | risks inherent in making loans such as repayment risks and fluctuating collateral values; |
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|   | · | changes in operations of Village Bank Mortgage Corporation as a result of the activity in the residential real estate market; |
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|   | · | legislative and regulatory changes, including the Financial Reform Act and other changes in banking, securities, and tax laws and regulations and their application by our regulators, and changes in scope and cost of FDIC insurance and other coverages; |
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|   | · | exposure to repurchase loans sold to investors for which borrowers failed to provide full and accurate information on or related to their loan application or for which appraisals have not been acceptable or when the loan was not underwritten in accordance with the loan program specified by the loan investor; |
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|   | · | the effects of future economic, business and market conditions; |
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|   | · | governmental monetary and fiscal policies; |
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|   | · | changes in accounting policies, rules and practices; |
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|   | · | maintaining capital levels adequate to remain well capitalized; |
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|   | · | reliance on our management team, including our ability to attract and retain key personnel; |
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|   | · | competition with other banks and financial institutions, and companies outside of the banking industry, including those companies that have substantially greater access to capital and other resources; |
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|   | · | demand, development and acceptance of new products and services; |
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|   | · | problems with technology utilized by us; |
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|   | · | changing trends in customer profiles and behavior; and |
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|   | · | other factors described from time to time in our reports filed with the SEC. |
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|   | · | The economy would remain depressed and, as this continued to have an effect on our borrowers, we could see an increase in nonperforming assets. |
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|   | · | Loan demand would not be strong. |
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|   | · | Interest rates would remain at historic lows. |
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|   | · | It would be very difficult for us to access the capital markets to increase our capital. |
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|   | · | Our total assets at year-end 2010 amounted to $591,779,000, a $10,214,000 decline from total assets of $601,993,000 at the end of 2009.  In addition, as loan demand remained weak, we were able to restructure the make-up of our assets to lower risk-weighted assets for regulatory purposes thereby improving our total risk-weighted asset ratio for the Bank from 11.29% at the end of 2009 to 12.11% at the end of 2010.  We lowered our risk-weighted assets primarily by purchasing investment securities with risk weightings of 0% or 20%. |
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|   | · | As expected, nonperforming assets increased in the first half of 2010 as the economy remained depressed, reaching a high of $45,329,000, or 7.5% of total assets, at May 31, 2010 from $37,192,000, or 6.2% of total assets, at December 31, 2009.  However, as a result of our focus on managing nonperforming assets, we were able to reduce their amount |
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|   | to $32,352,000, or 5.5% of total assets, at December 31, 2010. |
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|   | · | The cost of funds declined from 3.27% for 2009 to 2.15% for 2010 resulting in an improvement in our net interest margin from 3.13% for 2009 to 3.57% for 2010.  The decline in our cost of funds was a result of being able to reprice maturing long term certificates of deposit at the low interest rates in 2010. |
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|                      |   | 2009   |       |   | 2008   |   |      | Increase |   |
|---------------------------|--------|--------|------------|--------|--------|--------|-----------|----------|--------|
|                      |   |   |       |   |   |   |      |     |   |
| Provision for loan losses |   | $      | 13,220,000 |   |   | $      | 2,005,633 |     |   | $ | 11,214,367 |   |
| Goodwill impairment       |   |   | 7,422,141  |   |   |   | -         |     |   |   | 7,422,141 |   |
| Expenses related to       |   |   |       |   |   |   |      |     |   |   |   |   |
| foreclosed real estate    |   |   | 1,475,338  |   |   |   | 165,455   |     |   |   | 1,309,883 |   |
| FDIC insurance premium    |   |   | 1,366,612  |   |   |   | 400,394   |     |   |   | 966,218 |   |
|                      |   |   |       |   |   |   |      |     |   |   |   |   |
|                      |   |   |       |   |   |   |      |     |   | $ | 20,912,609 |   |

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| Average Balance Sheets             |   |
|------------------------------------|--------|
| (In thousands)                     |   |
|                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                               |   | Year Ended December 31, 2010 |   |   | Year Ended December 31, 2009 |   |   | Year Ended December 31, 2008 |   |
|                               |   |   |   |   | Interest |   |   |   |   |   |   |   |   | Interest |   |   |   |   |   |   |   |   | Interest |   |   |   |   |
|                               |   | Average |   |   | Income/ |   |   | Yield |   |   | Average |   |   | Income/ |   |   | Yield |   |   | Average |   |   | Income/ |   |   | Yield |   |
|                               |   | Balance |   |   | Expense |   |   | Rate |   |   | Balance |   |   | Expense |   |   | Rate |   |   | Balance |   |   | Expense |   |   | Rate |   |
| Loans                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                         |   | $ | 35,214 |   |   | $ | 2,235 |   |   |   | 6.35 | % |   | $ | 47,607 |   |   | $ | 2,959 |   |   |   | 6.22 | % |   | $ | 39,275 |   |   | $ | 2,034 |   |   |   | 5.18 | % |
| Real estate - residential          |   |   | 97,533 |   |   |   | 6,522 |   |   |   | 6.69 | % |   |   | 89,386 |   |   |   | 5,802 |   |   |   | 6.49 | % |   |   | 61,416 |   |   |   | 5,291 |   |   |   | 8.62 | % |
| Real estate - commercial           |   |   | 253,409 |   |   |   | 16,111 |   |   |   | 6.36 | % |   |   | 230,621 |   |   |   | 15,591 |   |   |   | 6.76 | % |   |   | 160,019 |   |   |   | 10,968 |   |   |   | 6.85 | % |
| Real estate - construction         |   |   | 66,222 |   |   |   | 2,593 |   |   |   | 3.92 | % |   |   | 99,103 |   |   |   | 6,038 |   |   |   | 6.09 | % |   |   | 105,732 |   |   |   | 8,965 |   |   |   | 8.48 | % |
| Consumer                           |   |   | 10,987 |   |   |   | 786 |   |   |   | 7.15 | % |   |   | 10,642 |   |   |   | 788 |   |   |   | 7.40 | % |   |   | 7,779 |   |   |   | 657 |   |   |   | 8.45 | % |
| Gross loans                        |   |   | 463,365 |   |   |   | 28,247 |   |   |   | 6.10 | % |   |   | 477,359 |   |   |   | 31,178 |   |   |   | 6.53 | % |   |   | 374,221 |   |   |   | 27,915 |   |   |   | 7.46 | % |
| Investment securities              |   |   | 36,066 |   |   |   | 1,087 |   |   |   | 3.01 | % |   |   | 33,174 |   |   |   | 1,458 |   |   |   | 4.40 | % |   |   | 12,125 |   |   |   | 699 |   |   |   | 5.76 | % |
| Loans held for sale                |   |   | 16,820 |   |   |   | 793 |   |   |   | 4.71 | % |   |   | 10,305 |   |   |   | 533 |   |   |   | 5.17 | % |   |   | 3,721 |   |   |   | 225 |   |   |   | 6.05 | % |
| Federal funds and other            |   |   | 24,157 |   |   |   | 55 |   |   |   | 0.23 | % |   |   | 15,034 |   |   |   | 27 |   |   |   | 0.18 | % |   |   | 10,455 |   |   |   | 233 |   |   |   | 2.23 | % |
| Total interest earning assets      |   |   | 540,408 |   |   |   | 30,182 |   |   |   | 5.59 | % |   |   | 535,872 |   |   |   | 33,196 |   |   |   | 6.19 | % |   |   | 400,522 |   |   |   | 29,072 |   |   |   | 7.26 | % |
| Allowance for loan losses          |   |   | (9,722 | ) |   |   |   |   |   |   |   |   |   |   | (8,367 | ) |   |   |   |   |   |   |   |   |   |   | (4,309 | ) |   |   |   |   |   |   |   |   |
| Cash and due from banks            |   |   | 13,103 |   |   |   |   |   |   |   |   |   |   |   | 15,998 |   |   |   |   |   |   |   |   |   |   |   | 8,179 |   |   |   |   |   |   |   |   |   |
| Premises and equipment, net        |   |   | 27,630 |   |   |   |   |   |   |   |   |   |   |   | 27,880 |   |   |   |   |   |   |   |   |   |   |   | 23,951 |   |   |   |   |   |   |   |   |   |
| Other assets                       |   |   | 32,341 |   |   |   |   |   |   |   |   |   |   |   | 28,651 |   |   |   |   |   |   |   |   |   |   |   | 14,261 |   |   |   |   |   |   |   |   |   |
| Total assets                       |   | $ | 603,760 |   |   |   |   |   |   |   |   |   |   | $ | 600,034 |   |   |   |   |   |   |   |   |   |   | $ | 442,604 |   |   |   |   |   |   |   |   |   |
|                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing deposits          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest checking                  |   |   | 34,521 |   |   |   | 336 |   |   |   | 0.97 | % |   |   | 26,530 |   |   |   | 443 |   |   |   | 1.67 | % |   | $ | 12,735 |   |   | $ | 159 |   |   |   | 1.25 | % |
| Money market                       |   |   | 98,762 |   |   |   | 1,077 |   |   |   | 1.09 | % |   |   | 69,267 |   |   |   | 1,242 |   |   |   | 1.79 | % |   |   | 28,215 |   |   |   | 561 |   |   |   | 1.99 | % |
| Savings                            |   |   | 10,081 |   |   |   | 80 |   |   |   | 0.79 | % |   |   | 7,009 |   |   |   | 85 |   |   |   | 1.21 | % |   |   | 6,891 |   |   |   | 193 |   |   |   | 2.80 | % |
| Certificates                       |   |   | 315,205 |   |   |   | 7,604 |   |   |   | 2.41 | % |   |   | 347,698 |   |   |   | 12,664 |   |   |   | 3.64 | % |   |   | 291,629 |   |   |   | 13,435 |   |   |   | 4.61 | % |
| Total deposits                     |   |   | 458,569 |   |   |   | 9,097 |   |   |   | 1.98 | % |   |   | 450,504 |   |   |   | 14,434 |   |   |   | 3.20 | % |   |   | 339,470 |   |   |   | 14,348 |   |   |   | 4.23 | % |
| Borrowings                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-tern debt - trust             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| preferred securities               |   |   | 8,764 |   |   |   | 346 |   |   |   | 3.95 | % |   |   | 8,764 |   |   |   | 392 |   |   |   | 4.47 | % |   |   | 8,764 |   |   |   | 508 |   |   |   | 5.80 | % |
| FHLB advances                      |   |   | 28,425 |   |   |   | 864 |   |   |   | 4.22 | % |   |   | 26,348 |   |   |   | 970 |   |   |   | 4.22 | % |   |   | 20,620 |   |   |   | 834 |   |   |   | 4.22 | % |
| Other borrowings                   |   |   | 11,473 |   |   |   | 578 |   |   |   | 1.77 | % |   |   | 16,337 |   |   |   | 612 |   |   |   | 1.77 | % |   |   | 13,034 |   |   |   | 280 |   |   |   | 1.77 | % |
| Total interest bearing liabilities |   |   | 507,231 |   |   |   | 10,885 |   |   |   | 2.15 | % |   |   | 501,953 |   |   |   | 16,408 |   |   |   | 3.27 | % |   |   | 381,888 |   |   |   | 15,970 |   |   |   | 4.18 | % |
| Noninterest bearing deposits       |   |   | 44,495 |   |   |   |   |   |   |   |   |   |   |   | 39,626 |   |   |   |   |   |   |   |   |   |   |   | 27,657 |   |   |   |   |   |   |   |   |   |
| Other liabilities                  |   |   | 2,233 |   |   |   |   |   |   |   |   |   |   |   | 2,366 |   |   |   |   |   |   |   |   |   |   |   | 1,992 |   |   |   |   |   |   |   |   |   |
| Total liabilities                  |   |   | 553,959 |   |   |   |   |   |   |   |   |   |   |   | 543,945 |   |   |   |   |   |   |   |   |   |   |   | 411,537 |   |   |   |   |   |   |   |   |   |
| Equity capital                     |   |   | 49,801 |   |   |   |   |   |   |   |   |   |   |   | 56,089 |   |   |   |   |   |   |   |   |   |   |   | 31,067 |   |   |   |   |   |   |   |   |   |
| Total liabilities and capital      |   | $ | 603,760 |   |   |   |   |   |   |   |   |   |   | $ | 600,034 |   |   |   |   |   |   |   |   |   |   | $ | 442,604 |   |   |   |   |   |   |   |   |   |
|                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income before         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| provision for loan losses          |   |   |   |   |   | $ | 19,297 |   |   |   |   |   |   |   |   |   |   | $ | 16,788 |   |   |   |   |   |   |   |   |   |   | $ | 13,102 |   |   |   |   |   |
| Interest spread - average yield    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| on interest earning assets,        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| less average rate on               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest bearing liabilities       |   |   |   |   |   |   |   |   |   |   | 3.44 | % |   |   |   |   |   |   |   |   |   |   | 2.93 | % |   |   |   |   |   |   |   |   |   |   | 3.08 | % |
| Net interest margin                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (net interest income               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| expressed as a percentage          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| of average earning assets)         |   |   |   |   |   |   |   |   |   |   | 3.57 | % |   |   |   |   |   |   |   |   |   |   | 3.13 | % |   |   |   |   |   |   |   |   |   |   | 3.27 | % |

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| Rate/Volume Analysis                                                                          |   |
|-----------------------------------------------------------------------------------------------|--------|
| (In thousands)                                                                                |   |
|                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                          |   | 2010 vs. 2009 |   |   | 2009 vs. 2008 |   |
|                                                                                          |   | Increase (Decrease) |   |   | Increase (Decrease) |   |
|                                                                                          |   | Due to Changes in |   |   | Due to Changes in |   |
|                                                                                          |   | Volume |   |   | Rate |   |   | Total |   |   | Volume |   |   | Rate |   |   | Total |   |
| Interest income                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                                                         |   | $ | (291 | ) |   | $ | (2,380 | ) |   | $ | (2,671 | ) |   | $ | 6,333 |   |   | $ | (2,762 | ) |   | $ | 3,571 |   |
| Investment securities                                                                         |   |   | 142 |   |   |   | (513 | ) |   |   | (371 | ) |   |   | 879 |   |   |   | (120 | ) |   |   | 759 |   |
| Fed funds sold and other                                                                      |   |   | 19 |   |   |   | 9 |   |   |   | 28 |   |   |   | 187 |   |   |   | (393 | ) |   |   | (206 | ) |
| Total interest income                                                                         |   |   | (130 | ) |   |   | (2,884 | ) |   |   | (3,014 | ) |   |   | 7,399 |   |   |   | (3,275 | ) |   |   | 4,124 |   |
|                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest checking                                                                             |   |   | 279 |   |   |   | (385 | ) |   |   | (106 | ) |   |   | 217 |   |   |   | 66 |   |   |   | 283 |   |
| Money market accounts                                                                         |   |   | (2,066 | ) |   |   | 1,902 |   |   |   | (164 | ) |   |   | 731 |   |   |   | (48 | ) |   |   | 683 |   |
| Savings accounts                                                                              |   |   | (24 | ) |   |   | 19 |   |   |   | (5 | ) |   |   | 3 |   |   |   | (110 | ) |   |   | (107 | ) |
| Certificates of deposit                                                                       |   |   | (1,097 | ) |   |   | (3,965 | ) |   |   | (5,062 | ) |   |   | 8,613 |   |   |   | (9,386 | ) |   |   | (773 | ) |
| Total deposits                                                                                |   |   | (2,908 | ) |   |   | (2,429 | ) |   |   | (5,337 | ) |   |   | 9,564 |   |   |   | (9,478 | ) |   |   | 86 |   |
| Borrowings                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term debt                                                                                |   |   | - |   |   |   | (46 | ) |   |   | (46 | ) |   |   | - |   |   |   | (116 | ) |   |   | (116 | ) |
| FHLB Advances                                                                                 |   |   | 87 |   |   |   | (193 | ) |   |   | (106 | ) |   |   | 201 |   |   |   | (65 | ) |   |   | 136 |   |
| Other borrowings                                                                              |   |   | (34 | ) |   |   | - |   |   |   | (34 | ) |   |   | 332 |   |   |   | - |   |   |   | 332 |   |
| Total interest expense                                                                        |   |   | (2,854 | ) |   |   | (2,668 | ) |   |   | (5,523 | ) |   |   | 10,097 |   |   |   | (9,659 | ) |   |   | 438 |   |
|                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                                           |   | $ | 2,725 |   |   | $ | (216 | ) |   | $ | 2,509 |   |   | $ | (2,698 | ) |   | $ | 6,384 |   |   | $ | 3,686 |   |
|                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Note: the combined effect on interest due to changes in both volume and rate, which cannot be |   |
| separately identified, has been allocated proportionately to the change due to volume         |   |
| and the change due to rate.                                                                   |   |

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| Investment Securities Available-for-Sale |
|------------------------------------------|
| (Dollars in thousands)                   |
|                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                        |   |   |   |   |      |   |   | Unrealized |   |   | Estimated |   |   |    |   |
|-----------------------------|--------|--------|--------|--------|-----------|--------|--------|------------|--------|--------|-----------|--------|--------|---------|--------|
|                        |   | Par    |   |   | Amortized |   |   | Gain       |   |   | Fair      |   |   | Average |   |
|                        |   | Value  |   |   | Cost      |   |   | (Loss)     |   |   | Value     |   |   | Yield   |   |
| December 31, 2010           |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |
| US Treasuries               |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |
| One to five years           |   | $      | 28,000 |   |      | $      | 28,017 |       |   | $      | -         |   |   | $       | 28,017 |   |   |   | 0.22 | % |
|                        |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| US Government Agencies      |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| Five to ten years           |   |   | 3,000  |   |      |   | 3,000  |       |   |   | (111      | )      |   |    | 2,889  |   |   |   | 2.00 | % |
|                        |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| Mortgage-backed securities  |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| One to five years           |   |   | 686    |   |      |   | 703    |       |   |   | 21        |   |   |    | 724    |   |   |   | 4.90 | % |
| More than ten years         |   |   | 14,410 |   |      |   | 14,796 |       |   |   | 33        |   |   |    | 14,829 |   |   |   | 2.86 | % |
| Total                       |   |   | 15,096 |   |      |   | 15,499 |       |   |   | 54        |   |   |    | 15,553 |   |   |   | 5.39 | % |
|                        |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| Municipals                  |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| More than ten years         |   |   | 6,000  |   |      |   | 6,060  |       |   |   | (337      | )      |   |    | 5,723  |   |   |   | 4.69 | % |
|                        |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| Other investments           |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| More than ten years         |   |   | 1,418  |   |      |   | 1,418  |       |   |   | (3        | )      |   |    | 1,415  |   |   |   | 0.69 | % |
|                        |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| Total investment securities |   | $      | 53,514 |   |      | $      | 53,994 |       |   | $      | (397      | )      |   | $       | 53,597 |   |   |   | 2.31 | % |

|                        |   |   |   |   |      |   |   | Unrealized |   |   | Estimated |   |   |    |   |
|-----------------------------|--------|--------|--------|--------|-----------|--------|--------|------------|--------|--------|-----------|--------|--------|---------|--------|
|                        |   | Par    |   |   | Amortized |   |   | Gain       |   |   | Fair      |   |   | Average |   |
|                        |   | Value  |   |   | Cost      |   |   | (Loss)     |   |   | Value     |   |   | Yield   |   |
| December 31, 2009           |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |
| US Government Agencies      |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |
| One to five years           |   | $      | 9,000  |   |      | $      | 9,315  |       |   | $      | (66       | )      |   | $       | 9,249  |   |   |   | 2.32 | % |
| Five to ten years           |   |   | 3,000  |   |      |   | 3,029  |       |   |   | 32        |   |   |    | 3,061  |   |   |   | 4.50 | % |
| More than ten years         |   |   | 34,250 |   |      |   | 35,284 |       |   |   | 75        |   |   |    | 35,359 |   |   |   | 5.22 | % |
| Total                       |   |   | 46,250 |   |      |   | 47,628 |       |   |   | 41        |   |   |    | 47,669 |   |   |   | 4.61 | % |
|                        |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| Mortgage-backed securities  |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| One to five years           |   |   | 389    |   |      |   | 435    |       |   |   | (37       | )      |   |    | 398    |   |   |   | 4.40 | % |
| Five to ten years           |   |   | 471    |   |      |   | 471    |       |   |   | 29        |   |   |    | 500    |   |   |   | 5.24 | % |
| More than ten years         |   |   | 3,141  |   |      |   | 3,227  |       |   |   | 53        |   |   |    | 3,280  |   |   |   | 5.53 | % |
| Total                       |   |   | 4,001  |   |      |   | 4,133  |       |   |   | 45        |   |   |    | 4,178  |   |   |   | 5.39 | % |
|                        |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| Municipals                  |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| More than ten years         |   |   | 1,000  |   |      |   | 1,026  |       |   |   | 1         |   |   |    | 1,027  |   |   |   | 5.28 | % |
|                        |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| Other investments           |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| More than five years        |   |   | 2,000  |   |      |   | 1,973  |       |   |   | 10        |   |   |    | 1,983  |   |   |   | 5.65 | % |
|                        |   |   |   |   |      |   |   |       |   |   |      |   |   |    |   |   |   |   |   |   |
| Total investment securities |   | $      | 53,251 |   |      | $      | 54,760 |       |   | $      | 97        |   |   | $       | 54,857 |   |   |   | 4.72 | % |

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Table of Contents

| Loan Portfolio, Net                        |   |
|--------------------------------------------|--------|
| (In thousands)                             |   |
|                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       |   | December 31, |   |
|                                       |   | 2010 |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                 |   | $ | 31,706 |   |   | $ | 39,576 |   |   | $ | 52,438 |   |   | $ | 23,152 |   |   | $ | 17,889 |   |
| Real estate - residential                  |   |   | 103,386 |   |   |   | 93,657 |   |   |   | 84,612 |   |   |   | 51,281 |   |   |   | 36,408 |   |
| Real estate - commercial                   |   |   | 261,517 |   |   |   | 240,830 |   |   |   | 220,400 |   |   |   | 140,176 |   |   |   | 100,039 |   |
| Real estate - construction                 |   |   | 45,220 |   |   |   | 81,688 |   |   |   | 103,161 |   |   |   | 106,556 |   |   |   | 80,324 |   |
| Consumer                                   |   |   | 11,414 |   |   |   | 11,609 |   |   |   | 10,307 |   |   |   | 6,611 |   |   |   | 6,730 |   |
|                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans                                |   |   | 453,243 |   |   |   | 467,360 |   |   |   | 470,918 |   |   |   | 327,776 |   |   |   | 241,390 |   |
| Deferred loan cost (unearned               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| income), net                               |   |   | 624 |   |   |   | 209 |   |   |   | (196 | ) |   |   | (433 | ) |   |   | (339 | ) |
| Less:  Allowance for loan losses |   |   | (7,312 | ) |   |   | (10,522 | ) |   |   | (6,059 | ) |   |   | (3,469 | ) |   |   | (2,553 | ) |
|                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans, net                           |   | $ | 446,555 |   |   | $ | 457,047 |   |   | $ | 464,663 |   |   | $ | 323,874 |   |   | $ | 238,498 |   |

| Maturities of Selected Loans |   |
|------------------------------|--------|
| December 31, 2010            |   |
| (In thousands)               |   |
|                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                         |   |   |   |   | Fixed Rate |   |   | Variable Rate |   |   |   |   |
|                         |   | Within |   |   | 1 to 5 |   |   | After |   |   |   |   |   | 1 to 5 |   |   | After |   |   |   |   |   | Total |   |
|                         |   | 1 Year |   |   | Years |   |   | 5 Years |   |   | Total |   |   | Years |   |   | 5 Years |   |   | Total |   |   | Maturities |   |
|                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                   |   | $ | 9,814 |   |   | $ | 14,680 |   |   | $ | 6,883 |   |   | $ | 21,563 |   |   | $ | 329 |   |   | $ | - |   |   | $ | 329 |   |   | $ | 31,706 |   |
| Real estate                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                  |   |   | 61,141 |   |   |   | 8,768 |   |   |   | 32,145 |   |   |   | 40,913 |   |   |   | 1,204 |   |   |   | 128 |   |   |   | 1,332 |   |   |   | 103,386 |   |
| Commercial                   |   |   | 41,112 |   |   |   | 68,205 |   |   |   | 113,689 |   |   |   | 181,894 |   |   |   | 30,146 |   |   |   | 8,365 |   |   |   | 38,511 |   |   |   | 261,517 |   |
| Construction                 |   |   | 15,155 |   |   |   | 20,781 |   |   |   | 7,944 |   |   |   | 28,725 |   |   |   | 1,340 |   |   |   | - |   |   |   | 1,340 |   |   |   | 45,220 |   |

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Table of Contents

| Analysis of Allowance for Loan Losses     |   |
|-------------------------------------------|--------|
| (In thousands)                            |   |
|                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                      |   | Year Ended December 31, |   |
|                                      |   | 2010 |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beginning balance                         |   | $ | 10,522 |   |   | $ | 6,059 |   |   | $ | 3,469 |   |   | $ | 2,553 |   |   | $ | 1,931 |   |
| Provision for loan losses                 |   |   | 4,842 |   |   |   | 13,220 |   |   |   | 2,006 |   |   |   | 1,187 |   |   |   | 796 |   |
| Charge-offs                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial                 |   |   | (183 | ) |   |   | (1,273 | ) |   |   | (468 | ) |   |   | (31 | ) |   |   | (183 | ) |
| Real estate - residential                 |   |   | (106 | ) |   |   | - |   |   |   | (202 | ) |   |   | (120 | ) |   |   | - |   |
| Real estate - commercial                  |   |   | (2,979 | ) |   |   | (783 | ) |   |   | (96 | ) |   |   | - |   |   |   | - |   |
| Real estate - construction                |   |   | (4,892 | ) |   |   | (5,779 | ) |   |   | (1,475 | ) |   |   | (66 | ) |   |   | - |   |
| Consumer                                  |   |   | (206 | ) |   |   | (932 | ) |   |   | (2 | ) |   |   | (54 | ) |   |   | (72 | ) |
|                                      |   |   | (8,366 | ) |   |   | (8,767 | ) |   |   | (2,243 | ) |   |   | (271 | ) |   |   | (255 | ) |
| Recoveries                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial                 |   |   | 2 |   |   |   | - |   |   |   | 7 |   |   |   | - |   |   |   | - |   |
| Real estate - residential                 |   |   | - |   |   |   | - |   |   |   | 2 |   |   |   | - |   |   |   | - |   |
| Real estate - commercial                  |   |   | 128 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 74 |   |
| Real estate - construction                |   |   | 101 |   |   |   | 3 |   |   |   | 395 |   |   |   | - |   |   |   | - |   |
| Consumer                                  |   |   | 83 |   |   |   | 7 |   |   |   | 19 |   |   |   | - |   |   |   | 7 |   |
|                                      |   |   | 314 |   |   |   | 10 |   |   |   | 423 |   |   |   | - |   |   |   | 81 |   |
| Net charge-offs                           |   |   | (8,052 | ) |   |   | (8,757 | ) |   |   | (1,820 | ) |   |   | (271 | ) |   |   | (174 | ) |
| Acquisition of River City Bank            |   |   | - |   |   |   | - |   |   |   | 2,404 |   |   |   | - |   |   |   | - |   |
|                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance                            |   | $ | 7,312 |   |   | $ | 10,522 |   |   | $ | 6,059 |   |   | $ | 3,469 |   |   | $ | 2,553 |   |
|                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans outstanding at end of year(1)       |   | $ | 453,867 |   |   | $ | 467,569 |   |   | $ | 470,722 |   |   | $ | 327,343 |   |   | $ | 241,051 |   |
| Ratio of allowance for loan losses as     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| a percent of loans outstanding at         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| end of year                               |   |   | 1.61 | % |   |   | 2.25 | % |   |   | 1.29 | % |   |   | 1.06 | % |   |   | 1.06 | % |
|                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average loans outstanding for the year(1) |   | $ | 463,365 |   |   | $ | 477,359 |   |   | $ | 374,221 |   |   | $ | 284,423 |   |   | $ | 205,978 |   |
| Ratio of net charge-offs to average loans |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| outstanding for the year                  |   |   | 1.74 | % |   |   | 1.83 | % |   |   | 0.49 | % |   |   | 0.10 | % |   |   | 0.08 | % |
|                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) Loans are net of unearned income.     |   |

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Table of Contents

| Allocation of the Allowance for Loan Losses |   |
|---------------------------------------------|--------|
| (In thousands)                              |   |
|                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                        |   | December 31, 2010 |   |   | December 31, 2009 |   |   | December 31, 2008 |   |   | December 31, 2007 |   |   | December 31, 2006 |   |
|                                        |   | Total |   |   | % |   |   | Total |   |   | % |   |   | Total |   |   | % |   |   | Total |   |   | % |   |   | Total |   |   | % |   |
|                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                  |   | $ | 819 |   |   |   | 11.2 | % |   | $ | 710 |   |   |   | 6.7 | % |   | $ | 1,664 |   |   |   | 27.5 | % |   | $ | 479 |   |   |   | 13.8 | % |   | $ | 377 |   |   |   | 14.8 | % |
| Real estate                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                 |   |   | 1,090 |   |   |   | 14.9 | % |   |   | 1,515 |   |   |   | 14.4 | % |   |   | 1,142 |   |   |   | 18.8 | % |   |   | 712 |   |   |   | 20.5 | % |   |   | 512 |   |   |   | 20.1 | % |
| Commercial                                  |   |   | 2,899 |   |   |   | 39.6 | % |   |   | 3,500 |   |   |   | 33.3 | % |   |   | 2,166 |   |   |   | 35.7 | % |   |   | 1,204 |   |   |   | 34.7 | % |   |   | 884 |   |   |   | 34.5 | % |
| Construction                                |   |   | 2,265 |   |   |   | 31.0 | % |   |   | 4,442 |   |   |   | 42.2 | % |   |   | 965 |   |   |   | 15.9 | % |   |   | 989 |   |   |   | 28.5 | % |   |   | 694 |   |   |   | 27.2 | % |
| Consumer                                    |   |   | 239 |   |   |   | 3.3 | % |   |   | 355 |   |   |   | 3.4 | % |   |   | 122 |   |   |   | 2.0 | % |   |   | 85 |   |   |   | 2.5 | % |   |   | 86 |   |   |   | 3.4 | % |
|                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                       |   | $ | 7,312 |   |   |   | 100.0 | % |   | $ | 10,522 |   |   |   | 100.0 | % |   | $ | 6,059 |   |   |   | 100.0 | % |   | $ | 3,469 |   |   |   | 100.0 | % |   | $ | 2,553 |   |   |   | 100.0 | % |

----

Table of Contents

| Asset Quality                                   |   |
|-------------------------------------------------|--------|
| (In thousands)                                  |   |
|                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                            |   | December 31, |   |
|                                            |   | 2010 |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonaccrual loans                                |   | $ | 20,324 |   |   | $ | 25,913 |   |   | $ | 8,528 |   |   | $ | 2,585 |   |   | $ | 2,801 |   |
| Foreclosed properties                           |   |   | 12,028 |   |   |   | 11,279 |   |   |   | 2,932 |   |   |   | 270 |   |   |   | - |   |
| Total nonperforming assets                      |   | $ | 32,352 |   |   | $ | 37,192 |   |   | $ | 11,460 |   |   | $ | 2,855 |   |   | $ | 2,801 |   |
|                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Restructured loans                              |   | $ | 21,695 |   |   | $ | 15,289 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
|                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans past due 90 days and still accruing       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (not included in nonaccrual loans above)        |   | $ | 315 |   |   | $ | 4,787 |   |   | $ | 6,197 |   |   | $ | 1,219 |   |   | $ | 6,520 |   |
|                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonperforming assets to loans at end of year(1) |   |   | 7.14 | % |   |   | 7.95 | % |   |   | 2.43 | % |   |   | 0.87 | % |   |   | 1.16 | % |
|                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonperforming assets to total assets            |   |   | 5.47 | % |   |   | 6.17 | % |   |   | 2.00 | % |   |   | 0.73 | % |   |   | 0.96 | % |
|                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses to nonaccrual loans   |   |   | 36.0 | % |   |   | 40.6 | % |   |   | 71.0 | % |   |   | 134.2 | % |   |   | 91.1 | % |
|                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) Loans are net of unearned income.           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| Nonperforming Assets      |   |
|---------------------------|--------|
| (In thousands)            |   |
|                      |   |   |   |   |   |   |   |   |   |
|                      |   | Nonaccrual |   |   | Other Real |   |   |   |   |
|                      |   | Loans |   |   | Estate Owned |   |   | Total |   |
|                      |   |   |   |   |   |   |   |   |   |
| Balance December 31, 2009 |   | $ | 25,913 |   |   | $ | 11,279 |   |   | $ | 37,192 |   |
| Additions, net            |   |   | 10,094 |   |   |   | 481 |   |   |   | 10,575 |   |
| Sales                     |   |   | - |   |   |   | (6,020 | ) |   |   | (6,020 | ) |
| Transfers                 |   |   | (6,717 | ) |   |   | 6,717 |   |   |   | - |   |
| Repayments                |   |   | (600 | ) |   |   | - |   |   |   | (600 | ) |
| Charge-offs               |   |   | (8,366 | ) |   |   | (429 | ) |   |   | (8,795 | ) |
|                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance December 31, 2010 |   | $ | 20,324 |   |   | $ | 12,028 |   |   | $ | 32,352 |   |

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| Deposits                           |   |
|------------------------------------|--------|
| (In thousands)                     |   |
|                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                               |   | December 31, 2010 |   |   | December 31, 2009 |   |   | December 31, 2008 |   |
|                               |   | Amount |   |   | % |   |   | Amount |   |   | % |   |   | Amount |   |   | % |   |
|                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand accounts                    |   | $ | 41,036 |   |   |   | 8.2 | % |   | $ | 38,521 |   |   |   | 7.7 | % |   | $ | 34,483 |   |   |   | 7.4 | % |
| Interest checking accounts         |   |   | 33,292 |   |   |   | 6.7 | % |   |   | 36,441 |   |   |   | 7.3 | % |   |   | 17,427 |   |   |   | 3.7 | % |
| Money market accounts              |   |   | 90,156 |   |   |   | 18.1 | % |   |   | 115,167 |   |   |   | 23.1 | % |   |   | 30,003 |   |   |   | 6.4 | % |
| Savings accounts                   |   |   | 10,538 |   |   |   | 2.1 | % |   |   | 8,901 |   |   |   | 1.8 | % |   |   | 5,388 |   |   |   | 1.2 | % |
| Time deposits of $100,000 and over |   |   | 140,847 |   |   |   | 28.2 | % |   |   | 119,352 |   |   |   | 24.0 | % |   |   | 148,173 |   |   |   | 31.8 | % |
| Other time deposits                |   |   | 183,143 |   |   |   | 36.7 | % |   |   | 179,903 |   |   |   | 36.1 | % |   |   | 230,758 |   |   |   | 49.5 | % |
|                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                              |   | $ | 499,012 |   |   |   | 100.0 | % |   | $ | 498,285 |   |   |   | 100.0 | % |   | $ | 466,232 |   |   |   | 100.0 | % |

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| Average Deposits and Rates Paid     |   |
|-------------------------------------|--------|
| (In thousands)                      |   |
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                |   | Year Ended December 31, |   |
|                                |   | 2010 |   |   | 2009 |   |   | 2008 |   |
| Account Type                        |   | Amount |   |   | Rate |   |   | Amount |   |   | Rate |   |   | Amount |   |   | Rate |   |
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing demand accounts |   | $ | 44,495 |   |   |   |   |   | $ | 39,626 |   |   |   |   |   | $ | 27,657 |   |   |   |   |
| Interest-bearing deposits           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest checking accounts          |   |   | 34,521 |   |   |   | 0.97 | % |   |   | 26,530 |   |   |   | 1.67 | % |   |   | 12,735 |   |   |   | 1.25 | % |
| Money market accounts               |   |   | 98,762 |   |   |   | 1.09 | % |   |   | 69,267 |   |   |   | 1.79 | % |   |   | 28,215 |   |   |   | 1.99 | % |
| Savings accounts                    |   |   | 10,081 |   |   |   | 0.79 | % |   |   | 7,009 |   |   |   | 1.21 | % |   |   | 6,891 |   |   |   | 2.81 | % |
| Time deposits of $100,000 and over  |   |   | 112,260 |   |   |   | 2.50 | % |   |   | 121,440 |   |   |   | 3.72 | % |   |   | 100,840 |   |   |   | 4.90 | % |
| Other time deposits                 |   |   | 202,945 |   |   |   | 2.36 | % |   |   | 226,258 |   |   |   | 3.60 | % |   |   | 190,789 |   |   |   | 4.44 | % |
| Total interest-bearing deposits     |   |   | 458,569 |   |   |   | 1.98 | % |   |   | 450,504 |   |   |   | 3.20 | % |   |   | 339,470 |   |   |   | 4.23 | % |
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total average deposits              |   | $ | 503,064 |   |   |   |   |   |   | $ | 490,130 |   |   |   |   |   |   | $ | 367,127 |   |   |   |   |   |

| Maturities of Time Deposits of $100,000 or More |   |
|-------------------------------------------------|--------|
| (In thousands)                                  |   |
|                                            |   |   |   |
|                                            |   |   |   |
| Due within three months                         |   | $ | 33,120 |   |
| Due after three months through six months       |   |   | 24,259 |   |
| Due after six months through twelve months      |   |   | 26,871 |   |
| Over twelve months                              |   |   | 56,597 |   |
|                                            |   |   |   |   |
|                                            |   | $ | 140,847 |   |

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| Analysis of Capital                    |   |
|----------------------------------------|--------|
| (In thousands)                         |   |
|                                   |   |   |   |   |   |   |   |   |   |
|                                   |   | As of December 31, |   |
|                                   |   | 2010 |   |   | 2009 |   |   | 2008 |   |
|                                   |   |   |   |   |   |   |   |   |   |
| Tier 1 capital                         |   |   |   |   |   |   |   |   |   |
| Preferred stock                        |   | $ | 59 |   |   | $ | 59 |   |   | $ | - |   |
| Common stock                           |   |   | 16,954 |   |   |   | 16,922 |   |   |   | 16,917 |   |
| Additional paid-in capital             |   |   | 40,634 |   |   |   | 40,569 |   |   |   | 25,737 |   |
| Retained earnings (deficit)            |   |   | (9,193 | ) |   |   | (9,741 | ) |   |   | 3,454 |   |
| Warrant Surplus                        |   |   | 732 |   |   |   | 732 |   |   |   | - |   |
| Discount on preferred stock            |   |   | (492 | ) |   |   | (636 | ) |   |   | - |   |
| Qualifying trust preferred securities  |   |   | 8,764 |   |   |   | 8,764 |   |   |   | 8,764 |   |
| Total equity                           |   |   | 57,458 |   |   |   | 56,669 |   |   |   | 54,872 |   |
| Less: goodwill                         |   |   | - |   |   |   | - |   |   |   | (7,422 | ) |
| Total Tier 1 capital                   |   |   | 57,458 |   |   |   | 56,669 |   |   |   | 47,450 |   |
|                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier 2 capital                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses              |   |   | 5,900 |   |   |   | 6,310 |   |   |   | 6,059 |   |
| Total Tier 2 capital                   |   |   | 5,900 |   |   |   | 6,310 |   |   |   | 6,059 |   |
|                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total risk-based capital               |   |   | 63,358 |   |   |   | 62,979 |   |   |   | 53,509 |   |
|                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Risk-weighted assets                   |   | $ | 470,662 |   |   | $ | 501,864 |   |   | $ | 500,689 |   |
|                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average assets                         |   | $ | 596,765 |   |   | $ | 615,184 |   |   | $ | 549,140 |   |
|                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital ratios                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Leverage ratio (Tier 1 capital to      |   |   |   |   |   |   |   |   |   |   |   |   |
| average assets)                        |   |   | 9.63 | % |   |   | 9.21 | % |   |   | 8.40 | % |
| Tier 1 capital to risk-weighted assets |   |   | 12.21 | % |   |   | 11.29 | % |   |   | 9.42 | % |
| Total capital to risk-weighted assets  |   |   | 13.46 | % |   |   | 12.55 | % |   |   | 10.63 | % |
| Equity to total assets                 |   |   | 8.17 | % |   |   | 7.95 | % |   |   | 8.06 | % |

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| Village Bank and Trust Financial Corp.                                                                                                                                                                 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Interest Rate Sensitivity GAP Analysis                                                                                                                                                                 |   |
| December 31, 2010                                                                                                                                                                                      |   |
| (In thousands)                                                                                                                                                                                         |   |
|                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                   |   | Within 3 |   |   | 3 to 6 |   |   | 6 to 12 |   |   | 13 to 36 |   |   | More than |   |   |   |   |
|                                                                                                                                                                                                   |   | Months |   |   | Months |   |   | Months |   |   | Months |   |   | 36 Months |   |   | Total |   |
| Interest Rate Sensitive Assets                                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans(1)                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed rate                                                                                                                                                                                             |   | $ | 23,740 |   |   | $ | 11,784 |   |   | $ | 27,281 |   |   | $ | 39,777 |   |   | $ | 145,107 |   |   | $ | 247,689 |   |
| Variable rate                                                                                                                                                                                          |   |   | 104,804 |   |   |   | 5,940 |   |   |   | 7,929 |   |   |   | 17,299 |   |   |   | 69,582 |   |   |   | 205,554 |   |
| Investment securities                                                                                                                                                                                  |   |   | 25,415 |   |   |   | - |   |   |   | 2,984 |   |   |   | 36 |   |   |   | 25,162 |   |   |   | 53,597 |   |
| Loans held for sale                                                                                                                                                                                    |   |   | 19,872 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 19,872 |   |
| Federal funds sold                                                                                                                                                                                     |   |   | 2,622 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,622 |   |
|                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total rate sensitive assets                                                                                                                                                                            |   |   | 176,453 |   |   |   | 17,724 |   |   |   | 38,194 |   |   |   | 57,112 |   |   |   | 239,851 |   |   |   | 529,334 |   |
| Cumulative rate sensitive assets                                                                                                                                                                       |   |   | 176,453 |   |   |   | 194,177 |   |   |   | 232,371 |   |   |   | 289,483 |   |   |   | 529,334 |   |   |   |   |   |
|                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Rate Sensitive Liabilities                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest checking(2)                                                                                                                                                                                   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 33,292 |   |   |   | - |   |   |   | 33,292 |   |
| Money market accounts                                                                                                                                                                                  |   |   | 90,156 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 90,156 |   |
| Savings(2)                                                                                                                                                                                             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 10,538 |   |   |   | - |   |   |   | 10,538 |   |
| Certificates of deposit                                                                                                                                                                                |   |   | 75,678 |   |   |   | 60,927 |   |   |   | 63,785 |   |   |   | 80,400 |   |   |   | 43,200 |   |   |   | 323,990 |   |
| FHLB advances                                                                                                                                                                                          |   |   | - |   |   |   | 5,000 |   |   |   |   |   |   |   | 15,750 |   |   |   | 8,000 |   |   |   | 28,750 |   |
| Trust Preferred Securities                                                                                                                                                                             |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | 8,764 |   |   |   | 8,764 |   |
| Federal funds purchased                                                                                                                                                                                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Other borrowings                                                                                                                                                                                       |   |   | 4,165 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 4,165 |   |
|                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total rate sensitive liabilities                                                                                                                                                                       |   |   | 169,999 |   |   |   | 65,927 |   |   |   | 63,785 |   |   |   | 139,980 |   |   |   | 59,964 |   |   |   | 499,655 |   |
| Cumulative rate sensitive liabilities                                                                                                                                                                  |   |   | 169,999 |   |   |   | 235,926 |   |   |   | 299,711 |   |   |   | 439,691 |   |   |   | 499,655 |   |   |   |   |   |
|                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rate sensitivity gap for period                                                                                                                                                                        |   | $ | 6,454 |   |   | $ | (48,203 | ) |   | $ | (25,591 | ) |   | $ | (82,868 | ) |   | $ | 179,887 |   |   | $ | 29,679 |   |
| Cumulative rate sensitivity gap                                                                                                                                                                        |   | $ | 6,454 |   |   | $ | (41,749 | ) |   | $ | (67,340 | ) |   | $ | (150,208 | ) |   | $ | 29,679 |   |   |   |   |   |
|                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio of cumulative gap to total assets                                                                                                                                                                |   |   | 1.1 | % |   |   | (7.1 | )% |   |   | (11.4 | )% |   |   | (25.4 | )% |   |   | 5.0 | % |   |   |   |   |
| Ratio of cumulative rate sensitive                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| assets to cumulative rate sensitive                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| liabilities                                                                                                                                                                                            |   |   | 103.8 | % |   |   | 82.3 | % |   |   | 77.5 | % |   |   | 65.8 | % |   |   | 105.9 | % |   |   |   |   |
| Ratio of cumulative gap to cumulative                                                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| rate sensitive assets                                                                                                                                                                                  |   |   | 3.7 | % |   |   | (21.5 | )% |   |   | (29.0 | )% |   |   | (51.9 | )% |   |   | 5.6 | % |   |   |   |   |
|                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) Includes nonaccrual loans of approximately $20,324,000, which are spread throughout the categories.                                                                                                |   |
| (2) Management believes that interest checking and savings accounts are generally not sensitive to changes in interest rates and therefore has placed such deposits in the "13 to 36 months" category. |   |

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ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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| Village Bank and Trust Financial Corp. and Subsidiary                                                            |   |
|------------------------------------------------------------------------------------------------------------------|--------|
| Consolidated Balance Sheets                                                                                      |   |
| December 31, 2010 and 2009                                                                                       |   |
|                                                                                                             |   |   |   |   |   |   |
|                                                                                                             |   |   |   |   |   |   |
|                                                                                                             |   | 2010 |   |   |   | 2009* |   |
| Assets                                                                                                           |   |   |   |   |   |   |   |
| Cash and due from banks                                                                                          |   | $ | 9,390,377 |   |   | $ | 13,884,581 |   |
| Federal funds sold                                                                                               |   |   | 2,621,934 |   |   |   | 6,777,239 |   |
| Total cash and cash equivalents                                                                                  |   |   | 12,012,311 |   |   |   | 20,661,820 |   |
| Investment securities available for sale                                                                         |   |   | 53,597,174 |   |   |   | 54,857,211 |   |
| Loans held for sale                                                                                              |   |   | 19,871,787 |   |   |   | 7,506,252 |   |
| Loans                                                                                                            |   |   |   |   |   |   |   |   |
| Outstanding                                                                                                      |   |   | 453,242,950 |   |   |   | 467,359,664 |   |
| Allowance for loan losses                                                                                        |   |   | (7,311,712 | ) |   |   | (10,521,931 | ) |
| Deferred fees and costs                                                                                          |   |   | 623,851 |   |   |   | 208,883 |   |
|                                                                                                             |   |   | 446,555,089 |   |   |   | 457,046,616 |   |
| Premises and equipment, net                                                                                      |   |   | 27,437,452 |   |   |   | 27,799,084 |   |
| Accrued interest receivable                                                                                      |   |   | 2,347,211 |   |   |   | 3,366,718 |   |
| Bank owned life insurance                                                                                        |   |   | 5,871,765 |   |   |   | 5,431,002 |   |
| Other real estate owned                                                                                          |   |   | 12,028,111 |   |   |   | 11,278,532 |   |
| Other assets                                                                                                     |   |   | 12,058,315 |   |   |   | 14,046,120 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |
|                                                                                                             |   | $ | 591,779,215 |   |   | $ | 601,993,355 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |
| Liabilities and Stockholders' Equity                                                                             |   |   |   |   |   |   |   |   |
| Liabilities                                                                                                      |   |   |   |   |   |   |   |   |
| Deposits                                                                                                         |   |   |   |   |   |   |   |   |
| Noninterest bearing                                                                                              |   | $ | 41,036,262 |   |   | $ | 38,520,878 |   |
| Interest bearing                                                                                                 |   |   | 457,975,931 |   |   |   | 459,764,246 |   |
| Total deposits                                                                                                   |   |   | 499,012,193 |   |   |   | 498,285,124 |   |
| Federal Home Loan Bank advances                                                                                  |   |   | 28,750,000 |   |   |   | 29,000,000 |   |
| Long-term debt - trust preferred securities                                                                      |   |   | 8,764,000 |   |   |   | 8,764,000 |   |
| Other borrowings                                                                                                 |   |   | 4,165,430 |   |   |   | 14,829,521 |   |
| Accrued interest payable                                                                                         |   |   | 404,801 |   |   |   | 501,069 |   |
| Other liabilities                                                                                                |   |   | 2,362,597 |   |   |   | 2,765,550 |   |
| Total liabilities                                                                                                |   |   | 543,459,021 |   |   |   | 554,145,264 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |
| Stockholders' equity                                                                                             |   |   |   |   |   |   |   |   |
| Preferred stock, $4 par value, $1,000 liquidation preference,                                                    |   |   |   |   |   |   |   |   |
|   1,000,000 shares authorized, 14,738 shares issued and outstanding                                    |   |   | 58,952 |   |   |   | 58,952 |   |
| Common stock, $4 par value - 10,000,000 shares authorized;                                                       |   |   |   |   |   |   |   |   |
|   4,238,416 shares issued and outstanding at December 31, 2010                                         |   |   |   |   |   |   |   |   |
|   4,230,628 shares issued and outstanding at December 31, 2009                                         |   |   | 16,953,664 |   |   |   | 16,922,512 |   |
| Additional paid-in capital                                                                                       |   |   | 40,633,581 |   |   |   | 40,568,771 |   |
| Retained earnings (deficit)                                                                                      |   |   | (9,192,552 | ) |   |   | (9,741,459 | ) |
| Common stock warrant                                                                                             |   |   | 732,479 |   |   |   | 732,479 |   |
| Discount on preferred stock                                                                                      |   |   | (492,456 | ) |   |   | (636,959 | ) |
| Accumulated other comprehensive loss                                                                             |   |   | (373,474 | ) |   |   | (56,205 | ) |
| Total stockholders' equity                                                                                       |   |   | 48,320,194 |   |   |   | 47,848,091 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |
|                                                                                                             |   | $ | 591,779,215 |   |   | $ | 601,993,355 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |
| * Certain December 31, 2009 amounts have been revised. See Note 2 to the consolidated financial statements. |   |

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| Village Bank and Trust Financial Corp. and Subsidiary                                                            |   |
|------------------------------------------------------------------------------------------------------------------|--------|
| Consolidated Statements of Income                                                                                |   |
| Years Ended December 31, 2010, 2009 and 2008                                                                     |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |
|                                                                                                             |   | 2010 |   |   |   | 2009* |   |   |   | 2008 |   |
| Interest income                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                                                                            |   | $ | 29,040,137 |   |   | $ | 31,711,644 |   |   | $ | 28,140,129 |   |
| Investment securities                                                                                            |   |   | 1,086,963 |   |   |   | 1,457,694 |   |   |   | 698,790 |   |
| Federal funds sold                                                                                               |   |   | 54,738 |   |   |   | 26,635 |   |   |   | 233,227 |   |
| Total interest income                                                                                            |   |   | 30,181,838 |   |   |   | 33,195,973 |   |   |   | 29,072,146 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                                         |   |   | 9,097,177 |   |   |   | 14,433,943 |   |   |   | 14,348,287 |   |
| Borrowed funds                                                                                                   |   |   | 1,788,236 |   |   |   | 1,973,736 |   |   |   | 1,621,496 |   |
| Total interest expense                                                                                           |   |   | 10,885,413 |   |   |   | 16,407,679 |   |   |   | 15,969,783 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                                                              |   |   | 19,296,425 |   |   |   | 16,788,294 |   |   |   | 13,102,363 |   |
| Provision for loan losses                                                                                        |   |   | 4,842,000 |   |   |   | 13,220,000 |   |   |   | 2,005,633 |   |
| Net interest income after provision                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| for loan losses                                                                                                  |   |   | 14,454,425 |   |   |   | 3,568,294 |   |   |   | 11,096,730 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest income                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Service charges and fees                                                                                         |   |   | 1,865,190 |   |   |   | 1,612,769 |   |   |   | 1,160,500 |   |
| Gain on sale of loans                                                                                            |   |   | 7,003,873 |   |   |   | 5,828,006 |   |   |   | 2,381,023 |   |
| Gain (loss) on sale of assets                                                                                    |   |   | 243,566 |   |   |   | (43,637 | ) |   |   | 57,827 |   |
| Gain on sale of investment securities                                                                            |   |   | 768,551 |   |   |   | 329,183 |   |   |   | 23,194 |   |
| Rental income                                                                                                    |   |   | 464,792 |   |   |   | 187,786 |   |   |   | 4,183 |   |
| Other                                                                                                            |   |   | 644,695 |   |   |   | 370,993 |   |   |   | 558,000 |   |
| Total noninterest income                                                                                         |   |   | 10,990,667 |   |   |   | 8,285,100 |   |   |   | 4,184,727 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest expense                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Salaries and benefits                                                                                            |   |   | 12,337,065 |   |   |   | 10,476,065 |   |   |   | 7,976,472 |   |
| Occupancy                                                                                                        |   |   | 1,931,334 |   |   |   | 1,757,939 |   |   |   | 1,264,757 |   |
| Equipment                                                                                                        |   |   | 847,536 |   |   |   | 877,205 |   |   |   | 751,698 |   |
| Supplies                                                                                                         |   |   | 501,928 |   |   |   | 495,562 |   |   |   | 464,900 |   |
| Professional and outside services                                                                                |   |   | 2,028,225 |   |   |   | 1,726,130 |   |   |   | 1,544,895 |   |
| Advertising and marketing                                                                                        |   |   | 492,423 |   |   |   | 308,598 |   |   |   | 315,985 |   |
| Expenses related to foreclosed real estate                                                                       |   |   | 1,693,524 |   |   |   | 1,475,338 |   |   |   | 165,455 |   |
| FDIC insurance premium                                                                                           |   |   | 1,168,830 |   |   |   | 1,366,612 |   |   |   | 464,395 |   |
| Other operating expense                                                                                          |   |   | 2,302,291 |   |   |   | 2,432,286 |   |   |   | 1,623,714 |   |
| Goodwill impairment                                                                                              |   |   | - |   |   |   | 7,422,141 |   |   |   | - |   |
| Total noninterest expense                                                                                        |   |   | 23,303,156 |   |   |   | 28,337,876 |   |   |   | 14,572,271 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) before income taxes                                                                            |   |   | 2,141,936 |   |   |   | (16,484,482 | ) |   |   | 709,186 |   |
| Income tax expense (benefit)                                                                                     |   |   | 711,627 |   |   |   | (3,879,386 | ) |   |   | 241,097 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                                |   |   | 1,430,309 |   |   |   | (12,605,096 | ) |   |   | 468,089 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred stock dividends and                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| accretion of discount                                                                                            |   |   | 881,402 |   |   |   | 590,151 |   |   |   | - |   |
| Net income (loss) available to                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| common shareholders                                                                                              |   | $ | 548,907 |   |   | $ | (13,195,247 | ) |   | $ | 468,089 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per share, basic                                                                                 |   | $ | 0.13 |   |   | $ | (3.12 | ) |   | $ | 0.16 |   |
| Earnings (loss) per share, diluted                                                                               |   | $ | 0.13 |   |   | $ | (3.12 | ) |   | $ | 0.16 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| * Certain December 31, 2009 amounts have been revised. See Note 2 to the consolidated financial statements. |   |

----

Table of Contents

| Village Bank and Trust Financial Corp. and Subsidiary                                                            |   |
|------------------------------------------------------------------------------------------------------------------|--------|
| Consolidated Statements of Stockholders' Equity                                                                  |   |
| and Comprehensive Income                                                                                         |   |
| Years Ended December 31, 2010, 2009 and 2008                                                                     |   |
|                                                                                                             |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |
|                                                                                                             |   |   |   |   |   |   |   | Additional |   |   | Retained |   |   |   |   |   | Discount on |   |   | Other |   |   |   |   |
|                                                                                                             |   | Preferred |   |   | Common |   |   | Paid-in |   |   | Earnings |   |   |   |   |   | Preferred |   |   | Comprehensive |   |   |   |   |
|                                                                                                             |   | Stock |   |   | Stock |   |   | Capital |   |   | (Deficit) |   |   | Warrant |   |   | Stock |   |   | Income (loss) |   |   | Total |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2007                                                                                       |   | $ | - |   |   | $ | 10,303,940 |   |   | $ | 13,726,269 |   |   | $ | 2,985,697 |   |   | $ | - |   |   | $ | - |   |   | $ | (122,607 | ) |   | $ | 26,893,299 |   |
| Issuance of common stock                                                                                         |   |   | - |   |   |   | 849,652 |   |   |   | 950,712 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,800,364 |   |
| Stock issued in acquisition of                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |   |   | - |   |
| River City Bank                                                                                                  |   |   | - |   |   |   | 5,763,896 |   |   |   | 10,504,700 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | 16,268,596 |   |
| Stock based compensation                                                                                         |   |   | - |   |   |   | - |   |   |   | 555,367 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 555,367 |   |
| Minimum pension adjustment                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (net of income taxes of $2,917)                                                                                  |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 8,580 |   |   |   | 8,580 |   |
| Net income                                                                                                       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 468,091 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 468,091 |   |
| Change in unrealized gain on                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| investment securities available-for-sale,                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| net of reclassification and tax effect                                                                           |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 168,277 |   |   |   | 168,277 |   |
| Total comprehensive income                                                                                       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 636,368 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2008                                                                                       |   |   | - |   |   |   | 16,917,488 |   |   |   | 25,737,048 |   |   |   | 3,453,788 |   |   |   | - |   |   |   | - |   |   |   | 54,250 |   |   |   | 46,162,574 |   |
| Issuance of preferred stock                                                                                      |   |   | 58,952 |   |   |   | - |   |   |   | 14,679,048 |   |   |   | - |   |   |   | 732,479 |   |   |   | (732,479 | ) |   |   | - |   |   |   | 14,738,000 |   |
| Amortization of preferred stock                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| discount                                                                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (95,520 | ) |   |   | - |   |   |   | 95,520 |   |   |   | - |   |   |   | - |   |
| Preferred stock dividend                                                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (494,631 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (494,631 | ) |
| Issuance of common stock                                                                                         |   |   | - |   |   |   | 5,024 |   |   |   | (5,024 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Stock based compensation                                                                                         |   |   | - |   |   |   | - |   |   |   | 157,699 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 157,699 |   |
| Minimum pension adjustment                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (net of income taxes of $2,917)                                                                                  |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 8,580 |   |   |   | 8,580 |   |
| Net loss                                                                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (12,605,096 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (12,605,096 | ) |
| Change in unrealized gain on                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| investment securities available-for-sale,                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| net of reclassification and tax effect                                                                           |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (119,035 | ) |   |   | (119,035 | ) |
| Total comprehensive income                                                                                       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (12,715,551 | ) |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2009*                                                                                      |   |   | 58,952 |   |   |   | 16,922,512 |   |   |   | 40,568,771 |   |   |   | (9,741,459 | ) |   |   | 732,479 |   |   |   | (636,959 | ) |   |   | (56,205 | ) |   |   | 47,848,091 |   |
| Amortization of preferred stock                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| discount                                                                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (144,503 | ) |   |   | - |   |   |   | 144,503 |   |   |   | - |   |   |   | - |   |
| Preferred stock dividend                                                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (736,899 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (736,899 | ) |
| Issuance of common stock                                                                                         |   |   | - |   |   |   | 31,152 |   |   |   | (31,152 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Stock based compensation                                                                                         |   |   | - |   |   |   | - |   |   |   | 95,962 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 95,962 |   |
| Minimum pension adjustment                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (net of income taxes of $4,420)                                                                                  |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 8,580 |   |   |   | 8,580 |   |
| Net income                                                                                                       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,430,309 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,430,309 |   |
| Change in unrealized gain on                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| investment securities available-for-sale,                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| net of reclassification and tax effect                                                                           |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (325,849 | ) |   |   | (325,849 | ) |
| Total comprehensive income                                                                                       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,113,040 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2010                                                                                       |   | $ | 58,952 |   |   | $ | 16,953,664 |   |   | $ | 40,633,581 |   |   | $ | (9,192,552 | ) |   | $ | 732,479 |   |   | $ | (492,456 | ) |   | $ | (373,474 | ) |   | $ | 48,320,194 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| * Certain December 31, 2009 amounts have been revised. See Note 2 to the consolidated financial statements. |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See accompanying notes to consolidated financial statements.                                                     |   |

----

Table of Contents

| Village Bank and Trust Financial Corp. and Subsidiary                                                            |   |
|------------------------------------------------------------------------------------------------------------------|--------|
| Consolidated Statements of Cash Flows                                                                            |   |
| Years Ended December 31, 2010, 2009 and 2008                                                                     |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |
|                                                                                                             |   | 2010 |   |   |   | 2009* |   |   |   | 2008 |   |
| Cash Flows from Operating Activities                                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                                |   | $ | 1,430,309 |   |   | $ | (12,605,096 | ) |   | $ | 468,089 |   |
| Adjustments to reconcile net income to net                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| cash provided by (used in) operating activities:                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                                                    |   |   | 1,308,770 |   |   |   | 1,250,315 |   |   |   | 798,965 |   |
| Deferred income taxes                                                                                            |   |   | (3,718,495 | ) |   |   | (3,031,268 | ) |   |   | (291,679 | ) |
| Provision for loan losses                                                                                        |   |   | 4,842,000 |   |   |   | 13,220,000 |   |   |   | 2,005,633 |   |
| Write-down of other real estate owned                                                                            |   |   | 294,000 |   |   |   | 1,329,991 |   |   |   | - |   |
| Write-off of goodwill                                                                                            |   |   | - |   |   |   | 7,422,141 |   |   |   | - |   |
| Gain on securities sold                                                                                          |   |   | (768,551 | ) |   |   | (329,183 | ) |   |   | (23,194 | ) |
| Gain on loans sold                                                                                               |   |   | (7,003,873 | ) |   |   | (5,828,006 | ) |   |   | (2,381,023 | ) |
| (Gain) loss on sale of premises and equipment                                                                    |   |   | (242,936 | ) |   |   | 43,353 |   |   |   | (57,827 | ) |
| Gain on sale of other real estate owned                                                                          |   |   | 96,595 |   |   |   | (46,173 | ) |   |   | - |   |
| Stock compensation expense                                                                                       |   |   | 95,962 |   |   |   | 157,699 |   |   |   | 555,367 |   |
| Proceeds from sale of other real estate owned                                                                    |   |   | 5,957,507 |   |   |   | 2,875,478 |   |   |   | - |   |
| Proceeds from sale of mortgage loans                                                                             |   |   | 279,387,475 |   |   |   | 255,007,702 |   |   |   | 101,624,820 |   |
| Origination of mortgage loans for sale                                                                           |   |   | (284,749,137 | ) |   |   | (252,360,202 | ) |   |   | (100,079,657 | ) |
| Amortization of premiums and accrection of discounts on securities, net                                          |   |   | 416,619 |   |   |   | 337,251 |   |   |   | (31,098 | ) |
| Increase (decrease) in interest receivable                                                                       |   |   | 1,019,507 |   |   |   | 133,075 |   |   |   | (43,355 | ) |
| Increase in bank owned life insurance                                                                            |   |   | (440,763 | ) |   |   | (331,980 | ) |   |   | (1,108,511 | ) |
| (Increase) decrease  in other assets                                                                   |   |   | 5,882,742 |   |   |   | (5,554,084 | ) |   |   | (1,945,210 | ) |
| Increase (decrease) in interest payable                                                                          |   |   | (96,268 | ) |   |   | (513,465 | ) |   |   | (178,382 | ) |
| Increase (decrease) in other liabilities                                                                         |   |   | (402,953 | ) |   |   | 1,493,607 |   |   |   | 262,945 |   |
| Net cash provided by (used in) operating activities                                                              |   |   | 3,308,509 |   |   |   | 2,671,155 |   |   |   | (424,117 | ) |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash Flows from Investing Activities                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchases of available for sale securities                                                                       |   |   | (52,283,980 | ) |   |   | (46,117,779 | ) |   |   | - |   |
| Proceeds from sales an calls of available for sale securities                                                    |   |   | 51,122,666 |   |   |   | 15,373,106 |   |   |   | 16,619,003 |   |
| Proceeds from maturities and principal payments of available for sale securities                                 |   |   | 2,279,573 |   |   |   | - |   |   |   | - |   |
| Net increase in loans                                                                                            |   |   | (1,448,154 | ) |   |   | (18,109,329 | ) |   |   | (32,209,599 | ) |
| Purchases of premises and equipment                                                                              |   |   | (1,081,523 | ) |   |   | (1,023,928 | ) |   |   | (8,954,314 | ) |
| Proceeds from sale of premises and equipment                                                                     |   |   | 377,321 |   |   |   | 104,693 |   |   |   | 1,144,595 |   |
| Acquisition net of cash required                                                                                 |   |   | - |   |   |   | - |   |   |   | (57,175 | ) |
| Net cash used in investing activities                                                                            |   |   | (1,034,097 | ) |   |   | (49,773,237 | ) |   |   | (23,457,490 | ) |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash Flows from Financing Activities                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of preferred stock                                                                                      |   |   | - |   |   |   | 14,738,000 |   |   |   | - |   |
| Issuance of common stock                                                                                         |   |   | - |   |   |   | - |   |   |   | 1,800,364 |   |
| Net increase (decrease) in deposits                                                                              |   |   | 727,069 |   |   |   | 32,053,081 |   |   |   | (3,277,260 | ) |
| Net increase (decrease) in federal home loan bank advances                                                       |   |   | (250,000 | ) |   |   | 4,000,000 |   |   |   | 13,000,000 |   |
| Net increase (decrease) in other borrowings                                                                      |   |   | (10,664,091 | ) |   |   | (9,133,377 | ) |   |   | 16,844,328 |   |
| Dividends on preferred stock                                                                                     |   |   | (736,899 | ) |   |   | (494,631 | ) |   |   | - |   |
| Net cash (used in) provided by financing activities                                                              |   |   | (10,923,921 | ) |   |   | 41,163,073 |   |   |   | 28,367,432 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Net (decrease) increase in cash and cash equivalents                                                             |   |   | (8,649,509 | ) |   |   | (5,939,009 | ) |   |   | 4,485,825 |   |
| Cash and cash equivalents, beginning of period                                                                   |   |   | 20,661,820 |   |   |   | 26,600,829 |   |   |   | 22,115,004 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents, end of period                                                                         |   | $ | 12,012,311 |   |   | $ | 20,661,820 |   |   | $ | 26,600,829 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental Schedule of Non Cash Activities                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Real estate owned assets acquired in settlement of loans                                                         |   | $ | 7,097,681 |   |   | $ | 12,505,727 |   |   | $ | 1,337,306 |   |
|                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| * Certain December 31, 2009 amounts have been revised. See note 2 to the consolidated financial statements. |   |   |   |   |   |

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|                         |   | December 31, 2009 |       |
|------------------------------|--------|-------------------|------------|
|                         |   | As Reported       |       |   | Adjustment |   |   | As Revised |   |
|                         |   |              |       |   |   |   |   |   |   |
| Other assets                 |   | $                 | 15,015,708 |   |   | $ | (969,588 | ) |   | $ | 14,046,120 |   |
| Other liabilities            |   |              | 2,641,410  |   |   |   | 124,140 |   |   |   | 2,765,550 |   |
| Retained earnings deficit    |   |              | (8,647,731 | ) |   |   | (1,093,728 | ) |   |   | (9,741,459 | ) |
| Income tax (benefit) expense |   |              | (4,973,114 | ) |   |   | 1,093,728 |   |   |   | (3,879,386 | ) |

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|                              |   |      |       |   | Gross      |   |    | Gross      |   |   |       |   |
|-----------------------------------|--------|-----------|------------|--------|------------|--------|---------|------------|--------|--------|------------|--------|
|                              |   | Amortized |       |   | Unrealized |   |    | Unrealized |   |   | Estimated  |   |
|                              |   | Cost      |       |   | Gains      |   |    | Losses     |   |   | Fair Value |   |
|                              |   |      |       |   |       |   |    |       |   |   |       |   |
| December 31, 2010                 |   |      |       |   |       |   |    |       |   |   |       |   |
|    U.S. Treasuries |   | $         | 28,017,617 |   |       | $      | 191     |       |   | $      | (291       | )      |   | $ | 28,017,517 |   |
| U.S. Government agencies          |   |      | 3,000,000  |   |       |   | -       |       |   |   | (110,708   | )      |   |   | 2,889,292 |   |
| Mortgage-backed securities        |   |      | 15,498,544 |   |       |   | 121,888 |       |   |   | (68,046    | )      |   |   | 15,552,386 |   |
| Municipals                        |   |      | 6,060,000  |   |       |   | -       |       |   |   | (337,431   | )      |   |   | 5,722,569 |   |
| Other investments                 |   |      | 1,417,962  |   |       |   |    |       |   |   | (2,552     | )      |   |   | 1,415,410 |   |
|                              |   |      |       |   |       |   |    |       |   |   |       |   |   |   |   |   |
| Total                             |   | $         | 53,994,123 |   |       | $      | 122,079 |       |   | $      | (519,028   | )      |   | $ | 53,597,174 |   |
|                              |   |      |       |   |       |   |    |       |   |   |       |   |   |   |   |   |
| December 31, 2009                 |   |      |       |   |       |   |    |       |   |   |       |   |   |   |   |   |
| U.S. Government agencies          |   | $         | 47,627,779 |   |       | $      | 301,365 |       |   | $      | (259,967   | )      |   | $ | 47,669,177 |   |
| Mortgage-backed securities        |   |      | 4,133,353  |   |       |   | 91,937  |       |   |   | (46,982    | )      |   |   | 4,178,308 |   |
| Municipals                        |   |      | 1,026,422  |   |       |   | 233     |       |   |   | -          |   |   |   | 1,026,655 |   |
| Other investments                 |   |      | 1,972,896  |   |       |   | 10,175  |       |   |   | -          |   |   |   | 1,983,071 |   |
|                              |   |      |       |   |       |   |    |       |   |   |       |   |   |   |   |   |
| Total                             |   | $         | 54,760,450 |   |       | $      | 403,710 |       |   | $      | (306,949   | )      |   | $ | 54,857,211 |   |

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|                       |   | Securities in a Loss   |   |   | Securities in a Loss   |   |   |   |   |   |       |   |
|----------------------------|--------|------------------------|--------|--------|------------------------|--------|--------|--------|--------|--------|------------|--------|
|                       |   | Position for Less Than |   |   | Position for More Than |   |   |   |   |   |       |   |
|                       |   | 12 Months              |   |   | 12 Months              |   |   | Total  |   |
|                       |   | Fair                   |   |   | Unrealized             |   |   | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                       |   | Value                  |   |   | Losses                 |   |   | Value  |   |   | Losses     |   |   | Value |   |   | Losses |   |
| December 31, 2010          |   | (In thousands)         |   |
|                       |   |                   |   |   |                   |   |   |   |   |   |       |   |   |   |   |   |   |   |
| Investment securities      |   |                   |   |   |                   |   |   |   |   |   |       |   |   |   |   |   |   |   |
| available for sale         |   |                   |   |   |                   |   |   |   |   |   |       |   |   |   |   |   |   |   |
| US Treasuries              |   | $                      | 30,286 |   |                   | $      | (114   | )      |   | $      | -          |   |   | $ | - |   |   | $ | 30,286 |   |   | $ | (114 | ) |
| Mortgage-backed securities |   |                   | 7,079  |   |                   |   | (68    | )      |   |   | -          |   |   |   | - |   |   |   | 7,079 |   |   |   | (68 | ) |
| Municipals                 |   |                   | 5,723  |   |                   |   | (337   | )      |   |   | -          |   |   |   | - |   |   |   | 5,723 |   |   |   | (337 | ) |
|                       |   |                   |   |   |                   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                      |   | $                      | 43,088 |   |                   | $      | (519   | )      |   | $      | -          |   |   | $ | - |   |   | $ | 43,088 |   |   | $ | (519 | ) |
|                       |   |                   |   |   |                   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                       |   | Securities in a Loss   |   |   | Securities in a Loss   |   |   |   |   |   |       |   |   |   |
|                       |   | Position for Less Than |   |   | Position for More Than |   |   |   |   |   |       |   |   |   |
|                       |   | 12 Months              |   |   | 12 Months              |   |   | Total  |   |
|                       |   | Fair                   |   |   | Unrealized             |   |   | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                       |   | Value                  |   |   | Losses                 |   |   | Value  |   |   | Losses     |   |   | Value |   |   | Losses |   |
| December 31, 2009          |   | (In thousands)         |   |
|                       |   |                   |   |   |                   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment securities      |   |                   |   |   |                   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| available for sale         |   |                   |   |   |                   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US Government Agencies     |   | $                      | 19,542 |   |                   | $      | (264   | )      |   | $      | -          |   |   | $ | - |   |   | $ | 19,542 |   |   | $ | (264 | ) |
| Mortgage-backed securities |   |                   | 11     |   |                   |   | -      |   |   |   | -          |   |   |   | - |   |   |   | 11 |   |   |   | - |   |
|                       |   |                   |   |   |                   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                      |   | $                      | 19,553 |   |                   | $      | (264   | )      |   | $      | -          |   |   | $ | - |   |   | $ | 19,553 |   |   | $ | (264 | ) |

|                |   | Amortized |       |   | Estimated  |   |
|---------------------|--------|-----------|------------|--------|------------|--------|
|                |   | Cost      |       |   | Fair Value |   |
|                |   |      |       |   |       |   |
| One to five years   |   | $         | 28,720,301 |   |       | $      | 28,741,354 |   |
| Five to ten years   |   |      | 3,000,000  |   |       |   | 2,889,292 |   |
| More than ten years |   |      | 22,273,822 |   |       |   | 21,966,528 |   |
|                |   |      |       |   |       |   |   |   |
| Total               |   | $         | 53,994,123 |   |       | $      | 53,597,174 |   |

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|                                      |   | 2010   |        |   | 2009   |   |
|-------------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                      |   |   |        |   |   |   |
| Commercial                                |   | $      | 31,706,239  |   |   | $      | 39,576,219 |   |
| Real estate - residential                 |   |   | 103,385,314 |   |   |   | 93,656,979 |   |
| Real estate - commercial                  |   |   | 261,517,157 |   |   |   | 240,829,484 |   |
| Real estate - construction                |   |   | 45,220,278  |   |   |   | 81,688,330 |   |
| Consumer                                  |   |   | 11,413,962  |   |   |   | 11,608,652 |   |
|                                      |   |   |        |   |   |   |   |   |
| Total loans                               |   |   | 453,242,950 |   |   |   | 467,359,664 |   |
| Deferred loan cost (unearned income), net |   |   | 623,851     |   |   |   | 208,883 |   |
| Allowance for loan losses                 |   |   | (7,311,712  | )      |   |   | (10,521,931 | ) |
|                                      |   |   |        |   |   |   |   |   |
|                                      |   | $      | 446,555,089 |   |   | $      | 457,046,616 |   |

|              |   | 2010   |       |   | 2009   |   |
|-------------------|--------|--------|------------|--------|--------|--------|
|              |   |   |       |   |   |   |
| Beginning balance |   | $      | 9,724,791  |   |   | $      | 9,985,486 |   |
| Additions         |   |   | 7,800,850  |   |   |   | 8,131,630 |   |
| Reductions        |   |   | (6,417,358 | )      |   |   | (8,392,325 | ) |
|              |   |   |       |   |   |   |   |   |
| Ending balance    |   | $      | 11,108,284 |   |   | $      | 9,724,791 |   |

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|                                            |   | 2010   |       |   | 2009   |   |
|-------------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                            |   |   |       |   |   |   |
| Commercial                                      |   | $      | 3,401,381  |   |   | $      | 1,674,863 |   |
| Real estate - residential                       |   |   | 5,728,804  |   |   |   | 9,486,815 |   |
| Real estate - commercial                        |   |   | 10,914,812 |   |   |   | 14,475,613 |   |
| Consumer                                        |   |   | 278,890    |   |   |   | 275,879 |   |
|                                            |   |   |       |   |   |   |   |   |
|        Total |   | $      | 20,323,887 |   |   | $      | 25,913,170 |   |

|   | · | Risk rated 1 to 4 loans are considered of sufficient quality to preclude an adverse rating.  1-4 assets generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Risk rated 5 loans are defined as having potential weaknesses that deserve management’s close attention; |
|--------|--------|----------------------------------------------------------------------------------------------------------------|

|   | · | Risk rated 6 loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any, and; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Risk rated 7 loans have all the weaknesses inherent in substandard loans, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                     |   | Risk Rated |        |   | Risk Rated |   |       | Risk Rated |   |   | Risk Rated |   |   | Total  |    |
|--------------------------|--------|------------|-------------|--------|------------|--------|------------|------------|--------|--------|------------|--------|--------|--------|---------|
|                     |   |       | 1-4         |   |       |   | 5          |       |   |   | 6          |   |   |   | 7       |   |   | Loans |   |
|                     |   |       |        |   |       |   |       |       |   |   |       |   |   |   |    |   |   |   |   |
| Commercial               |   | $          | 25,320,711  |   |       | $      | 2,577,779  |       |   | $      | 3,283,334  |   |   | $      | 524,415 |   |   | $ | 31,706,239 |   |
| Real estate residential  |   |       | 87,598,976  |   |       |   | 5,717,843  |       |   |   | 9,904,670  |   |   |   | 163,825 |   |   |   | 103,385,314 |   |
| Real estate commercial   |   |       | 212,375,139 |   |       |   | 20,391,192 |       |   |   | 28,557,575 |   |   |   | 193,251 |   |   |   | 261,517,157 |   |
| Real estate construction |   |       | 17,132,832  |   |       |   | 3,438,546  |       |   |   | 24,648,900 |   |   |   | -       |   |   |   | 45,220,278 |   |
| Consumer                 |   |       | 10,383,486  |   |       |   | 623,556    |       |   |   | 299191     |   |   |   | 107,729 |   |   |   | 11,413,962 |   |
|                     |   |       |        |   |       |   |       |       |   |   |       |   |   |   |    |   |   |   |   |   |
| Total loans              |   | $          | 352,811,144 |   |       | $      | 32,748,916 |       |   | $      | 66,693,670 |   |   | $      | 989,220 |   |   | $ | 453,242,950 |   |

|                                                  |   |       |      |   |       |   |      |    |   |   |       |   |   |    |       |   |   |   |        | Recorded        |   |
|-------------------------------------------------------|--------|------------|-----------|--------|------------|--------|-----------|---------|--------|--------|------------|--------|--------|---------|------------|--------|--------|--------|-------------|-----------------|--------|
|                                                  |   |       |      |   |       |   |      | Greater |   |   |       |   |   |    |       |   |   |   |        | Investment > |   |
|                                                  |   | 30-59 Days |      |   | 60-89 Days |   |      | Than    |   |   | Total Past |   |   |    |       |   | Total  |   |        | 90 Days and     |   |
|                                                  |   | Past Due   |      |   | Past Due   |   |      | 90 Days |   |   | Due        |   |   | Current |       |   | Loans  |   |        | Accruing        |   |
|                                                  |   |       |      |   |       |   |      |    |   |   |       |   |   |    |       |   |   |   |        |            |   |
| Commercial                                            |   | $          | 190,585   |   |       | $      | 501,378   |    |   | $      | -          |   |   | $       | 691,963    |   |   | $      | 31,014,276  |            |   | $ | 31,706,239 |   |   | $ | - |   |
| Real estate - residential                             |   |       | 2,672,157 |   |       |   | 973,269   |    |   |   | 213,478    |   |   |    | 3,858,904  |   |   |   | 99,526,410  |            |   |   | 103,385,314 |   |   |   | 213,478 |   |
| Real estate - construction                            |   |       | 5,515,931 |   |       |   | 673,204   |    |   |   | 79,343     |   |   |    | 6,268,478  |   |   |   | 300,468,956 |            |   |   | 306,737,434 |   |   |   | 79,343 |   |
| Consumer                                              |   |       | 149,804   |   |       |   | 42,645    |    |   |   | 22,322     |   |   |    | 214,771    |   |   |   | 11,199,192  |            |   |   | 11,413,963 |   |   |   | 22,322 |   |
|                                                  |   |       |      |   |       |   |      |    |   |   |       |   |   |    |       |   |   |   |        |            |   |   |   |   |   |   |   |   |
|         Total |   | $          | 8,528,477 |   |       | $      | 2,190,496 |    |   | $      | 315,143    |   |   | $       | 11,034,116 |   |   | $      | 442,208,834 |            |   | $ | 453,242,950 |   |   | $ | 315,143 |   |

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|                       |   | Contractual |       |   |       |   |       | Investment |   |   | Investment |   |   |      |       |   |       |   |
|----------------------------|--------|-------------|------------|--------|------------|--------|------------|------------|--------|--------|------------|--------|--------|-----------|------------|--------|------------|--------|
|                       |   | Principal   |       |   | Recorded   |   |       | with       |   |   | with No    |   |   | Related   |       |   | Average    |   |
| Description of Loans       |   | Balance     |       |   | Investment |   |       | Allowance  |   |   | Allowance  |   |   | Allowance |       |   | Investment |   |
|                       |   |        |       |   |       |   |       |       |   |   |       |   |   |      |       |   |       |   |
| Commercial                 |   | $           | 3,642,820  |   |       | $      | 3,401,381  |       |   | $      | 178,320    |   |   | $         | 3,223,061  |   |       | $      | 178,320 |   |   | $ | 3,755,382 |   |
| Real estate - residential  |   |        | 6,122,804  |   |       |   | 5,728,804  |       |   |   | 59,622     |   |   |      | 5,669,182  |   |       |   | 16,500 |   |   |   | 6,924,937 |   |
| Real estate - construction |   |        | 15,439,512 |   |       |   | 10,914,812 |       |   |   | 1,476,524  |   |   |      | 9,438,288  |   |       |   | 110,000 |   |   |   | 16,182,175 |   |
| Consumer                   |   |        | 278,890    |   |       |   | 278,890    |       |   |   | -          |   |   |      | 278,890    |   |       |   | - |   |   |   | 288,539 |   |
|                       |   |        |       |   |       |   |       |       |   |   |       |   |   |      |       |   |       |   |   |   |   |   |   |   |
| Total                      |   | $           | 25,484,026 |   |       | $      | 20,323,887 |       |   | $      | 1,714,466  |   |   | $         | 18,609,421 |   |       | $      | 304,820 |   |   | $ | 27,151,032 |   |

|                       |   | Loans          |        |   | Loans          |   |        |   |   |
|----------------------------|--------|----------------|-------------|--------|----------------|--------|-------------|--------|--------|
|                       |   | Individually   |        |   | Collectively   |   |        |   |   |
|                       |   | Evaluated      |        |   | Evaluated      |   |        |   |   |
|                       |   | for Impairment |        |   | for Impairment |   |        | Total  |   |
|                       |   |           |        |   |           |   |        |   |   |
| Commercial                 |   | $              | 13,072,826  |   |           | $      | 18,633,413  |   |   | $ | 31,706,239 |   |
| Real estate - residential  |   |           | 18,395,168  |   |           |   | 84,990,146  |   |   |   | 103,385,314 |   |
| Real estate - commercial   |   |           | 154,935,277 |   |           |   | 106,581,880 |   |   |   | 261,517,157 |   |
| Real estate - construction |   |           | 36,466,596  |   |           |   | 8,753,682   |   |   |   | 45,220,278 |   |
| Consumer                   |   |           | 3,948,720   |   |           |   | 7,465,242   |   |   |   | 11,413,962 |   |
|                       |   |           |        |   |           |   |        |   |   |   |   |   |
| Total                      |   | $              | 226,818,587 |   |           | $      | 226,424,363 |   |   | $ | 453,242,950 |   |

|                         |   | 2010   |       |   | 2009   |   |       | 2008   |   |
|------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
|                         |   |   |       |   |   |   |       |   |   |
| Beginning balance            |   | $      | 10,521,931 |   |   | $      | 6,059,272  |   |   | $ | 3,469,274 |   |
| Provision for loan losses    |   |   | 4,842,000  |   |   |   | 13,220,000 |   |   |   | 2,005,633 |   |
| River City Bank, acquisition |   |   | -          |   |   |   | -          |   |   |   | 2,403,551 |   |
| Charge-offs                  |   |   | (8,366,246 | )      |   |   | (8,767,522 | )      |   |   | (2,242,761 | ) |
| Recoveries                   |   |   | 314,027    |   |   |   | 10,181     |   |   |   | 423,575 |   |
|                         |   |   |       |   |   |   |       |   |   |   |   |   |
| Ending balance               |   | $      | 7,311,712  |   |   | $      | 10,521,931 |   |   | $ | 6,059,272 |   |

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| Analysis of Allowance for Loan Losses     |   |
|-------------------------------------------|--------|
| (In thousands)                            |   |
|                                      |   |   |   |   |   |   |   |   |   |
|                                      |   | Year Ended December 31, |   |
|                                      |   | 2010 |   |   | 2009 |   |   | 2008 |   |
|                                      |   |   |   |   |   |   |   |   |   |
| Beginning balance                         |   | $ | 10,522 |   |   | $ | 6,059 |   |   | $ | 3,469 |   |
| Provision for loan losses                 |   |   | 4,842 |   |   |   | 13,220 |   |   |   | 2,006 |   |
| Charge-offs                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial                 |   |   | (183 | ) |   |   | (1,273 | ) |   |   | (468 | ) |
| Real estate - residential                 |   |   | (106 | ) |   |   | - |   |   |   | (202 | ) |
| Real estate - commercial                  |   |   | (2,979 | ) |   |   | (783 | ) |   |   | (96 | ) |
| Real estate - construction                |   |   | (4,892 | ) |   |   | (5,779 | ) |   |   | (1,475 | ) |
| Consumer                                  |   |   | (206 | ) |   |   | (932 | ) |   |   | (2 | ) |
|                                      |   |   | (8,366 | ) |   |   | (8,767 | ) |   |   | (2,243 | ) |
| Recoveries                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial                 |   |   | 2 |   |   |   | - |   |   |   | 7 |   |
| Real estate - residential                 |   |   | - |   |   |   | - |   |   |   | 2 |   |
| Real estate - commercial                  |   |   | 128 |   |   |   | - |   |   |   | - |   |
| Real estate - construction                |   |   | 101 |   |   |   | 3 |   |   |   | 395 |   |
| Consumer                                  |   |   | 83 |   |   |   | 7 |   |   |   | 19 |   |
|                                      |   |   | 314 |   |   |   | 10 |   |   |   | 423 |   |
| Net charge-offs                           |   |   | (8,052 | ) |   |   | (8,757 | ) |   |   | (1,820 | ) |
| Acquisition of River City Bank            |   |   | - |   |   |   | - |   |   |   | 2,404 |   |
|                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance                            |   | $ | 7,312 |   |   | $ | 10,522 |   |   | $ | 6,059 |   |
|                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans outstanding at end of year(1)       |   | $ | 453,867 |   |   | $ | 467,569 |   |   | $ | 470,722 |   |
| Ratio of allowance for loan losses as     |   |   |   |   |   |   |   |   |   |   |   |   |
| a percent of loans outstanding at         |   |   |   |   |   |   |   |   |   |   |   |   |
| end of year                               |   |   | 1.61 | % |   |   | 2.25 | % |   |   | 1.29 | % |
|                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Average loans outstanding for the year(1) |   | $ | 463,365 |   |   | $ | 477,359 |   |   | $ | 374,221 |   |
| Ratio of net charge-offs to average loans |   |   |   |   |   |   |   |   |   |   |   |   |
| outstanding for the year                  |   |   | 1.74 | % |   |   | 1.83 | % |   |   | 0.49 | % |
|                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) Loans are net of unearned income.     |   |

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|                                            |   | 2010   |       |   | 2009   |   |
|-------------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                            |   |   |       |   |   |   |
| Land                                            |   | $      | 6,190,561  |   |   | $      | 6,318,761 |   |
| Buildings and improvements                      |   |   | 20,256,676 |   |   |   | 21,556,836 |   |
| Furniture, fixtures and equipment               |   |   | 6,779,581  |   |   |   | 4,404,084 |   |
| Total premises and equipment                    |   |   | 33,226,818 |   |   |   | 32,279,681 |   |
| Less: Accumulated depreciation and amortization |   |   | (5,789,366 | )      |   |   | (4,480,597 | ) |
|                                            |   |   |       |   |   |   |   |   |
| Premises and equipment, net                     |   | $      | 27,437,452 |   |   | $      | 27,799,084 |   |

|                               |   | 2010   |        |   | 2009   |   |
|------------------------------------|--------|--------|-------------|--------|--------|--------|
|                               |   |   |        |   |   |   |
| Demand accounts                    |   | $      | 41,036,262  |   |   | $      | 38,520,878 |   |
| Interest checking accounts         |   |   | 33,291,777  |   |   |   | 36,441,259 |   |
| Money market accounts              |   |   | 90,156,362  |   |   |   | 115,166,477 |   |
| Savings accounts                   |   |   | 10,538,023  |   |   |   | 8,901,299 |   |
| Time deposits of $100,000 and over |   |   | 140,846,619 |   |   |   | 119,352,471 |   |
| Other time deposits                |   |   | 183,143,150 |   |   |   | 179,902,740 |   |
|                               |   |   |        |   |   |   |   |   |
| Total                              |   | $      | 499,012,193 |   |   | $      | 498,285,124 |   |

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|                     |   |      |        |   | Greater than |   |        |   |   |
|--------------------------|--------|-----------|-------------|--------|--------------|--------|-------------|--------|--------|
|                     |   | Less Than |        |   | or Equal to  |   |        |   |   |
| Year Ending December 31, |   | $100,000  |        |   | $100,000     |   |        | Total  |   |
|                     |   |      |        |   |         |   |        |   |   |   |   |
| 2011                     |   | $         | 116,270,023 |   |         | $      | 84,249,881  |   |   | $ | 200,519,904 |   |
| 2012                     |   |      | 26,028,434  |   |         |   | 18,982,385  |   |   |   | 45,010,819 |   |
| 2013                     |   |      | 20,310,064  |   |         |   | 14,960,658  |   |   |   | 35,270,722 |   |
| 2014                     |   |      | 4,344,230   |   |         |   | 7,688,242   |   |   |   | 12,032,472 |   |
| 2015                     |   |      | 16,190,399  |   |         |   | 14,965,453  |   |   |   | 31,155,852 |   |
|                     |   |      |        |   |         |   |        |   |   |   |   |   |
|                     |   | $         | 183,143,150 |   |         | $      | 140,846,619 |   |   | $ | 323,989,769 |   |

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|                                       |   | Year Ended December 31, |       |
|--------------------------------------------|--------|-------------------------|------------|
|                                       |   | 2010                    |       |   | 2009 |   |
|                                       |   |                    |       |   |   |   |
| Maximum outstanding during the year        |   |                    |       |   |   |   |
| FHLB advances                              |   | $                       | 28,750,000 |   |   | $ | 29,000,000 |   |
| Federal funds purchased                    |   |                    | -          |   |   |   | 373,000 |   |
| Community Bankers' Bank                    |   |                    | 9,943,873  |   |   |   | 10,003,958 |   |
| Balance outstanding at end of year         |   |                    |       |   |   |   |   |   |
| FHLB advances                              |   |                    | 28,750,000 |   |   |   | 29,000,000 |   |
| Virginia Community Bank                    |   |                    | -          |   |   |   | 2,000,000 |   |
| Community Bankers' Bank                    |   |                    | -          |   |   |   | 9,943,873 |   |
| Average amount outstanding during the year |   |                    |       |   |   |   |   |   |
| FHLB advances                              |   |                    | 28,424,658 |   |   |   | 26,347,945 |   |
| Federal funds purchased                    |   |                    | -          |   |   |   | 3,726 |   |
| Community Bankers' Bank                    |   |                    | 7,368,630  |   |   |   | 10,003,958 |   |
| Average interest rate during the year      |   |                    |       |   |   |   |   |   |
| FHLB advances                              |   |                    | 3.04       | % |   |   | 3.68 | % |
| Federal funds purchased                    |   |                    | -          |   |   |   | 0.61 | % |
| Community Bankers' Bank                    |   |                    | 6.60       | % |   |   | 4.77 | % |
| Average interest rate at end of year       |   |                    |       |   |   |   |   |   |
| FHLB advances                              |   |                    | 2.45       | % |   |   | 3.57 | % |
| Federal funds purchased                    |   |                    | -          |   |   |   | 0.25 | % |
| Community Bankers' Bank                    |   |                    | 5.03       | % |   |   | 2.82 | % |
| Virginia Community Bank                    |   |                    | 5.24       | % |   |   | 5.00 | % |

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|                                             |   | 2010   |      |   | 2009   |   |      | 2008   |   |
|--------------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|
| Deferred tax assets                              |   |   |      |   |   |   |      |   |   |
| Net operating loss carryforward                  |   | $      | 1,558,313 |   |   | $      | 966,363   |   |   | $ | - |   |
| Allowance for loan losses                        |   |   | 2,485,982 |   |   |   | 3,577,456 |   |   |   | 1,771,460 |   |
| Unrealized loss on available-for-sale securities |   |   | 134,963   |   |   |   | -         |   |   |   | - |   |
| RCB stock replacement option DTA                 |   |   | 134,200   |   |   |   | 134,200   |   |   |   | - |   |
| Stock compensation                               |   |   | 82,089    |   |   |   | 56,473    |   |   |   | - |   |
| Employee benefits                                |   |   | 172,322   |   |   |   | -         |   |   |   | - |   |
| Pension expense                                  |   |   | 57,447    |   |   |   | 61,864    |   |   |   | 66,279 |   |
| Goodwill                                         |   |   | 117,148   |   |   |   | 132,768   |   |   |   | - |   |
|                                             |   |   |      |   |   |   |      |   |   |   |   |   |
| Total deferred tax assets                        |   |   | 4,742,464 |   |   |   | 4,929,124 |   |   |   | 1,837,739 |   |
|                                             |   |   |      |   |   |   |      |   |   |   |   |   |
| Deferred tax liabilities                         |   |   |      |   |   |   |      |   |   |   |   |   |
| Depreciation                                     |   |   | 597,977   |   |   |   | 384,183   |   |   |   | 467,219 |   |
| Unrealized gain on available-for-sale securities |   |   | -         |   |   |   | 32,899    |   |   |   | 94,219 |   |
| Loss on disposal of assets                       |   |   | 106,741   |   |   |   | -         |   |   |   | - |   |
| Amortization of intangibles                      |   |   | 311,055   |   |   |   | 250,946   |   |   |   | 19,613 |   |
| Goodwill                                         |   |   | -         |   |   |   | -         |   |   |   | 33,857 |   |
| Other, net                                       |   |   | 8,196     |   |   |   | 24,780    |   |   |   | 16,209 |   |
|                                             |   |   |      |   |   |   |      |   |   |   |   |   |
| Total deferred tax liabilities                   |   |   | 1,023,969 |   |   |   | 692,808   |   |   |   | 631,117 |   |
|                                             |   |   |      |   |   |   |      |   |   |   |   |   |
| Net deferred tax asset                           |   | $      | 3,718,495 |   |   | $      | 4,236,316 |   |   | $ | 1,206,622 |   |

|                                 |   | 2010   |    |   | 2009   |   |       | 2008   |   |
|--------------------------------------|--------|--------|---------|--------|--------|--------|------------|--------|--------|
|                                 |   |   |    |   |   |   |       |   |   |
| Current tax expense (benefit)        |   | $      | -       |   |   | $      | (906,598   | )      |   | $ | 532,776 |   |
| Deferred tax expense (benefit)       |   |   | 711,627 |   |   |   | (2,972,788 | )      |   |   | (291,679 | ) |
|                                 |   |   |    |   |   |   |       |   |   |   |   |   |
| Provision (benefit) for income taxes |   | $      | 711,627 |   |   | $      | (3,879,386 | )      |   | $ | 241,097 |   |

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|                                   |   | 2010   |      |   | 2009   |   |        | 2008   |   |
|----------------------------------------|--------|--------|-----------|--------|--------|--------|-------------|--------|--------|
|                                   |   |   |      |   |   |   |        |   |   |
| Net income (loss) before income taxes  |   | $      | 2,141,936 |   |   | $      | (16,484,482 | )      |   | $ | 709,186 |   |
|                                   |   |   |      |   |   |   |        |   |   |   |   |   |
|                                   |   |   |      |   |   |   |        |   |   |   |   |   |
| Computed "expected" tax expense        |   | $      | 728,257   |   |   | $      | (5,604,727  | )      |   | $ | 241,123 |   |
| Goodwill impairment                    |   |   | -         |   |   |   | 1,763,482   |   |   |   | - |   |
| Cash surrender value of life insurance |   |   | (68,866   | )      |   |   | (55,684     | )      |   |   | (36,894 | ) |
| Nondeductible expenses                 |   |   | 14,862    |   |   |   | 15,495      |   |   |   | 19,504 |   |
| Stock compensation ISO expense         |   |   | 7,372     |   |   |   | 48,069      |   |   |   | - |   |
| Other                                  |   |   | 30,001    |   |   |   | (46,021     | )      |   |   | 17,363 |   |
|                                   |   |   |      |   |   |   |        |   |   |   |   |   |
| Provision (benefit) for income taxes   |   | $      | 711,627   |   |   | $      | (3,879,386  | )      |   | $ | 241,097 |   |

|                                                        |   | Year ended December 31, |      |
|-------------------------------------------------------------|--------|-------------------------|-----------|
|                                                        |   | 2010                    |      |   | 2009 |   |   | 2008 |   |
| Numerator                                                   |   |                    |      |   |   |   |   |   |   |
| Net income (loss) - basic and diluted                       |   | $                       | 1,430,309 |   |   | $ | (12,605,096 | ) |   | $ | 468,089 |   |
| Preferred stock dividend and accretion                      |   |                    | 881,402   |   |   |   | 590,151 |   |   |   | - |   |
| Net income (loss) available to common                       |   |                    |      |   |   |   |   |   |   |   |   |   |
| shareholders                                                |   | $                       | 548,907   |   |   | $ | (13,195,247 | ) |   | $ | 468,089 |   |
|                                                        |   |                    |      |   |   |   |   |   |   |   |   |   |
| Denominator                                                 |   |                    |      |   |   |   |   |   |   |   |   |   |
| Weighted average shares outstanding - basic                 |   |                    | 4,237,735 |   |   |   | 4,230,462 |   |   |   | 3,013,175 |   |
| Dilutive effect of common stock options and                 |   |                    | -         |   |   |   | - |   |   |   | 19,895 |   |
|       restricted stock awards |   |                    | -         |   |   |   | - |   |   |   | - |   |
|                                                        |   |                    |      |   |   |   |   |   |   |   |   |   |
| Weighted average shares outstanding - diluted               |   |                    | 4,237,735 |   |   |   | 4,230,462 |   |   |   | 3,033,070 |   |
|                                                        |   |                    |      |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per share - basic and diluted               |   |                    |      |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per share - basic                           |   | $                       | 0.13      |   |   | $ | (3.12 | ) |   | $ | 0.16 |   |
| Effect of dilutive common stock options                     |   |                    | -         |   |   |   | - |   |   |   | - |   |
|                                                        |   |                    |      |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per share - diluted                         |   | $                       | 0.13      |   |   | $ | (3.12 | ) |   | $ | 0.16 |   |

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| 2011       |   | $      | 419,000   |   |
|------------|--------|--------|-----------|--------|
| 2012       |   |   | 431,000   |   |
| 2013       |   |   | 446,000   |   |
| 2014       |   |   | 460,000   |   |
| 2015       |   |   | 472,000   |   |
| Thereafter |   |   | 614,000   |   |
|       |   |   |      |   |
|       |   | $      | 2,842,000 |   |

|                                      |   | Contract |       |   | Contract |   |
|-------------------------------------------|--------|----------|------------|--------|----------|--------|
|                                      |   | Amount   |       |   | Amount   |   |
|                                      |   | 2010     |       |   | 2009     |   |
|                                      |   |     |       |   |     |   |
| Undisbursed credit lines                  |   | $        | 43,683,000 |   |     | $      | 49,621,000 |   |
| Commitments to extend or originate credit |   |     | 12,014,000 |   |     |   | 19,078,000 |   |
| Standby letter of credit                  |   |     | 3,543,000  |   |     |   | 4,177,000 |   |
|                                      |   |     |       |   |     |   |   |   |
| Total commitments to extend credit        |   | $        | 59,240,000 |   |     | $      | 72,876,000 |   |

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|                                                                 |   | 2010   |     |   | 2009   |   |     | 2008   |   |
|----------------------------------------------------------------------|--------|--------|----------|--------|--------|--------|----------|--------|--------|
|                                                                 |   |   |     |   |   |   |     |   |   |
| Unrealized holding gains on investment securities available for sale |   | $      | 274,840  |   |   | $      | 148,827  |   |   | $ | 278,159 |   |
| Reclassification adjustment for gains realized in income             |   |   | (768,551 | )      |   |   | (329,183 | )      |   |   | (23,194 | ) |
| Change in net unrealized gains before tax effect                     |   |   | (493,711 | )      |   |   | (180,356 | )      |   |   | 254,965 |   |
| Tax effect                                                           |   |   | 167,862  |   |   |   | 61,321   |   |   |   | (86,688 | ) |
| Change in net unrealized gain on investment securities available     |   |   |     |   |   |   |     |   |   |   |   |   |
| for sale, net of reclassification and tax effect                     |   | $      | (325,849 | )      |   | $      | (119,035 | )      |   | $ | 168,277 |   |

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|                     |   |   |       |   |              |   |   | For Capital            |   |   |       |   |   |   |   |
|--------------------------|--------|--------|------------|--------|-------------------|--------|--------|------------------------|--------|--------|------------|--------|--------|--------|--------|
|                     |   | Actual |       |   | Adequacy Purposes |   |   | To be Well Capitalized |   |
|                     |   | Amount |       |   | Ratio             |   |   | Amount                 |   |   | Ratio      |   |   | Amount |   |   | Ratio |   |
|                     |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |
| December 31, 2010        |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |
| Total capital (to risk-  |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |
| weighted assets)         |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |
| Consolidated             |   | $      | 63,358,000 |   |              |   | 13.46  | %                      |   | $      | 37,653,000 |   |   |   | 8.00   | % |   | $ | 47,066,000 |   |   |   | 10.00 | % |
| Village Bank             |   |   | 56,602,000 |   |              |   | 12.11  | %                      |   |   | 37,403,000 |   |   |   | 8.00   | % |   |   | 46,753,000 |   |   |   | 10.00 | % |
|                     |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier 1 capital (to risk- |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| weighted assets)         |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated             |   |   | 57,458,000 |   |              |   | 12.21  | %                      |   |   | 18,826,000 |   |   |   | 4.00   | % |   |   | 28,240,000 |   |   |   | 6.00 | % |
| Village Bank             |   |   | 50,740,000 |   |              |   | 10.85  | %                      |   |   | 18,701,000 |   |   |   | 4.00   | % |   |   | 28,052,000 |   |   |   | 6.00 | % |
|                     |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Leverage ratio (Tier 1   |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| capital to average       |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| assets)                  |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated             |   |   | 57,458,000 |   |              |   | 9.63   | %                      |   |   | 23,871,000 |   |   |   | 4.00   | % |   |   | 29,838,000 |   |   |   | 5.00 | % |
| Village Bank             |   |   | 50,740,000 |   |              |   | 8.76   | %                      |   |   | 23,178,000 |   |   |   | 4.00   | % |   |   | 28,972,000 |   |   |   | 5.00 | % |
|                     |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009        |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total capital (to risk-  |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| weighted assets)         |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated             |   | $      | 62,978,000 |   |              |   | 12.55  | %                      |   | $      | 40,149,000 |   |   |   | 8.00   | % |   | $ | 50,186,000 |   |   |   | 10.00 | % |
| Village Bank             |   |   | 54,796,000 |   |              |   | 11.33  | %                      |   |   | 38,705,000 |   |   |   | 8.00   | % |   |   | 48,382,000 |   |   |   | 10.00 | % |
|                     |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier 1 capital (to risk- |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| weighted assets)         |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated             |   |   | 56,668,000 |   |              |   | 11.29  | %                      |   |   | 20,707,400 |   |   |   | 4.00   | % |   |   | 30,112,000 |   |   |   | 6.00 | % |
| Village Bank             |   |   | 48,693,000 |   |              |   | 10.06  | %                      |   |   | 19,353,000 |   |   |   | 4.00   | % |   |   | 29,029,000 |   |   |   | 6.00 | % |
|                     |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Leverage ratio (Tier 1   |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| capital to average       |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| assets)                  |   |   |       |   |              |   |   |                   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated             |   |   | 56,668,000 |   |              |   | 9.21   | %                      |   |   | 24,607,000 |   |   |   | 4.00   | % |   |   | 30,759,000 |   |   |   | 5.00 | % |
| Village Bank             |   |   | 48,693,000 |   |              |   | 8.24   | %                      |   |   | 23,643,000 |   |   |   | 4.00   | % |   |   | 29,554,000 |   |   |   | 5.00 | % |

|   | · | eliminate from its books, by charge-offs or collections, all assets or portions of assets classified “Loss” and 50 percent of those assets classified “Doubtful” in the regulatory examination reports that have not been previously collected or charged-off; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | submit to the FDIC and the BFI specific plans and proposals to effect the reduction and improvement of any loans or lines of credit which are adversely classified in the regulatory examination reports or any internal or external loan review, and which aggregate $500,000 or more; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | not extend, directly or indirectly, any additional credit to or for the benefit of any borrower who is obligated in any manner to the Bank on any extension of credit or portion thereof that has been charged off by the Bank or classified Loss or Doubtful in any report of examination, so long as such credit remains uncollected; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | enhance the formal loan review program to provide accurate and timely identification of problem loans; |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   | · | formulate a management plan that shall contain a review of each existing officer’s performance, abilities and assignments to positions within the Bank, the need, if any, for personnel outside the Bank, and an organizational chart and written job descriptions for personnel in the supervisory, administrative, and accounting functions; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | review and update the written profit and strategic plan; |
|--------|--------|----------------------------------------------------------|

|   | · | adopt a written plan for monitoring and reducing the Commercial Real Estate (CRE) concentration; |
|--------|--------|--------------------------------------------------------------------------------------------------|

|   | · | maintain the Allowance for Loan and Lease Losses at a level that is appropriate to cover estimated losses on individually evaluated loans determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan portfolio; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | limit asset growth to no more than five (5) percent per annum; |
|--------|--------|----------------------------------------------------------------|

|   | · | incorporate within the Bank’s Contingency Funding Plan certain recommendations contained in the regulatory examination reports; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | · | maintain a Tier 1 Leverage Capital Ratio of not less than eight (8) percent and a Total Risk-Based Capital Ratio of not less than 11.5 percent; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | take steps necessary, consistent with sound banking practices, to correct all violations of law and regulations cited in the regulatory examination reports; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | not pay any cash dividends without the prior written consent of the FDIC and BFI; and |
|--------|--------|---------------------------------------------------------------------------------------|

|   | · | furnish written quarterly progress reports to the FDIC and BFI detailing steps taken to comply with the various provisions of the Memorandum of Understanding. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | declare or pay any dividends on its common stock or preferred stock; |
|--------|--------|----------------------------------------------------------------------|

|   | · | take dividends or any other form of payment representing a reduction in capital from the Bank; |
|--------|--------|------------------------------------------------------------------------------------------------|

|   | · | make any payments on trust preferred securities; |
|--------|--------|--------------------------------------------------|

|   | · | incur, increase, repay, refinance or guarantee any debt; or |
|--------|--------|-------------------------------------------------------------|

|   | · | purchase or redeem any shares of its stock. |
|--------|--------|---------------------------------------------|

----

Table of Contents

|                 |   | Year Ended December 31, |    |
|----------------------|--------|-------------------------|---------|
|                 |   | 2010                    |    |   | 2009 |   |
|                 |   |                    |    |   | Weighted |   |   |   |   |   |   |   |   |   |   |   | Weighted |   |   |   |   |   |   |   |
|                 |   |                    |    |   | Average |   |   |   |   |   |   |   |   |   |   |   | Average |   |   |   |   |   |   |   |
|                 |   |                    |    |   | Exercise |   |   | Fair Value |   |   | Intrinsic |   |   |   |   |   | Exercise |   |   | Fair Value |   |   | Intrinsic |   |
|                 |   | Options                 |    |   | Price |   |   | Per Share |   |   | Value |   |   | Options |   |   | Price |   |   | Per Share |   |   | Value |   |
|                 |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options outstanding, |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| beginning of period  |   |                    | 336,005 |   |   | $ | 9.58 |   |   | $ | 4.75 |   |   |   |   |   |   | 333,955 |   |   | $ | 9.63 |   |   | $ | 4.77 |   |   |   |   |
| Granted              |   |                    | -       |   |   |   | - |   |   |   | - |   |   |   |   |   |   | 3,000 |   |   |   | 4.45 |   |   |   | 2.86 |   |   |   |   |
| Forfeited            |   |                    | (25,800 | ) |   |   | 10.77 |   |   |   | 5.02 |   |   |   |   |   |   | (950 | ) |   |   | 10.78 |   |   |   | 5.90 |   |   |   |   |
| Exercised            |   |                    | -       |   |   |   | - |   |   |   | - |   |   |   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |
| Options outstanding, |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| end of period        |   |                    | 310,205 |   |   | $ | 9.48 |   |   | $ | 4.73 |   |   | $ | - |   |   |   | 336,005 |   |   | $ | 9.58 |   |   | $ | 4.75 |   |   | $ | - |   |
| Options exercisable, |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| end of period        |   |                    | 291,350 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 300,900 |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                 |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                 |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                 |   | Year Ended December 31, |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                 |   |                    | 2008    |   |   |   |   |   |   |   |   |   |
|                 |   |                    |    |   |   | Weighted |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                 |   |                    |    |   |   | Average |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                 |   |                    |    |   |   | Exercise |   |   | Fair Value |   |   | Intrinsic |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                 |   | Options                 |    |   | Price |   |   | Per Share |   |   | Value |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                 |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options outstanding, |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| beginning of period  |   |                    | 247,410 |   |   | $ | 10.06 |   |   | $ | 4.69 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Granted              |   |                    | 150,680 |   |   |   | 8.49 |   |   |   | 4.86 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Forfeited            |   |                    | (4,250  | ) |   |   | 12.23 |   |   |   | 5.14 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Exercised            |   |                    | (59,885 | ) |   |   | 8.36 |   |   |   | 4.64 |   |   |   | 20,923 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options outstanding, |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| end of period        |   |                    | 333,955 |   |   | $ | 9.36 |   |   | $ | 4.77 |   |   | $ | - |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options exercisable, |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

|                           |   | Year Ended December 31, |   |
|--------------------------------|--------|-------------------------|--------|
|                           |   | 2009                    |   |   | 2008 |   |
|                           |   |                    |   |   |   |   |
| Risk-free interest rate        |   |                    | 3.46   | % |   |   | 2.88 | % |
| Dividend yield                 |   |                    | 0      | % |   |   | 0 | % |
| Expected weighted average term |   | 7 years                 |   |   | 7 years |   |
| Volatility                     |   |                    | 50     | % |   |   | 50 | % |

|            |   |   | Outstanding |    |    | Exercisable |   |
|-----------------|--------|--------|-------------|---------|---------|-------------|--------|
|            |   |   |        |    |    | Weighted    |   |   |   |   |   |   |   |   |   |   |
|            |   |   |        |    |    | Average     |   |   |   |   |   |   |   |   |   |   |
|            |   |   |        |    |    | Remaining   |   |   | Weighted |   |   |   |   |   | Weighted |   |
|            |   |   |        |    |    | Years of    |   |   | Average |   |   |   |   |   | Average |   |
| Range of        |   |   | Number of   |    |    | Contractual |   |   | Exercise |   |   | Number of |   |   | Exercise |   |
| Exercise Prices |   |   | Options     |    |    | Life        |   |   | Price |   |   | Options |   |   | Price |   |
|            |   |   |        |    |    |        |   |   |   |   |   |   |   |   |   |   |
| $7.68 - $9.24   |   |   |        | 135,030 |    |        |   | 3.9 |   |   | $ | 7.14 |   |   |   | 119,175 |   |   | $ | 7.24 |   |
| $11.20 - $13.96 |   |   |        | 175,175 |    |        |   | 5.2 |   |   |   | 11.50 |   |   |   | 175,175 |   |   |   | 11.50 |   |
|            |   |   |        |    |    |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|            |   |   |        |    | 310,205 |        |   |   | 4.6 |   |   |   | 9.60 |   |   |   | 294,350 |   |   |   | 9.77 |   |

----

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----

Table of Contents

|   | · | Level 1 Inputs— Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|   | · | Level 2 Inputs — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Level 3 Inputs - Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|                             |   | Fair Value Measurement     |   |
|----------------------------------|--------|----------------------------|--------|
|                             |   | at December 31, 2010 Using |   |
|                             |   | (In thousands)             |   |
|                             |   |                       |   |   | Quoted Prices |   |   |   |   |   |   |   |
|                             |   |                       |   |   | in Active |   |   | Other |   |   | Significant |   |
|                             |   |                       |   |   | Markets for |   |   | Observable |   |   | Unobservable |   |
|                             |   | Carrying                   |   |   | Identical Assets |   |   | Inputs |   |   | Inputs |   |
|                             |   | Value                      |   |   | (Level 1) |   |   | (Level 2) |   |   | (Level 3) |   |
| Financial Assets - Recurring     |   |                       |   |   |   |   |   |   |   |   |   |   |
| US Treasuries                    |   | $                          | 28,017 |   |   | $ | 28,017 |   |   | $ | - |   |   | $ | - |   |
| US Government Agencies           |   |                       | 2,889  |   |   |   | - |   |   |   | 2,889 |   |   |   | - |   |
| MBS                              |   |                       | 15,553 |   |   |   | - |   |   |   | 15,553 |   |   |   | - |   |
| Municipals                       |   |                       | 5,723  |   |   |   | - |   |   |   | 5,723 |   |   |   | - |   |
| Other available for sale(1)      |   |                       | 1,415  |   |   |   | - |   |   |   | 1,415 |   |   |   | - |   |
|                             |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Financial Assets - Non-Recurring |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Impaired loans                   |   |                       | 20,324 |   |   |   | - |   |   |   | 12,380 |   |   |   | 7,944 |   |
| Real estate owned                |   |                       | 12,028 |   |   |   | - |   |   |   | - |   |   |   | 12,028 |   |
| Residential loans held for sale  |   |                       | 19,872 |   |   |   | - |   |   |   | 19,872 |   |   |   | - |   |
|                             |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                             |   | Fair Value Measurement     |   |
|                             |   | at December 31, 2009 Using |   |
|                             |   | (In thousands)             |   |
|                             |   |                       |   |   |   | Quoted Prices |   |   |   |   |   |   |   |   |   |
|                             |   |                       |   |   |   | in Active |   |   | Other |   |   | Significant |   |
|                             |   |                       |   |   |   | Markets for |   |   | Observable |   |   | Unobservable |   |
|                             |   | Carrying                   |   |   | Identical Assets |   |   | Inputs |   |   | Inputs |   |
|                             |   | Value                      |   |   | (Level 1) |   |   | (Level 2) |   |   | (Level 3) |   |
| Financial Assets - Recurring     |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US Government Agencies           |   | $                          | 47,669 |   |   | $ | - |   |   | $ | 47,669 |   |   | $ | - |   |
| MBS                              |   |                       | 4,178  |   |   |   | - |   |   |   | 4,178 |   |   |   | - |   |
| Municipals                       |   |                       | 1,027  |   |   |   | - |   |   |   | 1,027 |   |   |   | - |   |
| Other available for sale(1)      |   |                       | 1,983  |   |   |   | - |   |   |   | 1,983 |   |   |   | - |   |
|                             |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Financial Assets - Non-Recurring |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Impaired loans                   |   |                       | 25,913 |   |   |   | - |   |   |   | 15,784 |   |   |   | 10,129 |   |
| Real estate owned                |   |                       | -      |   |   |   | - |   |   |   | - |   |   |   | 11,279 |   |
| Residential loans held for sale  |   |                       | 7,506  |   |   |   | - |   |   |   | 7,506 |   |   |   | - |   |
|                             |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) Excludes restricted stock.   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

|                                         |   | Impaired       |   |   | Real Estate |   |   |         |   |
|----------------------------------------------|--------|----------------|--------|--------|-------------|--------|--------|--------------|--------|
|                                         |   | Loans          |   |   | Owned       |   |   | Total Assets |   |
|                                         |   | (In thousands) |   |
|                                         |   |           |   |   |        |   |   |         |   |
| Balance at December 31, 2008                 |   | $              | 8,528  |   |        | $      | 2,932  |         |   | $ | 11,460 |   |
| Total realized and unrealized gains (losses) |   |           |   |   |        |   |   |         |   |   |   |   |
| Included in earnings                         |   |           | -      |   |        |   | 46     |         |   |   | 46 |   |
| Included in other comprehensive income       |   |           | -      |   |        |   | -      |         |   |   | - |   |
| Net transfers in and/or out of Level 3       |   |           | 1,601  |   |        |   | 8,301  |         |   |   | 9,902 |   |
|                                         |   |           |   |   |        |   |   |         |   |   |   |   |
| Balance at December 31, 2009                 |   |           | 10,129 |   |        |   | 11,279 |         |   |   | 21,408 |   |
| Total realized and unrealized gains (losses) |   |           |   |   |        |   |   |         |   |   |   |   |
| Included in earnings                         |   |           | -      |   |        |   | (88    | )            |   |   | (88 | ) |
| Included in other comprehensive income       |   |           | -      |   |        |   | -      |         |   |   | - |   |
| Net transfers in and/or out of Level 3       |   |           | (2,185 | )      |        |   | 837    |         |   |   | (1,348 | ) |
|                                         |   |           |   |   |        |   |   |         |   |   |   |   |
| Balance at December 31, 2010                 |   | $              | 7,944  |   |        | $      | 12,028 |         |   | $ | 19,972 |   |

----

Table of Contents

|                                     |   | December 31, |        |   | December 31, |   |
|------------------------------------------|--------|--------------|-------------|--------|--------------|--------|
|                                     |   | 2010         |        |   | 2009         |   |
|                                     |   | Carrying     |        |   | Estimated    |   |   | Carrying |   |   | Estimated |   |
|                                     |   | Value        |        |   | Fair Value   |   |   | Value |   |   | Fair Value |   |
|                                     |   |         |        |   |         |   |   |   |   |   |   |   |
| Financial assets                         |   |         |        |   |         |   |   |   |   |   |   |   |
| Cash and cash equivalents                |   | $            | 12,012,311  |   |         | $      | 12,012,311 |   |   | $ | 20,661,820 |   |   | $ | 20,661,820 |   |
| Investment securities available for sale |   |         | 53,597,174  |   |         |   | 53,597,174 |   |   |   | 54,857,211 |   |   |   | 54,857,211 |   |
| Loans held for sale                      |   |         | 19,871,787  |   |         |   | 19,871,787 |   |   |   | 7,506,252 |   |   |   | 7,506,252 |   |
| Loans                                    |   |         | 446,555,089 |   |         |   | 451,155,101 |   |   |   | 457,046,616 |   |   |   | 466,271,730 |   |
| Accrued interest receivable              |   |         | 2,347,211   |   |         |   | 2,347,211 |   |   |   | 3,366,718 |   |   |   | 3,366,718 |   |
|                                     |   |         |        |   |         |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities                    |   |         |        |   |         |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                 |   |         | 499,012,193 |   |         |   | 501,222,836 |   |   |   | 498,285,124 |   |   |   | 500,979,984 |   |
| FHLB borrowings                          |   |         | 28,750,000  |   |         |   | 28,883,669 |   |   |   | 29,000,000 |   |   |   | 29,011,904 |   |
| Trust preferred securities               |   |         | 8,764,000   |   |         |   | 8,764,000 |   |   |   | 8,764,000 |   |   |   | 8,764,000 |   |
| Other borrowings                         |   |         | 4,165,430   |   |         |   | 4,165,430 |   |   |   | 14,829,521 |   |   |   | 14,783,055 |   |
| Accrued interest payable                 |   |         | 404,801     |   |         |   | 404,801 |   |   |   | 501,069 |   |   |   | 501,069 |   |

----

Table of Contents

| Village Bank and Trust Financial Corp.      |   |
|---------------------------------------------|--------|
| (Parent Corporation Only)                   |   |
| Balance Sheets                              |   |
| December 31, 2010 and 2009                  |   |
|                                        |   |   |   |   |   |   |
|                                        |   | 2010 |   |   | 2009 |   |
| Assets                                      |   |   |   |   |   |   |
| Cash and due from banks                     |   | $ | 3,725,925 |   |   | $ | 2,835,334 |   |
| Investment in subsidiaries                  |   |   | 50,365,911 |   |   |   | 48,669,651 |   |
| Investment in special purpose subsidiary    |   |   | 264,000 |   |   |   | 264,000 |   |
| Premises and equipment, net                 |   |   | 1,799,798 |   |   |   | 14,564,323 |   |
| Prepaid expenses and other assets           |   |   | 4,367,503 |   |   |   | 6,215,109 |   |
|                                        |   |   |   |   |   |   |   |   |
|                                        |   | $ | 60,523,137 |   |   | $ | 72,548,417 |   |
|                                        |   |   |   |   |   |   |   |   |
| Liabilities and Stockholders' Equity        |   |   |   |   |   |   |   |   |
| Liabilities                                 |   |   |   |   |   |   |   |   |
| Long-tern debt - trust preferred securities |   | $ | 8,764,000 |   |   | $ | 8,764,000 |   |
| Payable to subsidiary                       |   |   | 3,093,720 |   |   |   | 3,203,546 |   |
| Other borrowings                            |   |   | - |   |   |   | 11,943,873 |   |
| Other liabilities                           |   |   | 345,223 |   |   |   | 788,907 |   |
| Total liabilities                           |   |   | 12,202,943 |   |   |   | 24,700,326 |   |
|                                        |   |   |   |   |   |   |   |   |
| Stockholders' equity                        |   |   |   |   |   |   |   |   |
| Preferred stock                             |   |   | 58,952 |   |   |   | 58,952 |   |
| Common stock                                |   |   | 16,953,664 |   |   |   | 16,922,512 |   |
| Additional paid-in capital                  |   |   | 40,633,581 |   |   |   | 40,568,771 |   |
| Retained earnings (deficit)                 |   |   | (9,192,552 | ) |   |   | (9,741,459 | ) |
| Warrant surplus                             |   |   | 732,479 |   |   |   | 732,479 |   |
| Discount on preferred stock                 |   |   | (492,456 | ) |   |   | (636,959 | ) |
| Accumulated other comprehensive loss        |   |   | (373,474 | ) |   |   | (56,205 | ) |
| Total stockholders' equity                  |   |   | 48,320,194 |   |   |   | 47,848,091 |   |
|                                        |   |   |   |   |   |   |   |   |
|                                        |   | $ | 60,523,137 |   |   | $ | 72,548,417 |   |

----

Table of Contents

| Village Bank and Trust Financial Corp.       |   |
|----------------------------------------------|--------|
| (Parent Corporation Only)                    |   |
| Statements of Operations                     |   |
| Years Ended December 31, 2010, 2009 and 2008 |   |
|                                         |   |   |   |   |   |   |   |   |   |
|                                         |   | 2010 |   |   | 2009 |   |   | 2008 |   |
| Noninterest income                           |   |   |   |   |   |   |   |   |   |
| Rental income                                |   | $ | 871,600 |   |   | $ | 881,496 |   |   | $ | 265,515 |   |
| Other income                                 |   |   | 28,426 |   |   |   | - |   |   |   | - |   |
| Total noninterest income                     |   |   | 900,026 |   |   |   | 881,496 |   |   |   | 265,515 |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Expenses                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                                     |   |   | 910,009 |   |   |   | 978,634 |   |   |   | 708,020 |   |
| Occupancy                                    |   |   | 565,463 |   |   |   | 636,053 |   |   |   | 232,612 |   |
| Equipment                                    |   |   | 25,119 |   |   |   | 19,767 |   |   |   | 7,140 |   |
| Advertising and marketing                    |   |   | 1,078 |   |   |   | 717 |   |   |   | 4,468 |   |
| Supplies                                     |   |   | 48,825 |   |   |   | 51,426 |   |   |   | 52,951 |   |
| Legal                                        |   |   | 4,795 |   |   |   | 22,126 |   |   |   | 897 |   |
| Audit and accounting                         |   |   | - |   |   |   | 6,719 |   |   |   | - |   |
| Other outside services                       |   |   | 66,820 |   |   |   | 39,676 |   |   |   | 17,050 |   |
| Insurance                                    |   |   | 12,431 |   |   |   | 15,195 |   |   |   | 6,065 |   |
| Telephone                                    |   |   | - |   |   |   | - |   |   |   | 44,942 |   |
| Other                                        |   |   | 28,958 |   |   |   | 52,680 |   |   |   | 21,788 |   |
| Total expenses                               |   |   | 1,663,498 |   |   |   | 1,822,993 |   |   |   | 1,095,933 |   |
| Net loss before undistributed                |   |   |   |   |   |   |   |   |   |   |   |   |
| equity in subsidiary                         |   |   | (763,472 | ) |   |   | (941,497 | ) |   |   | (830,418 | ) |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Undistributed equity in subsidiary           |   |   | 1,917,569 |   |   |   | (12,782,126 | ) |   |   | 1,016,165 |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income before income taxes               |   |   | 1,154,097 |   |   |   | (13,723,623 | ) |   |   | 185,747 |   |
| Income tax benefit                           |   |   | (276,212 | ) |   |   | (1,118,534 | ) |   |   | (282,342 | ) |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |
|                                         |   | $ | 1,430,309 |   |   | $ | (12,605,089 | ) |   | $ | 468,089 |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |

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Table of Contents

| Village Bank and Trust Financial Corp.                   |   |
|----------------------------------------------------------|--------|
| (Parent Corporation Only)                                |   |
| Statements of Cash Flows                                 |   |
| Years Ended December 31, 2010, 2009 and 2008             |   |
|                                                     |   |   |   |   |   |   |   |   |   |
|                                                     |   | 2010 |   |   | 2009 |   |   | 2008 |   |
| Cash Flows from Operating Activities                     |   |   |   |   |   |   |   |   |   |
| Net income                                               |   | $ | 1,430,309 |   |   | $ | (12,605,096 | ) |   | $ | 468,089 |   |
| Adjustments to reconcile net income to net cash          |   |   |   |   |   |   |   |   |   |   |   |   |
| provided by operating activities                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                            |   |   | 14,525 |   |   |   | 392,150 |   |   |   | 9,012 |   |
| Undistributed earnings of subsidiary                     |   |   | (1,917,569 | ) |   |   | 12,782,126 |   |   |   | (1,016,165 | ) |
| (Increase) decrease in other assets                      |   |   | 1,847,606 |   |   |   | (4,951,161 | ) |   |   | 293,101 |   |
| Increase (decrease) in other liabilities                 |   |   | (553,508 | ) |   |   | 2,947,919 |   |   |   | 1,335,642 |   |
| Net cash provided by operations                          |   |   | 821,363 |   |   |   | (1,434,062 | ) |   |   | 1,089,679 |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash Flows from Investing Activities                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Payments for investments in and advances to subsidiaries |   |   | - |   |   |   | (10,000,000 | ) |   |   | (20,108,076 | ) |
| Proceeds from sale of premises and equipment             |   |   | 12,750,000 |   |   |   | - |   |   |   | - |   |
| Purchase of premises and equipment                       |   |   | - |   |   |   | (367,581 | ) |   |   | (7,913,499 | ) |
| Net cash used in operations                              |   |   | 12,750,000 |   |   |   | (10,367,581 | ) |   |   | (28,021,575 | ) |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash Flows from Financing Activities                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds from issuance of preferred stock                |   |   | - |   |   |   | 14,738,000 |   |   |   | - |   |
| Proceeds from issuance of common stock                   |   |   | - |   |   |   | - |   |   |   | 18,068,960 |   |
| Net increase (decrease) in other borrowings              |   |   | (11,943,873 | ) |   |   | (327,998 | ) |   |   | 9,435,781 |   |
| Dividends on preferred stock                             |   |   | (736,899 | ) |   |   | (494,632 | ) |   |   |   |   |
| Net cash provided by operations                          |   |   | (12,680,772 | ) |   |   | 13,915,370 |   |   |   | 27,504,741 |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Net increase in cash                                     |   |   | 890,591 |   |   |   | 2,113,727 |   |   |   | 572,845 |   |
| Cash, beginning of period                                |   |   | 2,835,334 |   |   |   | 721,617 |   |   |   | 148,772 |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash, end of period                                      |   | $ | 3,725,925 |   |   | $ | 2,835,344 |   |   | $ | 721,617 |   |

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Table of Contents

|                       |   | First   |      |   | Second  |   |       | Third   |   |   | Fourth     |   |
|----------------------------|--------|---------|-----------|--------|---------|--------|------------|---------|--------|--------|------------|--------|
|                       |   | Quarter |      |   | Quarter |   |       | Quarter |   |   | Quarter    |   |
| 2010                       |   |    |      |   |    |   |       |    |   |   |       |   |
| Interest income            |   | $       | 7,460,596 |   |    | $      | 7,516,359  |    |   | $      | 7,660,280  |   |   | $ | 7,544,603 |   |
| Interest expense           |   |    | 3,044,787 |   |    |   | 2,814,763  |    |   |   | 2,619,204  |   |   |   | 2,406,659 |   |
| Net interest income before |   |    |      |   |    |   |       |    |   |   |       |   |   |   |   |   |
| provision for loan losses  |   |    | 4,415,809 |   |    |   | 4,701,596  |    |   |   | 5,041,076  |   |   |   | 5,137,944 |   |
| Provision for loan losses  |   |    | 500,000   |   |    |   | 1,240,000  |    |   |   | 1,410,000  |   |   |   | 1,692,000 |   |
| Gain on sale of loans      |   |    | 1,204,363 |   |    |   | 1,633,861  |    |   |   | 1,922,868  |   |   |   | 2,242,781 |   |
| Fees and other noninterest |   |    |      |   |    |   |       |    |   |   |       |   |   |   |   |   |
| income                     |   |    | 1,005,674 |   |    |   | 1,352,864  |    |   |   | 739,607    |   |   |   | 888,649 |   |
| Noninterest expenses       |   |    | 5,386,696 |   |    |   | 5,751,684  |    |   |   | 5,787,322  |   |   |   | 6,377,454 |   |
| Income tax (benefit)       |   |    | 251,311   |   |    |   | 236,856    |    |   |   | 172,117    |   |   |   | 51,343 |   |
| Net income                 |   |    | 487,839   |   |    |   | 459,781    |    |   |   | 334,112    |   |   |   | 148,577 |   |
| Earnings per share         |   |    |      |   |    |   |       |    |   |   |       |   |   |   |   |   |
| Basic                      |   | $       | 0.06      |   |    | $      | 0.06       |    |   | $      | 0.03       |   |   | $ | (0.02 | ) |
| Diluted                    |   | $       | 0.06      |   |    | $      | 0.06       |    |   | $      | 0.03       |   |   | $ | (0.02 | ) |
|                       |   |    |      |   |    |   |       |    |   |   |       |   |   |   |   |   |
| 2009                       |   |    |      |   |    |   |       |    |   |   |       |   |   |   |   |   |
| Interest income            |   | $       | 8,353,428 |   |    | $      | 8,427,816  |    |   | $      | 8,334,206  |   |   | $ | 8,080,523 |   |
| Interest expense           |   |    | 4,446,762 |   |    |   | 4,259,921  |    |   |   | 4,009,344  |   |   |   | 3,691,652 |   |
| Net interest income before |   |    |      |   |    |   |       |    |   |   |       |   |   |   |   |   |
| provision for loan losses  |   |    | 3,906,666 |   |    |   | 4,167,895  |    |   |   | 4,324,862  |   |   |   | 4,388,871 |   |
| Provision for loan losses  |   |    | 1,100,000 |   |    |   | 3,100,000  |    |   |   | 6,000,000  |   |   |   | 3,020,000 |   |
| Gain on sale of loans      |   |    | 943,116   |   |    |   | 1,509,971  |    |   |   | 1,842,129  |   |   |   | 1,532,790 |   |
| Fees and other noninterest |   |    |      |   |    |   |       |    |   |   |       |   |   |   |   |   |
| income                     |   |    | 513,270   |   |    |   | 525,773    |    |   |   | 552,101    |   |   |   | 865,950 |   |
| Noninterest expenses       |   |    | 4,376,899 |   |    |   | 5,803,529  |    |   |   | 4,916,631  |   |   |   | 13,240,817 |   |
| Income tax (benefit)       |   |    | (38,708   | )      |    |   | (917,962   | )       |   |   | (1,427,260 | )      |   |   | (1,495,456 | ) |
| Net income                 |   |    | (75,139   | )      |    |   | (1,781,928 | )       |   |   | (2,770,279 | )      |   |   | (7,977,750 | ) |
| Earnings per share         |   |    |      |   |    |   |       |    |   |   |       |   |   |   |   |   |
| Basic                      |   | $       | (0.02     | )      |    | $      | (0.45      | )       |   | $      | (0.70      | )      |   | $ | (1.95 | ) |
| Diluted                    |   | $       | (0.02     | )      |    | $      | (0.45      | )       |   | $      | (0.70      | )      |   | $ | (1.95 | ) |

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Table of Contents

ITEM 9.             CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A.           CONTROLS AND PROCEDURES

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Table of Contents

| /s/  Thomas W. Winfree                  |   |
|---------------------------------------------------|--------|
| President and Chief Executive Officer             |
|                                              |   |
|                                              |   |
| /s/  C. Harril Whitehurst, Jr.          |   |
| Senior Vice President and Chief Financial Officer |
|                                              |   |
|                                              |   |
| March 18, 2011                                    |   |
| Date                                              |   |

ITEM 9B.     OTHER INFORMATION

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Table of Contents

PART III

ITEM 10.           DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

ITEM 11.           EXECUTIVE COMPENSATION

ITEM 12.           SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

ITEM 13.           CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND

ITEM 14.           PRINCIPAL ACCOUNTING FEES AND SERVICES

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Table of Contents

PART IV

ITEM 15.           EXHIBITS, FINANCIAL STATEMENT SCHEDULES

| Exhibit |                                                                                                                                                                                                                                                                                                        |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Number  | Description                                                                                                                                                                                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                        |
|    |                                                                                                                                                                                                                                                                                                        |
| 3.1     | Articles of Incorporation of Village Bank and Trust Financial Corp. restated in electronic format only as of May 18, 2005.                                                                                                                                                                                  |
|    |                                                                                                                                                                                                                                                                                                        |
| 3.2     | Articles of Amendment to the Company’s Articles of Incorporation, designating the terms of the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2009 |
|    |                                                                                                                                                                                                                                                                                                        |
| 3.3     | Bylaws of Village Bank and Trust Financial Corp., incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 10, 2007.                                                                                                        |
|    |                                                                                                                                                                                                                                                                                                        |
| 4.1     | Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series A, incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2009.                                                                             |
|    |                                                                                                                                                                                                                                                                                                        |
| 4.2     | Warrant to Purchase Shares of Common Stock, dated May 1, 2009, incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2009.                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                        |
| 10.1    | Incentive Plan, as amended and restated May 23, 2006, incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-QSB for the                                                                                                                                                              |
|    | period ended June 30, 2006.*                                                                                                                                                                                                                                                                                |
|    |                                                                                                                                                                                                                                                                                                        |

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Table of Contents

| 10.2                                                                                    | Executive Employment Agreement, effective as of April 1, 2001, between Thomas W. Winfree and Southern Community Bank & Trust, incorporated by reference to Exhibit 10.4 of the Annual Report on Form 10-KSB for the year ended December 31, 2004.*                                                |
|-----------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
| 10.3                                                                                    | Form of Incentive Stock Option Agreement, incorporated by reference to Exhibit 10.5 of the Annual Report on Form 10-KSB for the year ended December 31, 2004.*                                                                                                                                        |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
| 10.4                                                                                    | Form of Non-Employee Director Non-Qualified Stock Option Agreement, incorporated by reference to Exhibit 10.6 of the Annual Report on Form 10-KSB for the year ended December 31, 2004. *                                                                                                             |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
| 10.5                                                                                    | Letter Agreement, dated as of May 1, 2009, by and between Village Bank and Trust Financial Corp. and the United States Department of the Treasury, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2009.      |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
| 10.6                                                                                    | Side Letter Agreement, dated as of May 1, 2009, by and between Village Bank and Trust Financial Crop. and the United States Department of the Treasury, incorporated by reference to Exhibit 10.2 of the Current Report of Form 8-K filed with the Securities and Exchange Commission on May 6, 2009. |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
| 10.7                                                                                    | Form of Senior Executive Officer Waiver, incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2009.*                                                                                                               |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
| 10.8                                                                                    | Form of Senior Executive Officer Consent Letter, incorporated by reference to Exhibit 10.4 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2009.*                                                                                                       |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
| 10.9                                                                                    | Outside Directors Deferral Plan, dated January 1, 2005.*                                                                                                                                                                                                                                              |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
| 10.10                                                                                   | Supplemental Executive Retirement Plan, dated January 1, 2005. *                                                                                                                                                                                                                                      |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
| 21                                                                                      | Subsidiaries of Village Bank and Trust Financial Corp.                                                                                                                                                                                                                                                |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
| 31.1                                                                                    | Section 302 Certification by Chief Executive Officer.                                                                                                                                                                                                                                                 |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
| 31.2                                                                                    | Section 302 Certification by Chief Financial Officer.                                                                                                                                                                                                                                                 |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
| 32                                                                                      | Section 906 Certification.                                                                                                                                                                                                                                                                            |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
| 99.1                                                                                    | TARP Certification by Chief Executive Officer.                                                                                                                                                                                                                                                        |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
| 99.2                                                                                    | TARP Certification by Chief Financial Officer.                                                                                                                                                                                                                                                        |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
|                                                                                    |                                                                                                                                                                                                                                                                                                  |
|     * Management contracts and compensatory plans and arrangements. |

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Table of Contents

SIGNATURES

|                            |                                   |                                  |   |
|---------------------------------|----------------------------------------|---------------------------------------|--------|
|                            | VILLAGE BANK AND TRUST FINANCIAL CORP. |
|                            |                                   |                                  |   |
|                            |                                   |                                  |   |
|                            |                                   |                                  |   |
| Date:  March 18, 2011 | By:                                    | /s/ Thomas W. Winfree                 |   |
|                            |                                   | Thomas W. Winfree                     |   |
|                            |                                   | President and Chief Executive Officer |

| Signature                                          | Title                                                                                                | Date                  |
|--------------------------------------------------------------|------------------------------------------------------------------------------------------------------|----------------------------|
|  /s/ Thomas W. WinfreeThomas W. Winfree                 |  President and Chief ExecutiveOfficer and Director(Principal Executive Officer)                 |  March 18, 2011  |
|  /s/ C. Harril Whitehurst, Jr.C. Harril Whitehurst, Jr. |  Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |  March 18, 2011       |
|  /s/ R.T. Avery, IIIR.T. Avery, III                |  Director                                                                                       |  March 18, 2011       |
|  /s/ Donald J. Balzer, Jr.Donald J. Balzer, Jr.         |  Director andVice Chairman of the Board                                                    |  March 18, 2011       |
|  /s/ Craig D. BellCraig D. Bell                         |  Director andChairman of the Board                                                         |  March 18, 2011       |
|  /s/ William B. ChandlerWilliam B. Chandler             |  Director                                                                             |  March 18, 2011       |
|  /s/ R. Calvert Esleeck, Jr.R. Calvert Esleeck, Jr.     |  Director                                                                             |  March 18, 2011       |

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Table of Contents

| Signature                                  | Title                      | Date                        |
|------------------------------------------------------|----------------------------|----------------------------------|
|  /s/ George R. WhittemoreGeorge R. Whittemore   |  Director   |  March 18, 2011             |
|  /s/ Michael L ToalsonMichael L. Toalson        |  Director   |  March 18, 2011             |
|  /s/ O. Woodland Hogg, Jr.O. Woodland Hogg, Jr. |  Director   |  March 18, 2011   |
|  /s/ Michael A. KatzenMichael A. Katzen         |  Director   |  March 18, 2011             |
|  /s/ Charles E. WaltonCharles E. Walton         |  Director   |  March 18, 2011             |
|  /s/ John T. Wash, Sr.John T. Wash, Sr.         |  Director   |  March 18, 2011             |

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Table of Contents

| Exhibit |                                                                                                                                                                                                                                                                                                        |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Number  | Description                                                                                                                                                                                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                        |
| 3.1     | Articles of Incorporation of Village Bank and Trust Financial Corp. restated in electronic format only as of May 18, 2005.                                                                                                                                                                                  |
|    |                                                                                                                                                                                                                                                                                                        |
| 3.2     | Articles of Amendment to the Company’s Articles of Incorporation, designating the terms of the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2009 |
|    |                                                                                                                                                                                                                                                                                                        |
| 3.3     | Bylaws of Village Bank and Trust Financial Corp., incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 10, 2007.                                                                                                        |
|    |                                                                                                                                                                                                                                                                                                        |
| 4.1     | Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series A, incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2009.                                                                             |
|    |                                                                                                                                                                                                                                                                                                        |
| 4.2     | Warrant to Purchase Shares of Common Stock, dated May 1, 2009, incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2009.                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                        |
| 10.1    | Incentive Plan, as amended and restated May 23, 2006, incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-QSB for the period ended June 30, 2006.*                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                        |
| 10.2    | Executive Employment Agreement, effective as of April 1, 2001, between Thomas W. Winfree and Southern Community Bank & Trust, incorporated by reference to Exhibit 10.4 of the Annual Report on Form 10-KSB for the year ended December 31, 2004.*                                                      |
|    |                                                                                                                                                                                                                                                                                                        |
| 10.3    | Form of Incentive Stock Option Agreement, incorporated by reference to Exhibit 10.5 of the Annual Report on Form 10-KSB for the year ended December 31, 2004.*                                                                                                                                              |
|    |                                                                                                                                                                                                                                                                                                        |
| 10.4    | Form of Non-Employee Director Non-Qualified Stock Option Agreement, incorporated by reference to Exhibit 10.6 of the Annual Report on Form 10-KSB for the year ended December 31, 2004. *                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                        |
| 10.5    | Letter Agreement, dated as of May 1, 2009, by and between Village Bank and Trust Financial Corp. and the United States Department of the Treasury, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2009.            |
|    |                                                                                                                                                                                                                                                                                                        |
| 10.6    | Side Letter Agreement, dated as of May 1, 2009, by and between Village Bank and Trust Financial Crop. and the United States Department of the Treasury, incorporated by reference to Exhibit 10.2 of the Current Report of Form 8-K filed with the Securities and Exchange Commission on May 6, 2009.       |
|    |                                                                                                                                                                                                                                                                                                        |
| 10.7    | Form of Senior Executive Officer Waiver, incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2009.*                                                                                                                     |

----

|                                                                                    |                                                                                                                                                                                            |
|-----------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.8                                                                                    | Form of Senior Executive Officer Consent Letter, incorporated by reference to Exhibit 10.4 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2009.* |
|                                                                                    |                                                                                                                                                                                            |
| 10.9                                                                                    | Outside Directors Deferral Plan, dated January 1, 2005.*                                                                                                                                        |
|                                                                                    |                                                                                                                                                                                            |
| 10.10                                                                                   | Supplemental Executive Retirement Plan, dated January 1, 2005. *                                                                                                                                |
|                                                                                    |                                                                                                                                                                                            |
| 21                                                                                      | Subsidiaries of Village Bank and Trust Financial Corp.                                                                                                                                          |
|                                                                                    |                                                                                                                                                                                            |
| 31.1                                                                                    | Section 302 Certification by Chief Executive Officer.                                                                                                                                           |
|                                                                                    |                                                                                                                                                                                            |
| 31.2                                                                                    | Section 302 Certification by Chief Financial Officer.                                                                                                                                           |
|                                                                                    |                                                                                                                                                                                            |
| 32                                                                                      | Section 906 Certification.                                                                                                                                                                      |
|                                                                                    |                                                                                                                                                                                            |
| 99.1                                                                                    | TARP Certification by Chief Executive Officer.                                                                                                                                                  |
|                                                                                    |                                                                                                                                                                                            |
| 99.2                                                                                    | TARP Certification by Chief Financial Officer.                                                                                                                                                  |
|                                                                                    |                                                                                                                                                                                            |
|                                                                                    |                                                                                                                                                                                            |
|                                                                                    |                                                                                                                                                                                            |
|     * Management contracts and compensatory plans and arrangements. |

----